Ministry of Defence v Thames Water Utilities Ltd [2006] EWHC 66 (TCC)

EWHC 66 (TCC)Case number 5 BM 50011
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
TECHNOLOGY AND CONSTRUCTION COURT
Venue BIRMINGHAM CIVIL JUSTICE CENTRE
33 BULL STREET
Venue BIRMINGHAM B4 6DS
Date of hearing: 19 December 2005
Date of draft judgment: 12 January 2006
Date of judgment: 19 January 2006
Before Her Honour Judge Frances Kirkham
THE MINISTRY OF DEFENCE
Claimant
and
Defendant
THAMES WATER UTILITIES LIMITED
Mr Jeffery Onions QC of Counsel (instructed by Wragge & Co LLP)) for the Claimant
Mr Vincent Nelson QC of Counsel (instructed by Thames Water) for the Defendant
JUDGMENT
Between
Ministry of DefenceClaimantThames Water Utilities LtdDefendantDate 2006-01-19
[1]I am obliged to Mr Onions QC and Mr Nelson QC for their assistance with this case.[2]The defendant, Thames Water Utilities Ltd (“TW”) is a statutory water and sewerage undertaker pursuant to the Water Industry Act 1991 (“the Act”). The Act consolidated the relevant provisions of the Water Act 1989. The 1991 Act sets out the powers and duties of Water and Sewerage Undertakers. Those functions are subject to the supervision and control of the Director General of Water Services (“the Director”). The claimant, the Ministry of Defence (“the MoD”) is a customer of TW.[3]This case concerns the way in which TW calculate the charges they make for sewerage and waste water services, namely on the assumption that the volume of potable water at the point of entry to a site is equal to the volume of water discharged into the sewer, even if it could be demonstrated that in fact a smaller volume was discharged.[4]The MoD seeks to recover overpayments it claims to have made to TW in respect of waste water or sewerage charges. The MoD’s claim is for the repayment of what it contends are overpayments of monies paid as the result of a mistake, namely an incorrect assumption on the part of the MoD that the volume of sewage discharged was equivalent to the volume of potable water in. The MoD began proceedings in February 2005. They claim repayment of sums in excess of £1 million paid to TW for sewerage charges in respect of eight different army barracks: St John’s Wood (for the period 1996-2001), Chelsea, Cavalry, Combermere (all for the period 1996-2002) Princess Royal (1998-2002) Dalton (2000-2003) Keogh (2002-2004) and Woolwich (1998-2004). These eight barracks are served by TW and South East Water. (For the purposes of this trial, reference need be made only to TW.)[5]The MoD claim that between 1 April 1996 and 15 October 2004 they paid quarterly invoices rendered by TW. They paid the charges in full on the understanding that they were paying for a service provided by TW in the volume for which it was being charged. In December 2001 the MoD appointed Waterlink (a division of Mid-Kent Water Plc) to carry out investigations into water and waste water usage at the barracks. Investigations were carried out. The MoD claim that the results of those investigations established that a significant volume of water entering the various sites was not returning as waste water to the sewers. It was being lost to ground through pipe leakage. This, the MoD claim, was unknown to them at the time they paid the charges in full.[6]TW do not suggest that there is no basis for the MoD’s common law restitutionary claim. TW now contend that the court does not have jurisdiction to try the case. Subject to that, TW contend that they are entitled to charge as they do. TW levy charges pursuant to charges schemes they put in place from time to time. In issue is whether their approach to charging is contrary to sections 142 and 143 of the Act if it can be shown that there was, in fact, no equality between volume of water in and volume of waste water out.[7]Where the water supply to any particular site is metered, TW calculates its sewerage waste water charges for that site by reference to section 5 of its various charges scheme, namely by reference to the volume of potable water recorded on the revenue meter at the time it enters the site. For the purposes of its charges scheme, TW assumes that the volume of potable water recorded at the point of entry to a site is equal to the volume of water being discharged into the sewer. TW calculates the cost for waste water services on the basis of this assumed volume.[8]By order dated 17 June 2005 the court ordered trial of preliminary issues. The issues to be determined were revised by order dated 2 December 2005. The trial of the revised preliminary issues took place on Monday 19 December 2005. At trial, TW indicated that it did not pursue the case it made at paragraph 15.1.1.2 of its defence. Accordingly, preliminary issue numbered 2 does not fall to be decided.[9]By their defence, served in March 2005, TW contend that sections 142 and 143 impose a general statutory duty on TW to fix charges, compile and publish an annual charges scheme for the services it is appointed to provide pursuant to the provisions of the Act and set out in the instrument of appointment. Neither, whether implicitly or explicitly, TW contends, provides that TW may charge only for services it actually provides to each individual customer.[10]In their discretion, TW grant a leak allowance. They do so by means of an adjustment of the charges set out in their invoices. At paragraph 15.1.2 of their defence, TW set out their approach to rebates. Where TW are satisfied that more than 10% of waste water has not been discharged to a public sewer, the abated quantity, for the purposes of calculation of the future charge to the customer, is reduced from the date on which this is brought to TW’s attention. On a proper construction of the charges scheme, TW contend, no retrospective rebate is payable in respect of past periods when there was no discharge to the public sewer. Further, they say that, on a proper construction of the charges scheme, the abated quantity is to be used in the calculation for future charges only where the customer deliberately uses, in whole or in part, some method of discharge other than into the public sewer. The customer is not entitled to a reduced future charge in respect of non-discharge to the public sewer where such discharge is as a result of leakage of waste water from the customer’s pipes which would otherwise discharge into public sewers provided by TW. Even if (contrary to TW’s case) the charges scheme does provide for an abatement of charges for waste water leakage, TW contend that any such reduction should be from the date on which such discharge was brought to their attention, so that any reduction would not be retrospective but would be only in respect of any leakage taking place after notification to TW.[11]TW did not advance at trial a case whereby they relied on section 143 (3A) which requires them to cause the cost of public sewers to be borne by their customers generally.[12]The MoD’s case is that TW’s entitlement to charge for its waste water services is limited by statute. Pursuant to sections 142 and 143, TW do not have the statutory power to charge for a service that they do not provide. By virtue of those sections, TW’s charges should have been calculated by reference to the volume of waste water services actually provided by TW. In demanding payment and/or retaining the benefit of an overpayment for a service which it did not provide, TW are in breach of sections 142 and 143. A charges scheme which allows an undertaker to charge for services not actually provided is not in accordance with the proper construction of the Act. To allow otherwise would be unjustly to enrich TW.[13]On 16 November 2005, the MoD served a request for further information. TW provided some information in response to that request on 30 November 2005 and provided further information on 12 December 2005. By their 12 December replies, TW indicated (for the first time in these proceedings) that their case was that, pursuant to section 18(8) of the Act, MoD’s sole remedy is to refer to the Director for an enforcement order. TW now contend that this court does not have jurisdiction to decide this dispute. TW have made no application for an extension of time to comply with the provisions of CPR Part 11. They have served no amended pleading. Mr Nelson QC submits that, following Joseph Crosfield & Sons Ltd v Manchester ShipCanal Company [1904] Ch 123 (CA), that is not necessary: the court will treat the pleaded case as amended to plead the point. Mr Onions QC accepts that, if section 18(8) does indeed provide an exclusive code for resolution by the Director, then the court should not determine these issues: there is clear authority for that. MoD’s case is that TW’s position is misconceived, and the court does have jurisdiction.[14]Plainly, the parties cannot confer jurisdiction upon the court and there can be no question of acceptance of jurisdiction (eg by acquiescence) where none lies. TW’s raising this issue at such a late stage may well have costs consequences, but the point having been raised, however late, it is one which the court must decide. At the trial I heard submissions first on the jurisdiction point. Mr Onions QC and Mr Nelson QC accepted my invitation to go on to make submissions on the substantive issues, in order to dispose of matters in the most efficient way. Submissions on both jurisdiction and substantive issues were completed in one day. In this judgment, I deal with both jurisdiction and the substantive issues.

