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Cite as: [2002] EWCA Civ 150, [2002] Ch 295, [2002] 2 WLR 1133

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O'Connor & Ors v Old Etonian Housing Association Ltd. [2002] EWCA Civ 150 (20th February, 2002)

		Neutral Citation Number: [2002] EWCA Civ 150
		Case No: B1/2001/0479

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Hon. Mr Justice Blackburne

Royal Courts of Justice
Strand, London, WC2A 2LL

20th February, 2002

B e f o r e :

LORD PHILLIPS MR
LORD JUSTICE WALLER
and
LORD JUSTICE BUXTON
____________________

	O’Connor and Others	Claimants/ Respondent
	- and -
	Old Etonian Housing Association Ltd	Appellants/ Defendants

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Ranjit Bhose (instructed by Messrs Prince Evans (Ms S Jackson)) for the Appellants
Paul Staddon (instructed by Wilson Howard (Donna Humphreys)) for the Respondents
____________________

HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
____________________

Lord Phillips M.R. :

This is the judgment of the Court

Introduction

This appeal raises a point on the construction of section 11(1)(b) of the Landlord and Tenant Act 1985. It raises a similar point on the construction of clause 2(5) of certain tenancy agreements. The question to which the parties would like an answer is what is involved in the obligation to keep pipes carrying water in “proper working order”. The tenancies with which this appeal is concerned are of four flats on the top floor of Eton House in Leigh Road North London. The tenancies commenced on various dates between September 1991 and June 1994. The facts as assumed by the judge are appended hereto. The key points assumed are (i) prior to any of the tenancies commencing in 1986/87 the landlords refurbished Eton House and replaced the water pipework with pipework of a smaller bore; (ii) those smaller pipes carried water successfully to the top floors of the relevant premises for some years; (iii) from the summer of 1992 onwards the smaller pipes did not do so the water pressure having fallen; (iv) the previous pipes would have carried water to the third floor successfully during that period; (v) the landlord could have installed a pump to make the smaller pipes carry the water to the third floor; (vi) from 1998, once the Water Authority had constructed a new pumping station, the water was carried successfully to the third floor flats by the smaller pipes.

On 22 August 2000 His Honour Judge Marr-Johnson in the Mayor’s and City of London Court held, on the facts as assumed, that there was no breach of the obligation to keep pipes in proper working order. His reasoning in essence was that since the smaller pipes worked perfectly successfully for a period of years, and since nothing had altered except the water pressure, there was no failure to keep in proper working order.

On appeal to Blackburne J however, by a judgment dated 9 February 2001, the judge, again on the assumed facts, allowed the appeal. He held that the obligation to keep in proper working order was an obligation “to ensure that the pipes were physically or mechanically capable of supplying water to the flats” and he held that on the assumed facts the landlord could have so ensured but did not.

This is thus a second tier appeal brought with leave of Arden LJ. She gave leave on the grounds that there was a real prospect of success on the issue of statutory construction whether a breach of the obligation imposed by section 11(1)(b) of the Landlord and Tenant Act 1985 can arise where an installation is in mechanical order but fails to carry out its function due to some matter for which responsibility cannot be attributed to the landlord. She also identified a point of principle – an opportunity for the court to consider its decision in Campden Hill Towers Ltd v Gardner [1977] 1 AER 739 in relation to what was held by the House of Lords in Liverpool County Council v Irwin [1977] AC 239.

Although there is no doubt that the question of statutory construction and the point of principle do arise in the litigation between the tenants and the landlord, the method chosen for deciding the points has not proved satisfactory for two reasons.

In the first place the assumed facts were agreed for the purpose only of the determination of preliminary issues. Thus, although Blackburne J. ruled in favour of the tenants on the agreed facts, this did not rule out the need for a trial in order to determine what the facts actually were. This was not a satisfactory result. More fundamentally, however, we have concluded that, even if the facts are proved as agreed, they will not be adequate to found a decision on liability. In explaining why this is so we shall, however, cast some light on the important issue of construction that arises in this case.

The issues ordered to be tried

Section 11(1)(b) of the Landlord and Tenant Act 1985 provides as follows:

“(1) In a lease to which this section applies there is implied a covenant by the lessor –

(b) to keep in repair and proper working order the installations in the dwelling-house for the supply of water, gas and electricity and for sanitation (including basins, sinks, baths and sanitary conveniences, but not other fixtures, fittings and appliances for making use of the supply of water, gas or electricity).”

