Kim Jones v London Borough of Southwark
| Jurisdiction | England & Wales |
| Judge | Mr Justice Newey |
| Judgment Date | 04 March 2016 |
| Neutral Citation | [2016] EWHC 457 (Ch) |
| Docket Number | Case No: HC 2014 000720 |
| Court | Chancery Division |
| Date | 04 March 2016 |
[2016] EWHC 457 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building, Royal Courts of Justice
7 Rolls Buildings, Fetter Lane
London, EC4A 1NL
Mr Justice Newey
Case No: HC 2014 000720
Mr Martin Westgate QC (instructed by Deighton Pierce Glynn) for the Claimant
Mr Charles Bourne QC and Miss Hannah Slarks (instructed by London Borough of Southwark Legal Services) for the Defendant
Hearing dates: 2–5 February 2016
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
For decades, the defendant, the London Borough of Southwark ("Southwark"), has collected from many of its tenants, including the claimant, Miss Kim Jones ("Miss Jones"), charges for water and sewerage services supplied to the properties by Thames Water Authority or, later on, Thames Water Utilities Limited. The question raised by the present case is whether the Water Resale Order 2006 ("the 2006 Order") applies to these arrangements and, if so, whether Southwark has charged tenants more than was permissible under the 2006 Order. The point is of considerable importance both because Southwark has numerous tenants who could be affected and because it could have implications for other landlords. It turns in part on whether Southwark has been acting as an agent or is, rather, to be seen as having bought and re-sold water and sewerage services.
Narrative
Southwark is one of the largest social landlords in the country, owning about 52,000 residential properties. Some 37,000 of them are tenanted and not fitted with a water meter. One of these, Flat 110 Castlemead, 232 Camberwell Road ("Flat 110"), has since May 1981 been let to Miss Jones under a weekly tenancy.
Miss Jones' rent card for 1982–1983 records that she had to pay Southwark sums in respect of rent and "rates". By the following year, her rent book referred to two species of rates: general rates and water rates. Since then at least, Miss Jones has paid Southwark for water and sewerage services to Flat 110.
Miss Jones will initially have been supplied with water and sewerage services by Thames Water Authority, one of 10 regional water authorities established by the Water Act 1973. Miss Jill Jones, who began working for Thames Water Authority in 1977, explained in evidence that direct billing of water charges was introduced from 1978. Before then, Miss Jill Jones said, water charges had been included with general rates.
In 1989, the water industry was privatised under the Water Act 1989 and the water supply and sewerage functions of water authorities were transferred to commercial water and sewerage undertakers. Thames Water Utilities Limited ("Thames Water") succeeded Thames Water Authority.
A letter from Thames Water to Southwark of 7 June 1991 dealt with what was described in the heading as "commission for collection of water service charges". Thames Water informed Southwark that rates payable in respect of "Commission (including bad debts)" and "Voids" were to be changed to 15% and 5% respectively. Southwark was told, too, that the rates would be increased retrospectively to 12.5% and 5% for the year ended 31 March 1991.
There was also reference to "commission" in a report prepared for Southwark's housing committee by its director of housing in December 1999. The report stated:
"Interim settlement with Thames Water for a 3% increase in agency commission payable to Southwark for the collection of water charges w.e.f 2000/01. Further negotiations may generate additional income over the medium term or lead to a possible cessation of the agency agreement."
On 6 March 2000, Thames Water and Southwark entered into an agreement ("the 2000 Agreement") that is central to the issues I have to decide. Thames Water and Southwark were referred to in the agreement as, respectively, "the Provider" and "the Customer". Recitals to the agreement explained that Thames Water "provides water and sewerage services ('the Services') to premises ('the Premises') managed by the Customer in its capacity as Local Housing Authority" (recital (2)) and that Thames Water and Southwark had agreed that the latter would "pay for the Services in respect of some of the Premises" in accordance with the agreement. The body of the agreement then began as follows:
"1 Premises Affected
1.1 THIS Agreement covers all of the Premises where the water supply given by the Provider is not measured by a meter ('the Unmeasured Premises').
2 Liability For Charges
2.1 THE Customer shall pay for all of the Provider's charges ('the Charges') in respect of the Services provided to the Unmeasured Premises.