The Act

[15]There is no relevant agreement between the parties as to the charges which TW are entitled to levy.[16]Relevant provisions of the Act are as follows.[17]Section 2(3)(a) requires the Director to perform his powers and duties, among other things, “in the manner that he considers is best calculated (a) to ensure that the interests of every person who is a customer or potential customer of the company…are protected as respects the fixing and recovery by that company of water and drainage charges…”. He is also required by section 2(2) to secure that…relevant undertakers are able (in particular, by securing reasonable returns on their capital) to finance the proper carrying out of their functions.[18]Sections 18 to 22 of the Act sets out the enforcement powers by which the Director (or the Secretary of State where specified) enforces the obligations of a sewerage undertaker. By section 18(6) the Director is the “enforcement authority in relation to the conditions of an appointment” of a sewerage undertaker. Where the Director is satisfied that a sewerage undertaker is contravening any condition of an undertaker’s appointment, section 18(1) requires him to make a final enforcement order which makes such provision as is requisite for the purpose of securing compliance with that condition or requirement. Section 18(5) requires a sewerage undertaker to comply with an enforcement order.[19]Section 18(8) provides as follows: “(8) Where any act or omission(a) constitutes a contravention of a condition of an appointment under Chapter I of this Part ….. or of a statutory or other requirement enforceable under this section, or(b) causes or contributes to a contravention of any such condition or requirement, the only remedies for, or for causing or contributing to, that contravention (apart from those available by virtue of this section) shall be those for which express provision is made by or under any enactment and those that are available in respect of that act or omission otherwise than by virtue of its constituting, or causing or contributing to such a contravention.” (a) constitutes a contravention of a condition of an appointment under Chapter I of this Part ….. or of a statutory or other requirement enforceable under this section, or (b) causes or contributes to a contravention of any such condition or requirement,[20]Section 19(1) of the Act qualifies the duty to serve an enforcement order. The Director is not required to make an enforcement order if satisfied that the contravention is ‘trivial’ or that the sewerage undertaker has given an undertaking to secure compliance or that the duties imposed on the Director by Part I of the Act preclude the making of an enforcement order.[21]Any right on the part of a member of the public to bring an action arises only when an ‘enforcement order’ has been made and is not complied with. Section 22(1) provides that the obligation to comply with an enforcement order is ‘a duty owed to any person who may be affected by a contravention of the order’. Where there is such a contravention ‘any breach of the duty which causes that person to sustain loss or damage shall be actionable at the suit of that person’.[22]Section 142, insofar as is relevant, provides as follows: “(1) Subject to the provisions of this Chapter, the powers of every relevant undertaker shall include power –(a) to fix charges for any services provided in the course of carrying out its functions and, in the case of a sewerage undertaker, charges to be paid in connection with the carrying out of its trade effluent functions; and(b) to demand and recover charges under this section from any persons to whom the undertaker provides services or in relation to whom it carries out trade effluent functions. (2) Subject to subsections (2A), (3) and (3A) below, the powers conferred by subsection (1) above shall be exercisable – (a) by or in accordance with a charges scheme under section 143 below; ….. (4) Except in so far as this Chapter otherwise provides, a relevant undertaker may fix charges under this section by reference to such matters, and may adopt such methods and principles for the calculation and imposition of the charges, as appear to the undertaker to be appropriate.” (a) to fix charges for any services provided in the course of carrying out its functions and, in the case of a sewerage undertaker, charges to be paid in connection with the carrying out of its trade effluent functions; and (b) to demand and recover charges under this section from any persons to whom the undertaker provides services or in relation to whom it carries out trade effluent functions. (a) by or in accordance with a charges scheme under section 143 below;[23]Section 143 provides, where relevant, as follows: “(1) A relevant undertaker may make a scheme (“a charges scheme”) which has effect in relation to a specified period of twelve months and does any one or more of the following, that is to say – (a) fixes the charges to be paid for any services provided by the undertaker in the course of carrying out its functions; ..… (6) A charges scheme shall not take effect unless it has been approved by the Director.” (a) fixes the charges to be paid for any services provided by the undertaker in the course of carrying out its functions;[24]Section 144 defines the circumstances in which sewerage services are to be treated as provided by an undertaker as follows:
“(1) Subject to the following provisions of this section …. – (a) supplies of water provided by a water undertaker shall be treated for the purposes of this Chapter as services provided to the occupiers for the time being of any premises supplied; and (b) sewerage services provided by a sewerage undertaker shall be treated for the purposes of this Chapter as provided to the occupiers for the time being of premises which – (i) are drained by a sewer or drain connecting, either directly or through an intermediate sewer or drain, with such a public sewer of the undertaker as is provided for foul water or surface water or both; or (ii) are premises the occupiers of which have, in respect of the premises, the benefit of facilities which drain to a sewer or drain so connecting.” (a) supplies of water provided by a water undertaker shall be treated for the purposes of this Chapter as services provided to the occupiers for the time being of any premises supplied; and (b) sewerage services provided by a sewerage undertaker shall be treated for the purposes of this Chapter as provided to the occupiers for the time being of premises which – (i) are drained by a sewer or drain connecting, either directly or through an intermediate sewer or drain, with such a public sewer of the undertaker as is provided for foul water or surface water or both; or (ii) are premises the occupiers of which have, in respect of the premises, the benefit of facilities which drain to a sewer or drain so connecting.”
[25]Section 150A provides that the Secretary of State may by regulation make provision for billing disputes to be referred to the Director for determination. (No such regulation has been made.) Section 150(2) provides that “in this section, ‘billing dispute’ means a dispute between a relevant undertaker and a customer concerning the amount of the charge which the undertaker is entitled to recover from the customer in connection with ….. (b) the provision of sewerage services …...in the case of a sewerage undertaker.”[26]By section 219 of the Act, “services includes facilities”.[27]The Secretary of State for the Environment appointed TW as a water and sewerage undertaker by Instrument of Appointment dated August 1989. The Instrument sets down at Condition B the factors taken into account by the Director in the charges limit imposed on an undertaker in setting the charges scheme. Condition D of the Instrument concerns the implementation of charges schemes. Paragraph 2.1 of Condition D provides:
“2.1 It shall be the duty of the Appointee to ensure that at all times on and after the relevant date specified in sub-paragraph 2.2 there is in effect a charges scheme in accordance with Section 76 by which (Section 143 of 1991 Act): (a) it fixes the charges to be paid for supplies of water for domestic purposes and for the drainage for domestic purposes of premises except where such charges are determined by or in accordance with such an agreement as is referred to in Section 75 (including any such agreement made or entered into by the Water Authority under Section 30 of the 1973 Act as, in accordance with a scheme under Schedule 2, is transferred to the Appointee); and (b) it fixes the charges to be paid for such connections as are described in Section 79(2) (Section 146 of 1991 Act).” (a) it fixes the charges to be paid for supplies of water for domestic purposes and for the drainage for domestic purposes of premises except where such charges are determined by or in accordance with such an agreement as is referred to in Section 75 (including any such agreement made or entered into by the Water Authority under Section 30 of the 1973 Act as, in accordance with a scheme under Schedule 2, is transferred to the Appointee); and (b) it fixes the charges to be paid for such connections as are described in Section 79(2) (Section 146 of 1991 Act).”

TW’s Charges Schemes

[28]TW have indeed made various charges schemes. Those which are relevant to this dispute are for years 1995/6 through to 2003/4. TW contend that each of these was made in accordance with the provisions of the Act, pursuant to the powers given to TW by Section 142 (4). It is not disputed that, with one exception (which MoD say is not material) the charges schemes were approved by the Director General.[29]There are differences in the wording for the schemes for different years.

