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.
- 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; - That the varied clause was an unfair term under the Unfair Terms in Consumer Contract Regulations 1999 and therefore unenforceable;
- 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.