It is unnecessary to set out clause 2(5) of each tenancy agreement. It is sufficient to say that the language is the same as that of the statute, in that it obliges the landlord to “keep in repair and proper working order any installations ....”

Issues were ordered to be tried in relation to the construction of both section 11(1)(b) and clause 2(5) but it is only necessary to set out one such issue, the language of both being the same. The issue ordered by the District Judge was as follows:

“Whether, on the proper construction of section 11(1)(b) of the Landlord and Tenant Act 1985, and on the assumption, for current purposes only, that the supply of water to the premises referred to in the particulars of claim was intermittent and inadequate, the defendant can be liable in law for breach of the implied covenant by reason only of the fact that the pipes supplying the water to the premises are of one inch diameter as opposed to one and a quarter inch diameter and/or that no booster pump was installed at Eton House.”

A re-formulation of the issues

The issue as formulated does not adequately accommodate the peculiar features of a case such as this. It seems to us that three issues can be identified, although these issues overlap to a considerable extent:

i) Does the requirement to keep an installation for the supply of water, gas or electricity ‘in proper working order’ require the landlord to ensure that the installation is so designed and constructed as to be capable of performing its function at the commencement of the tenancy?

ii) To what extent must the installation be designed and constructed in a manner that will cater for variations in the quantity or character of the water, gas or electricity supplied?

iii) If, because of some change in the quantity or character of the supply, the installation is no longer capable of performing its function, is the landlord obliged to adapt the installation in order to accommodate the change?

The first issue

For the tenants, Mr Staddon argued that the landlord’s duty at the commencement of the tenancy was to provide installations for the supply of water gas and electricity that were capable of performing their function of conveying the water gas and electricity received from the undertaker to the appliances which used them in each tenant’s flat. In so submitting, he relied principally upon the decision of the House of Lords in Liverpool City Council v Irwin, which dealt with the predecessor to section 11 (section 32 of the 1961 Act). The relevant issue was whether lavatory cisterns, which, because of a design defect were liable to overflow, constituted a breach of the landlord’s duty to keep the installations in proper working order. As to this, Lord Edmund-Davies commented at p. 269:

“It is clear that section 32(1)(b) of the Housing Act 1961 imposes an absolute duty upon the landlord “to keep in repair and proper working order the installations in the dwelling house- ...” It could be said that the opening words (“to keep ...”) apparently limit the landlord’s obligation to preserving the existing plant in its original state and create no obligation to improve plant which was, by its very design, at all times defective and inefficient. But the phrase has to be read as a whole and, as I think, it presupposes that at the inception of the letting the installation was “in proper working order,” and that if its design was such that it did not work “properly” the landlord is in breach.

Bathroom equipment which floods when it ought merely to flush is clearly not in “working order,” leave alone “proper” working order (if, indeed, the adjective adds anything). To say that such whimsical behaviour is attributable solely to faulty design is to advance an explanation that affords no excuse for the clear failure “to keep in ... proper working order.” Just as badly designed apparatus has been held not of “good construction” (Smith v A Davies & Co (Shopfitters) Ltd (1968) 5 K.I.R. 320, per Cooke J), so in my judgment the landlords here were in breach of section 32(1)(b) by supplying bathroom equipment which, due to bad design, throughout behaved as badly as did the Irwins’ cistern. I do not, however, find established any of the other statutory breaches alleged.”

Implicit in this passage are two principles which bear on the first issue. First, something which is not working because it is badly designed is not “in proper working order”. Second, if there is an obligation to “keep” in “proper working order” there must by inference be an obligation to supply at the commencement of the tenancy the installation in proper working order. It is implicit in the speeches of Lord Cross at p.257G, Lord Salmon at p. 264C and Lord Fraser at p.276C that they agreed with Lord Edmund- Davies.

