Northumbrian Water Ltd, R (On the Application Of) v Water Services Regulation Authority

Factual and Procedural Background

This appeal concerns whether the Appellant, a water company, is entitled to exclude interruptions to water supply caused by Storm Arwen, recognised as a civil emergency, when calculating performance levels for price control purposes under its licence. The Respondent, the statutory regulator, decided to grant a partial exception, allowing exclusion of 50% of the impact of the storm-related interruptions. The Appellant challenged this decision by judicial review, which was dismissed by the High Court judge. The Appellant was granted permission to appeal on grounds relating to the interpretation of the civil emergency exception, the scope of discretion of the Respondent, and the existence of a duty of prescription requiring the Respondent to adopt a policy for exercising discretion.

Legal Issues Presented

1. Whether the civil emergency exception in the Reporting Guidance requires the Respondent to automatically exclude all water supply interruptions caused by a qualifying civil emergency when assessing the Appellant's performance, or whether it confers a discretion on the Respondent to grant exceptions.
2. If discretion is conferred, whether the Respondent is limited to considering only the Appellant's performance in exercising that discretion or may consider wider statutory duties and other relevant factors.
3. Whether there is a common law duty of prescription requiring the Respondent to adopt and publish a policy governing the exercise of its discretion to grant exceptions under the civil emergency provision.

Arguments of the Parties

Appellant's Arguments

• The civil emergency exception does not confer discretion but requires the Respondent to exclude all supply interruptions caused by a qualifying civil emergency and not due to the Appellant's fault.
• The regulatory scheme and licence provisions support the interpretation of an automatic exception, as discretionary decisions would otherwise be subject to challenge before the Competition and Markets Authority.
• Paragraph 12.7 of Condition B limits the Respondent to considering only the Appellant's performance in relation to the interruptions, excluding other factors.
• The Reporting Guidance and its origins indicate the exception was intended as a clear, narrowly defined exclusion, not a discretionary power.
• The absence of a policy governing the exercise of discretion breaches a common law duty of prescription, requiring consistent and non-arbitrary decision-making.
• The lack of such policy means the exception should be treated as automatic or limited to the performance criterion identified in the licence.

Respondent's Arguments

• The exception provision allows water companies to request an exception, but it is for the Respondent to decide whether to grant it, thus conferring a discretion.
• The default position is that the water company bears the risk of supply interruptions regardless of cause, and the exception mechanism is a procedural request for relief rather than an automatic exemption.
• The Respondent must consider all relevant factors, including financial impact and statutory duties, not just the Appellant's performance.
• The cases relied upon to establish a duty of prescription concern failure to publish existing policies, not a duty to adopt one where discretion exists; no such duty arises here.
• The final determination process involved consultation and opportunity for representations, ensuring procedural fairness.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
R (O) v Secretary of State for the Home Department [2022] UKSC 3	Modern principles of statutory and public document interpretation emphasizing natural and ordinary meaning in context.	The court applied these principles to interpret the Reporting Guidance and licence conditions.
Lambeth London Borough Council v Secretary of State for Housing, Communities and Local Government [2019] UKSC 33	Interpretation of planning permissions as analogous to interpretation of public documents.	Supported the approach of interpreting the Reporting Guidance in its legal and factual context.
Trump International Golf Club Scotland Ltd v Scottish Ministers [2015] UKSC 74	Interpretation of public document conditions focusing on reasonable reader's understanding.	Reinforced the interpretative approach adopted by the court.
R (ZLL) v Secretary of State for Housing, Communities and Local Government [2022] EWHC 85 (Admin)	Considered issues of public law duty relating to unpublished policy positions.	Held not to establish a common law duty to adopt a policy where discretion exists; observations on duty of prescription were obiter.
R (Lumba) v Secretary of State for the Home Department [2011] UKSC 12	Requirement for transparency and publication of policies governing detention decisions.	Distinguished as concerning published policies; did not establish a duty to adopt policy where none exists.
R (Kambadzi) v Secretary of State for the Home Department [2011] UKSC 23	Lawfulness of detention depends on adherence to published policy.	Did not establish duty to adopt policy; only to follow existing policies unless good reason exists.
Mandalia v Secretary of State for the Home Department [2015] UKSC 59	Public bodies must follow adopted policies unless there is good reason not to.	Confirmed no duty to adopt policy where discretion is conferred.
Nzolameso v Westminster City Council [2015] UKSC 22	Good practice for public bodies to have policies for consistency and transparency.	Recognized benefits of policies but did not impose a common law duty to adopt them.

Court's Reasoning and Analysis

The court undertook a detailed interpretative exercise of the Reporting Guidance and licence provisions, applying established principles of statutory and public document interpretation. It found that the language of the Reporting Guidance does not mandate an automatic exception for water supply interruptions caused by a civil emergency but instead establishes a procedural mechanism allowing the water company to request an exception. The Respondent retains discretion to decide whether to grant that exception, considering whether the interruptions arose from a qualifying civil emergency and whether the supply interruption was not the cause of the emergency.

The court noted that the regulatory framework balances risks between customers and water companies, with performance commitments linked to financial incentives and penalties. The discretion to grant exceptions aligns with this framework, allowing the Respondent to weigh the impact on returns and incentives.

Regarding the scope of discretion, the court held that paragraph 12.7 of Condition B does not restrict the Respondent solely to the Appellant's performance but requires it to consider performance as a mandatory material consideration alongside other relevant factors, including statutory duties under section 2 of the Water Industry Act 1991. The Respondent's decision to grant a partial exception by excluding 50% of the impact was lawful and within its discretion.

On the alleged common law duty of prescription, the court concluded that the precedents cited do not establish a duty to adopt a policy where discretion exists. The duty of prescription arises only in contexts where a policy exists but is unpublished. The court emphasized that the absence of a policy does not render the exercise of discretion unlawful. The Respondent's consultation process and consideration of representations ensured procedural fairness. The court rejected the submission that the absence of a policy should be interpreted as negating discretion or limiting the criteria for decision-making.

Holding and Implications

The appeal is dismissed.

The court held that the Reporting Guidance does not confer an automatic exception for water supply interruptions caused by a civil emergency but provides a mechanism for the water company to request an exception, which the Respondent may grant or refuse at its discretion. The Respondent is entitled to consider factors beyond the water company's performance, including its statutory duties and financial impacts. There is no common law duty requiring the Respondent to adopt and publish a policy governing the exercise of this discretion. The final determination granting a partial exception was lawful. This decision affirms the discretionary nature of the civil emergency exception within the regulatory framework and does not establish new precedent beyond the application of existing principles of interpretation and public law discretion.