England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
MR JUSTICE MITTING

		Royal Courts of Justice Strand, London, WC2A 2LL
		25th January 2012

Lord Justice Laws:

1. This is an appeal with permission granted by the judge below against the judgment of Mitting J ([2010] EWHC Admin 331) given in the Administrative Court on 30 November 2010, by which he dismissed the appellant's application for judicial review of the first respondent's decision of 13 April 2010 to grant the second respondents a variation under Section 7 of the Water Industry Act 1991 ("the 1991 Act") to its existing appointment under Section 6 of that Act so as to enable it to provide water and sewerage services to a development site at King's Cross in London. I shall refer to the appellants, Thames Water Utilities Limited, as "TWUL"; to the first respondents, the Water Services Regulation Authority, as "Ofwat"; and the second respondents, Independent Water Networks Limited, as "IWNL". The importance of the case, beyond the interests of the parties, is that it requires the court to consider the scope which the 1991 Act allows for competition between suppliers of water and sewerage services by means of the statute's mechanisms for the substitution of one supplier by another.
2. TWUL is the water and sewerage undertaker for London and elsewhere. IWNL is a smaller undertaker, arrived quite recently in the water and sewerage industry. It is a member of INEXUS, a group of companies. Ofwat is of course the statutory regulator for the industry.
3. Its functions are given by the 1991 Act as amended. The variation by Ofwat of IWNL's appointment (referred to as an inset appointment) which is challenged in these proceedings involved IWNL's replacing TWUL as the statutory water and sewerage undertaker for the site at King's Cross. The circumstances in which Ofwat may effect such a replacement are circumscribed by Section 7 of the 1991 Act, to which I will come directly. In particular Ofwat was required to be satisfied that two conditions were fulfilled, referred to in the argument as "the unserved criterion" and "the large user criterion". Mr Fordham QC's case for TWUL is that Mitting J misconstrued the statutory provisions relating to both criteria.
4. The following provisions of the 1991 Act are especially material. Section 2(1) provides thus:

"(1) This section shall have effect for imposing duties on the Secretary of State and on the Director [I interpolate that is, as I understand it, essentially Ofwat] as to when and how they should exercise and perform the following powers and duties, that is to say—

(a) in the case of the Secretary of State, the powers and duties conferred or imposed on him by virtue of the provisions of this Act relating to the regulation of relevant undertakers [F1and of licensed water suppliers] ; and

(b) in the case of the Director, the powers and duties conferred or imposed on him by virtue of any of those provisions, by the provisions relating to the financial conditions of requisitions or by the provisions relating to the movement of certain pipes…

(2A). The Secretary of State or, as the case may be, the Authority shall exercise and perform the powers and duties mentioned in subsection (1) above in the manner which he or it considers is best calculated—

(a) to further the consumer objective;

(b) to secure that the functions of a water undertaker and of a sewerage undertaker are properly carried out as respects every area of England and Wales;

(c) to secure that companies holding appointments under Chapter 1 of Part 2 of this Act as relevant undertakers are able (in particular, by securing reasonable returns on their capital) to finance the proper carrying out of those functions; and

(d) to secure that the activities authorised by the licence of a licensed water supplier and any statutory functions imposed on it in consequence of the licence are properly carried out.

(2B) The consumer objective mentioned in subsection (2A)(a) above is to protect the interests of consumers, wherever appropriate by promoting effective competition between persons engaged in, or in commercial activities connected with, the provision of water and sewerage services.

(2C) For the purposes of subsection (2A)(a) above the Secretary of State or, as the case may be, the Authority shall have regard to the interests of—

(a) individuals who are disabled or chronically sick;

(b) individuals of pensionable age;

(c) individuals with low incomes;

(d) individuals residing in rural areas; and

(e) customers, of companies holding an appointment under Chapter 1 of Part 2 of this Act, whose premises are not eligible to be supplied by a licensed water supplier, but that is not to be taken as implying that regard may not be had to the interests of other descriptions of consumer."

Then the central section, Section 7(1):

"(1) It shall be the duty of the Secretary of State to secure that such appointments are made under this Chapter as will ensure that for every area of England and Wales there is at all times both—

(a) a company holding an appointment under this Chapter as water undertaker; and

(b) whether or not the same company in relation to the whole or any part of that area, a company holding an appointment as sewerage undertaker.

