Water into gas should not go

3 February 2018 by Rosalind English

Southern Gas Networks Plc v Thames Water Utilities Ltd [2018] EWCA Civ 33, 25 January 2018 – read judgment

When the supply of gas to your house fails, you are entitled to compensation from the gas undertaker for the inconvenience. If that failure has been caused by another utility’s burst water main, the gas undertaker may seek to recoup its expenses for repair to its own infrastructure and the compensation it has had to pay out to consumers. A simple enough picture.

But behind this straightforward seeming network of liabilities is a labyrinth of common law and statutory relationships whose exploration is not for the faint hearted.  As society’s dependence on the provision of energy, water and sewage services grew, during the Industrial Revolution and beyond, parliament had to think of ways to level the playing field between these increasingly centralised powers. This is not a trend that will go away, as the gas, electricity and fibre optic cables become ever more essential to the way we live our lives.

The question at the heart of this case is quite simple. Who ultimately bears the costs of payments to the consumer where interruption to their gas supply was caused by a water company who negligently allowed water to escape from its pipes and enter nearby gas pipes. Was it the gas undertaker, or the water undertaker?

It is all a matter of statutory construction, not just in terms of construing the relevant provisions in street works legislation and, potentially, in water services legislation, but looking at the background of the statute as a whole.

Factual and legal background

In December 2012 Thames Water were alerted to a burst water main in Orpington in the south east of London. It attended on 24 December, but took no action. On 29 December, water from the leak bored a hole in a gas main.  The gas supply to 1,683 properties was lost.

The affected customers claimed Failure to Supply Gas (FSG) payments from Southern Gas, and Southern Gas in turn claimed that sum against Thames under the relevant street works legislation.

Southern Gas made a claim under the statute for repairs needed to the network. Thames accepted liability for that loss, and that part of the claim had been compromised in the sum of £734,000.

Thames said that nothing else was due beyond such repair costs.

The remaining bone of contention was the liability for the FSG payments to the consumers. In 2016 the High Court dismissed both the statutory claim and the claim in common law negligence.

On this appeal, there were two unresolved points of argument. The first was whether the gas company could claim under the statutory scheme for reimbursement from the water company the money that it had to spend on compensating its customers for the interruption to their gas supply.

Everything turned on Section 82(1)(b) of the NRSW Act, which imposes an obligation on an undertaker such as Thames Water to compensate Southern Gas for certain losses caused by an event arising from the utility operators’ apparatus. So far, so good.  Section 82(1)(b) is a strict liability package which entails the straightforward reimbursement by one utility of the other utility’s repair expenses as a result of any damage flowing from the former, whether negligent or not.

Arguments before the Court

Argument 1

But the scope of the money awardable in section 82(1)(b) is precisely worded – not just any loss or damage, just

expenses reasonably incurred in making good damage

Souther Gas argued that such “expenses” included the costs of compensation payable for the failure of supply to customers. Thames Water contended that this customer compensation was excluded from the statutory scheme.

The Court of Appeal agreed with the Deputy Judge below that the FSG payments did not come within the strict liability statutory scheme.

Argument 2

But what about a claim in negligence at common law for the FSG payments? This is because under the common law it could claim against  Thames Water the  losses it had suffered in paying its customers that had been consequent upon the physical damage (the damage to the gas network caused by the water getting in).

Thames denied any such duty of care in negligence, saying that the statutory scheme under section 82 of the NRSW Act (limited though it may be in the case of 82(1)(b)) ousted the common law.

The arguments turned on whether section 82 should be looked at discretely, as a complete code which excludes common law liability, or whether this was not a conclusion that could be reached in the light of section 82(6) which says

Nothing in this section shall be taken as exonerating an undertaker from any liability to which he would otherwise be subject

The Court of Appeal (Hickinbottom LJ giving judgment) overturned the finding of the court below on the ouster point.

section 82 properly construed does not oust any common law remedies available to a person with street apparatus which is damaged by works performed by an undertaker [para 85]

So Southern Gas recovered these losses.

Reasoning behind the judgment

Considerable attention was paid to comments about section 82(6) by the Court of Appeal in an electricity/cable television case, where one party had damaged the apparatus of the other undertaker. The facts of that case (Yorkshire Electricity Distribution Plc v Telewest Limited [2006] EWCA Civ 1418 were distinguishable from the instant case, in that it was said that the victim of the damage, Telewest, was to largely to blame, and therefore it fitted perfectly within the statutory compensation scheme. However, in the present case the court below had found this to be persuasive in his determination that section 82 itself comprised a complete statutory code such that a cause of action in negligence was not available to Southern Gas.

But, looking at a range of cases where the ouster point has been debated, particularly the Child Action Poverty Group decision (R (CPAG v Secretary of State for Work and Pensions [2010] UKSC 54), this Court of Appeal echoed Sir John Dyson’s view that

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.” [para 34]

In the instant case, the Court of Appeal was persuaded that Parliament intended the statutory provision to co-exist with the common law remedy. They were convinced of this particularly because legislation preceding the NRSW Act had non-exoneration provisions in respect to several types of utility damage. The 1950 Public Utilities Street Works Act did not spare undertakers from any liability to which they were subject (e.g. section 18(4)), and, elsewhere in that Act, it is expressly stated that statutory compensation did not exonerate an undertaker from any liability to “any other person”.

Courts should be slow to displace common law remedies, particularly where it would be perfectly open to Parliament to say so in express terms.  As Hickinbottom LJ points out,

had the draftsman wished to say that common law rights were ousted, there were better ways in which he could have expressed himself.

In any event the non-exoneration clause was clear and unambiguous on its face. Section 82(6) of the NRSW Act expressly preserves the common law rights of a person having street apparatus who also has a claim against an operator under section 82.

Hickinbottom LJ also considered at paras 67 – 83 a wider ouster argument arising out of the water industry legislation. He decided that this did not help Thames Water’s arguments on ouster but added some observations which will be of considerable interest to those contemplating suing water companies in respect of sewerage problems. For this particular issue see my post on Dobson and others v Thames Water Utilities Ltd [2011] EWHC 3253, which followed Dobson v Thames Water Utilities Limited (No 1) [2007] EWHC 2021 (TCC); [2008] 2 All ER 362.

It is believed that there may not be an appeal against this judgment, and hence Southern Gas has recovered the money it paid out to its customers.

David Hart QC and Jessica Elliott of 1 Crown Office Row (instructed by Jillian Raw of Kennedys) acted for Southern Gas on this appeal. They were not associated with this post.

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