Southern Gas Networks Plc v Thames Water Utilities Ltd

The Claimant is a gas undertaker. It owns gas mains buried underground in the street which are used to transport gas to its customers. It is an undertaker within Part 111 of the New Roads and Street Works Act 1991 (the NRSWA 1991). In particular, the Claimant owned a gas main buried below Crofton Road in Orpington.

The Defendant is a statutory undertaker responsible, amongst other matters, for supplying water to its customers under The Water Industries Act 1991 and, in particular, the Defendant owned the water main laid underground in Crofton Road, Orpington.

The Claimant seeks to recover Failure to Supply Gas (FSG) payments made to some 1683 of the Claimant's customers, in respect of an incident of water ingress in the Crofton Road area of Orpington from the Defendant's water main. The escape of water occurred in December 2012 with damage to the Claimant's gas main on the 29th/30th December 2012.

The experts, in a helpful joint statement dated 4th April 2016, state that the risks caused by water ingress into a gas network include:

“(a)

Movement of water leading to uncontrolled restoration of supply;

(b)

The specific risk associated with the uncontrolled restoration of supply is fire/explosion following ignition of gas which had entered the property because the consumer's Emergency Control Valve (ECV) or appliance had not been turned off immediately after the time when the gas supply had been lost;

(c)

Low gas pressure leading to flame failure and unburnt gas entering the property in the absence of appliance flame supervision devices leading to the risk of fire and explosion;

(d)

Combustion at low pressure leading to the production of Carbon Monoxide (CO) which is toxic and hence is a health hazard;

(e)

Water that was not extracted from the originally affected area of the Incident may migrate to other parts of the network and cause future problems.”

What happened on this occasion is summarised in the Statement of Agreed Facts:

“Summary. By way of summary, the following facts are agreed:

(1)

SGN's obligation to make FSG payments to customers under the Gas (Standards of Performance) Regulations 2005 (as amended) arose after the expiry of a period of 24 hours from the time when the gas supply to such properties was initially interrupted (i.e. they did not have any gas supply, or the gas supply was insufficient and/or fluctuating) where such supply has not been resumed, not from the time when the 'Emergency Control Valves (ECVs)' are turned off;

(2)

In the vast majority of cases, gas supply was initially interrupted by the ingress of water rather than by the isolation of the ECVs (which occurred later);

(3)

More generally, by reference to paragraph 80 of the gas experts' joint statement, it is agreed that there is a time lag between events (d) to (g) and (h) and (i) (i.e. the gas supply is initially interrupted under (d) before the ECVs are turned off under (h)); and such time lag will vary from incident to incident and property to property. The time lag will depend on considerations such as mobilisation of personnel, assignment of those personnel to specific roads, and access to properties: (James B/2/10, paras.18-21).”

It is accepted by both parties that the escape of water caused damage by (a) burning a hole through SGN's gas pipe and (b) infiltrating SGN's network.

The sums claimed in respect of the FSG payments in Crofton Road amounted to £190,910. The Crofton claim for FSG payments was compromised in the sum of £178,000 subject generally to liability but resolving contributory negligence quantum and interest issues. Whilst the sum in dispute is relatively modest, the parties maintain that the issues in this action are of general importance.

The Crofton Road claim also included a claim for loss and expense caused by water ingress over and above the FSG payments. At the time of the commencement of proceedings, the Defendant had paid £550,000 by way of interim payment and, after a CMC in July 2015 before Mr Justice Stuart-Smith, the parties agreed a compromise under which the Defendant agreed to pay a further £184,000 exclusive of costs.

A trial had been fixed with a time estimate of 12 days for this action and the Phipps Claim HT-2014-000090. The trial estimate was reduced to 6 days when the Phipps claim was adjourned generally.

The parties, through the good work of their respective legal teams, have not only agreed quantum but have also produced a document entitled "Agreed Facts" and, as a result of these agreements, there was no need, and neither party requested permission, to call or to cross-examine any of the factual or expert witnesses.

The trial which lasted just over one and a half days focussed upon the parties' lengthy written and oral submissions on the remaining issues:

There was a third issue proposed by the Defendant:

This issue was not raised at the PTR. It was raised very late in the day. The Claimant submitted that disclosure and further factual and expert evidence might be required before that issue could be resolved. In the circumstances, I considered that it was inappropriate to answer that issue as part of this Trial and, accordingly, l adjourned determination of that issue generally at the beginning of Day 1 of the Trial.