(2) Subject to the following provisions of this section—

(a) the Secretary of State; and

(b) with the consent of or in accordance with a general authorisation given by the Secretary of State, the Director, shall have power by notice to a company holding an appointment under this Chapter, to terminate the appointment or to vary the area to which it relates.

(3) The appointment of a company to be a water undertaker or sewerage undertaker shall not be terminated or otherwise cease to relate to or to any part of any area except with effect from the coming into force of such appointments and variations replacing that company as a relevant undertaker as secure either-

(a) that another company becomes the water undertaker or, as the case may be, sewerage undertaker for that area or part or for an area that includes that area or part; or

(b) that two or more companies each become the water undertaker or, as the case may be, sewerage undertaker for one of a number of different areas that together constitute or include that area or part.

(4) An appointment or variation replacing a company as a relevant undertaker shall not be made in relation to the whole or any part of the area to which that company's appointment as water undertaker or, as the case may be, sewerage undertaker relates except where—

(a) that company consents to the appointment or variation;

(b) the appointment or variation relates only to parts of that area none of the premises in which is served by that company;

(bb) the appointment or variation relates only to parts of that area and the conditions mentioned in subsection (5) below are satisfied in relation to each of the premises in those parts which are served by that company; or

(c) the appointment or variation is made in such circumstances as may be set out for the purposes of this paragraph in the conditions of that company's appointment.

(5) The conditions are that—

(a) the premises are, or are likely to be, supplied with not less than the following quantity of water in any period of twelve months:

(i) if the area of the relevant undertaker concerned is wholly or mainly in Wales, 250 megalitres;

(ii) in all other cases, 50 megalitres ; and

(b) the person who is the customer in relation to the premises consents in writing to the appointment or variation."

I need not read subsection (6).

Section 36(3):

"(2) For the purposes of this Part premises in a part of an area are served by a company holding an appointment under Chapter I—

(a) in relation to an appointment or variation by virtue of which that company would be replaced as the water undertaker for that part of that area, if those premises 9 are supplied with water by means of a connection with a distribution main of that company"

I may break off there.

5. It is to be noted that the 1991 Act is a consolidated statute. Section 7(5) was added by the Competition and Services Utilities Act 1992, Part 2 Section 40(2). The description of that Act's purpose in its long title includes these words:

"to make further provision for facilitating effective competition in certain of those industries"

6. The unserved criterion consists in the requirement imposed by Section 7(4)(b) of the 1991 Act read with Section 36(3)(a). The large user criterion is provided for in Section 7(4)(bb) read with Section 7(5).
7. Before turning to the facts I should make some observations about these legislative provisions and their context. There is, with respect, a useful observation of Mitting J in another case, Welsh Water Ltd [2009] EWHC Admin 3493 at paragraph 7:

"The water supply industry is vertically integrated. Suppliers of water undertake all activities from extraction to delivery to the end user by a fixed infrastructure. The industry is therefore a natural geographically bounded monopoly on a regional or local scale. When privatised following the enactment of the Water Act 1989 (re-enacted without relevant modifications by the Water Industry Act 1991), Parliament's concern was primarily to secure the provision of universal supply by financially sound undertakers."

I might add that it goes without saying that since water is the most basic of staple necessities its supply must be continuous and reliable.

8. It is against this background, as it seems to me, that the statutory policies have to be understood, not least the provisions relating to competition. Clearly competition between undertakers is an important part of the statutory landscape -- see the long title of the 1992 Act and Section 2(2B) of the 1991 Act -- but the scope for competition is quite heavily circumscribed, as is demonstrated by the unserved criterion and the large user criterion provided for in Section 7 of the 1991 Act and falling for consideration in this appeal.
9. Their respective purposes are not hard to find. The unserved criterion promotes continuity of supplier. What one might call the sitting undertaker can only be replaced by means of an inset appointment if the relevant premises are, at the time of Ofwat's decision under Section 7, "unserved". The large user criterion provides however for a greatly enhanced degree of choice on the part of the customer if the water consumption of the relevant premises is especially large, 50 megalitres annually (more in Wales).
10. I turn to the facts. These are fully and clearly described by the judge and I can do no better than replicate paragraphs 4 to 10 inclusive of his judgment:

"4. Broadly speaking the development site is bounded by railway tracks, including HS1, leading out of St Pancras and King's Cross Stations, and at the southern end by the wider part of a triangle made by the side walls of the two stations. It was, and in large parts still is, a typical "brownfield" site containing derelict land and buildings, and buildings in limited use. It is owned by trustees on behalf of a partnership of site owners and a developer, a subsidiary of Argent Group PLC, and managed by another subsidiary, Argent (King's Cross) ("Argent"). Nothing turns on ownership. I shall treat and refer to Argent as the occupier of the development site for the purposes of this challenge.

5. Argent intends to carry out and has embarked upon the comprehensive redevelopment of the development site with a view to building 4.9 million square feet of office space in 25 new buildings, 500,000 square feet of retail space, in gutted and refurbished existing buildings, 2500 new dwellings and the University of Arts London, on part of the site which contains existing listed buildings. It is anticipated that the redevelopment will take at least 9 years to complete.

6. Argent invited tenders for the installation of infrastructure and for the supply of those services by a single undertaker or group of undertakers. It appointed companies within the INEXUS Group to be the utility companies for substantially the whole of the development site, for services from fibre optic cables to sewerage and everything in between. To this end, IWNL applied, with Argent's support, to be appointed as the water and sewerage undertaker for the whole of the development site.

7. In accordance with its published policy, Ofwat required IWNL to obtain an independent report to demonstrate that the conditions of appointment were satisfied. Two reports were provided by Halcrow Management Services Limited, and one, subsequently, by an engineer, Mr Barnes.

8. As a result of their findings, and for the purpose of the application, the boundaries of the development site were redrawn to exclude certain buildings, some or all of which continued to be supplied with water and sewerage services by TWUL.

9. The development site had originally contained 13 buildings of varying size and function. By October 2009 all but three had been demolished or gutted. The three which were not were the German Gymnasium, next to St Pancras station, a BP petrol station on the edge of the development site and Regeneration House nearer the centre. All three were excluded from the application in its final form, together with another building next to St Pancras Station, the Stanley Building, which was in the end demolished, but on which nothing turns.

10. It is common ground that except for the water supply to the three un-demolished buildings and the surface water drainage to part of the development site, all water and sewerage connections to the buildings and all other parts of the development site have been disconnected. In many or most instances no water or sewerage services other than surface water drainage has been supplied for many years."

11. In its decision of 13 April 2010 to make an inset appointment in favour of IWNL, Ofwat gave reasons for concluding that the unserved criterion and the large user criterion were fulfilled. They were as follows:

"Unserved status of the Site

To qualify under the unserved criterion under section 7(4)(b) WIA91, an applicant must show that at the time the appointment is made, none of the premises in the proposed area of appointment is served by the existing appointee. IWN submitted a report (from an independent professional advisor appointed by it) which verified the Site as unserved for water. Although the Site currently receives a temporary supply of water from Thames Water for construction purposes, IWN has told us it will disconnect this supply of water prior to Ofwat granting it a variation. We consider that as long as a temporary connection of water from an existing appointee that is required for construction purposes is disconnected prior to Ofwat granting an appointment variation, a site will still be classed as unserved. Therefore, we consider that this Site will be unserved for water once the temporary supply has been disconnected. The variation will not be made until we receive written confirmation from the applicant and Thames Water that the supply has been disconnected.

Large user criterion

To qualify under the large user criterion, each of the premises on the Site must be supplied with (or be likely to be supplied with) at least 50 Ml of water in England in any 12-month period (250 Ml of water in Wales) and the customer in respect of those premises must consent to the appointment. The same threshold levels apply to new appointments for sewerage services (i.e. new appointments may be made to serve non-household customers who are supplied or expect to be supplied with at least 50 Ml of water in England (250 Ml of water in Wales), the threshold applying to the amount of water supplied, not effluent discharged).