(a) Volume charge

[30]That for 2001/2 provides as follows: “5 Wastewater charges where water supply to connected premises is metered: Subject to the succeeding provisions of this scheme, there shall be payable to TW in respect of connected premises where water supplied thereto by TW or another water undertaker is measured by meter an amount equal to the sum of the charges referred to in paragraphs (a) or (b) plus (c) below ….:- (a) Volume charge The amount produced by multiplying the water supplied as measured by meter or estimated under sub-clauses 12(2), 12(4), 12(6), 13(1) or 13(4) (“the measured quantity”) by a rate per cubic metre as shown in the Metered Charges Schedule.

Cases

(a) Volume charge Cases

[31]I have been referred to the following cases: Joseph Crosfield & Sons Ltd v Manchester Ship Canal Company [1904] Ch 123 (CA) Pyx Granite Co Ltd v Ministry of Housing and Local Government and Others [1959] 3 All ER 1 (HoL) Daymond v South West Water Authority [1976] 1 All ER 39 (HoL) South West Water v Rumble’s [1985] 1 AC (HoL) Thames Water Utilities Ltd v Hampstead Homes (London) Ltd [2003] 1 WLR 198 (CA) Marcic v Thames Water Utilities Ltd [2004] 2 AC 42 (HoL)[32]In MarcicLord Nicholls, at paragraph 12, described the Act as follows “The 1991 Act is extensive… Part I of the Act makes provision for the office of Director General of Water Services. He is appointed by the Secretary of State. Section 2 imposes on the Secretary of State and on the Director, to use the statutory abbreviation of his title, wide ranging duties of a general character regarding the water industry. In short, the Director is the regulator of the water industry in England and Wales. He is required to exercise and perform his statutory powers and duties in the manner he considers best calculated to secure that the functions of a water undertaker and a sewerage undertaker are properly carried out. This duty includes ensuring that companies appointed as sewerage undertakers are able, by securing reasonable returns on their capital, to finance the proper carrying out of their functions. Commercial companies cannot be expected to take up appointments as sewerage undertakers unless there is a prospect of obtaining a reasonable rate of return on their invested capital. The Director is also required to protect the interests of customers of sewerage undertakers in respect of sewerage undertakers’ drainage charges and in other respects.”