I should note at the outset that as well as hearing detailed and lengthy written submissions and detailed and lengthy oral submissions, I have been taken to about 30 authorities. I have read and considered each of them in forming this Judgment, but in this Judgment l will only refer to those authorities which I consider are necessary to reach clear answers to the two issues before the court. In particular I do not consider it is necessary or appropriate to decide whether or not Ramsay J's decision in Dobson v Thames Water No. 1 [2007] EWHC 2021 TCC was wrongly or rightly decided in order to answer these two relatively narrow issues of statutory construction.

Before dealing with each issue in turn, I will summarise the admitted particulars of negligence in this action:

“16.

The escape of water from the Defendant's water main and/or the damage to the Claimant's gas main was caused by the Defendant's negligence.

PARTICULARS OF NEGLIGENCE

(a)

The Defendant carried out a repair to the water main which was insufficient to contain the water within the main;

(b)

The Defendant failed to inspect its main adequately or at all, either before or after its repair to the water main;

(c)

The Defendant failed to replace the relevant length of its damaged water main on or about 23 December;

(d)

The Defendant failed to put a system in place to respond swiftly to complaints of a burst main; either generally or once the burst had occurred on 23 December;

(e)

The Defendant failed to switch off its water supply and/or take any other steps to prevent escape of water, promptly once initial reports of water ingress into the gas system had been received by it;

(f)

The Defendant otherwise failed to take reasonable care for the equipment of other apparatus in the street which might be affected by discharges from its water main;

(g)

The Defendant failed to respond swiftly and/or adequately to the complaints of loss of gas set out above, until about 4.00am on 30 December 20l2.

17.

The Claimant will also rely on the principle of res ipsa loquitur.

(i)

Water pipes do not burst and/or run free for sufficiently long enough to cause damage to a nearby gas pipe, without there being negligence on the part of the Defendant.

(ii)

Repairs do not fail within 5 or 6 days of being effected without there being negligence on the part of the Defendant in the course of the repair.”

With regard to this claim in negligence the Defendant in its Reamended Defence pleaded as follows:

"The claim in negligence:

7A. The Defendant pleads as follows to the allegations of negligence at paragraphs 16 and 17 of the Particulars of Claim.

(a)

It is denied that the Defendant owed the Claimant any relevant duty of care at common law in relation to the matters complained of without prejudice to or derogation from the generality of the foregoing denial:

(i)

The Defendant repeats paragraph 15(c) below;

(ii)

In view of the fact that, as set out at paragraph15(c) below, the strict liability compensation scheme of the NRSWA 1991 provides a complete code and excludes the operation of common law negligence, the Defendant owed the Claimant no duty of reasonable care at common law and accordingly has no liability in negligence in respect of the sums claimed at paragraphs 22 and 23 of the Particulars of Claim;

(b)

Without prejudice to the foregoing, subject to the Claimant establishing that a relevant duty of care was owed by the Defendant:

(i)

the Defendant admits breach of such a common law duty, and admits that such breach caused damage to the Claimant's Apparatus;

(ii)

liability for the losses claimed are not thereby admitted: The Defendant further addresses this issue under the "Loss and damage" section herein below,

(c)

The application of the maxim res ipsa loquitur is denied.”

I consider and so find that the allegations advanced at paragraph 16 of the Particulars of Claim are allegations that the Defendant failed properly to maintain its water main. There is an allegation that the Defendant failed to respond swiftly to complaints but the damage had occurred once those complaints of loss of gas had been made. Thereafter, it was submitted orally by the Claimant on Day 1, at page 34 of the transcript:

“There is no suggestion that SGN ever sat on its hands and did nothing, was not making good or was not taking the steps necessary in order to make good. The fact, as is admitted that there is a time gap between the event of somebody's gas going off and that person's ECV being turned off and the works to remove water commencing is, in a sense, neither here nor there. We say this is bespoken by the facts, if SGN from the moment that reports come in of loss of gas is taking the various steps that have to be taken to remove the water and turn the gas back on, and those steps obviously include - they are all in the agreed facts - turning off the ECVs and then removing the water, all that, we say is making good. We say the FSG payments run with the fact that during the period SGN are making good.”

Furthermore, I do not consider that the Claimant's complaints as to any delayed response are supported by the Agreed Facts. The Claimant's case is centred on the Defendant's failure to maintain the water main which caused damage to the Claimant's gas main.

It is common ground that Section 82 NRSWA (1991) imposes strict liability on undertakers for claims falling within its terms. The Claimant does not need to show negligence (section 82(3)(a)) and cannot be faced with a defence of statutory authority in respect of that strict liability claim (section 82(3)(b)). An undertaker is also liable (in effect via a non-delegable duty) in respect of its contractors and employees (section 82(5)). However liability does not extend to instances where the damage or loss is attributable to misconduct or negligence of the claimant or a third party: Section 82(4).