The Site is under the ownership and control of a single entity. The land within the Site is owned by King's Cross Central Trustees and the Trustees have appointed Argent (King's Cross) Ltd (Argent) to act as their development manager. IWN told us that Argent is in exclusive control of the Site, as it has sole responsibility for developing the Site. For these reasons, we consider the Site to be a single premises for the purposes of assessing whether the criteria set out in section 7(5) WIA91 have been met. Argent, as the customer of services on the Site, consented to the appointment.

IWN provided evidence to us concerning the planned build and occupancy schedule for the Site. The forecast consumption data in that schedule shows that the Site in aggregate (the 2,500 household properties and the 47 non-household properties) is expected to consume in excess of the 50 Ml threshold within the first or second twelve month period after the appointment.

We are of the view that the test for the large user criterion has been met in that:

the Site is under the ownership of a single entity and may be regarded as a single premises;

the customer for services on those premises is Argent and Argent has consented to the appointment; and

within the first or second year of appointment, the premises are likely to be supplied with in excess of 50 Ml of water.

In addition, we have been told by IWN and by the developer that the developer is likely to remain the landlord (and thus the customer) for large parts of the development in the future and that the consumption for those parts is likely to be about 150 Ml per year."

12. I turn to the unserved criterion. Mr Fordham submits that the judge should have found that the unserved criterion was not fulfilled so that there was no power to make the inset appointment. The argument is one of construction primarily of Section 7(4)(b) but also Section 36(3)(a)(i).
13. It will be noted that Section 7(4)(b) is expressed in the present tense:

"The appointment or variation relates only to parts of that area none of the premises in which is served by that company".

So is Section 36(3)(a)(i):

"are supplied with water by means of a connection with a distribution main".

If these provisions are read literally then, as the judge recognised (paragraph 22), all that would be required to engage the unserved criterion would be to disconnect the water supply to the site in question. That could be done unilaterally by the customer or a group of customers. All parties accept that so tight a reading of the provisions cannot be correct and so did the judge.

14. Mr Fordham for TWUL submits in his written argument (paragraph 14 and today in his oral submissions) that the verb "is" in Section 7(4)(b) must be taken to mean "is or ever has been" and the like verb "are" in Section 36(3)(a)(i) must mean "are or ever have been". On the facts of this case, the land and buildings on the site had historically been supplied by TWUL by means of a connection with TWUL's distribution main. Thus, if Mr Fordham is right, Ofwat and the judge were bound to conclude that at the time of Ofwat's decision the site had to be taken as still served by TWUL and that accordingly the unserved criterion was not met.
15. Mr Fordham says that this construction solves the difficulty inherent in the literal approach. He submits that it reflects the fact that the sitting undertaker has been required to invest in infrastructure for the area; and the policy of the statute is to afford the sitting undertaker a considerable measure of protection in consequence. It is, he submits, no accident that the paradigm case of the application of Section 7(4)(b) has been the instance of a green field site where there are no premises that are or have been served by means of a connection with any undertaker's distribution main.
16. The judge below rejected this argument. This is what he said:

"24. Mr Fordham submits that without such wording there is no workable definition of the circumstances in which a new appointment can be made. I do not agree. The Parliamentary intention seems to me to be reasonably clear. When a state of affairs exists in which a site is not supplied with water or sewerage services, as appropriate, Ofwat can lawfully determine that the requirements of section 7(4)(b) are satisfied. In relation to a brownfield site Ofwat would be entitled to take into account whether and for how long water and sewerage services have not been supplied to the premises and, if so, why. The demolition of buildings originally supplied and the permanent disconnection of private infrastructure via which they were supplied will be highly relevant factors pointing to the existence of the necessary state of affairs."