Evidence

[33]Witness statements were prepared for the MoD by Colonel Lemay, Mr M Clarke, Mr M Cole, Lieutenant-Colonel Underhill and Mr G Reddish, and on behalf of TW by Mr R Dooley, Customer Policy Consultant employed by TW. None of the witnesses was cross-examined. For the purposes of the hearing of the preliminary issues, the parties agreed a list of facts as follows: 1. TW is a water undertaker, a sewerage undertaker and a “relevant undertaker” within the meaning of section 6 of the Act. 2. This claim relates solely to TW in its capacity as a sewerage undertaker. 3. TW has published a charges scheme for each of the years 1995/6 to 2001/2 (the material period for this claim) under section 143(1) of the Act in accordance with the provisions of the Act. The charges scheme is approved by Ofwat. 4. TW is the supplier of sewerage services under statute. There is no written agreement between TW and the MoD (as the person to be charged) within the meaning of Section 142(2) (b) of the Act. 5. As a relevant undertaker under the Act TW’s power to demand and recover charges from the MoD as its customer is based solely on the provisions of Sections 142 and 143 of the Act. 6. TW supplies both water and sewerage services to Army barracks including: Combermere, Cavalry Barracks (Hounslow), Chelsea Barracks, Dalton Barracks, St John’s Wood Barracks and Woolwich Barracks. 7. The charges scheme fixes charges so as to recover from customers generally the costs of providing sewerage services and maintaining the sewers by reference to volumetric use of the water meter. 8. TW provides sewerage services only to the following barracks: Keogh Barracks and Princess Royal Barracks (Deepcut). (The sites referred to in paragraphs 6 and 8 of this Statement of Agreed Facts are based in the South East of England and together are the “Sites”). 9. The Sites are owned and operated by the MoD. Invoicing for Sewerage Services. 10. During the period from 1 April 1996 to 15 October 2004 TW supplied sewerage services to the Sites and raised invoices for those sites referred to in paragraph 6. South East Water raised invoices for those sites referred to in paragraph 8 above. These invoices have been paid in full by the MoD. 11. TW calculated its sewerage charges site by site by reference to Section 5 of its charges scheme based on the volume of potable water recorded on the revenue meter for each site. 12. TW also raises a billing policy document. This document is discretionary and is altered and amended at irregular intervals. 13. In applying its charges scheme and in calculating the amounts to be charged to the MoD, the volume of water recorded by meter at the point of entry to a site is multiplied by annual rates and added to an annual graduated standing charge as set out in TW’s charges schemes. Leakage of Water. 14. Leakage was identified by the MoD by site investigations which were carried out between December 2001 and 15 October 2004 and the results of which were notified to TW in or around September 2002, March 2003 and December 2004, occurred from the MoD’s pipe-work on all Sites. The period of the leakage for the Sites and the volumes of leakage for the Sites is in dispute between the parties. 15. TW within its charges scheme makes allowance in certain circumstances on the waste water element of TW’s bills.[34]In the further information supplied to MoD, TW explain that their waste water charges to customers are based on the overall costs of providing these services or facilities plus a reasonable return on capital. Metered waste water charges are the same across the whole TW region and do not relate specifically to the level of usage by any one customer. There are circumstances where a proportion of water supplied will not be returned to sewer but will be consumed within a process (eg a drinks manufacturer). In such cases, the charges schemes provide for an abatement. However, where non-return is due to leakage, no abatement is given.[35]At paragraphs 6 and 7 of his witness statement, Mr Dooley explains how TW set prices each year for the provision of water and waste water services as follows: 6. “ The prices set each year for the provision of water and wastewater services are calculated by reference to the overall costs to TW of providing each service. These costs include operating and running costs as well as treatment and distribution costs. The prices are then applied to individual properties using the rules and principles set out in the charges schemes. The pricing formula for volumetric wastewater service allows for the fact that not all of the water supplied will necessarily be returned to a public sewer as wastewater. 7. TW volumetric charges for the wastewater service to any customer are calculated by applying the price per cubic meter to the quantity of clean water supplied as recorded on the meter, rather than by actual measurement of the quantity of wastewater discharged to the public sewer. The composition of the discharge makes it unsuitable to be measured exactly through a meter. An abatement may be granted if claimed for any water used legitimately which is not returned as wastewater to a public sewer, but water lost through leakage is excluded from any abatement so granted. The method of charging for wastewater is accepted industry practice and is the only practical way of calculating the amount to be charged for effluent discharged into public sewers. 