Southern Gas Networks Plc v Thames Water Utilities Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Underhill,Lord Justice Hickinbottom,Lord Justice Jackson
Judgment Date25 January 2018
Neutral Citation[2018] EWCA Civ 33
Docket NumberCase No: A1/2016/3131
Date25 January 2018

[2018] EWCA Civ 33

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT

QUEEN'S BENCH DIVISION (TECHNOLOGY AND CONSTRUCTION COURT))

MARTIN BOWDERY QC SITTING AS A DEPUTY HIGH COURT JUDGE

[2016] EWHC 1669 (TCC)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Jackson

Lord Justice Underhill

and

Lord Justice Hickinbottom

Case No: A1/2016/3131

Between:
Southern Gas Networks Plc
Appellant
and
Thames Water Utilities Limited
Respondent

David Hart QC and Jessica Elliott (instructed by Kennedys) for the Appellant

Andrew Rigney QC (instructed by Clyde & Co LLP) for the Respondent

Hearing dates: 13–14 December 2017

Lord Justice Hickinbottom

Introduction

1

Where supply of gas is interrupted, a customer is generally entitled to statutory compensation payments from his gas distributor. This appeal concerns the question of who should ultimately bear the cost of those payments where the interruption to the gas supply was caused by another services undertaker, in this case a water company which had negligently allowed water to escape from its pipes and enter nearby gas pipes. Is it the gas undertaker, or the water undertaker?

The Background

2

The appeal concerns statutory compensation payments made by the Appellant (“Southern Gas”) to its customers following discharge of water from pipes owned and operated by the Respondent (“Thames Water”). However, before turning to the facts of this case, it would be helpful to set out the relevant legislative provisions under which Southern Gas was required to pay their customers compensation (paragraphs 3–7) and under which it sought to reclaim these payments from Thames Water (paragraphs 8–9); and, very briefly, the problems that water ingress into gas pipes can cause (paragraph 10).

3

Section 33AA of the Gas Act 1986 gives the Gas and Electricity Markets Authority power to make regulations prescribing standards of performance for gas transporters; and section 33AA(3) makes provision for compensation for any failure to meet those standards in the following terms:

“If a gas transporter fails to meet a prescribed standard, he shall make to any customer or potential customer of a gas supplier who is affected by the failure and is of a prescribed description such compensation as may be determined by or under the regulations.”

4

The Gas (Standards of Performance) Regulations 2005 (SI 2005 No 1135) as amended (“the 2005 Regulations”) set the relevant standards, and, as the Explanatory Note states:

“They prescribe the sum which gas suppliers or gas transporters must pay to a customer by way of compensation for failure to meet specified standards of performance in respect of the services to be provided by such suppliers or distributors…”.

5

By regulation 7 of the 2005 Regulations, where the conveyance of gas to a customer's premises is discontinued as a result of a failure of, fault in or damage to the pipeline system operated by the relevant gas transporter, and the conveyance of gas is not resumed to the customer's premises within the prescribed period, that transporter is required to pay a prescribed sum to the customer in respect of that period and each succeeding period of 24 hours upon the expiry of which the conveyance of gas is not resumed. The “prescribed sum” and “prescribed period” are set out in Part 1 of Schedule 1 to the Regulations, as £30 for a domestic customer or £50 for a non-domestic customer, and 24 hours respectively. That means that, where a customer's gas supply is interrupted for more than 24 hours, the gas distributor must pay him £30 (or, to a non-domestic user, £50) for every full 24-hour period until the supply is restored. These payments are known as “Failure to Supply Gas payments” or “FSG payments”.

6

That requirement is subject to a number of exceptions. As originally made, regulation 7(3)(e) excepted circumstances in which damage to the pipe-line was caused by “water which has escaped from a pipe owned by a water undertaker”; but that provision was repealed from 1 April 2008 by regulation 3(4) of the Gas (Standards of Performance) (Amendment) Regulations 2008 (SI 2008 No 696). None of the other exceptions is relevant to this appeal.

7

The scheme for compensation for failing to provide an appropriate gas service set out in the 2005 Regulations is far from unique. Many other services now have similar schemes. For example, the Water Supply and Sewerage Services (Customer Service Standards) Regulations 2008 (SI 2008 No 594) establishes a similar compensation scheme where a water undertaker interrupts or cuts off the supply of water to premises.

