The statutory requirement for gas suppliers to make compensation payments to their customers for failure to supply gas has been extensively debated amongst utility providers since the Gas (Standards of Performance) Regulations (“GSPR”) received Royal Assent in 2005 given the potentially substantial liability that this imposes on gas suppliers even in circumstances where the failure to supply gas has arisen through the fault of a third party.

A gas supplier facing nearly £200,000 worth of compensation payments recently attempted to challenge this liability before the Court of Appeal in Southern Gas Networks v Thames Water Utilities Ltd [2018] EWCA Civ 33 when they sought to recover the compensation payments from the third party utility provider responsible for the interruption to their gas supply.

In seeking to recover from another utility provider the sums that they owed to their customers under regulation 7 of the GSPR, Southern Gas relied upon the statutory provision contained within s82(1)(b) of the New Roads and Street Works Act 1991 (“NRSWA”). They also issued a claim against them in common law negligence, both of which were rejected at first instance, and subsequently appealed.

Facts

On 17 December 2012, Thames Water Utilities Ltd (“Thames Water”) were notified of a leak from one of their water mains. However, despite attending site, they failed to carry out any repairs and on 24 December the water bore a hole into the neighbouring gas main. With water contaminating the gas main giving rise to a significant risk of fire and/or explosion, Southern Gas had no option but to disconnect the gas to 1,683 properties on Christmas Eve and it was not until 31 December 2012 that the initial reconnections were started. Services were fully restored by 8 January 2013 and the claims for gas compensation payments from affected residents totalled £190,910.

Section 82(1)(b) of the NRSWA imposes a strict liability on a statutory undertaker, here Thames Water, to compensate another undertaker for expenses reasonably incurred in making good the damage that they have caused to their equipment in the execution of underground services work, however caused. Thames Water accepted their responsibility for the damage to the gas main, but refused to make any payment in respect of gas compensation payments as they did not constitute “expenses reasonably incurred in making good the damage”.

Southern Gas issued proceedings seeking the recovery of those costs both under s82(1)(b) and in negligence. In responding to the claim in negligence, Thames Water submitted that the statutory provisions contained within s82 of the NRSWA disbarred Southern Gas from any common law remedies and acted to limit the scope of any claim made by one utility company to another to the recovery outlined in s82(1)(b).

At first instance, the court found in Thames Water’s favour on both the statutory and common law claims.

Decision of the Court of Appeal

The Court of Appeal ruled that the construction of s82(1)(b) was clear. It only intended to compensate any party for “expenses” that they “reasonably” incurred as a result of repairing the damage that was caused by the execution of an undertaker’s underground services work. Section 82(1)(b) did not go as far as s82(1)(a) (which provides for compensation to the street authority) and the NRSWA did not intend it to do so.

The Court of Appeal considered that a decision to hold Thames Water liable for the failure to supply gas payments would fall outside the scope of the statutory remedy that is offered to undertakers by s82(1)(b) as such payments do not amount to expenses reasonably incurred in making good the damage caused.

However, the Court allowed Southern Gas’ appeal on the second point, ruling that the statutory provisions contained within s82 of the NRSWA were not constructed in a manner that intended to bar Southern Gas from their common law rights and, in fact, s82(6) of the NRSWA so much as said so.

Section 82(6) of the NRSWA provides that “nothing in this section shall be taken as exonerating an undertaker from any liability to which he would otherwise be subject”. As such, the Court of Appeal ruled that the construction of the NRSWA did not prevent Southern Gas from bringing a claim against Thames Water in common law negligence.

Whilst in the majority of claims concerning underground utilities, all parties have acted with the greatest possible care and skill such that an allegation of negligence would struggle to find a footing, in this case, Thames Water admitted that in attending the site but failing to carry out repairs until after the escaping water had bored a hole in the gas main, their standards of maintenance had fallen so low as to breach the duty of care they owed to Southern Gas. This being the case, the Court of Appeal was able to enter judgment for Southern Gas, awarding them recovery of their gas compensation payments in a sum previously agreed between the parties.

What this means for you

For water undertakers pursued under s82 of the NRSWA for gas compensation payments this judgment is a welcome confirmation of the long held position that the statute does not provide for the recovery of these payments.

On the flip side, in reinstating the common law rights of statutory undertakers to bring claims against each other outside of the scope of the statutory strict liability which had been formally withdrawn by the first instance decision, it invites undertakers to make more of their claims in negligence, which in recent years have been very much the minor part of the claim, if pursued at all, and we might expect to see an increase in claims put on this basis.

However, this decision should not be read as an automatic expansion of the scope of the s82 liability. Firstly, it should be remembered that the majority of utility claims do not involve negligence by any party; precisely the reason why the strict liability provisions of the NRSW Act were introduced. If a utility company damages another party’s plant and equipment, for example, during excavations, but has taken all reasonable care and skill to avoid that damage, and can evidence that the team marked up the locations of all known utilities, used a Cat and Genny scanner for more precise identification, and excavated by hand at all appropriate moments, then the fact that plant and equipment was damaged does not of itself prove negligence, and a claim such as Southern Gas’ would not succeed.

Furthermore, and particularly in claims involving a strike on another utility, the party responsible may be a subcontractor, and not a member of the utility company’s own staff. Whilst the s82 liability applies as between statutory undertakers, this does not carry over into a common law claim and it is a complete defence to a claim in negligence if the entire work was subcontracted to a third party.

A final point does not appear to have been considered by either party in the Court of Appeal, namely that, even were there to be a valid claim in negligence against Thames Water, compensation payments have long been considered to constitute pure economic loss, and therefore unrecoverable in a claim based in negligence and it will be interesting to see how this is argued if the point returns to court in the near future.

The key points to take away are that this claim, whilst changing the landscape of utility claims, has not done so in a way as to make gas compensation payments automatically recoverable from a defendant utility company and that, as always, the best way to protect against claims is to ensure that the teams on the ground are well trained, and that such training is clearly recorded as having been both undertaken and put into practice on site.