8. If TW (and indeed other undertakers) did not adopt this approach there would be less incentive for customers to repair their leaking pipe-work. The long term effect of this could ultimately, in certain areas, cause ground water pollution if no remedial action was ever taken.”[36]Although Mr Dooley refers to a pricing formula, he does not explain what that formula is or how it allows for the fact that some water will not return to sewer. The volumetric charge for services to waste water going out to sewer is based on an assumption that that amount of waste water is equal to the actual volume of potable water supplied. Therefore, the actual sum charged to the customer is based on an assumed volume which may be incorrect.[37]Mr Dooley suggests that prices are set by reference to the cost of providing each service. It is said that the formula for the volumetric waste water service “allows” for the fact that not all water is returned to the public sewer. However, as TW accept, the customer does not in fact receive an allowance as a result of the pricing formula. In the pricing formula, TW’s costs are assessed on the basis that not all water supplied is returned to sewer. There is no element of credit or allowance to the customer as a result of the pricing formula. The customer is charged by applying the price to the assumed volume.[38]Mr Dooley’s assertion that the composition of the discharge makes it unsuitable for waste water to be measured exactly through a meter is answered by Mr Reddish in his second statement. He challenges Mr Dooley’s assertion and states that there are meters available which are capable of measuring the volume of sewerage. Those meters have not been widely installed as they are expensive and are not a statutory requirement. Undertakers choose to charge on an assumed volume basis because there is no industry or regulatory pressure to do otherwise. That assertion has not been challenged by TW.[39]Mr Dooley refers to the approach taken by a number of other statutory undertakers. The charges schemes adopted by six other undertakers have been produced and reference has been made to those prepared by Welsh Water, Yorkshire Water and South West Water. These adopt a similar approach to that taken by TW.[40]Clause 5 of the charges schemes makes provision for “abated quantity”. This applies only where it is shown to TW’s satisfaction that more than 10% of the measured volume is not discharged, and then only from the date on which that is brought to TW’s attention. As would apply to MoD, TW make an abatement in relation to the abated volume less 10%. Accordingly, there is a 10% threshold; unless the abated volume is greater than 10%, there is no entitlement to any abatement. If it is shown that the volume is incorrect by at least 10%, the 10% threshold remains, so that it is only the abateable volume above 10% which is subject to abatement. Although earlier schemes provided for the reduction of the volume of water the subject of the volume charge, there was no reference to this as the “abated quantity” until the 1997/98 charges scheme. It was in that year that the distinction between houses and other premises was introduced. TW contend that leakage is excluded from the abatement process.[41]Until 2002/3, the charges schemes did not differentiate between the causes of non-return to sewer. TW introduced into the scheme for that year the proposition that they could exclude from the calculation of volumes not returned to sewer “any quantity which in [TW’s] opinion has been lost through leakage.” It follows from this that, while the MoD accepts that, under the charges scheme, there is no entitlement to an abatement where the cause of non-return is leakage, until 2002/3, there was no such exclusion such as that for which TW contend.[42]TW has produced what it describes as a discretionary billing policy. This is not part of the charges scheme. It has no statutory basis. The policy appears to be amended at irregular intervals. The purpose appears to be to enable TW to consider making “leak allowances”, namely credit adjustments in respect of sums charged. TW describe this as a discretionary matter, and one which is subject to the customer fulfilling his obligations to maintain pipes and repair leakage, and they describe it as a “service over and above statutory requirements”. The available billing policies indicate that the leak allowance relates only to leaks, it is discretionary, applies only where the leak has been repaired, applies only where a claim has been submitted within 90 days of repair, and was, until 2003, limited to 3 years from the date of the repair. Thereafter, it has been limited to six months from the date of repair.

