Court rules London council overcharged 37,000 tenants for water and sewerage

A London borough has overcharged approximately 37,000 tenants for water and sewerage services, a High Court judge has ruled.

Southwark Council, one of the largest social landlords in the country, collected from many of its tenants – including the claimant, Kim Jones – charges for such services supplied by Thames Water Authority and, later, Thames Water Utilities.

The question in Jones v London Borough of Southwark [2016] EWHC 457 was whether the Water Resale Order 2006 applied to these arrangements and, if so, whether the local authority had charged tenants more than was permissible under the 2006 Order.

Mr Justice Newey said the case was "of considerable importance" because of the number of Southwark's tenants and the implications for other landlords. He found that:

1. Unless and until the 2013 Deed (see below) took effect, the relationship between Thames Water and Southwark was not one of principal and agent but involved Southwark buying water and sewerage services from Thames Water and re-selling them to its tenants;
2. As a result, the 2006 Order applied and served to limit what tenants could be charged; and
3. The amounts that Southwark charged Miss Jones (and other tenants with unmetered water supplies) exceeded the "maximum charge" allowed under the 2006 Order.

A further hearing in the High Court is to take place to decide whether the council’s overcharging ceased in around July 2013, when Southwark and Thames Water entered into a deed of clarification. It is common ground that, if the deed is effective, Southwark has not been a water seller since that time.

The claimant argues that the 2013 Deed is invalid because Southwark failed to follow its ‘key decision’ procedures and to consult its tenants under s. 105 of the Housing Act 1985.

Cllr Richard Livingstone, Cabinet Member for Housing at Southwark, said the council was very disappointed with the court's decision.

He said: "Southwark Council (along with many other council landlords and housing associations) has been providing a service to Thames Water by billing tenants for their water, and collecting their payments. We have received a commission to cover our administration costs and the risk of non-payment, and any surplus has gone back in to the housing revenue account which pays for improvements to tenants’ homes and investment in new homes. We haven’t benefited from this arrangement, and tenants haven’t suffered any cost – they have paid exactly what Thames Water calculated they would have paid if they’d had a direct relationship with them.

"If the council terminates the relationship with Thames Water, tenants will be charged exactly the same as they are now but will be responsible for sorting out their own water bill, and there will be a financial loss to the council’s HRA of £2.3m, which will have an detrimental impact on service provision. We don’t think this decision is in anyone’s interest, and are considering our next steps.”

Commenting on the case, the claimant’s law firm Deighton Pierce Glynn said: “The most immediate effect of the judgment is that Southwark Council tenants at risk of losing their homes due to arrears are likely to have a defence that at least some of their arrears are due to unlawful overcharging.”

DPG partner Gareth Mitchell conducted the case, instructing Martin Westgate QC of Doughty Street Chambers as counsel.