The London Borough of Southwark has decided to repay 48,000 current and former tenants £28.6m following a High Court ruling earlier this year that it had overcharged for water and sewerage for 12 years.
In March this year Mr Justice Newey ruled that:
1. Unless and until a 2013 Deed (stating that the council was not a water reseller under the relevant regulations) took effect, the relationship between Thames Water and Southwark was not one of principal and agent but involved Southwark buying water and sewerage services from Thames Water and re-selling them to its tenants;
2. As a result, the Water Resale Order 2006 applied and served to limit what tenants could be charged; and
3. The amounts that Southwark charged the claimant, Kim Jones, (and other tenants with unmetered water supplies) exceeded the "maximum charge" allowed under the 2006 Order.
A report prepared for a Cabinet meeting this week (7 June) noted: “Given the agreed position regarding the council’s relationship with Thames Water post-July 2013, and bearing in mind the cost of further litigation, the chances of success, and the relative benefits to unmetered tenants as a whole, the council decided that the settlement was preferable to bringing an appeal on the 'resale' issue, and continued litigation in connection with the Deed of Variation”.
The Cabinet agreed that the council should proceed with immediate refunds to current tenants, with interest calculated under the provisions of the Water Resale Order 2006, the refunds themselves covering the period 1 April 2001 to 28 July 2013, and with interest covering the period 1 April 2001 to 30 June 2016.
The Cabinet also agreed that its preferred option was to terminate the local authority’s contractual agreement with Thames Water. A consultation will now be held with tenants before a final decision is reached; the new arrangements are expected to be put in place in 2017.
The council had originally planned to refund tenants for 2010 to 2013 only – on the basis liability began six years before the High Court decision.
But the Cabinet paper said: “Whilst the judgement was made in the context of the 2006 Water Resale Order, the council wishes to avoid any further legal challenge and draw a line under the matter. After taking further legal advice regarding both the applicability of a limitation period and the relative effect of the two Water Resale Orders, the council has reconsidered its position and formed the view that it would be both prudent and reasonable to extend the period of liability to the commencement of the first Water Resale Order (April 2001), and make refunds from that date up to 28 July 2013.”
Offsetting arrears is expected to reduce the council’s liability by around £4.6m
According to law firm Deighton Pierce Glynn, which acted for Kim Jones in her legal action against Southwark, the decision “opens the way for hundreds of thousands of tenants elsewhere in the Thames Water region to claim similar refunds”.
Southwark was one of 69 local authorities and housing associations that had entered into a standard form agreement with Thames Water.
The Cabinet paper also revealed that Thames Water is understood to be reviewing the status and content of its standard form agreements with other public bodies in light of the High Court ruling and a new model contract might be forthcoming as a result. However, the report said the only certain way to protect Southwark was by bringing its agreement to an end.
Gareth Mitchell of Deighton Pierce Glynn, Kim Jones’ solicitor, said: “This is a significant development for the 48,000 current and former social housing tenants in Southwark who will now receive refunds. We calculate that these refunds will be in the region of £600 and £700 per tenant if in occupation for the whole of the 2001 to 2013 period. These refunds will make a very real difference to significant numbers of low income households.
“However, there are approximately 330,000 other tenants in the Thames Water region entitled to claim refunds. Any tenant in the Thames Water region who is liable to pay a water charge to a local authority landlord or to a housing association landlord is likely to be able to make a claim. Tenants in this positon should seek legal advice as soon as possible.”
Mitchell maintained that becoming direct customers of Thames Water would be good news for tenants.
"All too often we have seen tenants facing eviction not for rent arrears but for arrears of water charges. This practice will cease if the tenants become direct customers of Thames,” he argued.
“As direct customers of Thames there will also be significant opportunities for tenants to reduce their water bills by opting for alternative tariffs. These include the ‘assessed household charge’ which is applied where water meters are requested but cannot be installed for example in blocks of flats - and the ‘watersure tariff’ a discounted charge for those with disabilities or large families.”
Cllr Stephanie Cryan, Cabinet Member for Housing at Southwark, said: “The historical arrangements we had in place with Thames Water to supply waste and water services to our tenants have reached their sell-by date. The court’s decision earlier this year meant we were already preparing to refund tenants for part of their bills over a three year period, but we have now decided to go further and backdate payments to 2001.
"The cost to the council will be considerable, but we feel it is the right thing to do, and we know our tenants will be delighted to receive a rebate of several hundred pounds. Clearly an arrangement that the council thought was in the public good has proved otherwise, and we are now looking to end our relationship with Thames Water, subject to consultation with our tenants.”