Mr Staddon suggested that the approach of Lord Edmund-Davies was supported by a dictum of Lord Esher MR in Proudfoot v Hart (1890) 25 QB 42 at 50 where Lord Esher said:

“But it has been decided – and, I think, rightly decided – that, where the premises are not in repair when the tenant takes them, he must put them into repair in order to discharge his obligation under a contract to keep and deliver them up in repair. If the premises are out of repair at any time during the tenancy the landlord is entitled to say to the tenant, “you have now broken your contract to keep them in repair;”...”

Proudfoot v Hart involved consideration of a tenant’s duty to ‘keep and deliver up the premises in good tenantable repair’. For the landlord Mr Bhose referred us to a number of authorities which establish that the obligation to keep in repair, whether it falls on the landlord or the tenant, does not of itself require the obligee to remedy defects of design or construction, even if their consequence is that the premises are not reasonably habitable. The duty is to prevent the physical condition of the ill-designed premises from deterioration: Quick v Taff-Ely Borough Council [1986] QB 809; Post Office v Aquarius Properties Ltd [1987] 1 All ER 1055; Southwark London Borough Council v Tanner [2001] 1 AC 1; Lee v Leeds City Council [2002] EWCA Civ 06.

We do not consider that these cases are in point. There is an obvious distinction between the duty to keep ‘in repair’ and the duty to keep ‘in proper working order’. We are concerned with the latter duty. An installation cannot be said to be in proper working order if, by reason of a defect in construction or design, it is incapable of working properly.

Accordingly we have no difficulty in resolving the first issue. At the commencement of the tenancy the installations for the supply of water, gas and electricity must be so designed and constructed as to be capable of performing their functions. The assumed facts of this case demonstrate, however, that the question of whether installations for the supply of water, gas or electricity are capable of performing their function can raise a difficult question as to how this is to be judged. This brings us to the second issue.

The second issue

The function of water pipes within a building is to convey within the building the water that is supplied to the building. The assumed facts demonstrate that whether the pipes with which this action is concerned will perform this function to all parts of the building depends upon the pressure under which the statutory undertaker supplies the water to the building. To what extent must the pipes supplied by the landlord be designed and constructed in a manner which will ensure that they perform their function, despite variations in water pressure?

Mr Bhose submitted that if, at the time of installation, the pipes conveyed water to all parts of the building, this demonstrated that they were in proper working order. If at a later date they ceased to do so because of a drop in water pressure, this did not and could not mean that they had ceased to be in proper working order. The fact that they were no longer working properly was attributable, not to any shortcoming in the pipes, but to a shortcoming in the supply, for which the landlord was not responsible.

In support of this submission, Mr Bhose relied upon a passage in the judgment of Megaw LJ in the Campden Hill case, dealing with the proper construction of section 32(1)(b) of the Housing Act 1961. That, as we have said, was the predecessor of section 11 of the Landlord and Tenant Act 1985 with which this case is concerned. But it should be emphasised that the main point in the case related to the physical area in which the installations had to be situated, if they were to be covered by the landlord’s obligations. Campden Hill decided that on the proper construction of section 13(1) the installations had to be “in” the dwelling house and it was to reverse that decision that sub-sections 1(A) and 1(B) of section 11 were inserted into section 11 of the 1985 Act by the Housing Act 1988. In that context Megaw LJ by reference to section 32(1) said this at p.745J:

“The lessees contend that, despite the words of the paragraph ‘installations in the dwelling-house’, [in paragraph (b) of section 32(1)] the paragraph applies to anything outside the flat, the proper functioning of which is required in order to enable the installation within the flat to function as it is intended to do. If it were not for the words ‘proper working order’ in para (b) it would, we think, be difficult to find any support for the lessees’ contention. But the inclusion of those words does provide some possible support. It would, however, produce very odd results if that were so. First, there is nothing in s 32 which requires a lessor to provide such installations. Any such obligation would have to be derived from either non-statutory terms of the lease itself, which would be a matter of contractual negotiation, or from some other statute. Secondly, if ‘proper working order’ did include, for example, the necessity of a supply of hot water to a radiator, or water to a cistern there would be imposed by statute an absolute obligation, with no qualifications, which in some respects would be quite outside the lessors’ control. For example, the central heating boiler in the basement may be operated by gas. The gas supply is cut off by the Gas Board for some reason outside the control of the lessors; or the water supply is cut off, or limited to certain times of the day, by the water authority. The hot water radiator, or the water cistern, while in perfectly good repair and perfectly good ‘working order’, cannot perform their function. If the covenant has the meaning suggested by the lessees, the lessors are liable for breach of the implied covenant.

