The Mayor & Burgesses of the Royal Borough of Kingston-Upon-Thames v Moss

The supply of water and sewerage services is governed by the Water Industry Act 1991. Under section 6 of that Act the Secretary of State has the power to appoint a company to be a water undertaker for an area within England and Wales. As mentioned, TWU is the undertaker for Kingston’s area. A water undertaker has a statutory duty to supply water to domestic premises (“the domestic supply duty”); and to maintain the connection between the undertaker's water main and the service pipe by which that supply is provided to those premises: section 52 (1). Two categories of persons can demand a domestic supply of water: an occupier of the premises or a

The domestic supply duty is enforceable by “the consumer”: section 54 (1).

A water undertaker has power to disconnect a service pipe, or to cut off a water supply, if it is reasonable for the disconnection to be made, or the supply cut off, for the purpose of carrying out any necessary work: section 60 (1). Except in an emergency, before exercising that power the water undertaker must give notice to “the consumer”: section 60 (3). It also owes a duty to “the consumer” to carry out the works with reasonable dispatch; and not to interrupt a supply of water for more than 24 hours without making an emergency supply available: section 60 (4).

The “consumer” is a person who is liable to pay charges to the water undertaker in respect of the supply: section 93 (1).

Section 142 (1) gives a water or sewerage undertaker the power to fix charges for services provided in the carrying out of its functions and to demand and recover those charges from any person to whom the undertaker provides services. In the case of a dwelling the charges must be fixed by a charging scheme made under section 143.

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

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 any premises which—

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

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.”

Under section 144, therefore, liability to pay water charges is that of the occupier “except in so far as provision to the contrary is made by any agreement to which the undertaker is a party”. One question that arises is whether the agreement between Kingston and TWU is an agreement which provides to the contrary.

Section 150 gives the regulator power to fix maximum charges for services provided with the help of undertakers’ services. It provides:

a facility for that person to have access to a supply of water provided by a water undertaker in pipes, or to make use of sewerage services provided by a sewerage undertaker, is made available to that person otherwise than by the undertaker;

that person is provided with a supply of water in pipes by a person to whom the water is supplied, directly or indirectly, by a water undertaker; or

that person is provided with sewerage services by a person who, for the purpose of providing those services, makes use of sewerage services provided, directly or indirectly, by a

the amount of the excess; and

if the order so provides, interest on that amount at a rate specified or described in the order,

In 1999, the regulator published a consultation paper on the use of its power to make a Water Resale Order. The consultation paper said (among other things):

Following the consultation exercise the regulator made the Water Resale Order 2001 and, subsequently, the Water Resale Order 2006. The agreement with which we are concerned straddles the period covered by both orders; but the definitions in each order are the same. It is necessary to refer only to the 2001 Order. It contains a series of definitions which include:

provides to any Purchaser a supply of piped water which a Water Undertaker has supplied, directly or indirectly, to the Reseller; or

provides to any Purchaser a sewerage service which a

If a person is a re-seller, the charges he may pass on are capped by a formula which differs from the formula to be found in a charges scheme. The formula also differs as between the two Orders, but the differences need not concern us.

Section 1 of the Local Authorities (Goods and Services) Act 1970 gives local authorities power to enter into agreements with public bodies to provide the public body with administrative, professional or technical services. Paragraph 20 of Schedule 1 to the Water Consolidation (Consequential Provisions) Act 1991 provides:

This power replaced a similar power previously contained in section 32A of the Water Act 1973. It is this power which Kingston says that it has been exercising in collecting water charges from its tenants. In other words, it has been acting “on behalf of” TWU in collecting from its tenants’ charges fixed by TWU. There is no doubt that it could have exercised this power. The question is whether it did.

The critical question, then, is whether TWU has supplied Kingston, directly or indirectly, with a supply of piped water and/or a sewerage service. Kingston argues that it has not. It says that TWU has supplied water directly to the tenants of the various dwellings, and that its own function was merely to collect water charges on TWU’s behalf. Mr Moss, on the other hand, says that under the terms of the agreement, TWU has supplied piped water and sewerage to Kingston; and that he has bought the water and sewerage service from Kingston in the shape of the water charge payable under the terms of his tenancy. He also says that the agreement between Kingston and TWU is one that places the responsibility on Kingston to pay water charges.

