ON APPEAL FROM OLDHAM COUNTY COURT
HIS HONOUR JUDGE PLATTS
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RIMER
LORD JUSTICE ELIAS
| ROCHDALE BOROUGH COUNCIL
||Claimant / Respondent
|- and -
|Defendant / Appellant
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Mr Andrew Arden QC and Mr Andrew Dymond (instructed by Legal Services & Enforcement Team) for the Respondent
Hearing dates : Tuesday 21st June 2011
Crown Copyright ©
Lord Justice Rix :
The statutory background
"84.– (1) The court shall not make an order for possession of a dwelling-house let under a secure tenancy except on one or more of the grounds set out in Schedule 2.
(2) The court shall not make an order for possession –
(a) on the grounds set out in Part I of that Schedule (grounds 1 to 8), unless it considers it reasonable to make the order."
The first ground under Schedule 2 Part 1 is – "Rent lawfully due from the tenant or an obligation of the tenancy has been broken or not performed."
"102.– (1) The terms of a secure tenancy may be varied in the following ways, and not otherwise –
(c) in accordance with section 103 (notice of variation of periodic tenancy)…
103.– (1) The terms of a secure tenancy which is a periodic tenancy may be varied by the landlord by a notice of variation served on the tenant.
(2) Before serving a notice of variation on the tenant the landlord shall serve on him a preliminary notice –
(a) informing the tenant of the landlord's intention to serve a notice of variation,
(b) specifying the proposed variation and its effect, and
(c) inviting the tenant to comment on the proposed variation within such time, specified in the notice, as the landlord considers reasonable;
and the landlord shall consider any comments made by the tenant within the specified time.
(3) Subsection (2) does not apply to a variation of the rent, or of payments in respect of services provided by the landlord or of payments in respect of rates.
(4) The notice of variation shall specify –
(a) the variation effected by it, and
(b) the date on which it takes effect;
and the period between the date on which it is served and the date on which it takes effect must be at least four weeks or the rental period, whichever is the longer.
(5) The notice of variation, when served, shall be accompanied by such information as the landlord considers necessary to inform the tenant of the nature and effect of the variation…"
"1.– (1) Subject to the provisions of this section, a local authority and any public body within the meaning of this section may enter into an agreement for all or any of the following purposes, that is to say –
(a) the supply by the authority to the body of any goods or materials;
(b) the provision by the authority of any administrative, professional or technical services…"
"The powers conferred by section 1 of the Local Authorities (Goods and Services) Act 1970 (supply of goods and services by local authorities to public bodies) shall be exercisable by a local authority, within the meaning of that section, as if the NRA was a public body within the meaning of that section; and the powers of a local authority under that Act shall be deemed to include power to enter into an agreement for the collection and recovery by the authority, on behalf of any water undertaker or sewerage undertaker, of any charges fixed by the undertaker under Chapter I of Part V of the Water Industry Act 1991."
Thus "an agreement for the collection and recovery by the authority, on behalf of any water undertaker or sewerage undertaker, of any charges fixed by the undertaker…" was deemed to be an agreement within section 1 of LA(GS)A 1970. The ultra vires issue arises under this last cited paragraph. Various points are or have been made under this issue, for instance as to whether the agreement made between Rochdale and United Utilities (see below) is an agreement for the "collection and recovery…of…charges" or is for the collection of charges "on behalf of" United Utilities, or (perhaps) concerns "charges fixed" by it.
"142.– (1) Subject to the following provisions of this Chapter, the
powers of every relevant undertaker shall include power –
(a) to fix charges for any services provided in the course of carrying out its functions and, in the case of a sewerage undertaker, charges to be paid in connection with the carrying out of its trade effluent functions;
(b) to demand and recover charges fixed under this section from any persons to whom the undertaker provides services or in relation to whom it carries out trade effluent functions."
Section 144 set out the corresponding liability of occupiers for the time being of premises supplied.
The agreement between Rochdale and United Utilities
"C. The Council is empowered by the Water Consolidation (Consequential Provisions) Act 1991 to enter into an agreement for the collection and recovery by the Council on behalf of the Company of Charges fixed by the Company for the supply of water and sewerage services.
D. The Council and the Company have agreed that the Council will collect and recover the charges fixed by the Company for the supply of water and sewerage services in respect of the Council's residential letting properties on the terms and conditions set out in this Agreement."
