Water Under the Bridge

Rochdale Borough Council v Dixon [2011] EWCA Civ 1173

Apologies for the late delivery of this case note which has been held up by a blizzard (of work rather than the kind afflicting the Eastern USA).

This case is somewhat complicated and involved so you will have to bear with me. In summary it consists of a defence to a possession claim which was based on non-payment of utility charges for the provision of water and sewerage.

Rochdale rented a property on a secure tenancy to Mr Dixon. He has resided there for more than 30 years. About 2 years ago he stopped paying a component of the charges levied by R which related to water charges, they sought possession for this non-payment. A possession order was granted but suspended on condition that all future payments were made and that a further patent was made to clear the arrears over time. D appealed.

It should first be noted that D actually can afford to pay the water charges but has not done so as a point of principle. This sincerely held belief in the principle and in the rightness of his cause both legally and morally was accepted by the Court.

Some Background
R has long had water supplies provided to its tenants by United Utilities. They are a water undertaker within the meaning of the Water Industry Act 1991. Under the terms of the Local Authorities (Goods & Services) Act 1970 Rochdale is permitted to enter into an agreement to provide services to provide administrative services. Under the Water Industry Act 1991, which privatised the provision of water and sewerage services, the scope of the 1970 Act was widened by the, snappily named, Water Consolidation (Consequential Provisions) Act 1991 to include a:

power to enter into an agreement for the collection and recovery by the authority, on behalf of any water undertaker or sewerage undertaker, of any charges fixed by the undertaker under Chapter I of Part V of the Water Industry Act 1991.

In May 2005 R and UU entered into such an agreement which provided that UU would indicate annually to R what charges were to be levied for each of its properties and R would then pay that sum to UU while UU would make a simultaneous patent of an agreed commission. It would then be up to R to collect the money from its tenants. Thus, R were earning a commission fee but were taking a risk that some tenants would fail to pay and would leave them with less money than they had paid out to UU.

R varied the terms of its tenancy agreements using it’s powers under s103 Housing Act 1985 to allow it to collect these charges along with rental payments.

The Appeal
D, having refused to pay the water charges, and a suspended possession order having been made against him, advanced four grounds of appeal.

  1. that the agreement between UU and R was outside that permitted by the 1970 act and thus ultra vires;
    that his tenancy agreement had not been varied properly as the notice doing so was ineffective;
  2. That the varied clause was an unfair term under the Unfair Terms in Consumer Contract Regulations 1999 and therefore unenforceable;
  3. That it was, in any event, unreasonable for the judge to make a possession order.

The Rochdale/United Utilities Agreement
The substance of D’s argument here was that the agreement between R and UU did not comply with those permitted by the 1970 Act. Essentially, it was not an agreement for the ‘collection and recovery’ of UU’s charges because R actually took on the risk of default itself. It, in fact, “bought those charges for itself” rather than acting as an agent for UU. In addition, the charges were fixed not by UU but by R and so were not ‘water charges’ at all. These arguments were dismissed by the Court and were not really supported by the agreement between R and UU. UU was still the provider of water services (the water undertaker in the terms of the legislation), and still dealt with certain types of customer query. The agreement between the two was still an agency agreement, despite the assumption of a degree of risk by R, and even if it was not R was still collecting the charges on behalf of UU which was sufficient to satisfy the terms of the 1970 Act. The charges were still fixed by UU under the terms of the agreement, although R then invoiced and collected them. Even if there was no agency relationship the phrase “on behalf of” used in the legislation should be read more widely as meaning “for the benefit of”. Clearly the agreement between UU and R left R collecting monies ‘for the benefit of’ UU.

Ineffective Variation
D argued that the letter he had been sent when the agreement was varied was ineffective as a notice of variation as it failed to fully advise him of the consequences of the change and, in particular, the fact that he could be evicted for failure to pay his water bill. To some extent this issue, that R were acting to convert non-payment of water charges from a debt issue to an eviction issue was the substance of D’s entire complaint. The Court, however was not prepared to hold that the notice was ineffective. The issue that crystallised before the Court at first instance was whether the obligation to explain the ‘effect’ of a variation meant that it was necessary to explain the meaning of he variation or to explain the consequences of the variation. The Court of Appeal accepted that there was a force in the argument that R were obliged to explain what the effect was but held that the notice sent was adequate in this regard, even if it could have been better. There could not be a requirement to explain every possible consequence in detail as this would be excessive and therefore ‘substantial compliance’ was enough. The fact that the majority of tenants, including D, appeared to understan that they would be evicted if they failed to pay their water charges was a clear indication that the notice was doing its job.

