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Cases

A thorough soaking - Court of Appeal affirms that local authority is a water “re-seller”

29.10.2020

The Court of Appeal has dismissed the appeal by the Royal Borough of Kingston-Upon-Thames from the High Court’s 2019 conclusion that, when collecting water charges from its secure tenants alongside the weekly rent, it was acting as a water ‘re-seller’ for the purposes of the Water Resale Orders 2001 and 2006 and had, as a consequence, been charging Mr Moss more that the statutory maximum set by those Orders.

The Court rejected the argument that the Council was in fact acting as agent for Thames Water Utilities Ltd (“TWU”) in collecting these charges; alternatively, that it was acting ‘on behalf of’ TWU, short of agency. In doing so, it approved the earlier decision of Newey J in Jones v Southwark LBC [2016] EWHC 457 (Ch), which set the “re-sale” boat sailing some years ago, and which has led to standard “water charges” defences to rent arrears claims up and down the country. 

At the heart of the issue was the proper interpretation of a 2003 written agreement between Kingston and TWU. The Court held that the terms of the 2003 agreement pointed clearly to an agreement of sale and purchase of water and sewerage services, such that the Council was then a re-seller of those services in respect of its own tenants. It rejected all of Kingston’s arguments to the contrary.

As a result, the Court agreed with Morgan J that the Council had charged Mr Moss in excess of the cap set by the Water Resale Orders. The Orders, in effect, required the Council to pass on to its tenants the benefit of payments referred to as “Customer’s commission” and deductions for voids allowances that it received from TWU  under the terms of the written agreement. This money had been used to defray its costs of collection, the risk of bad debt from non-payment by tenants, with the balance being paid into the Housing Revenue Account.

The net result was, as in Jones, that Mr Moss was entitled to repayments. This was notwithstanding the fact that at all times he had been charged the exact same sums that he would have been charged had TWU been charging him direct. This resulted from the maximum price formulae in the Water Resale Orders.

RB Kingston-Upon-Thames v Moss [2020] EWCA Civ 1381

 

Comment

This will be a disappointing decision for local housing authorities and housing associations who have struggled with the notion (post Jones) that they may have been water re-sellers, overcharging their tenants, when both they and their respective water undertakers considered their relationship to have been one of principal and agent only (i.e. collection on behalf of) and when they had been charging their tenants the same amounts that the undertaker would have charged, if doing so directly.

Local authorities have collected water charges from their tenants, alongside their weekly rent, for many decades – back before the formation of the national water authorities by the Water Act 1973.

From April 1978 many London authorities entered into new arrangements with the then Thames Water Authority (“TWA). In all probability these arrangements resulted from a London-wide October 1977 TWA letter in which it offered to enter into a collection agency arrangement with individual authorities; in return for collecting its water charges from tenants, the authority would be paid a % rate collection commission (to cover the administrative costs of collection and any losses through non-recovery) plus an additional “voids allowance” for periods between lettings (when no water charges would have been payable). The authority would then collect the identical charges from its tenants, they having been determined by TWA’s annual charges scheme. It is clear that TWA and the authorities regarded this as a basic collection agency.

The precise terms of these collection agency agreements with TWA/TWU may not have been well documented; in Lambeth LBC v Thomas (1998) 30 HLR 89 they were described as “lost in the mists of time”, and in Jones Southwark could only produce a copy of the October 1977 letter addressed to Tower Hamlets but had no evidence of its own contractual arrangement with TWA/TWU.  

Matters changed in the early 2000s when TWU offered replacement written agreements to a number of authorities. Both the Southwark agreement (considered in Jones) and the one considered in Moss were materially the same. Unfortunately, they contained very few indications that the agreement was one of principal and agent. The TWU draftsperson would win no drafting prizes.

Indeed, there were only two provisions in the written agreement which were inconsistent with an analysis of sale and purchase of water (as Morgan J, at first instance in Moss, accepted). These were clause 3.2 which referred to “Customer’s commission” (without any explanation or definition) and clause 4.6, which referred to the provision of a VAT invoice from the authority to TWU (i.e. consistent with a service passing from the authority to TWU, for its benefit – and inconsistent with a mere “discount”).

In Moss, Kingston argued that it was only by reference to the prior arrangements with TWA/TWU that one could understand what the “Customer’s commission” was for, and why it gave rise to the payment of VAT by TWU.

It argued that the concluded terms of the agreement between TWA and Kingston from April 1978 were on the terms proposed in the October 1977 letter from TWA. Unlike Lambeth and Southwark it managed to locate a copy of the October 1977 sent to it, along with a March 1978 committee resolution accepting the collection arrangements with TWA. On the back of this inferred agreement, it argued that once the basis for the “commission” was properly understood this, together with the obligation on TWU to pay VAT, gave rise to uncertainty as to the proper characterisation of the 2003 Agreement (notwithstanding its otherwise very unhelpful terms). On usual principles of interpretation, it argued this could be resolved by reference to the statutory scheme and commercial consequence.  All this pointed, it argued, to agency: nothing else made commercial sense.

However, the Court was firmly of the view that it was not possible to infer that the terms of the October 1977 letter were accepted by Kingston. It was not prepared to infer that the resolution  accepted the terms of that letter, and pointed to the absence of other correspondence, communicating acceptance to TWA. This was, in the event, fatal to its arguments. Indeed, the Court was not prepared to accept that anything of the preceding 25 years’ history was relevant or admissible to interpretation of the 2003 agreement. 

Finally, the forceful manner in which the Court of Appeal dismissed all the arguments put to it, save for those focussing on the express clauses themselves, strongly suggests that any authority or housing association with a written agreement with similar (unhelpful) terms to the ones considered in Jones and now Moss, may struggle to avoid a similar conclusion being reached on their agreement. 

 

Kingston was represented by Ranjit Bhose QC and Ruchi Parekh, instructed by Simon Kiely of Sharpe Pritchard LLP.