Jurisdiction

[43]TW’s case is that, pursuant to section 142, it has the power to fix charges for any services provided in the course of carrying out its functions. Such charges are exercisable in accordance with a charges scheme under section 143. In fixing the charges, TW may adopt such methods and principles for the calculation of charges as appear to it to be appropriate. Section 143 gives TW a discretion to make a charges scheme that fixes charges to be paid for services provided by the undertaker in the course of carrying out its functions. Sections 142 and 143 are therefore closely connected in their application. Any charges scheme must comply with both sections 143 and section 142.[44]Mr Nelson QC submits that, because it is a Condition of TW’s Instrument of Appointment to put in place a charges scheme which is compliant with sections 142 and 143, the enforcement authority in respect of the charges scheme so effected is the Director pursuant to section 18 of the Act. The MoD’s sole remedy (if TW’s charges were contrary to statute) would be to refer to the Director for an appropriate enforcement order. TW were required to effect a charges scheme which was compliant with section 143. If TW charge for services which they do not provide, their charges scheme is not section 143 compliant. MoD’s only remedy would be to request the Director to fix a charge which is referable to the volume of waste water disposed of.[45]Mr Nelson QC submits that the rationale for this statutory scheme is that Parliament intended that the regulatory framework set out in the Act should protect the consumer. As the court has recognised in other cases, the Director is best equipped to exercise the function of providing the balance between the undertaker’s need to impose charges to enable it adequately to finance its statutory functions and the protection of the consumer as regards the services and functions provided. It is for the Director, not the court, to decide whether the methods and principles for the calculation and imposition of charges protect the interests of the customer and secure a reasonable return for the undertaker. Mr Nelson QC derives support from the speech of Lord Nicholls at paragraph 12 of Marcic (to which I have already referred). And Lord Hoffman stated the position thus at paragraph 63 in Marcic:
“63 ….the exercise becomes very different when one is dealing with the capital expenditure of a statutory undertaker providing public utilities on a large scale. The matter is no longer confined to the parties to the action. If one customer is given a certain level of services, everyone in the same circumstances should receive the same level of services. So the effect of a decision about what it would be reasonable to expect a sewerage undertaker to do for the plaintiff is extrapolated across the country. This in turn raises questions of public interest. Capital expenditure on new sewers has to be financed; interest must be paid on borrowings and privatised undertakers must earn a reasonable return. This expenditure can be met only by charges paid by customers. Is it in the public interest that they should pay more? And does expenditure on the particular improvements with which the plaintiff is concerned represent the best order of priorities? These are decisions which the courts are not equipped to make in ordinary litigation…”
[46]The charges scheme required by Condition D gives the Director enforcement powers to ensure that competing interests of the consumer and the company are policed on an ongoing basis so that any dispute as to whether charges are permitted or not can be determined by an expert regulator. The undertaker is given wide discretion by section 142(4) to ‘fix charges…by reference to such matters, and may adopt such methods and principles for the calculation and imposition of the charges, as appear to the undertaker to be appropriate’. In approving a charges scheme pursuant to section 143(6) the Director has a crucial part to play in the undertaker’s exercise of the wide discretion granted by section 142(4). It is for the Director to decide whether the “methods and principles for the calculation and imposition of the charges” on one hand protect the interests of the consumer and, on the other hand, among others, secure a reasonable return on the undertaker’s capital. Decisions depending on whether the undertaker’s determination as to whether the methods and principles for calculation and imposition of the charges are valid are not suitable for a court. Such an approach would be contrary to the broad purpose of legislature’s intention in achieving a fair balance between the competing interests of the individual and the community by means of a statutory scheme administered by an independent expert regulator whose decisions are subject to judicial review. Only the Director is in a position to balance the competing public interests required in determining whether the charges levied by the undertaker should be allowed.[47]Mr Nelson QC submits that this approach finds some support in the Encyclopaedia of Environmental Law which at D23-140 in its commentary on the Financial Provisions Chapter 1 (in which section 143 is to be found) states: “Chapter 1 contains the statutory framework for the making of charges by water and sewerage undertakers. Many of the principles derive from those applicable to water authorities under previous legislation, but now their practical implementation has to be read alongside the terms of the Instrument of Appointment made under s.6(3). A consequence of this interlocking of the statute and the Instrument is that in many instances what appear on the face of the Act to be discretionary powers available to undertakers turn out to be quasi-contractual obligations under the conditions of appointment, enforceable by s.18 enforcement orders and ultimately by a court injunction under s.22(4)”.[48]Mr Nelson QC submits that, as with the claimant in Marcic, the MoD here is seeking to circumvent the provisions of the Act by pursuing a claim for a common law remedy. To impose a common law remedy on top of a statutory scheme is inconsistent with what Parliament intended. This case, he submits, falls squarely within the Marcic principles.[49]The MoD contend that TW misconstrue section 18(8). Mr Onions QC submits that the section preserves the right to make a claim where the remedy sought is available in respect of an act or omission otherwise than its being a contravention of the licence conditions.[50]The MoD rely on the fact that no regulation has been made under section 150 of the Act, which provides for the Secretary of State to make regulations concerning billing disputes.[51]Mr Onions QC relies on the speech of Viscount Simonds in Pyx Granite:
“It is a principle not by any means to be whittled down that the subject’s recourse to Her Majesty’s courts for the determination of his rights is not to be excluded except by clear words. That is, as McNair J called it in Francis v Yiewsley & West Drayton UDC a fundamental rule from which I would not for my part sanction any departure. It must be asked then what is there in the Act of 1947 which bars such recourse. The answer is that there is nothing except the fact that the Act provides him with another remedy. Is it then an alternative or exclusive remedy? There is nothing in the Act to suggest that, while a new remedy, perhaps cheap and expeditious, is given, the old and, as we like to call it, the inalienable remedy of Her Majesty’s subjects to seek redress in her courts is taken away.”

