Councils and housing associations "face multi-million pound refunds to tenants" after water re-selling test case in High Court

Local authorities and housing associations could face having to refund millions of pounds to tenants after a council lost a test case in the High Court on water re-selling, it has been claimed.

The background to the case of Royal Borough of Kingston-Upon-Thames v Moss [2019] EWHC 3261 (Ch), as set out by Mr Justice Morgan, was that since 1 April 1990, in accordance with the Water Act 1989 and, later, the Water Industry Act 1991, Thames Water Utilities has been the water and sewerage undertaker in relation to properties within the Royal borough.

In that period, Kingston has been the owner of a large number of council houses and flats, most of which are let to its tenants on secure tenancies within the meaning of the Housing Act 1985.

Under the 1991 Act, Thames Water is entitled to charge for the supply by it of water and sewerage services to premises which benefit from such services and including, therefore, the premises occupied by Kingston's council tenants. The test case was concerned with those houses and flats where the supply of water is not metered.

Mr Justice Morgan said that from 14 January 2003 until 3 August 2017, arrangements between Thames Water and the council had been governed by a written agreement ("the 2003 agreement"). Under the 2003 agreement and/or as a result of that agreement, Thames Water does not bill Kingston's council tenants for water and sewerage charges in relation to the water and sewerage services provided to their premises but instead bills Kingston for such charges.

Under the 2003 agreement, Kingston pays the charges made by Thames Water for the relevant premises but the amount of the charges is reduced to reflect an agreed "voids allowance" (of 3.5% of the charges). Thames Water and Kingston have also agreed that the council is entitled to "a commission" (of 9.3% of the charges less the voids allowance) which entitlement is set against the amount of the charges otherwise payable. This results in a reduction of the sum paid by Kingston to Thames Water.

In Royal Borough of Kingston-Upon-Thames v Moss the defendant, Mr Moss, was a secure weekly tenant of a flat where Kingston was his landlord. He was granted a tenancy of the flat in October 1999 and the terms of that tenancy were varied with effect from 1 September 2003.

Mr Justice Morgan said both the terms of the original tenancy agreement and the terms as varied provided that Mr Moss was obliged to pay to Kingston "water charges" which were to be the sums payable for the water and sewerage services provided to the flat. The original terms referred to "the actual amount payable for the premises" and the varied terms referred to "the exact amount payable for the property to the water authority".

Mr Moss contended that the amount of "water charges" which he was liable to pay to Kingston was in accordance with Thames Water's tariff for the water and sewerage services provided to his flat, less the voids allowance and less "the commission" referred to in the 2003 agreement.

Kingston disputed this. It contended that it was entitled to recover a water charge from Mr Moss by reference to Thames Water's tariff for the water and sewerage services and without reducing that charge to reflect the fact that it has agreed a voids allowance and a "commission" with Thames Water.

Mr Moss put his case in the High Court in two ways:

1. The 2003 agreement involved Thames Water providing water and sewerage services to Kingston and his tenancy agreement involved Kingston in providing water and sewerage services to him. He then submitted that the arrangement between Kingston and himself was governed by the Water Resale Orders 2001 and 2006 made under section 150 of the Water Industry Act 1991. It was then argued that the effect of those Orders was that the charge payable by Mr Moss to Kingston should be reduced to reflect the fact that the 2003 agreement provided for Kingston to have the benefit of a voids allowance and a "commission".
2. He relied on the terms of his tenancy agreement, both the original terms referring to "the actual amount payable" and the varied terms referring to "the exact amount payable". He submitted that "the actual amount" and "the exact amount" are to be arrived at by deducting from the charge otherwise due the amount of the voids allowance and the "commission".

The first issue had been raised in Jones v Southwark LBC [2016] PTSR 1011, which was decided by Newey J (as he then was) on 4 March 2016.

In that case, Southwark had entered into an agreement with Thames Water which was in essentially the same terms as the 2003 agreement. In that case, the court had to consider whether that agreement provided for Southwark to collect water charges as agent for Thames Water or whether the effect of the agreement was that Thames Water was providing water and sewerage services to Southwark.

Newey J held that Southwark was not acting as agent for Thames Water and, accordingly, that Thames Water was providing water and sewerage services to Southwark. The judge then concluded that when Southwark charged its secure tenant, Ms Jones, for water and sewerage services, the case came within the Water Resale Order 2006 and that Southwark had overcharged Ms Jones because it had not given Ms Jones a reduction in the charges otherwise payable to reflect the fact that Southwark had received a voids allowance and a "commission" from Thames Water.

This meant that Ms Jones had overpaid and was entitled to recover the overpayments. Southwark did not appeal the decision of Newey J, but paid to their tenants £28.6m as repayment of previous overpayments.

In Royal Borough of Kingston-Upon-Thames v Moss the council sought to persuade Mr Justice Morgan to come to a different conclusion than Newey J. However, although the arguments before the judge were not the same as the arguments before Newey J, he reached the same overall conclusion as he did.

Mr Justice Morgan concluded that:

i) The result of the 2003 agreement was that Kingston was a Re-seller for the purposes of the Water Resale Orders 2001 and 2006;

ii) The relevant provision in the charges schemes (referred to above as paragraph (c)) was invalid; this conclusion does not affect the overall result;

iii) It is agreed that Kingston ceased to be a Re-seller with effect from its entry into the Deed of Clarification and Agreement on 3 August 2017;

iv) Kingston is bound by the maximum charges provisions of the Water Resale Orders 2001 and 2006; it was not disputed that, if Kingston were bound by those provisions, then it had charged Mr Moss sums in excess of the maximum charges but the precise amount of the maximum charge has not been calculated;

v) Mr Moss has a right to recover overpayments of charges pursuant to section 150(5) of the 1991 Act and paragraph 10(1) of the Water Resale Order 2006; Kingston stated that it does not seek to rely upon a limitation defence to such a claim;

vi) Mr Moss has overpaid the charges which were due under the revised terms of his tenancy agreement; it was not disputed that, in such a case, Mr Moss may have a claim in restitution for recovery of those overpayments but the precise scope of such a claim and any possible defences to it were not investigated at this trial;

vii) Mr Moss did not pursue the claim that Kingston had acted in breach of the transparency provisions in paragraph 9 of the Water Resale Order 2006.

Law firm Deighton Pierce Glynn said some local authority tenants had now claimed for repayment of excess water charges in light of the Jones judgment and this pressure was likely to increase following the judgment in the Moss case, 

DPG’s Daniel Carey, who acted for Mr Moss with Gareth Mitchell, said: “I am pleased that the Court has recognised once again that local authorities should have been passing on to their tenants the group discounts negotiated with water companies.

“Although this comes too late for the many tenants evicted for non-payment it does provide a route to compensation for the many tenants who were overcharged.”

The council said it was considering the outcome with its legal representatives.