Royal Borough of Kingston-Upon-Thames v Moss (2019) EWHC 3261 (Ch)
Ever since Jones v London Borough of Southwark (2016) EWHC 457 (Ch) (our report), the position on water rates taken as rent by a number of London Councils and Housing Associations under agreements with Thames Water has been conflicted. Some councils (including Southwark) refunded tenants the ‘discount’ that they had received. Other councils did nothing, and frantically tried to settle and defence to rent arrears possession proceedings that raised the water rates point (not always successfully), in the hope and expectation that someone else would take another case to the High Court and overturn or distinguish Jones.
This, it turns out, was the case that councils and Housing Associations had been waiting for. It did not fulfil their hopes.
Royal Borough of Kingston-upon-Thames had entered into an agreement with Thames Water in 2003, which lasted until August 2017. This was broadly similar to the agreement in Jones, with some differences. RBKT sought to argue both that the differences meant that the agreement did not make them a water reseller under the Water Resale Orders 2001 and 2006, and also that Jones was wrongly decided.
I’m not going to go through the extensive detail and argument in the judgment, though I will note the finding that the terms of the Thames Water agreement were very different to those in Rochdale Borough Council v Dixon(2011) EWCA Civ 1173 (our report), in which an agency relationship had been found.
Instead, I will note that the findings were:
As a matter of language, the strongest of the candidates for the meaning of the agreement is that it was an agreement by Kingston to pay TWU for services provided to Kingston. Indeed, I consider that this is what the agreement clearly states. I recognise that if, as I currently assume, the Water Resale Orders 2001 and 2006 apply to the charges made by Kingston to its tenants with the result that Kingston loses much of the benefit of the 9.3% commission which it must pass on to the tenants, then the result is an uncommercial result for Kingston.
However RBKT’s argument that an alternative interpretation should be found precisely because that result would be ‘uncommercial’ for RBKT came to nothing. The agreement was what it was and could not be re-construed simply because it disadvantaged RBKT.
The Water Resale Orders applied
As to whether Kingston was a Re-seller, there is no dispute that it was not a Relevant Undertaker. The question therefore is whether it provided to any Purchaser a supply of piped water and a sewerage service which a water or sewerage undertaker had supplied to it. In view of my earlier finding, that TWU supplied water and sewerage services to Kingston and that the same services were ultimately provided to Mr Moss, it would seem to follow that there was a supply of water and sewerage services to Mr Moss and that they were supplied to him by Kingston.
As to whether Mr Moss was a Purchaser, the issue is whether he bought from Kingston any water or sewerage services. At all relevant times, Mr Moss paid Kingston for the water and sewerage services and it seems to follow that he bought those services from Kingston.
The definitions of Re-seller and Purchaser do not involve an inquiry into whether the Re-seller was under an obligation to provide water and sewerage services to the Purchaser. Instead, they refer to the fact of such services being provided and the further fact that the Purchaser paid the provider of the services for those services. On that basis, I conclude that at all material times since 14 January 2003, Kingston has been a Re-seller and Mr Moss has been a Purchaser within the meaning of the Water Resale Orders 2001 and 2006. Accordingly, I need not consider whether Kingston was under an obligation to provide water and sewerage services to Mr Moss.
The Effect of the Water Resale Orders and the maximum charge:
Assuming that there is not a mismatch between the voids assumed for the purpose of the voids allowance (3.5% of the total) and the actual number of voids, then the calculation would work as follows, assuming that Kingston pays water charges for 1000 houses or flats. On that assumption, Kingston pays 96.5% of the water charges for the 1000 houses or flats and is able to recover the 96.5% figure from 965 houses or flats. On that example, it is clear that Kingston should apportion the 96.5% figure between the 965 houses or flats and not the 100% figure for 1000 houses because the 100% figure was not “the amount payable” by Kingston to TWU.
If, as is likely, there is a mismatch between the 3.5% voids assumed by TWU and Kingston and the actual number of voids, then the calculations will be different. If the actual voids are 5%, then Kingston will apportion the figure of 96.5% of the charges for 1000 houses or flats between 950 purchasers. If the actual voids are 2%, then Kingston will apportion the figure of 96.5% of the charges for 1000 houses or flats between 980 purchasers.
As regards the “commission” of 9.3%, prima facie, “the amount payable” by Kingston to TWU is the figure arrived at after deduction of the 9.3%. On my analysis of the 2003 agreement, Kingston agreed to pay the reduced figure for the supply of water and sewerage services. The commercial rationale for TWU and Kingston agreeing on that deduction was no doubt that if TWU were to be responsible for billing and collecting water charges from consumers, then that would involve extra cost for TWU which could properly be reflected in the amount of the water charges. However, when TWU agreed to provide the services to Kingston in return for simplified billing and collection arrangements (and no risk of bad debt), Kingston would be expected to pay less for the services. On this basis, “the amount payable” by Kingston to TWU can naturally be taken to be the discounted figure.
RBKT received a ‘voids allowance’ of 3.5% and a ‘commission’ of 9.3% of the overall water bill levied by Thames Water. Assuming that the voids allowance was accurate, that is 9.3% of the charge to the tenant that went to RBKT. If the voids allowance was an overestimate, then more went to RBKT, less if an underestimate.
The tenant’s tenancy agreement (as revised) stated he had to pay the ‘exact amount’ due for water for the property. So:
I conclude that the revised terms restrict Kingston to recovering from Mr Moss the amount payable by Kingston to TWU for the property. On that basis, the amount payable by Kingston is the amount reduced by 9.3% as “commission”.
The position in relation to the void allowance is more difficult. One course would be to ignore the void allowance on the ground that the void allowance was not a discount for the specific property let to Mr Moss. Instead, the void allowance was an allowance in relation to several thousand properties to reflect the possibility that some of those properties would be vacant and not liable for water charges. As Mr Moss’s property was not vacant at any relevant time, the exact amount payable for his property is not reduced by a void allowance given to reflect the possibility of other properties being vacant. I conclude that the revised terms do not require Kingston to deduct 3.5% from the charges other wise payable for the property. The answer in relation to the Water Resale Orders was different in relation to the void allowance but that was because the calculation required for those orders is different.
So the amount effectively overcharged to the tenant under the terms of the tenancy was the 9.3% commission. But against any overpayment, RBKT could set the permitted administration charge of 1.5 pence per day per purchaser, or £5.48 per annum for each purchaser.
The deed of variation between Thames Water and RBKT was expressed to have effect from 1 April 2016, but had been signed and dated 3 August 2017. It could not have effect as against the tenant until 3 August 2017. It was agreed that RBKT ceased to be a reseller at that later date.
Comment
Well.
I fully expect this to go to the Court of Appeal, RBKT having brought this case in the face of Jones, they must have been prepared for the long haul. That said, I was somewhat surprised at the weakness of some (not all) of their arguments – ‘the agreement can’t mean X because that would not be a good agreement for us’ was surely never going to be a flyer in the face of Arnold v Britton [2015] AC 1619, for instance.
But in the meantime, every council or housing association (some 69 of them, it appears) with a similar agreement with Thames Water will continue to face challenges to rent arrears possession claims on the basis that the arrears figure is wrong, and all of them will have to consider and prepare for the prospect of refunding their tenants any ‘commission’.
Congratulations to Deighton Pierce Glynn for fighting this one as well as Jones.
I understand that an application for permission to appeal was lodged 9th January. There is a consortium of authorities organised by LGA looking to assist with challenging the issues in Jones and in Moss but I don’t think they are involved in this appeal directly.