The agreement went on to describe the method by which this would be accomplished. The "charging year" was defined as running from 1 April to 31 March. Each year at least 2 months before 1 April Rochdale would provide UU with full and accurate records of all residential properties owned or leased by Rochdale for the purposes of letting (clause 3.1). Then UU, at least 35 days before 1 April, would provide Rochdale with the charges due for each property, with sufficient information to enable Rochdale to prepare an invoice for its tenants (clause 4.1). Rochdale would pay UU the amount of the charges in four equal instalments throughout the year (in mid May, August, November and February), with a counter-payment on the same day by UU to Rochdale of the latter's commission, which was £28.60 per property (rising each year with the RPI) plus 8% of the charges: clause 6. Rochdale took the risk of non-payment and of property voids. It was Rochdale's obligation to collect and recover the charges, and (inter alia) to deal with any enquiries and complaints from tenants regarding billing in a prompt, courteous and efficient manner (clause 3.2.5 and schedule 3), but otherwise to refer enquiries and complaints regarding the provision of services to UU (clause 3.2.6).
""Charges" the aggregate amount of liability for charges for water and sewerage services provided by the Company to all of the Properties in a Charging Year, such amounts to be notified to the Council by the Company in respect of each Charging Year in accordance with clause 4.1.2…
"Collection Method" The Council shall vary the tenancy agreements between the Council and their customers to pay the Charges due in respect of their occupation of the Properties to the Council as an obligation of the tenancy or as rent (or such other means of collection as may be agreed between the parties in writing)…
"Customers" Such of the tenants or other occupiers of the Properties who are liable to pay water or sewerage charges to the Company pursuant to Sections 142 and 144 of the Act"
2.1 In consideration of the payment of the Commission by the Company to the Council the Council agrees to provide the Services for the Term.
2.2 The Company hereby authorises the Council to collect the Charges on behalf of the Company by the Collection Method in accordance with the terms of this Agreement…
3. COUNCIL'S OBLIGATIONS
3.2 The Council shall use reasonable skill and care throughout the Term:
3.2.1 collect and recover the Charges from the Customers by way of the Collection Method;
3.2.2 exercise all due skill, care and diligence in the performance of the Services…
3.3 The Council shall ensure that…
3.3.1 all Customers are correctly and promptly invoiced for the Charges in accordance with the provisions of Schedule 5…
4. COMPANY'S OBLIGATIONS
4.3 The Company shall:
4.3.1 receive and answer all enquiries and complaints from Customers regarding the water and sewerage services provided by the Company as defined in schedule 3, including the basis of the Charges (but not payment arrangements)…
15. NATURE OF AGREEMENT
15.2 Relationship of Parties
Nothing contained in this Agreement, and no action taken by the parties pursuant to this Agreement, will be deemed to constitute a relationship between the parties of partnership, joint venture, principal and agent or employer and employee. Save in respect of the collection of the Charges by the Council, the Council does not have (nor may it represent that it has) any authority to act or make any commitments on the Company's behalf."
The factual background
"Rent Payment 2. The rent is due in advance on Monday each week.
Service Charge 3. The service charge is due in advance on Monday each week.
Other Charges 4. You must pay all other charges when they fall due…
Termination by 10. The Council may terminate the tenancy by
the Council leaving any Notice required by law at the property or by posting such Notice to you at the property and, where necessary, obtaining a Possession Order from the Court…
Keeping to the You must keep to all the terms of this Agreement…"
Other Charges 4. You must pay all charges including water charges in respect of your occupation of the property by weekly instalments in advance on Monday of each week."
In this way, water charges were subsumed, like rent and service charges, into the weekly Monday payment.
"Rochdale Boroughwide Housing is considering collecting water rates on behalf of United Utilities.
This would mean that you would continue to receive an annual statement from United Utilities but instead of paying the bill to United Utilities, the amount would be added to your rent and paid with your rent.
This has some key benefits for you such as:
Pay your water rates over 12 months instead of 10 as it is now.
Pay two regular household bills (your rent and your water rates) in one go at one payment point.
Choose from a wider range of payment methods including paying at any one of our housing offices.
To find out what you think of this idea we will be writing to you and sending you a questionnaire asking your views.
You will also get the chance to attend local and area board meetings to let us know any concerns you have. We will provide you with regular updates in future editions of Tenants Talkback."
"The recent survey we sent to all tenants on Office Accommodation included a section on Water Rates. There was a very good response to the questions on water rates with 2541 replies.
You were asked whether you wanted to pay your water rates with your rent. 63% of you said yes and 37% of you said no.
As almost two thirds of you are in favour of paying your water rates with your rent, We will now enter into detailed discussions with the council and United Utilities. If the council approve the scheme we will write to you in the New Year to change your conditions of tenancy and explain your options for payment."