Now to section 82(1) and (2), which read:

“(1)

An undertaker shall compensate - (a) the street authority or any other relevant authority in respect of any damage or loss suffered by the authority in their capacity as such, and (b) any other person having apparatus in the street in respect of any expenses reasonably incurred in making good damage to that apparatus, as a result of the execution by the undertaker of street works or any event of a kind mentioned in subsection (2).

(2)

The events referred to in subsection(1) are any explosion, ignition, discharge or other event occurring to gas, electricity, water or any other thing required for the purposes of a supply or service afforded by an undertaker which - (a) at the time of or immediately before the event in question was in apparatus of the undertaker in the street, or (b) had been in such apparatus before that event and had escaped there from in circumstances which contributed to its occurrence.”

This issue turns on a short point of statutory interpretation. I do not consider that the obligation to make Failure to Supply Gas (FSG) payments to the Claimant's customers were expenses reasonably incurred in making good the damage to the Claimant's apparatus. The duty to make FSG payments arises under regulation 7(1) of the Gas (Standards of Performance) Regulations 2005 as amended. Regulation 7 is headed "supply restoration". Payments under the regulation are due - "where the conveyance of gas to a domestic customer's premises is discontinued as a result of a failure of fault in or damage to the pipe-line system operated by the relevant gas transporter" (reg.7(l)) and "is not resumed ... within the prescribed period'" of 24 hours (reg.7(2) read with Schedule 1 Part 1.

Whereas in section 82(1)(a) there is a wide liability to compensate the street authority or other relevant authority in respect of a any damage or loss a very much limited compensation is required under section 82(1)(b) to be provided to undertakers such as the Claimant. Section 82(1)(a) is wide enough to include consequential financial losses. Section 82(1)(b) is much more restrictive and excludes consequential financial losses. The expression "expenses reasonably incurred in making good damage" can, in my opinion and I so find, only relate to the expenses incurred in the execution of the necessary remedial works. The expression is not wide enough to include the modest compensation payments paid to customers who have lost their gas supply for long enough to trigger the FSG payments. These FSG payments are not required to be made as a result of the execution of remedial works in order to make good damage. They are paid because the supply of gas has been discontinued. It was not the need to remedy physical damage which gave rise to the Claimant's liability to make these payments. It was the interruption of the gas supply which triggered these payments. These payments will continue until the making good has been completed, but on the proper construction of the statute, the making good does not cause the Claimant's obligation to pay FSG payments to its customers.

Section 96(1) of NRSWA 1991 provides that these "expenses" include the relevant administration expenses, including an appropriate sum in respect of general staff costs and overheads. As found by His Honour Judge McGonigal in British Telecommunications Plc v Bell Cable Media Limited 2000 BLR 347 at page 348, paragraph 4.20-4.21:

“4.20.

Any expense must be 'reasonably' incurred. Whilst 'reasonably' appears in section 82(1)(b) and not in section 96(1), the requirement of reasonableness applies both to expenses recoverable under section 82(1)(b) and to those recoverable under section 96(1). However, in practice this requirement is likely to be relevant only in the case of direct expenses; for example, if an engineer spends an unreasonably long time in making a repair. Provided BT reasonably incurs an indirect expense in providing a resource for the purposes of its general business, then in my judgment, if that resource is used for damage repair, an appropriate part of the expense of that resource is reasonably incurred for damage repair. For example, if BT pays a high rent for premises and that is reasonable in the context of BT's general business, then a damager of BT's apparatus cannot object to the appropriate proportion of that expense being applied in making, good damage to apparatus on the basis that such expensive accommodation is not necessary for Damage Repair Work which is a small proportion of BT's engineering work.

4.21

Accordingly the position under the 1991 Act may be summarised as follows:

(1)

An undertaker who damages apparatus in a street is liable under the 1991 Act to compensate the owner of that apparatus for: (a) any expense reasonably incurred by that owner in making good the damage. That expense includes the cost of direct labour, (see further paragraph 6 below - Direct Costs - labour costs) and materials (see further paragraph 7 below - Direct Costs - materials used) and the reasonable charges of an outside contractor employed in making good the damage; (b) an appropriate proportion of any administrative expense of the owner (including overhead expenses and staff costs of a general nature) that is reasonably incurred for the general purposes of the owner's business if that expense: (i). was incurred to provide a resource which is used directly or indirectly in the process of making good the damage; or (ii). is sufficiently connected to the process of making good to be regarded as a relevant administrative expense."