One might have thought that the answer to the question posed on this appeal is simply a question of the interpretation of the Water Resale Orders and the 2003 agreement between Kingston and TWU. But Mr Bhose QC, for Kingston, submits that the 2003 agreement cannot be understood without reference to previous agreements made between Kingston and a previous water authority under a different statutory regime.

There are, undoubtedly, cases in which a previous contract between the same parties has been considered as part of the relevant background. In almost all cases, however, consideration of a previous contract has been found to be unhelpful. Even where the court has considered a previous contract made between the same parties, there is a difficulty as Rix LJ pointed out in HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] 2 Lloyd’s Rep 161 at [83]:

Moreover, the material upon which Mr Bhose wished to rely included not only a previous agreement between different parties under a previous statutory regime, but also pre-contractual negotiations passing between them, and documents that were internal to Kingston. In a number of instances we were asked to infer that there had been communications between Kingston and Thames Water Authority (TWU’s predecessor) that were undocumented. The totality of that material goes far beyond anything sanctioned by the principle that a contract must be objectively interpreted. Although there is some similarity between parts of the 2003 agreement and the earlier correspondence, there are also significant differences between them. Mr Bhose pointed to the similarities, while glossing over the differences. It must also not be forgotten that one of the purposes of entry into a formal written agreement (especially one with an “entire agreement” clause) is that the written agreement will contain a definitive record of the parties’ rights and obligations. In addition, clause 9.1 of the 2003 agreement states that the agreement would supersede all previous arrangements or agreements relating to the matters referred to in it. That is a clear recognition of a fresh start. The attempt to match clauses in the 2003 agreement to parts of the earlier correspondence is not, in my judgment, the correct way to interpret a formal written contract of this kind.

In the event the judge did consider that material, and made his findings at [55]:

Kingston paid to TWA and, later, TWU the charges levied by TWA and, later, TWU for the relevant premises less a voids allowance and a sum which was called commission;

The sum which was called commission was to compensate Kingston for the cost of collecting the charges and for the risk of non-recovery;

There was no formal agreement which recorded these arrangements;

The arrangement was described by TWA in its letter of 27

TWA and, later, TWU did not bill the council tenants in Kingston for water and sewerage;

Kingston charged its council tenants for water and sewerage by reference to TWA's and, later, TWU's charges for the relevant premises.”

The grounds of appeal did not challenge those factual conclusions. Parties filing appellants’ notices should clearly identify any challenges to the lower court's findings of fact in their grounds of appeal and squarely address those challenges in their skeleton arguments, so as to ensure that (i) the judge considering the application for permission to appeal appreciates that such a challenge is being mounted and can decide whether or not to grant permission for it and (ii) if permission is granted, the members of the court hearing the appeal can prepare accordingly: Taylor v Van Dutch Marine Holding Ltd [2020] EWCA Civ 353, [2020] Bus LR 1486 at [63]. It also gives the opposing parties proper notice of the points in issue; and enables them to prepare their response. This applies both to the question whether a judge’s findings of fact were wrong; and also to the question whether the judge should have found further facts.

The high point of Mr Bhose’s case on the previous arrangements was a letter from Thames Water Authority to Kingston of 27 October 1977. That, he said, was an offer which Kingston had accepted such as to bring a binding contract into existence. That submission depended on selecting parts of the letter, much of which is expressed in very tentative terms, as identifying the terms (or, as Mr Bhose put it, the “core terms”) of the putative contract. But in the case of the proposal about void allowances, for example, two methods of calculation were proposed neither of which was quantified. The only document amounting to an alleged acceptance that we were shown was a resolution of Kingston’s finance and general purposes sub-committee, dated over four months later, which purported to accept “arrangements” with Thames Water Authority, including a void allowance of 1.75% in respect of water rates. That figure does not feature in the letter of 27 October 1977. There is no direct evidence of a communicated acceptance; and no evidence about what happened between 27 October 1977 and the resolution of 1 March 1978.