Unfair Terms
D suggested that a term which could lead to eviction for non-payment was unfair within the meaning of the UTCCR. He relied particularly on OFT Guidance on unfair terms in tenancy agreements which states:

We take the view that it is unfair to change the nature of a debt owing to the landlord by means of a contractual term. We are likely to object to terms that deem outstanding interest, administration or service charges, or any other monies owing to the landlord other than rent as being rent or provide for them to be deducted from the rent account. Housing legislation provides that arrears of rent may be treated differently from other debts, particularly in regard to eviction, and we consider it is unfair for landlords to seek to enforce these other debts in this way.

It was also suggested that the fact that the water charge payable was calculated based on property value rather than usage meant that payment was potentially being sought for something that was not actually being used.

The Court was not persuaded by this argument either as the term replicates an old statutory method of collection whereby water rates were collected with rent. Additionally, the unilateral imposition of the term is also allowed for in statute and so this cannot make it unfair, consultations with tenants had shown a majority in favour of such a scheme, and paying on a fixed basis rather than a metered basis is generally perceived as being cheaper. Finally, the OFT guidance was targeted primarily at the private sector and the OFT take into account the differences in the social and public sector in regards to tenancy agreements.

In my view the Court was not quite right here and really did not grasp the true meaning of fairness. The fact that a consultation was in favour of the charging scheme or that most people believe that fixed charges are cheaper than metered supply does not amount to a presumption of fairness. Something can be unfair to a consumer even if the consumer does not fully appreciate that it is unfair or if they, through mistake or error of judgement, believe that it is fair. Also, it is not true to say something is fair because it replicates an earlier statutory position, although it is usually true to say a term is fair when it replicates a current statutory position. Arguably, the collection of water rates with rent and the entire movement from a fixed water rate to a metered system occurred precisely because that fixed charging regime was unfair and so it should not be brought back on a contractual basis.

Possibly a stronger ground for the Court to dismiss the argument was the point that arrears of rent, or other charges collected as rent, are not mandatory grounds for possession and the discretion of a judge can always be exercised.

Unreasonable Order
This was probably the weakest part of the argument. The first instance Court acknowledged that D was acting out of principle rather than maliciously. The judge directed himself carefully and properly and the Court of Appeal was not able to find any mistake in the way he exercised his discretion and was therefore disinclined to interfere with it.

In short, the appeal was dismissed.

About D

D is a solicitor specialising in landlord and tenant matters with a London firm.
Posted in Housing law - All, Possession, secure-tenancy and tagged , .

18 Comments

  1. Thank you for this illuminating analysis of the decision.
    I think if I had been in the Court of Appeal I would have decided the matter differently. There does seem to me to be unfairness in the local authority receiving an undisclosed commission from the water company, of £28.50 per year plus 8% of the water charges (it was not mentioned in any of the letters to the tenants which are referred to). Also what happened in practice was not what was agreed formally between UU and Rochdale – Rochdale was not in practice collecting water charges on behalf of UU, it was in effect buying the water supply and selling it on at gross price including its commission (though inexplicably this submission was abandoned on appeal).
    I think with due respect to Rix LJ that he was wrong to assume that water metering is not welcomed by customers, or fairer than fixed charges. It means that if they save water (which they should be encouraged to do) they save money too, and if they waste water, they waste money too.
    If owner-occupiers are supplied with water at the same price per cubic metre that Rochdale pays UU, UU has set the price which includes the cost of collection, it is unfair to council tenants to have to pay the cost of collection on top.

  2. I think Im being stupid here- but does this mean the SPO was made?
    (he hasnt been actually evicted for breach I assume?)

    The unfair contracts guidance seemed very clear – so have we to assume that its not to be relied on, especially for tenants of social housing?

    • Apologies, I should perhaps have been clearer here. The SPO was made at first instance and was appealed to the Court of Appeal. That appeal was dismissed and so the original SPO remains in force. Provided Mr Dixon complies with its terms he will, presumably, be able to stay.

      It does now seem that the value of the OFT guidance is devalued. It is hard to tell from the judgement how much time was actually spent discussing this aspect. The judgement itself is a bit light on its discussion of unfairness and draws some threads which are probably inappropriate and unwarranted. It is a worrying line to take that a clause is fair simply because it replicates some past piece of legislation. At one time tenants in England had no legal protection from eviction by their feudal masters. I don’t think a clause in a contract ‘harking back’ (to use the words of the court) to that time would be fair.