I agree with that analysis and FSG payments which are regulatory compensation payments which gas operators must make to their customers when the gas supply has been discontinued and not resumed within a prescribed period are not costs or expenses reasonably incurred in making good damage to the damaged apparatus.

This section of NRSWA 1991 and this issue has been considered by the Court of Appeal in Yorkshire Electricity Distribution Plc v Telewest Limited [2006] EWCA Civ. 1418 where Lord Justice Buxton stated:

“Background:

This appeal concerns a dispute between an electricity supply company, Yorkshire Electricity Distribution pic [YEDL], and a cable television company, Telewest Limited [Telewest]. Both of them use the substratum of the public highway, YEDL for its electricity cables and Telewest for fibre optic cables encased in plastic ducting. From time to time it is necessary for YEDL to repair its cables. Because that has to be done while the cable is live, the engineers need a safe amount of space in which to work. On occasion they find access barred by Telewest's ducting, necessitating the cutting out of a section of the ducting so that the fibre optic cabling can be drawn back out of the way. The immediate dispute concerns liability for the cost of making good the ducting, Telewest claiming for that under section 82 of the New Roads and Street Works Act 1991 [the Act].

"Test cases"

2.

We are hearing appeals in five cases in which Telewest has brought such proceedings in the Technology and Construction Court. The total sum in issue is about £3,500. We were however told that the same dispute had arisen in many hundreds of other cases, and that these were test cases, intended to generate general principles that could be used in the litigation or, hopefully, settlement of the other disputes. There is an immediate difficulty about that procedure. In all of the cases the facts were hotly disputed. The judge made findings of fact that, unless disturbed, disposed of the cases, in several of the five examples without engaging the issues of general principle on which the parties had come to this court to seek enlightenment. We concluded in each case, for reasons that will be briefly indicated below, that the judge's factual findings were not open to challenge. Therefore, if we had followed the usual view of the limited role of this court, we would have dismissed the appeals on those grounds and gone no further.

3.

We have however concluded that in this case we would not be justified in taking so austere an approach. Even if the way in which the appeals were presented as test cases was misconceived, the general issues are important for both parties, and possibly for others in the industry, and considerable expense, and expertise, has been expended in exploring them. In what follows we therefore say a good deal about the law and its implications, and somewhat less about the actual cases with which we are seized. We also, in the hope of saving the parties further expense, and certainly in the hope of husbanding the resources of the legal system, make some helpful suggestions as to how matters might be managed in the future.

The statutory scheme.

4.

Part 111 of the Act is concerned with 'street works'. These are works in a highway other than those carried out by the highway authority for purely highway purposes (e.g. resurfacing). They are done by an 'undertaker', a person who has statutory authority, or a statutory licence, to place in or, more usually, under a street (as extensively defined by section 48(1) of the Act) any 'apparatus', or to inspect or maintain that apparatus. Both Telewest and YEDL are undertakers. Both Telewest's fibre optic cables and ducting and YEDL's electricity cables are apparatus.

5.

By section 82(l)(b) of the Act an undertaker shall compensate any other person having apparatus in the street in respect of any expense reasonably incurred in making good damage to that apparatus as a result of the execution by the undertaker of street works. That section imposes strict or absolute liability on the undertaker, a provision that is reinforced by section 82(3)(a) which provides in terms that the liability arises whether or not the damage or loss is attributable to negligence on his part or the part of any person for whom he is responsible. The only relief for the undertaker is found in section 82(4), which provides that his liability under section 82 does not extend to damage or loss which is 'attributable to' misconduct or negligence on the part of any third party; or of the person suffering the damage or loss or any person for whom that person is responsible.

6.

To dispose of an issue that was raised before us, though not in the event affecting the outcome of any particular case, we are satisfied that these provisions form a complete code, excluding the operation of the common law, in respect of the subject-matter that they address, the execution of street works under the authority of statute or of a licence. It would be very odd if Parliament had provided relief based on strict liability, but with a specific exemption, if it intended the common law of negligence nonetheless to continue in parallel with that scheme. That view is not displaced by section 82(6), providing that the section does not exonerate an undertaker 'from any liability to which he would otherwise be subject'. That saving, as Mr Cousins QC argued, is in the nature of the avoidance of doubt, and is directed at liability to third parties other than those listed as benefitting from the imposition of strict liability. If the draftsman had intended to say that the imposition of statutory liability between particular parties was without prejudice to rights of action at common law between those parties he had at his disposal much clearer and more direct ways of expressing himself.

7.