8

The starting point in respect of the civil liability of water undertakers for escapes of water is section 209 of the Water Industry Act 1991 (“the WI Act”), which provides that, generally, a water undertaker is strictly liable for such events. So far as relevant to this claim, section 209 provides:

“(1) Where an escape of water, however caused, from a pipe vested in a water undertaker causes loss or damage, the undertaker shall be liable, except as otherwise provided in this section, for the loss or damage.

(2) A water undertaker shall not incur any liability under subsection (1) above if the escape was due wholly to the fault of the person who sustained the loss or damage or of any servant, agent or contractor of his.

(3) A water undertaker shall not incur any liability under subsection (1) above in respect of any loss or damage for which the undertaker would not be liable apart from that subsection and which is sustained—

(d) by any person on whom a right to compensation is conferred by section 82 of the New Roads and Street Works Act 1991 [“the NRSW Act”].

(4) The Law Reform (Contributory Negligence) Act 1945… shall apply in relation to any loss or damage for which a water undertaker is liable under this section, but which is not due to the undertaker's fault, as if it were due to its fault.”

9

Section 82 of the NRSW Act displaces section 209 of the WI Act with a different strict liability provision applicable where losses resulting from the escape of water are suffered by either a street authority or another person who has apparatus in (including under) the street. So far as relevant to this appeal, under the general heading “Duties and liabilities of undertakers with respect to apparatus” and the particular heading “Liability for damage or loss caused”, section 82 provides:

“(1) An undertaker shall compensate—

(a) the street authority or any other relevant authority in respect of any damage or loss suffered by the authority in their capacity as such, and

(b) any other person having apparatus in the street in respect of any expenses reasonably incurred in making good damage to that apparatus,

as a result of the execution by the undertaker of street works or any event of a kind mentioned in sub-section (2).

(2) The events referred to in sub-section (1) are any explosion, ignition, discharge or other event occurring to gas, electricity, water or any other thing required for the purposes of a supply or service afforded by an undertaker which—

(a) at the time of or immediately before the event in question was in apparatus of the undertaker in the street, or

(b) had been in such apparatus before that event and had escaped there from in circumstances which contributed to its occurrence.

(3) The liability of an undertaker under this section arises—

(a) whether or not the damage or loss is attributable to negligence on his part or on the part of any person for whom he is responsible, and

(b) notwithstanding that he is acting in pursuance of a statutory duty.

(4) However, his liability under this section does not extend to damage or loss which is attributable to misconduct or negligence on the part of—

(a) the person suffering the damage or loss, or any person for whom he is responsible, or

(b) a third party, that is, a person for whom neither the undertaker nor the person suffering the damage or loss is responsible.

(5) For the purposes of this section the persons for whom a person is responsible are his contractors and any person in his employ or that of his contractors.

(6) Nothing in this section shall be taken as exonerating an undertaker from any liability to which he would otherwise be subject.”

In this judgment, references to “section 82” are to section 82 of the NRSW Act.

10

This appeal concerns water discharge and ingress into the gas network. Such ingress can have a number of adverse effects, for example it can damage the devices which feed gas from the national high pressure network into the low pressure gas network used by consumers (“Pressure Reduction Installations”, or “PRIs”), or it may simply restrict the flow of gas, either of which may result in a fall in gas pressure to the extent that the use of gas appliances by a customer may be dangerous. For example, reduced gas pressure can result in flame failure and unburned gas entering a customer's property, leading to a risk of fire and explosion. However, each customer has a valve between the gas network and his property (“the Emergency Control Valve”, or “ECV”); and the risks from water ingress into the gas main pipe can be eliminated by switching off that valve and thereby isolating the property from the gas main until the water is cleared from the pipe and regular gas pressure restored.

The Facts

11

Southern Gas is a statutory undertaker, which owns gas main pipes used to transport gas to its customers under the Gas Act 1986. It owns a gas main buried beneath Crofton Road, Orpington. Thames Water is also a statutory undertaker, responsible for supplying water to its customers under the WI Act. It owns a water main also buried below Crofton Road.

12

On 17 December 2012, Thames Water received notification of a burst water main in the Crofton Road area. It attended on 24 December, but took no...

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