  3. I am not legally trained so I just want to understand terminology here, as I have a similar problem with water rate charges being forced on me after a 30 year tenancy only required rent, yet Rent Officer now informs new landlord he can recoup cost of water rates. This I feel is not respecting the conduct of my historic contract which has been place for 30 yrs.
    Who lost the appeal? Dixon or Rochdale? When The case cites Rochdale vs Dixon is the appeal by Rochdale or was this the original case citation, but subsequently Dixon appealed and lost?

    As I say, I am a lay person trying to get to grips with legalese(?)

    • Dixon lost the appeal. The original possession case was Rochdale v Dixon, Dixon lost – a suspended possession order was made. Dixon appealed this and lost the appeal. The case citation is to the Court of Appeal decision.

  4. I have today contacted United Utilities who said that the account is in the name of Rochdale Council and there is zero balance on the account. I also have a letter from UU stating that Rochdale Council are their customer,and they can only discuss water bills with them, and i would need to take up any query regarding the water bill with them. So why has Rochdale Boroughwide Housing my landlord sent me the bill,that is four parties involvement UU ,RMBC,RBH, and the occupier. So UU get paid by RMBC who then charge me more than they pay UU,Ithen i have to give my money to RBH so what happens to it then? What do rbh do with it?. Thats assuming the consumers are paying. and if they are not do RBH evict for an unpaid debt not owed to them as the landlord. now the question that no one will answer Who is the seller to the occupiers? and which section of the WIA1991 is applicable to them.when i have the answers i will post.

  5. Just to add regarding the zero balances on the accounts of UU THE book debt must lie with someone.

  6. They told the tenants they were taking over the water contract yet UU state the contract still lies with RMBC dont want to delve into my court case but the powers of RMBC were the LAGS act 1970 and WCCP act 1991 how can those acts transfer to a housing association.

  7. This is the first two paragraphs of a joint letter from the then head of strategic housing(RMBC) and the current chief executive (RBH) in December 2008 to the councils tenants, following bad press reports into the councils policy. Dear tenant(s) Following recent media coverage relating to the collection of water charges as part of your rent, both the Council and RBH felt it important that you be made aware of the facts regarding the Councils contract with United Utilities,the benefits of this to tenants and RBH’s approach to dealing with rent arrears. Is Rochdale the only Council collecting water charges in this way? No. In England and Wales,over a million Council and Housing Association tenants pay their charges in exactly the same way.

  8. For two press reports i type in google Eviction Threat Manchester Evening News,and Tenants left in the cold, Manchester Evening News.No one as grasped the true position yet. I have i stopped paying RMBC,they are not collecting on behalf of,or for,or for the benefit of United Utilities.They are and have been evicting the non profitable. If they contract to purchase they must continue to sell, they are renting out houses for profit and evicting the cant pays(the poor) the ones least able to defend themselves. If the DWP pay the rent how can there be rent arrears?.sorry the press report is Eviction Threat Peter Plumb Manchester Evening News. You could not make this up.

  9. This is from the true contract now in front of me not the draft put before the trial judge and the court of appeal. this one has UU logo or trading mark on it. clause 16.2 Relationship of parties Nothing contained in this agreement, and no action taken by any of the contracting parties to this agreement,will be deemed to constitute a relationship between the contracting parties of partnership,joint venture,principle and agent or employer and employee. the council does not have(nor may it represent that it as) any authority to act or make any commitments on the companies behalf.

  10. This clause 12.1.3 also not in the draft TERMINATION If the other partyi is unable to pay its debts(within the meaning of section 123 of the Insolvency Act 1986) or becomes insolvent it then goes on too much for me to type.

  11. To view letter from DEFRA please type into computer Court appeal case Rochdale Borough Council Publications

  12. In 2005 Rochdale consulted their tenants on a proposed new arrangement whereby they would collect water charges along with the rent. The nature of the arrangement is such that the authority pay the water company a block amount, regardless of whether they recover the amount from the tenants.(The block amount , is of course, less than the aggregate of all amounts that would otherwise be due from individual tenants). Then there is the position of the water authority. Of course,it may be said that the water company is aware of the likelihood that the authority will collect the charges pursuant to the terms of their tenancies, after all, as noted (above para 1), the authority are liable for the amount due under their agreement and it would be unrealistic to think they would be collecting the charges in any other way.The water company exists in the real world,it knows what practices are adopted. Nonetheless,it is not evicting,nor acquiring a right to evict, it is not as it were, enlisting as a sanction for non-payment.Rather, it is making a commercial arrangement, for payment of a block amount (without needing a disproportionate-or even any real-collection service),and it is indifferent to whether eviction is used or not. The above is from the opinion provided to RBH (the councils agent) in December 2007. A full copy of which i will be providing to the water company the council being their deemed collecting agent.

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