"In the previous edition of Tenants' Talkback we reported that there had been a very positive response from tenants to the proposal for RBH to collect water charges with the rent from next April. RBH is now finalising the scheme with United Utilities and if the council agrees, we will write to every tenant in February so that we can vary the conditions of the tenancy and let you know how it works. You will get a separate letter which will tell you how much you will need to pay in addition to your rent and any service charges…"
"COLLECTION OF WATER CHARGES – PRELIMINARY NOTICE
There is an important change to the way in which your water charges are to be collected in the future.
From 1 April 2005, United Utilities will no longer send you a bill for your annual water charges. Instead, you will pay your water charges direct to the Council as part of your weekly rent.
You will receive a rent increase notification by the end of February 2005 which will give you details of your rent, water and other charges for the coming year.
Please note: water charges are payable by all tenants and are not covered by housing benefit.
Your tenancy agreement will be changed to make it clear that your rent includes water charges from 4 April 2005 and we will send you a copy of the variation to your tenancy agreement shortly.
The proposed variation is:
Conditions of Tenancy – The Tenant's Obligations
"You must pay all charges, including water charges, in respect of your occupation of the property, by weekly instalments in advance on Monday of each week."
You will now benefit from paying your rent, including water charges, in a single transaction. You can choose from a wide range of convenient payment methods including Direct Debit, swipe card (to be introduced in April), cash or cheque, debit/credit card, telephone, internet banking at www.rbhousing.org.uk or standing order.
If you choose to pay by Direct Debit you will get an immediate £5 annual discount from United Utilities and another £5 discount from Rochdale Boroughwide Housing at the end of the year if you are still paying by Direct Debit…
If you wish to comment on the proposals, please do so by 25 February 2005.
If you require any further information please contact your local housing office."
"Several members referred to letters sent to tenants by Rochdale Boroughwide Housing requiring seeking the signing of new tenancy agreements in respect of the payment of water charges which had stated that eviction may follow should water charges be not paid. Concerns were being expressed across the Borough and there was a suggestion that OFWAT had queried whether such a statement was legal…
It was AGREED that Margaret Carney/Rochdale Boroughwide Housing respond to Members on the legal position relating to the potential for eviction proceedings arising from non payment of water charges within the overall rent charge."
"[I] believe [you] are dictating how and when [I] pay as [my] letter from Rochdale states that [I have] to pay weekly with [my] rent…[My] tenancy agreement says if [my] rent is not paid [I] can be evicted. [I] therefore feel [you] are using the threat of eviction as a debt recovery tool to get tenants to pay for water."
"The tenancy agreement does not actually state this [ie that a tenant can be evicted for non-payment of rent] but it is correct that any landlord can apply for a possession order if tenants fail to comply with the tenancy conditions in every respect including payment of rent. This will still be the case for tenants who fail to pay their rent including water charges in future. However, as is currently the case, we will work with and advise any tenants who get into difficulties with rent payments and we will explore all options for repayment of any arrears that have arisen. Recovery through legal action is a last resort when all other alternatives have been investigated and/or there has not been any cooperation on the tenant's part to tackle the problem. We do make alternative payment arrangements with tenants whenever they get into difficulties through sickness or unemployment and we will continue to do this when water charges are included in the rent."
"YOUR RENT AND WATER CHARGES
The Council hereby gives you notice that from 4 April 2005, and until further notice, your weekly rent will include water charges. Your tenancy agreement is hereby varied from 4 April 2005 as follows:
Conditions of Tenancy – The Tenant's Obligations
Other charges – Section 4 is deleted and replaced with the following:
"You must pay all charges, including water charges, in respect of your occupation of the property, by weekly instalments in advance on Monday of each week."
The law requires the Council to send with this Notice any information it considers necessary. Please note the following:
? A joint letter of explanation from United Utlities and RBH has already been sent to you.
? This variation has amended your conditions of tenancy and the contract between you and the Council as explained above.
? The basis of your tenancy, and your rights and responsibilities, and those of the Council, remain the same."
The notice went on to set out the calculation of Mr Dixon's water charges for the charging year 1 April 2005 to 31 March 2006, being 48 payments of £5.13 per week.