In our judgment, the meaning of para (b) is as contended for by the lessors. The installations in the physical confines of the flat must be kept in repair and capable, so far as their own structural and mechanical condition is concerned, of working properly. But no more than that. The lessors may be under additional obligations but, if so, they do not arise from this statute.”

Mr Bhose sought, as we understood him, to draw from the above the proposition that whether an installation conveying water, gas or electricity is in good working order falls to be determined without reference to the particular characteristics of the supply, at least if it worked properly having regard to the prevailing characteristics at the time that it was installed.

We do not consider that this proposition can be drawn from Camden Hill. The examples given by Megaw L.J. were of temporary and untoward interruptions to the normal supply. Plainly installations deprived of supply in such circumstances could not be said to be out of proper working order. Those examples afford no assistance in answering the question of the extent to which installations must be able to accommodate alterations in the characteristics of the supply.

Mr Staddon submitted that the duty to keep the pipes ‘in proper working order’ required the landlord to provide pipes that could perform their function of conveying water to the individual tenants’ flats at the pressure at which the undertaker supplied the water from time to time. In support of this submission he referred us to a passage in the judgment of May LJ in Wycombe Health Authority v Barnett (19820 5 HLR 84 at p.91:

“I do not think that a water installation in a cottage ceases to be in proper working order within the statutory provision just because the water in one of the pipes freezes. ... In my opinion the phrase “proper working order” in its context relates to the physical or mechanical condition of the installation as such and involves that it shall be capable of working properly as an installation.”

Here again we do not think that the passage affords any assistance in answering the second issue. The requirement that the pipes should be ‘capable of working properly as an installation’ merely begs the question.

We have concluded that there is no authority which bears on the second issue. This may explain why the two judges who have so far considered this case came to firm conclusions which were diametrically opposed. In accepting Mr Rundell’s submissions (who then appeared for the landlord), HHJ Marr-Johnson held:

“In my judgment, the proper analysis in this case is that the physical condition of the installation was such that it was perfectly capable of working properly as an installation, provided only that water was supplied by the statutory undertaker at a sufficient pressure. I conclude, therefore, that on the agreed facts the claimants are unable to show that these defendants have at any time failed to keep in proper working order the installations for the supply of water at the affected premises, either within the meaning of section 11(1)(b) of the Act of 1985, or pursuant to the express terms of the Tenancy Agreement applicable in each case.”

In reversing this decision, and preferring the argument of Mr Staddon, Blackburne J. held:

“Putting the matter in my own words, the landlord’s obligation under section 11, insofar as it relates to keeping in proper working order the installation for the supply of water, is to ensure that the installations in each flat, and also in the remainder of Eton House so far as they serve directly or indirectly the flats in question, are physically or, if one likes, mechanically capable of supplying water to the flats. That does not merely mean that they should be so capable, given certain minimum water pressures; nor does it mean that the obligation is absolute and unqualified such that the landlord will be in breach even if there is an interruption in water supply for which the landlord is not responsible. It merely means, in my judgment, insofar as there is a supply of water to Eton House, that the installations in the building for the supply of water to each flat must be physically capable of ensuring that a supply of water is maintained.”

We have concluded that there is no easy test which answers the second issue. The characteristics of the supply of water, gas and electricity are all capable of varying, whether by accident or design. An obligation which required the landlord to provide installations which would function regardless of the vagaries of supply would be manifestly unreasonable. Equally unreasonable would be an obligation which enabled the landlord to supply installations which would accommodate no changes in the character of supply after the date of installation, even though some variations were reasonably to be anticipated.

Our conclusion is that, insofar as installations for the supply of water, gas and electricity are concerned an installation will be in proper working order if it is able to function under those conditions of supply that it is reasonable to anticipate will prevail. While the test as formulated may appear to involve uncertainty, we suspect that if the evidence relevant to the test is considered, it may be easier to apply in practice.