17. In my judgment the judge was right to reject Mr Fordham's construction. If the legislative intention had been to provide that the unserved criterion was to apply only where the premises had never been served by the sitting undertaker, that would have been a very distinctive measure which could, and in my judgment would, have been enacted by clear words.
18. But I think Mr Fordham's construction is wrong for this reason also: it would mean that competition between undertakers would be effectively restricted to greenfield virgin sites. So long as there is a sitting undertaker for the area who has historically supplied water to the site in question, no matter how long ago and irrespective of the circumstances in which that supply was terminated, there can, on Mr Fordham's argument, be no inset appointment.
19. I accept without cavil that the degree of competition allowed by the statute is circumscribed by the recognition that the sitting undertaker must have invested in substantial infrastructure. Mr Fordham referred us this morning to Sections 37, 41, 45, 52 and 56. But this cannot, as it seems to me, justify an interpretation which prevents all competition in relation to a brownfield site provided only that there is a sitting undertaker for the area holding an appointment under Part 2 of the 1991 Act, as always or generally there will be. There is nothing in the statute as I read it to disclose a legislative intention to the effect that competition should be suppressed so far.
20. In my judgment a pragmatic construction is required which produces a more balanced result. Clearly the connection of a temporary water supply for building purposes (as was done here) would not mean that the premises were served if otherwise they were unserved: the judge recognised as much at paragraph 25. Equally, the temporary disconnection of supply, for example to effect repairs, would not mean that premises otherwise served became unserved. The unserved criterion is in my judgment met when the premises in question are not in substance served by the sitting undertaker, and it will be for Ofwat to judge whether in any given circumstances the test is satisfied. This was the judge's approach at paragraph 24. It is, in my view, consistent with the terms of the duties owed by Ofwat (or the Secretary of State) in relation to inset appointments imposed by section 9 of the 1991 Act to which Mr Fordham referred us. Indeed, if anything, the duty to hear representations and to consult (Section 9(1) and (2)) tends to support the reading adopted by the judge. It is consistent also with the provisions of Section 17A and following in relation to the licensing of water suppliers. This construction, in my judgment, leaves a bias in favour of the supplier. Disconnection of supply will not automatically engage the criterion. Thus the unilateral and unsolicited act of disconnection by a customer, for the reason only that he desires to change undertakers, will not on the face of it suffice. Ofwat must judge, where there is no actual present supply, whether the circumstances in which that has arisen should mean that the premises are indeed not served by the sitting undertaker.
21. In supporting this approach, as it was articulated by the judge at paragraph 24, Ofwat and IWNL have been at pains to submit that all that has happened here is that Ofwat has made a judgment on the particular facts; they enjoy a "margin of discretion": see the skeleton argument prepared by Ms Carss-Frisk QC for Ofwat paragraph 9.2. The margin of discretion arises in the application of the statutory criterion to the facts of the case. The issues are "fact-sensitive involving an exercise of regulatory judgment": the same skeleton, paragraph 37. Mr Fordham's riposte has been to submit that the true meaning of the legislation is a question for the court; the statute does not confer discretions; the regulator in particular is afforded no discretion as to what Section 7 means. This is familiar territory in public law cases: the boundary between fact and law. Though often visited, I will make some brief observations about it.
22. It is incontestable that the meaning of any word, phrase, clause or sentence used in a statute is ultimately a matter of law for the court. Mr Fordham is quite right so to submit. Sometimes of course there is a statutory definition, and in that case the court simply interprets the word or phrase accordingly, though it must construe the definition itself correctly. Where there is no such definition the rule is that the term in question must be given its natural and ordinary meaning which, however, may sometimes fall to be modified so as to give effect to the policy and objects of the Act as the court finds them to be.
23. All this is elementary law. The water is, however, a little deeper when we consider the nature of the question, a very familiar question, whether a statutory measure applies to a particular set of facts. For this question is ambiguous. It may mean: is the statute to be construed so as to cover the accepted facts? That is a question of law. Or it may mean: are the facts to be judged as falling within the accepted meaning of the statute? That is a question of fact. The first question arises where there is no contest as to the evaluation of the facts, and the only issue is whether the statute is to be interpreted as covering those facts or not. An example far from the present case might be that of an imitation firearm. The statute prohibits the possession of firearms without defining the term. Does the provision on its true construction include the imitation weapon? The second question arises where there is no contest as to the meaning of the statute, and the only issue (an issue for a factual decision-maker) is whether the facts are to be evaluated as falling within the statutory rubric. An example equally far from the present case might be the statutory criminalisation of dangerous driving: the road traffic legislation uses but does not define the adjective "dangerous". The decision-maker, the criminal court, having found the primary facts, must evaluate them: must decide whether they establish a case of dangerous driving.
24. This second class of case, where the facts must be evaluated to see whether they fall within the statutory rubric, arises where the legislature has used a term whose factual scope is a matter of judgment, even opinion. It may be a matter upon which reasonable people may disagree. In such a case the debate is not about the meaning of the statutory expression, and it will have been the intention of Parliament to consign the issue as to the expression's application in a particular case to the judgment of the appointed decision-maker. In the dangerous driving example there is never an argument in the magistrates court or the Crown Court as to what the word "dangerous" means as a matter of law; the argument is all about whether the facts before the court disclose a case of dangerous driving.
25. In my judgment it is this second class of case to which the provisions relating to the unserved criterion belong. The 1991 Act establishes a specialist regulator in the shape of Ofwat.
26. The Act's policy and objects allow for a degree of competition between regulators: a greater degree than Mr Fordham's construction of Section 7(4)(b) would admit. Anomaly is avoided, the policy and objects of the Act are met, and the regulator's specialism is acknowledged by interpreting the expression "is served" in Section 7(4)(b) as requiring an evaluation by Ofwat, in a case where the site is not actually supplied at the time of Ofwat's decision, of the question whether in substance the premises are served or not by the sitting undertaker. Mr Fordham submitted this morning that a departure from the literal meaning of "is served" means that the history has to be considered; and so no doubt it does, but it does not follow that every historic supply must be taken as fulfilling the criterion. That is, as I read the statute, for the judgment of Ofwat.
27. Approaching the matter in that way, the judgment arrived at by Ofwat in this case cannot I think be impeached. As the judge noted at paragraph 26:

"All buildings on the application site had been demolished or gutted and their water supply had been permanently disconnected. In many instances, those circumstances had existed for several years."

Ofwat's conclusion cannot in my judgment be undermined by the fact, of which Mr Fordham reminded us at the outset of his submissions, that some disconnections were effected for the purpose of the development works themselves.

28. I turn to the large user criterion. Mr Fordham's first and principal argument for TWUL focusses on the use of the term "premises", as it is in particular used in Section 7(4)(bb) and (5). He submits that the word means each individual premises on the site: each must fulfil the large user criterion. It is not legitimate to "aggregate" all the premises on the site and so denominate the site as a single premises for the purpose of the criterion. Yet this, he says, is what Ofwat did. I repeat for convenience the relevant passage in Ofwat's decision:

"The forecast consumption data in that schedule shows that the site in aggregate (the 2500 household properties and the 47 non-household properties) is expected to consume in excess of the 50ml threshold within the first or second twelve month period after the appointment."

So, says Mr Fordham, the premises in this case cannot be the whole site, even though at the time of Ofwat's decision the site was effectively undeveloped and would only become the location of individual premises in the future. Mr Fordham accepts in his skeleton (paragraph 37) that Argent (the present occupier of the site) would pay the first water bill as customer, that the development site could at present be seen as a premises, and that the requisite high volume supply would be delivered in the future, though by then it would not be delivered as a single supply to a single premises: there would be a multiplicity, he says, of smaller supplies, less than 50 mega litres to individual premises. Thus, he submits, the large user criterion was not met. Mr Fordham submits that this approach best meets the language and purpose of the provision.

29. The term "premises" is not defined in the 1991 Act. It is of course an ordinary English word. It was considered by May LJ in this court in the context of the 1991 Act in Thames Water Utilities Ltd v Hampstead Homes London Ltd [2003] Vol I WLR 198 at paragraph 36, where he said:

"'Premises' is an ordinary word whose precise meaning is to be derived from its context. It is to be noted that neither 'premises' nor 'connection' or 'connected' are defined in the definition section of this Act, section 219. 'Premises', it seem to me, will usually include buildings but may not be limited to buildings and might in some circumstances refer to a place with few or no buildings on it."