"4. Having heard evidence from him, it seems that the reasoning behind his objection is as follows. Before 1989 he used to pay his water charges to the Local Authority as part of his rent but the amount he paid was based on an assessment of the actual amount of water he used. Whether this is correct or not, I do not know but certainly that was his belief. In 1989 the statutory scheme was changed and water charges became payable to the water company directly, in this case United Utilities. The amount of those charges was fixed by reference to the value of the property rather than, he says, the assessed usage. Any failure to pay those charges was recoverable by the water company as a private debt. The scheme which was introduced in 2005 if upheld means that the water charges are payable to the Local Authority as part of the tenancy obligations. However, the amount remains fixed by reference to the value of the property. Therefore as a result of the change any failure to pay could be treated as a breach of the tenancy agreement with the potential for eviction. He put it succinctly in this way: "Why should I be at risk of losing my home for something I am not using?" He also believes that after 2005 he is no longer a customer of United Utilities and, therefore, he says he is unable to avail himself of their schemes for those who have difficulty paying and, indeed, he is unable to apply to them for water metering. I have to say I had some difficulty with accepting the logic behind that belief.
5. However, it is right to say that the stance he takes is one of principle. Although he, like many of the claimant's tenants, has limited means, it has never been his case that the arrears have accrued because he cannot pay. He has not paid, as a matter of principle. He is clearly passionate about the matter…I am quite convinced that he genuinely believes not only in the moral strength of his position but also in the legal strength of his case."
The ultra vires issue
"The position is thus that the Council had at all material times the power to enter into an agreement for the collection and recovery by the Council on behalf of the water authority or company of any water charges payable or fixed for the supply of water by the water authority or company, at least in the Council's area. The Judge, after hearing evidence, was satisfied that the Council had entered into such an agreement, currently with Thames Water Utilities Limited, whereby the Council "undertook to collect money from each tenant". He described the origins of the agreement as "lost in the mists of time", but set out certain of its characteristics which are worth mention. The Council, consistently with the statutory language, claims and seeks to collect from its tenants the amounts fixed by the water company in respect of their particular properties. The discounted lump sum is arrived at by negotiation and is based on the total water charges for all relevant Council properties, less a discount to take account of unoccupied premises and the costs of collection. Presumably, although this is not stated, the discount also takes account of the risks of non-recovery, since it appears that the Council undertakes to pay the water company the discounted lump sum, irrespective of what it recovers from its tenants. We were told that the discounting means in practice, and is designed to mean, that the Council achieves for the benefit of its housing revenue account a surplus through collecting on behalf of Thames Water Utilities Limited more by way of water charges than the amount for which the Council actually has to account to that company. It is always open to an agent to contract on such a basis, and I see no objection in the present statutory context to the arrangement made between the Council and the water company. Any surplus accruing to the Council's housing account (which has been "ring-fenced" under the relevant legislation throughout the 1990s) ensures [sc ensures] to the benefit of all its tenants, since it enables the Council to keep rents down…The effect of the agreement between the Council as landlord and Mrs Thomas as tenant has been at all times such as to entitle the Council to claim from her the water rate or charges which the Council has arranged with the water authority or company to collect" (at 94/95).
"In the present case, the water charges are due from the tenant as occupier of the demised premises and a user of water there. Although the water supplies are made by the water company to Mrs Thomas and the statutory framework envisages the collection of the water charges by the Council on behalf of the water authority or company, the practical effect of the agreements made (a) between the Council and the water company and (b) the Council and Mrs Thomas is that Mrs Thomas answers for the water charges to the Council while the Council takes care of them vis-s-vis the water company. It was explained to us that this system not only provides a potential surplus in the Council's housing account, to the benefit of all tenants including Mrs Thomas, it also corresponds with the Council's policy that tenants who are less well off and, in some cases perhaps, less capable of looking after their own affairs should be protected from the risk of having their basic utilities cut off, due to failure to meet relevant charges. Some housing associations have, we were told, made similar arrangements, and the Council itself has some similar arrangements in relation to the supply of electricity and gas. There may be council tenants who do not approve or appreciate the policy or the making of such arrangements for their benefit, but the legislation clearly empowers it and the Council is clearly entitled to adopt such a policy. Where it has done so and has implemented it in the way described for the benefit of itself and its tenants, the resulting obligation on a tenant to pay to the Council the water charges must in my view be regarded as touching and concerning the demised house, and as an "obligation of the tenancy", even if it is not anyway rent."
"the key principles to be derived from the various cases in which the words "on behalf of" have been considered are as follows: (i) the phrase "on behalf of" does not have a fixed meaning, it is not a term of art; (ii) the phrase is capable of bearing a wide range of meanings; and (iii) it will take its meaning in any particular case from its statutory context."