In addition, the judge made no finding that there was any obligation on Kingston’s part to collect water charges on behalf of Thames Water Authority; and none could be teased out of the correspondence that we were shown. Finally, it seemed highly likely that precisely the same issues of classification of the pre-2003 arrangements would have arisen as arise under the terms of the 2003 agreement.

Having considered the material, the judge held at [86] that it was unhelpful. I see no ground upon which that conclusion could be impeached. In essence, Mr Bhose’s argument under this head assumed what he needed to demonstrate.

There are many features of the 2003 agreement which, taken together, point unerringly to the conclusion that Thames supplied piped water and sewerage services to Kingston; and that the agreement is one which replaces the liability of the occupier under section 144:

Kingston is described as “the Customer.” Labels like these are not chosen at random. They usually encapsulate the concept that they are intended to represent. If Kingston is the Customer, it is the recipient of the provision of a good or service; not merely an intermediary.

Recital (3) says that the Customer “will pay for the Services”, rather than saying that it will collect charges payable to TWU. An agreement to pay indicates primary liability.

Clause 2.1 repeats that the Customer “shall pay for all the Provider’s charges”.

Clause 2.2 says that the Charges “will be raised” by applying the relevant tariffs. But that is only the starting point. What Kingston is actually liable to pay is the tariffs “less the allowances and reductions” to which Kingston is entitled under clause 3. Clause 4.1 says that TWU will send Kingston “an invoice”. An invoice usually denotes a sale. Kingston must pay the charges irrespective of whether it can recover anything from its tenants. The risk of non-payment is therefore Kingston’s rather than TWU’s.

Clause 3.1 reduces the tariffs by 3.5 per cent in recognition of the fact that in any given year some properties will be unoccupied for short periods. However, it appears that the charge for an individual property is not waived in respect of a period during which it is empty. This means that Kingston will be paying water charges in circumstances in which there is no occupier liable to pay; and hence no other person potentially liable to TWU. This can only be a primary liability. It is difficult to see how payments made by Kingston to TWU have different characteristics when they are paid under a single agreement. As Mr Westgate QC submitted on behalf of Mr Moss, this provision clearly breaks any link between the charging scheme promulgated by TWU and liability under the 2003 agreement.

Under clause 4.2 the charges are payable in 8 instalments from April to November, whereas Kingston’s tenants pay their charges weekly. Moreover, it appears that no charge is made from December to March, whereas Kingston’s tenants continue to pay their weekly charges.

If Kingston does not pay on time, clause 4.5 requires it to pay interest. So the risk of late payment is borne by Kingston rather than TWU.

Clause 6 deals with a year-end reconciliation statement. Amongst other things, clause 6.6 envisages that even if Kingston has demolished properties, it may be still be liable to pay charges unless it gives timely notice to TWU.

The only possible counter-indications are that:

Clause 3.2 provides that after the deduction under clause 3.1 (i.e. the allowance for voids) “the balance of the Charges will be reduced by a further 9.3% by way of the Customer’s commission”.

Clause 4.6 requires Kingston to send TWU an invoice “in respect of any” VAT that is payable in respect of the commission.

Although the reduction under clause 3.2 is referred to as “commission” it does not carry any of the hallmarks of a commission. Moreover, it is referred to in clause 2.2 simply as a “reduction” or “allowance”. A commission is usually a payment due from principal to agent where the agent has effected some actual transaction on the principal’s behalf. Typically, the agent will have sold goods or collected monies on behalf of the principal. The commission will generally be a percentage of the proceeds of what the agent has actually achieved. But in this case the commission is not dependent on what Kingston actually collects from its tenants. What it is liable to pay TWU is fixed by the agreement, whether the tenants pay or not. Although called a “commission,” it is in reality no more than a reduced price reflective of the fact that Kingston has relieved TWU not only of the administrative burden of collecting water charges from tenants individually; but also the risk of non-payment and late payment.