Also of importance in the present appeal is section 69. That provides that: (1) Where street works are likely to affect another person's apparatus in the street, the undertaker executing the works shall take all reasonably practicable steps - (a) to give the person to whom the apparatus belongs reasonable facilities for monitoring the execution of the works, and (b) to comply with any requirement made by him which is reasonably necessary for the protection of the apparatus or for securing access to it."

Both parties considered Lord Justice Buxton's observations, with which Lord Justice Dyson and Lord Justice Sedley agreed, in paragraph 6 to be obiter dicta and not binding upon this Court. I am not so sure. That Judgment said in terms it was to provide general guidance as to how this section was to be interpreted and the Court of Appeal said in terms that it wanted to dispose of the issue raised before them as to whether these provisions form a complete code excluding the question of the common law, in respect of the subject-matter that they address.

However, as both parties contend, assuming that for the purpose of this Judgment this decision is not binding on this Court, it is clearly very persuasive and, indeed, I am persuaded by its reasoning and I find myself in complete agreement with the Court of Appeal's analysis for the reasons set out below.

As Dyson JSC said in R (Child Poverty Action Group) v. SSWP [2011] 2 AC 15:

“33.

If the two remedies cover precisely the same ground and are inconsistent with each other, then the common law remedy will almost certainly have been excluded by necessary implication. To do otherwise would circumvent the intention of Parliament. A good example of this is Marcic, where a sewerage undertaker was subject to an elaborate scheme of statutory regulation which included an independent regulator with powers of enforcement whose decisions were subject to judicial review. The statutory scheme provided a procedure for making complaints to the regulator. The House of Lords held that a cause of action in nuisance would be inconsistent with the statutory scheme. It would run counter to the intention of Parliament.

34.

The question is not whether there are any differences between the common law remedy and the statutory scheme. There may well be differences. The question is whether the differences are so substantial that they demonstrate that Parliament could not have intended the common law remedy to survive the introduction of the statutory scheme. The court should not be too ready to find that a common law remedy has been displaced by a statutory one, not least because it is always open to Parliament to make the position clear by stating explicitly whether the statute is intended to be exhaustive. The mere fact that there are some differences between the common law and the statutory positions is unlikely to be sufficient unless they are substantial. The fact that the House of Lords was divided in Total Network SL [2008] AC 1174 shows how difficult it may sometimes be to decide on which side of the line a case falls. The question is whether, looked at as a whole, a common law remedy would be incompatible with the statutory scheme and therefore could not have been intended by coexist with it.”

Applying that test to Section 82 of the NRSWA 1991, l consider that it is clear and unambiguous that a common law remedy based upon negligence would be incompatible with the statutory scheme and, therefore, could not have been intended to co-exist with it.

If the draftsmen of this Act had intended to say that the imposition of statutory liability between particular bodies was without prejudice to rights of action at common law between such bodies, he had at his disposal much clearer and direct ways of expressing himself.

It has been drawn to the Court's attention that Volume 2 of the Encyclopaedia of Highway Law Practice at page 3-10793 and the footnote cites Telewest and contends that the Court of Appeal held that Section 82 "formed a complete code excluding the operation of the common law": Footnote 5 to paragraph 17.14 of Cross on Local Government Law refers to Telewest as authority for the proposition that Section 82 "forms a complete code, excluding the operation of the common law". Neither of these standard works suggest that Telewest was wrongly decided and should not be followed.

In the light of my findings: - that section 82 of the NRSWA 1991 is clear and unambiguous; that the decision in the Court of Appeal in Yorkshire Electricity Distribution v Telewest is correct and should be followed, it is unnecessary to review what was said in Parliament about amendments to the draft Bill which later became the NRSWA 1991.

The Claimant contends that the Telewest case:

As the Defendant pointed out, Section 37 and Sections 18 to 27 of the Water Industry Act 1991 provide a scheme for the enforcement of general maintenance obligations augmented by Section 81 of the NRSWA with regard to apparatus in the street. Section 209 of the Water Industry Act 1991 provides for liability of customers in an event of escape of water and Section 82 provides for liability to other undertakers with apparatus in the street in the event of an escape of water in the street. I agree and so find that these sections provide a complete statutory code which excludes the operation of the common law. It is of particular relevance that with regard to escape of water, Section 82 of the NRSWA 1991 expressly affords other undertakers a particular remedy that applies where the water undertaker is negligent and where it is not. As the Court of Appeal stated in Telewest, it would be "very odd" if Parliament had intended that in these circumstances there should be any underlying liability at common law.

In answer to the two issues raised in this action: