Dear Reader,
We set out below a briefing from Rupert Higgins looking at the implications of the recent case of Jones v Southwark LBC [2016] EWHC 457 (Ch); a case which will be of interest to all those local authorities holding properties for the purpose of social housing.
Background
It is the almost universal practice for these local authorities to have in place agreements with their local water and sewerage undertakers which enable those undertakers to collect their charges from local authority owners as a lump sum, instead of from tenants individually. This benefits the water undertakers because they outsource a large part of their administration to local authorities as well as passing onto them the risk of non-collection. It also benefits the authorities because they pay a discounted sum in respect of their entire portfolio regardless of what they collect, and the discount – typically 15% of the total charge – represents a significant source of revenue.
These arrangements have twice been found by the Court of Appeal to be lawful on the basis that the local authority is acting as the collection agent of the water undertaker and the discount represents its commission.
Jones v Southwark
But of course no two agreements are quite the same, and last month Newey J in the Chancery Division of the High Court handed down judgment in Jones v Southwark LBC which held that an agreement of this sort between Southwark and Thames Water had been drafted in such a way that the arrangement was not one of agent/principal but of supplier and re-seller. This meant that it was caught by the Water Resale Order 2006 which limits the uplift which a re-seller of water can charge, thus rendering the discount unlawful to the extent that it was not passed onto Southwark’s tenants.
The way forward
The first point to make is that the drafting of agreements with local water and sewerage undertakers differs greatly between local authorities, and Jones v Southwark involved the interpretation of only one such agreement.
However, local authorities in England and Wales would be well advised to review all such agreements to reinforce the ‘agency’ nature of the relationship they define, particularly since many run from year-to-year and the start of the fiscal year represents the termination and renewal date of many such agreements.
Most water undertakers are sympathetic to the position of their local authority customers and are willing to consider renegotiating such agreements with retrospective effect. After all the previous arrangements have been to the benefit of both parties.
