English court further clarifies water companies’ statutory discharge rights

The decision is the latest in a long-running dispute between the Manchester Ship Canal Company (MSCC) and United Utilities Water (UU). It follows the Supreme Court’s 2014 decision that UU had a statutory right in principle to discharge water and treated effluent into the Manchester Ship Canal from its pipes and outfalls in place as at privatisation, under the 1991 Water Industry Act (1991 Act). Pinsent Masons, the law firm behind Out-Law, has acted for UU throughout the dispute.

The High Court found in favour of UU on two points relating to the extent of UU’s statutory discharge rights. It found first that UU’s statutory right to discharge continued notwithstanding the termination by MSCC of contractual agreements regulating its use of specific outfalls. It also found that  MSCC is not entitled to circumvent the statutory remedies provided for in the 1991 Act for alleged breaches of subsections 117(5) and 186(3) by bringing a common law claim for trespass as it had threatened against UU.

Property disputes expert Michael Smith of Pinsent Masons said that the court’s decisions on both points would again be of wide interest and significance to the water industry, which has been watching proceedings closely.

“The judgment will be of significance to other sewerage undertakers across the UK which may similarly have inherited historic agreements to discharge entered into by their pre-privatisation statutory predecessors or may have had claims threatened against them,” he said.

UU is the water and sewerage undertaker for the north west of England, appointed on 1 December 1991 as part of the privatisation and regulatory reform of the sector. Before privatisation, local authorities and regional water authorities had a general right to drain surface water and treated effluent into watercourses. Statutory undertakers were not granted the same general right, and instead must negotiate terms with landowners on a case by case basis or use their statutory powers of compulsory acquisition to secure the right to construct new, post-privatization, outfalls.

When UU was appointed statutory undertaker in 1991, it inherited rights of discharge into the Manchester Shipping Canal from the previous public sector provider. In 2014, the Supreme Court ruled that these inherited rights to discharge from outfalls constructed pre-privatisation continued under the 1991 Act, and did so in perpetuity. The Supreme Court found that this was implicit from the wording of the 1991 Act, as otherwise UU would not be able to comply with its statutory duties.

After the 2014 judgment, UU was granted summary judgment  in respect of its right to continue to drain from the pre-1991 outfalls into the canal. However, Mr Justice Newey excluded five particular outfalls from this judgment; all of which were the subject of contractual agreements giving MSCC an express right to terminate. After the outfalls transferred to UU on 1 December 1991 and when commencing its claim against UU in 2010, MSCC issued UU with notices to terminate its discharges from each of these five outfalls. As UU did not do so, MSCC alleged trespass and breach of contract on UU’s part. UU, for its part, argued that termination would prevent it from carrying out its statutory duties.

Mr Justice Fancourt, giving judgment in the current dispute, agreed with UU, ruling that the termination provisions, as well as additional provisions requiring reinstatement of the canal, were void.

“[O]nce the outfalls had been built and were being used as a public sewer (which it is common ground the licensed outfalls are), the absolute obligation to cease use and reinstate … is inconsistent with the duty on an authority to permit and facilitate drainage through public sewers with limited power to discontinue use,” he said.

“Whether the licences as a whole were void or the consent was in consequence non-terminable does not matter as regards UU’s right to continue to drain through the licensed outfalls. If wholly void, the drainage before 1 December 1991 was pursuant to the implied statutory right and so the implied right under the 1991 Act applies to the licensed outfalls. If only the termination provisions are void, UU has a continuing consensual right to drain, notwithstanding [MSCC’s] attempt to terminate the licences,” he said.

The second and more substantive issue before the court was whether, as a matter of construction of the 1991 Act, the UK parliament had intended that the only remedies in respect of potential claims were those provided for by the statute, or whether common law remedies were also available. From late 2015, MSCC had indicated its intention to bring trespass claims in respect of UU’s allegedly unlawful discharges into the canal. UU sought a declaration from the court that such claims were inadmissible, with only the statutory remedies remaining.

Mr Justice Fancourt also found in favour of UU on this point, although he conceded that he had “not found resolution of this issue a straightforward matter”. His decision was based on detailed consideration of a previous House of Lords decision on implied statutory ouster, Marcic v Thames Water in 2003, in which a homeowner brought a nuisance claim against Thames Water after one of its sewers flooded his garden. The judges, in that case, held that allowing Marcic’s claim would “subvert” the purposes of the statutory scheme, which contains an elaborate regime, backed by enforcement and remedial schemes, for regulating the water industry in the public interest.

The judge found that the facts of this case were “materially indistinguishable” from the relevant facts of the Marcic case.

“The complaint, whether it is pleaded as a trespass, a nuisance or a breach of statutory duty, is of uncontrolled escape of untreated sewage, the only remedy for which is the construction of a better sewerage system,” he said.

“It is important to appreciate that these occurrences of unlawful discharge are not the result of anything done by UU: they are the result of heavy rainfall that causes the capacity of the sewage infrastructure to be exceeded … Although [MSCC] argues that the unlawful discharge of foul water in these circumstances is a trespass to its land, which is unauthorised and actionable per se, in my judgment that is not so. A purely involuntary act is not an act of trespass,” he said.

“The matter would of course be different if UU diverted into the canal effluent that did not otherwise discharge into it, or if it did something that had the result that other effluent then flowed into the canal, or if it drained into the canal when it had no right to do so at all, but those are not this case,” he said.

Michael Smith of Pinsent Masons said: “Following the Supreme Court’s decision in 2014, this is another important decision for UU and other water companies across the UK who may face similar claims from owners of watercourses”.

“The judge concluded that whilst a private law claim was not, in terms, excluded by the statutory scheme of the 1991 Act, where the complaint - however pleaded - could only be remedied by the construction of more or better sewers, allowing an individual claim for an injunction or damages would subvert the integrity of the regulatory scheme,” he said.