The provision of water and sewerage services is zero rated for VAT. So the requirement of an invoice under clause 4.2 is said to show that there was an agency relationship between TWU and Kingston. But, as the judge pointed out at [63], the clause refers to “any” VAT payable; so the agreement contemplated that there might be none to pay. The so-called “commission” encompassed both the risk of nonpayment by individual tenants, and also the administrative burden of collection. Mr Bhose asserted and accepted that on his analysis only the latter could be a taxable supply; and that each of the 8 payments in any given year was a separate supply. There would, therefore, have to be a series of apportionments between that part of the so-called “commission” referable to the risk of non-payment, and that part which was referable to the supply of a service. The 2003 agreement contained no machinery or guidance about how to do it. Depending on how much Kingston actually managed to recover from its tenants during the relevant period, the apportionment might be different each time. This is an improbable exercise for the parties to have intended.

Mr Bhose placed some reliance on clause 7.1 of the 2003 agreement which provided that it would commence on 1 April 2002. That element of retrospectivity, he said, showed that the parties intended to achieve continuity. In the first place, that argument is inconsistent with clause 9.1 which states expressly that the 2003 agreement was intended to supersede all previous arrangements. Second, since the previous arrangements themselves lead to no clear answer, the effect of the 2003 agreement must be found within its own terms.

Mr Bhose relied on previous decisions of this court about different forms of agreement made between water authorities and local authorities. The most important was Rochdale MBC v Dixon [2011] EWCA Civ 1173, [2012] HLR 6.

Before considering that case in any detail, it is worth recalling what Sir George Jessel MR said in Aspden v Seddon (1874-75) LR 10 Ch App 394:

The principal issue in Rochdale was whether the local authority had entered into an agreement with the water authority to collect water charges on its behalf. This court held that under section 1 of the Local Authorities (Goods and Services) Act 1970 it had the power to do so and had exercised it. The impact of the Water Resale Orders

In my judgment, there are many differences between the agreement considered in the Rochdale case and the agreement in our case. The main ones are:

Recital C of the agreement in that case stated that it was “an agreement for the collection and recovery by the council on behalf of the company of charges fixed by the company for the supply of water and sewerage services.”

The “Customers” under that agreement were the tenants; not the local authority.

Clause 2.1 of the agreement contained an obligation by the local authority “to provide the services”.

Clause 2.2 contained express authority given by the water authority to the local authority “to collect the charges on behalf of the company.”

By clause 3 the local authority agreed to use reasonable skill and care. It also agreed to ensure that all customers (i.e. the tenants) were correctly invoiced.

By clause 4 the water authority agreed to deal with all inquiries and complaints from customers (i.e. from the tenants).

All these points (and more) were made by Rix LJ at [41].

In contrast with the agreement considered in Rochdale, the agreement in our case:

Does not refer to the collection of charges from Kingston’s tenants. They are not referred to at all.

Contains no authority conferred by TWU for Kingston to act on its behalf.

Contains no obligation by Kingston to provide any services to TWU, let alone an obligation to perform them with reasonable skill and care. Mr Bhose submitted that such an obligation should be implied. But apart from the multiple ways in which such an obligation could be framed (an absolute obligation, a best endeavours obligation, a reasonable skill obligation etc) which are themselves an objection to an implied term, the 2003 agreement works perfectly well without such an obligation. Kingston pays TWU whether it has collected from its tenants or not.

Contains no obligation on the part of Kingston to account to TWU for any monies that it in fact receives.

Contains no obligation by Kingston to ensure that its tenants are correctly invoiced.

Contains no obligation by the water authority to deal with customer complaints.

In initially attempting to support its preferred interpretation of the agreement by reference to Rochdale, Kingston was, in my judgment, committing the very mistake that Sir George Jessel MR deprecated. To be fair, however, Mr Bhose did not press this in oral argument.

Mr Bhose submitted that even if Kingston was not TWU’s agent for the collection of water and sewerage charges, it nevertheless collected the charges “on behalf of” TWU and was thus exercising the power in paragraph 20 of Schedule 1 to the Water Consolidation (Consequential Provisions) Act 1991. The judge dealt with that argument at [78]. He said:

I agree.

In addition, Mr Bhose’s argument was based on the premise that the collection by Kingston of water charges “on behalf of” TWU was incompatible with its being a water re-seller. That may be so, if “on behalf of” is given the narrow meaning of agency. But if the meaning of the phrase extends to “in place of” or “instead of” there is, in my judgment, no incompatibility. That is another reason for rejecting Mr Bhose’s argument.

