Compensation – Gas undertaker – Water ingress – Claimant gas undertaker seeking to recover failure to supply gas (FSG) payments following water ingress form defendant’s water main – Whether FSG payments recoverable under section 82(1)(b) of the New Roads and Street Works Act 1991 – Whether section 82 being part of complete code precluding recovery of damages in negligence – Claim dismissed
The claimant was a gas undertaker which owned gas mains buried underground in the street which were used to transport gas to its customers. It was an undertaker within Part 111 of the New Roads and Street Works Act 1991 (the 1991 Act). In particular, the claimant owned a gas main buried below Crofton Road in Orpington. The defendant was a statutory undertaker responsible, amongst other things, for supplying water to its customers under The Water Industries Act 1991 (WIA) and, in particular, the defendant owned the water main laid underground in Crofton Road.
The claimant sought to recover failure to supply gas (FSG) payments made to some 1683 of the claimant’s customers, in respect of an incident of water ingress in the Crofton Road area from the defendant’s water main. It was common ground that the escape of water caused damage by burning a hole through the claimant’s gas pipe and infiltrating its network. The sums claimed in respect of the FSG payments in Crofton Road amounted to £190,910. The claim for FSG payments was compromised in the sum of £178,000 subject generally to liability but resolving contributory negligence quantum and interest issues. There was also a claim for loss and expense caused by water ingress over and above the FSG payments.
Issues arose: (i) whether the FSG payments were recoverable under section 82(1)(b) of the 1991 Act; and (ii) whether section 82 was part of a complete code which precluded the recovery of damages in negligence.
Held: The claim was dismissed.
(1) Section 82 of the 1991 Act imposed strict liability on undertakers for claims falling within its terms. The claimant did not need to show negligence and could not be faced with a defence of statutory authority in respect of that strict liability claim: section 82(3). An undertaker was also liable in respect of its contractors and employees: section 82(5). However liability did not extend to instances where the damage or loss was attributable to misconduct or negligence of the claimant or a third party: section 82(4).
The obligation to make FSG payments to the claimant’s customers were not expenses reasonably incurred in making good the damage to the claimant’s apparatus. Whereas in section 82(1)(a) there was a wide liability to compensate the street authority or other relevant authority in respect of any damage or loss a very much limited compensation was required under section 82(1)(b) to be provided to undertakers such as the claimant. Section 82(1)(a) was wide enough to include consequential financial losses. Section 82(1)(b) was more restrictive and excludes consequential financial losses. The expression “expenses reasonably incurred in making good damage” could only relate to the expenses incurred in the execution of the necessary remedial works. It was not wide enough to include the modest compensation payments paid to customers who had lost their gas supply for long enough to trigger the FSG payments. The payments were made because the supply of gas had been discontinued. It was the interruption of the gas supply which gave rise to the claimant’s liability to make those payments which would continue until the making good had been completed.
Section 96(1) of the 1991 Act provided that those expenses included the relevant administration expenses, including an appropriate sum in respect of general staff costs and overheads. An undertaker who damaged apparatus in a street was liable under the 1991 Act to compensate the owner of that apparatus for any expense reasonably incurred in making good the damage, including the cost of direct labour and materials and the reasonable charges of an outside contractor employed in making good the damage; and an appropriate proportion of any administrative expense reasonably incurred for the general purposes of the owner’s business if that expense was incurred to provide a resource which was used directly or indirectly in the process of making good the damage or was sufficiently connected to that process to be regarded as a relevant administrative expense. The FSG payments, which were regulatory compensation payments which gas operators had to make were not costs or expenses reasonably incurred in making good damage to the damaged apparatus.
(2) By section 82(l)(b) of the Act, an undertaker had to compensate any other person having apparatus in the street in respect of any expense reasonably incurred in making good damage to that apparatus as a result of the execution by the undertaker of street works. That section imposed strict or absolute liability on the undertaker, a provision reinforced by section 82(3)(a) which provided that the liability arose whether or not the damage or loss was attributable to negligence on his part or any person for whom he was responsible. The only relief for the undertaker was in section 82(4), which provided that his liability under section 82 did not extend to damage or loss which was attributable to misconduct or negligence on the part of any third party; or of the person suffering the damage or loss or any person for whom that person was responsible. Those provisions formed a complete code, excluding the operation of the common law, in respect of the subject‑matter they addressed, the execution of street works under the authority of statute or of a licence. The question was whether, looked at as a whole, a common law remedy would be incompatible with the statutory scheme and could not have been intended by coexist with it. Applying that test to section 82, it was clear and unambiguous that a common law remedy based upon negligence would be incompatible with the statutory scheme and could not have been intended to co‑exist with it. It was of particular relevance that, with regard to escape of water, section 82 of the 1991 Act expressly afforded other undertakers a particular remedy that applied where the water undertaker was negligent and where it was not: Yorkshire Electricity Distribution Plc v Telewest Limited [2006] EWCA Civ. 1418 followed.
David Hart QC (instructed by Kennedys) appeared for the claimant; Andrew Rigney QC (instructed by Clyde & Co LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Southern Gas Networks plc v Thames Water Utilities Ltd.