30. It is clear that premises is not equated with buildings in the 1991 Act; they are differentiated in for example Sections 45(1), 55(1) and 98(1), which I need not read. If premises were equated with buildings the inset appointment regime could not apply to greenfield sites: see the judgment below, paragraphs 18 and 20. It seems to me in the circumstances that Ofwat was perfectly entitled to treat the development site as premises for the purposes of Section 7(4) and (5). Mr Fordham places emphasis on the formulation in Section 7(4)(bb) "each of the premises", but this language does not entail the presence or existence of more than one premises. It is to be noted, moreover, that the provision contained in Section 7(4)(bb) is constructed in such a way as to refer to service by the company to the premises rather than to any individual customer.
31. I do not see why the term "customer in relation to the premises" should not be Argent, the developer of the site, which has certainly given its consent under Section 7(5)(b) to the inset appointment. The learned judge drew attention (paragraph 30) to the definition of "customer" in Section 219:

"'Customer or potential customer' in relation to a company holding an appointment under chapter one Part 2 of this Act means -

(a) any person for or to whom that company provides any services"

Then the judge said this Paragraph 31:

"Section 7(4)(bb) applies, and can only apply, to premises which are served by an incumbent undertaker ('that company'). It can only be the customer of the incumbent undertaker to whom section 7(5)(b) refers. Therefore, Argent is the only person who could give consent to the appointment of IWNL."

I agree with this reasoning. I agree also with paragraph 35:

"For reasons which I have already explained in relation to the application under section 7(4)(b), I am satisfied that Ofwat were entitled to determine that the premises for the purposes of section 7(4)(bb) and (5) was the application site, and not the buildings which were to be erected on it. Having so decided, all that Ofwat had to be satisfied about was that the premises, not the customer, were likely to be supplied with water in a 12-month period. It was so satisfied. Argent was the only customer of, as it happens, water drainage and therefore sewerage services of the incumbent TWUL. Ofwat was therefore entitled to determine that the conditions set out in section 7(5) were satisfied and to appoint IWNL under the 'large user' criteria."

32. I do not think that these conclusions are affected by the existence of a large user criterion in the water licensing regime, to which Mr Fordham referred us this morning. Mr Fordham further submitted that this conclusion would mean that any developer in the future, where the water consumption for the completed development will excess 50 mega litres, will be able to invoke the large user criterion. Aside from anything else, however, it seems to me that it will not be in every such case that there is a single premises, or that Ofwat would be entitled so to conclude.
33. Mr Fordham has raised a new argument not canvassed before the learned judge below. He did not elaborate it in his oral submissions today but raised it in paragraph 38 of his skeleton, and I shall deal with it. He submits that it is a premise of Section 7(4)(bb), the large user criterion, that the premises are served as to water supply; so if the premises are, as Ofwat contends and as I would find, unserved for the purposes of the unserved criterion, why then the large user criterion cannot be met. But as the judge pointed out at paragraph 2, IWNL's application for an inset appointment was made on two alternative bases: as water undertaker only for the purpose of Section 7(4)(b), and as water and sewerage undertaker for the purpose of Section 7(4)(bb). Insofar as the site was unserved with water the unserved criterion was met, but the large user application remained in play since the site was supplied with sewerage services by way of drainage of surface water by TWUL. In these circumstances there is, as I see it, no conflict between fulfilment of the unserved criterion and fulfilment of the large user criterion.
34. I should add that I have not found it necessary and do not think it appropriate to refer to passages in Hansard, despite the invitation in Mr Fordham's written submissions that we should do so. I would dismiss this appeal.

Lord Justice Tomlinson:

35. I agree. I would only draw attention additionally to Section 9(3) of the 1991 Act, which provides that in determining whether to make an appointment or variation by virtue of Section 7(4)(b) or (bb) in relation to any part of an area, the Secretary of State or, as the case may be, the director shall have regard in particular to any arrangements made or expenditure incurred by the existing appointee for the purpose of enabling premises in that part of that area to be served by that appointee. I draw attention to that sub section for two purposes. Firstly, it seems to me that it militates against Mr Fordham's argument as to the proper approach to be taken to the construction of the expression "is served" in Section 7.4(b). Secondly, however, and perhaps of more importance, it demonstrates that when considering whether to make an inset appointment the director is expressly directed to have regard to the investment made by the existing appointee in the past for the purpose of enabling premises in the relevant area to be served by that existing appointee. The weight to be given to the nature and extent of that investment is a matter for the regulator and the exercise of the statutory discretion in that regard is not here impugned.
36. For those additional reasons I agree that this appeal should be dismissed.

Lord Justice Kitchin:

37. I agree with both judgments.