Mr Bhose submitted that if the 2003 agreement meant what the judge said it meant, then Kingston had made a very bad bargain; and had also deprived its tenants of valuable rights which they would otherwise enjoy as “consumers”. He went on to say

I accept that the legal background is a relevant factor in interpreting a contract. There is no direct evidence that either party knew of the Water Resale Orders, although it is a fair inference that TWU did. Whether Kingston did is more doubtful. I accept also that if there are two realistic interpretations of a contract, on one of which it is valid and on the other of which it is invalid, the court will choose that interpretation which validates the contract. In this case, however, the 2003 agreement is a valid agreement, as between TWU and Kingston, whether or not if falls within the scope of the Water Resale Orders. So the validation principle does not apply. Nevertheless, the process of interpreting a contract, and classifying or categorising it according to some legal description, are different processes.

In Agnew v Commissioner of Inland Revenue [2001] 2 AC 710 the Privy Council considered whether an agreement created a fixed charge or a floating charge. Lord Millett explained:

To much the same effect, Buckley LJ said in Shell-Mex and BP Ltd v Manchester Garages Ltd [1971] 1 WLR 612:

So in this case, one must first interpret the 2003 agreement to see what substantive rights and obligations it contained; and then see whether it meets the terms of the Water Resale Orders. In my judgment it does. It may well mean that Kingston made a bad bargain but that cannot change the effect of the agreement. I might also add that,

As far as loss of rights is concerned, Mr Bhose’s point was that if Kingston was “the consumer” as defined by the legislation, then the obligations of the water undertaker were owed to it, rather than to the occupier. The loss of these rights seems to me to be more of a theoretical than a practical concern. In any event since the Act expressly permits the water undertaker to enter into an agreement placing liability for water charges on someone other than the occupier, that potential mismatch is inherent in the scheme of the Act. But even if I am wrong about that, the loss of those rights is simply a consequence of the agreement that Kingston in fact made.

There is, in my judgment, no real doubt that under the terms of the 2003 agreement TWU supplied water and sewerage services to Kingston, rather than to Kingston’s tenants. The agreement was thus an agreement “to the contrary” for the purposes of section 144. It follows that under that agreement Kingston was a re-seller with the meaning of the Water Resale Orders.

Kingston raised one further ground of appeal relating to the interpretation of a clause in Mr Moss’ tenancy agreement. But that ground only became relevant if Kingston succeeded on the main ground. Since it has not, no more needs to be said about the detailed terms of the tenancy agreement.

Accordingly, I consider that on the main issue raised on this appeal the judge was right for the reasons that he gave; and that Newey J was also right in his interpretation of an agreement in the same form between TWU and Southwark LBC: Jones v Southwark LBC [2016] EWHC 457 (Ch), [2016] PTSR 1011.

I would dismiss the appeal.

I agree.

I also agree.

The Customer is a Local Housing Authority within the meaning of the Housing Act 1985

The Provider is a water and sewerage undertaker within the meaning of the Water Industry Act1991 ("the Act") and provides water and sewerage services ("the Services") to premises ("the Premises") managed by the Customer in its capacity as Local Housing Authority.

The Provider and the Customer have agreed that the Customer will pay for the Services in respect of some of the Premises in accordance with the provisions of this Agreement.

a monthly list of Long Term voids, defined as Unmetered Premises that have remained unoccupied for a continuous period of three calendar months or more, specifying in the case of each one that period during which it has remained unoccupied; and

a list of additional Unmetered premises acquired and/or disposed of by the Customer.

the Customer will send to the Provider a list of all of the Unmetered Premises together with the occupiers names; and

the Provider will send a final Reconciliation to the customer together with any payment to which the customer may be entitled. However, if the final Reconciliation shows a final payment due to the Provider, a final invoice ("THE Final Invoice") will also be included.

Law

THIS Agreement shall be governed and construed in accordance with the laws of England and any dispute or difference arising hereunder shall be subject to the jurisdiction of the English courts.

NOTHING in this Agreement shall in any way prejudice or exclude the exercise by the Provider of any of its statutory or common law rights and powers arising otherwise than by virtue of this Agreement.