Conclusion on jurisdiction

[52]In my judgment, the situation here is different from that in Marcic. The claimant in Marcic brought his claim in nuisance but was in effect seeking to enforce the general duty under section 94 of the Act to provide sewerage services. That section 94 duty falls within the scope of and is enforceable pursuant to section 18(8). The court concluded that that was a matter initially for the Director. The House of Lords said that, if there were liability in nuisance, then section 18 would not rule out that remedy. I do not derive from the overview of the Act in Marcic authority for the proposition that the effect of section 18(8) is to deprive MoD of a common law restitutionary remedy.[53]In my judgment, in this case the MoD (unlike the claimant in Marcic) are not seeking to side step the provisions of the Act. They are not expressly seeking relief under the Act. They do not expressly complain of contravention of a condition of TW’s Instrument of Appointment. They do not, for example, seek to enforce TW’s obligation to fix charges. There has throughout been a charges scheme in place. I am not persuaded that the MoD’s claim is in effect a claim for breach by TW of any of the provisions of the Act. They do not, in effect, seek to require TW to effect a section 142/143-compliant charges scheme. In their particulars of claim, the MoD allege that TW are in breach of sections 142 and 143 of the Act, and at paragraph 14.2 of their reply, they assert that a charges scheme which permits an undertaker to charge for services not provided would not be in accordance with the Act. However, they do not seek relief under the Act. Theirs is a common law claim in mistake for restitution. The relief they seek is pursuant to that claim and not pursuant to the Act. In my judgment, that claim does not fall within the scope of section 18(8).[54]Section 18(8) does not contain a clear exclusion of jurisdiction, of the sort envisaged by Pyx Granite such as to deprive the MoD of its right to seek redress in the court in respect of its restitutionary claim. There is no clear exclusion of jurisdiction provision which expressly deprives MoD of its right to bring the claim in the court.[55]Marcic made clear that a common law claim may not be brought when a remedy under the Act is available. Here, however, the MoD is not pursuing a claim which could instead be brought pursuant to the Act. In Marcic it was possible to identify the undertaker’s duties which could be enforced. That is not the position here. Questions were raised as to what enforcement action the Director would be able to take. Could he for example instruct TW to effect a different charges scheme? Even if that were so, how would it help MoD? If the charges scheme were ultra vires TW, would it follow that the Director had the power to deal with the MoD’s claim in restitution? Mr Nelson QC submitted that the Director did have the power to ensure that TW charged only for services provided. He had the power to decide whether or not money had been wrongly charged by TW. He had the power to order TW to repay any money so overcharged. That power extended both retrospectively and prospectively. I have no evidence to assist me with those assertions. I am bound to say that I find these to be ambitious submissions. It is not clear to me that the Director has the power in effect to award a customer a restitutionary remedy such as that which the MoD is claiming. It is not clear to me that the Director has the power to order an undertaker to repay to a customer money overpaid by mistake for services not in fact provided.[56]I conclude that the court does have jurisdiction to determine the MoD’s claim. I therefore proceed to determine the preliminary issues. These related to liability not quantum.

Preliminary issues

[57]TW’s case is that sections 142 and 143 entitle them to fix charges and to charge for provision of sewerage services by reference to an assumed volume. Section 142(4) gives TW a wide discretion to “fix charges ….. by reference to such matters and may adopt such calculations and imposition of the charges, as appear to the undertaker to be appropriate”. The exercise of that discretion is subject to scrutiny by the Director. The Director is required, by sections 2(2) and 2(3) to protect the interests of the consumer in the fixing and recovery of water and drainage charges, and to secure that a drainage undertaker, amongst other things, secures a reasonable return on capital. Each of the relevant charges schemes has been approved by the Director. The presumption must be that the Director has considered the competing interests of the consumer and the undertaker and concluded that charging for sewerage services by means of an assumed volume is appropriate within the meaning of section 142(4). Charging customers for sewerage by an assumed volume for the provision of such services or facilities is within the discretion granted to TW by sections 142 and 143.[58]In my judgment, TW’s power to charge for waste water services is limited to a power to charge for services actually provided by TW. A charges scheme which permits TW to charge for services which it can be demonstrated have not been provided is not in conformity with the Act. TW define the nature of the service they provide by reference to the volume of waste water discharged. One can see this from TW’s bills, for example. TW’s case is that they do not charge by reference to the volume of water treated but instead, as section 144 permits, for the facility which they make available to MoD for waste water disposal. In my judgment, the service for which TW charge is the disposal of a volume of waste water. TW calculate the price by reference to a formula which has not been explained. The formula price is applied to an assumed volume of waste water. Section 142 permits TW to charge for services provided. In my judgment, that means a service actually provided – that is disposal of a volume of water. In circumstances where it can be shown that TW are charging by reference to a service which they have not, in fact, provided TW are in my judgment acting beyond their power. Section 142(1)(b) limits an undertaker’s right to demand and recover charges from those to whom the undertaker has provided services. The Act does not permit an undertaker to charge a person to whom he provides no service or a lesser service than that for which it charges.[59]Mr Nelson QC submits that it is important to have regard to the fact that services performed or facilities provided by TW are those which relate to the provision and maintenance of the public sewer. At all material times, such services or facilities were provided and the MoD had the benefit of these. Mr Onions QC submits that TW in fact charge for the taking away of waste water. They themselves define their services by reference to the volumetric basis; this can be seen for example in their bills. In my judgment, in relying on the proposition that the service provided is the sewerage network, TW confuse the duty under the Act to provide a network with the services actually provided to customers in the course of carrying out their statutory functions. It is in the course of carrying out their statutory functions that TW provide services for which they can charge. Here, we are concerned with the services for which TW charge and not the provision of the sewerage network. Accordingly, that proposition does not assist TW.[60]In my judgment it is not sufficient for TW to say that they are entitled to payment by reason of their charges schemes, which have been approved by the Director. A charges scheme which permits an undertaker to charge for a service which it has not provided does not, in my judgment, fall within sections 142 or 143 but is outside the Act.[61]TW’s charges scheme provides that the customer shall pay for metered supplies the relevant rate for the volume of water measured by the meter. As Mr Onions QC pointed, out, if it could be shown that the meter was inaccurate, so that it recorded a greater volume of water in than had actually been supplied, it is unlikely that TW would suggest that it should not have to repay money mistakenly paid by a customer on the incorrect assumption that the meter was accurate. There is no difference in principle between such a situation and that which obtains here.[62]The MoD’s claim is in respect of leaks. TW contend that they offer a leak allowance by way of their billing policies (as outlined in paragraph 42 above). The circumstances in which abatement is offered are limited. The approach under the billing policies is less favourable to the MoD than the possible outcome of its common law claim. In my judgment, TW’s discretionary billing policy does not have the force of law. It does not preclude the MoD from pursuing their common law claim.[63]TW assert that a reason for adopting the approach which they do in their charges scheme is that there would otherwise be less incentive to customers to repair leaking pipes. However, as Mr Onions QC points out, that would appear to refer to TW’s billing policy and not to the charges scheme. Further, it was not until 2002/3 that the charges scheme excluded leaks from abatement.