The ineffective variation issue
"In such cases, though language like "mandatory," "directory," "void," "voidable," "nullity" and so forth may be helpful in argument, it may be misleading in effect if relied on to show that the courts, in deciding the consequences of a defect in the exercise of power, are necessarily bound to fit the facts of a particular case and a developing chain of events into rigid legal categories or to stretch or cramp them on a bed of Procrustes invented by lawyers for the purposes of convenient exposition. As I have said, the case does not really arise here, since we are in the presence of total non-compliance with a requirement which I have held to be mandatory. Nevertheless I do not wish to be understood in the field of administrative law and in the domain where the courts apply a supervisory jurisdiction over the acts of subordinate authority purporting to exercise statutory powers, to encourage the use of rigid legal classifications. The jurisdiction is inherently discretionary and the court is frequently in the presence of differences of degree which merge almost imperceptibly into differences of kind."
"Bearing in mind Lord Hailsham L.C.'s helpful guidance I suggest that the right approach is to regard the question of whether a requirement is directory or mandatory as only at most a first step. In the majority of cases there are other questions which have to be asked which are more likely to be of greater assistance than the application of the mandatory/directory test. The questions which are likely to arise are as follows:
1. Is the statutory requirement fulfilled if there has been substantial compliance with the requirement and, if so, has there been substantial compliance in the case in issue, even though there has not been strict compliance? (The substantial compliance question.)
2. Is the non-compliance capable of being waived, and if so, has it, or can it and should it be waived in this particular case? (The discretionary question.) I treat the grant of an extension of time as a waiver.
3. If it is not capable of being waived or is not waived then what is the consequence of non-compliance? (The consequences question.)"
The unfair term issue
"5.– Unfair Terms
(1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer…
6.– Assessment of unfair terms
(1) Without prejudice to regulation 12, the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of the conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent."
"…The requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties' rights and obligations under the contract significantly in his favour. This may be by granting to the supplier of a beneficial option or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty. ..The requirement of good faith in this context is one of fair and open dealing. Openness requires that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer's necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position, or any other factor listed in or analogous to those listed in Schedule 2 to the Regulations…It looks to good standards of commercial morality and practice."
"We take the view that it is unfair to change the nature of a debt owing to the landlord by means of a contractual term. We are likely to object to terms that deem outstanding interest, administration or service charges, or any other monies owing to the landlord other than rent as being rent or provide for them to be deducted from the rent account. Housing legislation provides that arrears of rent may be treated differently from other debts, particularly in regard to eviction, and we consider it is unfair for landlords to seek to enforce these other debts in this way."
"We take into account the different legal and regulatory environments in which public sector and social housing landlords work when considering complaints about possible unfairness in their tenancy terms."
In any event the para 4.1 advice relied on by Mr Dixon expressly makes the point about the problem of other charges being required to be paid as rent, thereby underlining the statutory difference between assured tenancies under the Housing Act 1988, where rent arrears are a mandatory ground for possession (ground 8), and secure tenancies under the HA 1985, where they are not. It seems to me that on its own terms and the logic of its argument para 4.2 does not apply to the present case concerning secure tenancies.
The unreasonable order issue
"I am sure that he will have great difficulty in accepting this decision, that was clear in his evidence and that leaves me with some doubts as to whether I can accept his assurance made in evidence that he will pay without there being some sanction. It seems to me that in these circumstances if an order for possession was not made, I find it very difficult to envisage any circumstances in which an order for possession would be appropriate for failure to pay water charges alone and if that were the case the defendant, Mr Dixon, and any others following this case might feel that he has succeeded in his arguments when he has not."
"The fact that the water was supplied by a third party is no reason for refusing a possession order in circumstances where the Council had undertaken to pay the water charges to the third party and to collect them from its tenants. The fact that the Council had no obligation to undertake this role is clearly irrelevant. It had specific statutory power to undertake it, and it was Council policy to do so – in the interests of its tenants and the fulfilment of its own functions as the relevant elected local authority. The fact that the statutory power was initially conferred at a time when water was supplied by a public body is irrelevant, as is the fact that the water is now supplied by a privatised water company. The express conferral in the 1989 and 1991 Acts of power on a local authority to enter into an agreement for the collection and recovery, on behalf of any privatised water company, of any charges fixed by such a company demonstrates the irrelevance of privatisation. The fact that the Council's policy and the agreements which it has with water companies and with its tenants could, in certain circumstances of default, lead to tenants losing possession of their houses on account of non-payment of charges which would not normally expose other tenants to forfeiture of their leases is no reason for refusing a possession order, once it is accepted, as it must be, that the agreements were made pursuant to express statutory power and proper Council policy and were in the general interests of tenants."
Lord Justice Rimer :
Lord Justice Elias :