Insofar as installations for the supply of water are concerned, we raised before the hearing the possibility that statutory obligations on water undertakers as to the minimum pressure at which water must be supplied might have some bearing on the issue in this case. There are indeed such obligations, but counsel did not find them easy to assemble or to digest. There are also statutory provisions under which bye-laws can be made imposing obligations on property owners as to the design of installations which are to make use of the water supplied. These also might be of relevance.

Thus it seems to us that the answer to the second issue is likely to depend upon the extent to which supply variations should reasonably be anticipated and provided for. This will depend upon the particular facts. We turn to the third issue.

The third issue

If, after a tenancy has commenced, a variation occurs to the supply which could not reasonably have been anticipated but which requires some alteration to the installation if the installation is to continue to function properly, is the landlord obliged to make that change or modification? Here again we do not think that it is possible to give a categoric answer. An unanticipated change in the nature of the supply of a utility may occur in a variety of circumstances. Sometimes the change is imposed deliberately because of some scientific or technical advance – a change in the voltage of electrical supply, or the change from coal gas to natural gas are examples. In such circumstances the change is likely to be introduced in a manner and subject to conditions under which it is reasonable to expect customers to modify their installations in order to accommodate the change. In such circumstances, business efficacy would suggest that the landlord’s duty to keep installations in proper working order must involve the obligation to make the modifications necessary to enable the installations in question to continue to function.

In other circumstances the change may be forced on the undertaker by some unforeseen event – the collapse of a reservoir or a drought, resulting in a drop in water pressure. If the change is likely to be short–lived, the cost of modifying installations in order to accommodate it may be disproportionate. . Where the changed circumstances are likely to persist for a lengthy period, it may seem wholly unreasonable for a landlord to leave his tenants deprived of satisfactory supply for want of relatively modest expenditure on modifications.

How the test of proper working order is to be applied in such circumstances is a question of great difficulty. We have in this judgment sought to illuminate the issues and to explain why it is that we do not believe that the assumed facts enable them to be answered.

A case such as this cries out for compromise – the more so because the attempt to resolve the issue on the basis of assumed facts has failed. If compromise cannot be reached, then the difficult issues raised must be resolved in the light of findings, or binding agreement, of the material facts,

The appeal must be allowed, because Blackburne J could not have reached the answer that he did on the assumed facts. But the same is true of the decision reached by Judge Marr-Johnson. We shall hear counsel as to the appropriate order if this cannot be agreed.

Order: Appeal allowed. Claimants' costs in the cause matter to be remitted to Clerkenwell County Court for case management conference if compromise not reached. (Order not part of approved judgment) APPENDIX

“Drinking water is supplied to Eton House by the statutory undertaker and thence into the pipework in the common parts provided by the defendant [that is the landlord] which pipework is described in the statement of facts as the communal pipework. Water is then carried through the common parts in the communal pipework and into individual flats. The communal pipework was replaced by the defendant in 1986/87 and one inch pipes were installed in place of pipes with a wider bore. No works of repair or improvement or alteration have been done to the communal pipework since then. Prior to the replacement, the existing wider pipes had provided an adequate supply of water to the flats and had no serious defects. From the summer of 1992 onwards and on intermittent but regular and lengthy occasions, there has been an inadequate supply of water to the pipes in the individual flats. At all material times the communal pipework has been in repair in the sense of not having deteriorated from any earlier state. It has, however, not been in repair in the sense of carrying out its function of supplying an adequate water supply. (The use of ‘repair’ in this paragraph is descriptive only and no legal significance is intended to be attached to its use.) If the communal pipework had been of one and a quarter inch bore rather than one inch bore, at all material times the pipes in the individual flats would have received an adequate supply of water. Further, if, on notice of the problem, the defendant had installed a booster pump and break tanks at the block, an adequate supply would have been achieved. The inadequate supply of water to the pipes in the individual flats was caused by the fact of demand in the surrounding areas for water increasing, having a negative effect on the water pressure at which the statutory undertaker supplied water into the communal pipework. This state of affairs ceased once a new pumping station at Maiden Lane Reservoir was built and in service in about 1998. The provision of one and a quarter inch pipes and/or a booster pump and break tanks would have effected an adequate supply from 1992 to 1998. Since about 1998 none of the claimants [the tenants] have suffered any inadequate water supply on any occasion to any of their individual flats. Provision of a booster pump and break tanks would have cost in the region of £8,750 plus VAT.”