Preliminary issues

[64]The preliminary issues and answers are as follows: Issue 1 Whether TW is entitled by means of a statutory scheme under section 142 and 143 of the Water Industry Act 1991 to fix charges and charge for the provision of sewerage services by reference to an assumed volume of waste water regardless of whether or to what extent services are or were provided in respect of that volume of water to any given customer (a). so that a customer may be charged for a service or a volume of service which has not actually been provided and so TW can charge for sewerage services that either have not been provided or have not been provided to the extent charged for, and thus regardless of whether or to what extent the services are actually provided; and/or (b). So as to limit the extent to which account is to be taken, (whether by way of an adjustment, abatement, rebate or reduction in charges) when the actual volume of service has not been provided or leaves the extent to which account is to be taken (whether by way of an adjustment, abatement, rebate or reduction in charges) when the actual volume of service has not been provided subject to the discretion of TW. For the reasons set out earlier, the answer to issue 1 is: No. Issue 2 Not pursued Issue 3: If the answer to 1 is no, is MoD now entitled to recover money paid to TW for the provision of such sewerage services which were not in fact provided, as by reason of the facts alleged in MoD’s witness statements? The basis on which the MoD pursue their claim, namely repayment of sums paid by mistake, is not challenged by TW. TW’s charges scheme does not provide TW with a defence to that claim. The answer to issue 3 is: Yes. Issue 4 Whether the terms of TW’s annual charges scheme comply with sections 142 and 143 of the Act so as to entitle TW to impose charges on a customer for sewerage services in relation to the discharge of waste water where such waste water is not discharged, due to leakage, into the public sewer. The answer to Issue 4 is: No Issue 5 Is the effect of the charges scheme as a matter of construction that no retrospective rebate is payable by TW in respect of past periods where there was no or a reduced discharge to the public sewer as alleged in paragraph 15.1.2.1 of the defence. In paragraph 15.1.2.1 of their defence, TW say this:
“Where TW is satisfied that more than 10% of waste water has not been discharged to a public sewer, the abated quantity for the purposes of calculation of the future charge to the customer is reduced from the date on which this is brought to TW’s attention. On a proper construction of the charges scheme, no retrospective rebate is payable in respect of past periods when there was no discharge to the public sewer.”
The answer to Issue 5 is: Yes, but this does not prevent the MoD pursuing a claim for repayment of money paid by mistake. Issue 6 Whether the circumstances of the non-return to sewer (i.e. by leakage) is relevant to determining the question of TW’s entitlement to charge for sewerage services at a given quantity if that quantity of service is not in fact provided. Prior to 2002/3 TW made no distinction between different circumstances of non-return to sewer. After that date, the circumstances of non-return are relevant, with the consequence that, from 2002/3, there is no entitlement to an abated quantity. The answer to Issue 6 is: Before 2002/3, no; after 2002/3, yes. However, these do not prevent the MoD pursuing a claim for repayment of money paid by mistake. Issue 7 Whether it is relevant if the MoD is entitled to an abatement for leakages pursuant to the terms of TW’s charges scheme. The answer to Issue 7 is: No. Issue 8 If the answer to question 7 is yes, is the claimant is entitled to such an abatement The answer to Issue 8 is: Not applicable Issue 9 If the answer to question 8 is yes, whether TW is entitled to limit the period in respect of which such abatement will be paid in accordance with its Billing Policy Document. The answer to Issue 9 is: Not applicable Issue 10 If the answer to question 7 is no, whether this claim for reimbursement of monies paid to TW should be considered as a question of legal entitlement due to monies having been paid by way of mistake and TW having been unjustly enriched. The answer to Issue 10 is: Yes 19 January 2006