In a significant judgment, the Competition Appeal Tribunal refused to grant Collective Proceedings Orders (CPOs) to Professor Carolyn Roberts against six UK water companies. The decision hinged on a provision in the Water Industry Act 1991 (WIA), which ultimately precluded the claims from proceeding under competition law. This judgment not only delves into the applicability of competition law to the highly regulated water sector, but also highlights the rigour with which the Tribunal scrutinises applications for collective proceedings.

Summary of the claim

Billed as the first environmental class action in the Tribunal¹, Professor Carolyn Roberts brought the claim on behalf of household customers against six water and sewerage undertakers: Severn Trent Water Limited, United Utilities Water Limited, Yorkshire Water Services Limited, Northumbrian Water Limited, Anglian Water Services Limited and Thames Water Utilities Limited.  The claim alleged that these companies significantly under-reported pollution incidents, which allowed them to charge higher prices than would have been permitted if accurate reports had been made.  This under-reporting was argued to constitute an abuse of a dominant position under competition law, leading to financial losses for class members. 

Section 18(8) Water Industry Act 1998: a barrier to collective proceedings

The Tribunal's refusal to grant the CPO was primarily based on the interpretation of section 18(8) WIA. This provision effectively excludes private law remedies for acts or omissions that constitute a contravention of a condition of an appointment under the WIA. The Tribunal concluded that the alleged under-reporting of pollution incidents by the water companies, which allegedly led to higher prices charged to household customers, fell within the scope of this exclusion. Its reasoning centred on the fact that the class's alleged loss was directly tied to the price control mechanism set by Ofwat, the water regulator. The Tribunal's decision was influenced by a Supreme Court judgment issued shortly before Professor Roberts’ certification hearing, which provided an authoritative interpretation of section 18(8) WIA and reinforced its application in this context.²

The Tribunal expressed concerns that its decision might leave overcharged residential customers without any prospect of compensation.  However, it was reassured by the fact that Ofwat has the authority to direct water companies to reimburse customers. The Tribunal also noted that Ofwat is better equipped than the courts to determine the extent of under-reporting by water companies and to calculate any compensation due to customers. Although the Tribunal was careful to state that this was not the basis for its decision, these concerns highlight significant policy questions about when a regulator is better positioned to determine the amount and mechanism for consumer redress.

Competition law and the conduct of water companies

Having determined that section 18(8) WIA operated to exclude the claims, the Tribunal went on to consider the proposed defendants’ argument that competition law did not apply to the conduct of the water companies. The Tribunal concluded that the alleged conduct could fall within the scope of competition law, specifically the Chapter II prohibition on abuse of a dominant position under the Competition Act 1998. This finding underscores the potential for competition law to address exploitative practices by statutory monopolies, even in highly regulated industries like water and sewerage services. 

Tribunal's willingness to grant a CPO but for section 18(8) WIA

The Tribunal indicated that if it were not for the specific statutory exclusion under section 18(8) WIA, it would have granted the CPO. The Tribunal found that:

1. Professor Roberts satisfied the authorisation criteria: she was well qualified to act as the class representative, had an effective plan for sensible management of the proceedings, and had sufficient funding. The funding arrangements are considered further below. 
2. The claims were brought on behalf of an identifiable class of persons, raised common issues, and were suitable to be brought in collective proceedings. The relatively limited objections raised by the proposed defendants were rejected, further demonstrating the Tribunal's readiness to certify the proceedings in the absence of the statutory exclusion. In addressing the proposed defendants’ arguments regarding Professor Roberts’ expert’s’ proposed methodology, the Tribunal emphasised that the well-known Microsoft test involves a “low threshold” and is not intended to be onerous. 

Concerns over funding arrangements

The Tribunal raised concerns about Professor Roberts’ funding arrangements of its own volition.  The Tribunal scrutinised the terms of the Litigation Funding Agreement and required changes to certain provisions to address concerns about the funder's ability to terminate the agreement.  This intervention highlights the Tribunal's proactive role in ensuring that funders are not able to assert inappropriate control over the conduct of the proceedings. 

Potential appeal and broader implications

Professor Roberts’ legal team has indicated that she is considering an appeal against the Tribunal's decision.The Tribunal's indication that it would have certified the proceedings but for the water industry-specific statutory exclusion suggests that the decision should be seen in its proper context, rather than more generally indicating a more restrictive approach from the Tribunal to certification (coming, as it does, hot on the heels of the Tribunal’s decision in Riefa).  Nonetheless, the Tribunal's judgment is significant as only the second outright refusal to grant CPO and serves as a reminder of the difficulties involved in navigating the interplay between regulatory frameworks and competition law.

¹ See our previous article: ESG collective proceedings in the Competition Appeal Tribunal – a natural new home or a fleeting visit? - Macfarlanes

² United Utilities Water Ltd v Manchester Ship Canal Co Ltd (No 2) [2024] UKSC 22