2.2 THE Charges will be raised by applying the relevant tariffs ('the Tariffs') for the Services, less the allowances and reductions to which the Customer is entitled under Clause 3.
2.3 THE Tariffs will be those that are in force at the relevant time by virtue of inclusion in Charges Schemes made by the Provider under Section 143 of the [Water Industry Act 1991].
3. Allowances and Reductions
3.1 THE Tariffs will be reduced by 5% in recognition of the fact that in any given year a number of the Unmeasured Premises are likely to be unoccupied for a period of less than three months.
3.2 FOLLOWING the deductions under Clause 3.1 the balance of the Charges will be reduced by a further 18% by way of the Customer's commission."
Subsequent clauses of the 2000 Agreement dealt with, among other things, the mechanics of invoicing and payment (clause 4), the provision to Thames Water by Southwark of information about "Long Term voids" (i.e. "Unmeasured Premises that have remained unoccupied for a continuous period of three calendar months or more") and "additional Unmeasured Premises acquired and/or disposed of by the Customer" (clause 5) and end of year reconciliations (clause 6). I should, perhaps, set out in full clause 4.6, which was in these terms:
"THE Customer shall send the Provider an invoice … in respect of any Value Added Tax that is payable in respect of the Customer's commission referred to in Clause 3.2."
In accordance with the 2000 Agreement, the practice has been for Thames Water to bill Southwark for the water and sewerage services supplied to "Unmeasured Premises". By way of example, a bill dated 22 February 2005 was for a total of £446,801.28, to be paid in ten instalments. The £446,801.28 represented £573,557.48 less "adjustments" amounting to £126,756.20 in respect of "Void allowance" and "Collection commission". The bill appears to have been sent together with a 358 page print-out detailing the charges for each of the relevant properties. The total for Flat 110 was put at £253.68.
Mr Ian Young, Southwark's departmental finance manager for housing and modernisation, said this in a witness statement about such "adjustments":
"The sums that Southwark pays to Thames Water are offset … by two amounts.
a. First, the charges are reduced by 5% to reflect the proportion of properties which are estimated to be empty, as no sums are due to Thames Water in respect of those properties. This is known as the 'voids' allowance. I am informed by my former colleague Patrick Fallon (Subsidy and Technical Accountant at the Council until 31 July 2015) that, although the void rate is theoretically intended to reflect the actual number of voids, it has not been reduced to reflect the decreasing level of void properties in recent years, which now stands at about 1.35%.
b. Secondly, Thames Water pays the Council a commission in return for its services collecting these sums and the fact that the Council takes on the risk of non-payment by the occupier. It also takes on the costs of collection and of enforcement where a tenant fails to pay, and deals with billing queries and complaints…. This arrangement is obviously of significant commercial benefit to Thames Water, and the Council has negotiated a commission in return for taking on these costs and risks: currently this is 18% of the total billed by Thames Water, after deduction of the 'voids' allowance."
The "commission" and "voids allowance" represent, Mr Young explained, an important source of funding for Southwark.
None of Southwark's tenants is meant to be charged more than the rates set in the charges schemes that Thames Water negotiates with Ofwat, its regulator. It seems that this principle has been breached on occasions because Thames Water and Southwark were using different rateable value figures. That was not, however, the intention of either Thames Water or Southwark. Mr Young said in cross-examination:
"we would strive to charge whatever Thames tell us, notwithstanding the discrepancies that we've uncovered".
In 2010–2011, a Mr Roy Ofogba, against whom Southwark had brought possession proceedings, alleged that it was acting as a "Re-seller" of water for the purposes of the 2006 Order. The argument was rejected in the County Court (on 24 November 2011) and an appeal was compromised (by way of a Tomlin order dated 12 December 2012). However, the case had prompted Southwark to review its arrangements with Thames Water. In a report dated 24 August 2011, Mr Young, whose job title was at the time "Head of Housing Finance", said this about the subject:
"Due to the complexity of the [ Ofogba] case, Counsel was engaged to advise on this matter. The imperative at this point is to reduce the council's potential exposure to legal challenge and financial loss (notwithstanding the outcome of current...
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