Arbitration - Ofwat

Appointing an arbitrator

Water and sewerage companies have the power to:

lay, inspect, maintain, adjust, repair or alter any pipe which is in, under or over any street;
carry out in a street all such works as are requisite for securing that the water in any relevant waterworks is not polluted or otherwise contaminated; and
carry out works in connection with metering.

Schedule 12 of the Water Industry Act 1991 (WIA91) states that it is the duty of the water or sewerage company to do as little damage as possible and to pay compensation for any loss or damage caused in the exercise of the above powers. For any loss or damage they do cause when exercising their street works powers companies must pay compensation.

Under schedule 12 WIA91, a dispute about compensation must (if not resolved between the parties themselves) be resolved by the appointment of a single arbitrator. The arbitrator is to be agreed by the parties or, failing agreement between the parties, appointed by Ofwat.

There are also other areas that require that we appoint an arbitrator if the parties in dispute are unable to do so. For example:

Certain metering disputes between customers and undertakers;
Compensation disputes if an undertaker carries out work on a meter for a customer and does not exercise reasonable care; and
Where different services are provided to the same premises by different service providers (either undertakers or licensees) and there is an agreement between service providers as to the allocation of costs relating to meter reading, a dispute in relation to that agreement.

What is our role?

Ofwat’s role is not to consider or determine the dispute between the parties. The first step for any dispute is for the parties to attempt to resolve or settle the claim in question between themselves. As such, we expect customers, in the first instance, to have contacted the company setting out their complaint/claim, and to have attempted to resolve the matter before contacting Ofwat. When we review any request to appoint an arbitrator we will expect to see evidence of this.

If the company and the customer cannot resolve certain disputes, the next step is for the parties to attempt to agree on an arbitrator to adjudicate the dispute. When we review any request to appoint an arbitrator we will also expect to see evidence of this. Where no evidence is provided, we will suggest to the parties that they consider contacting one or more of the following:

If the company and the customer cannot agree on an arbitrator to adjudicate the dispute, then Ofwat has a duty to appoint an arbitrator under the relevant WIA91 provision (most typically under Schedule 12 WIA91). Before we do so, we must be satisfied that the following three conditions are each satisfied:

There is a relevant dispute as envisaged by the relevant section of the WIA91;
There is a live dispute between the parties (e.g. it has not been “fully and finally” settled); and

Any representative of a consumer has sufficient authority required to refer a dispute to arbitration on the consumer’s behalf.

The Arbitration Act 1996

Once we have appointed an arbitrator, the arbitration will be conducted under the Arbitration Act 1996 (the 1996 Act) as a statutory arbitration. The 1996 Act, in general, allows the parties to an arbitration to agree certain terms of that arbitration, but if the parties cannot agree, the 1996 Act sets out how the arbitration will be conducted. This includes:

how documents will be served;
the attendance of witnesses;
the procedures for conducting the arbitration;
how an arbitration award may be challenged;
how to enforce an arbitration award; and
the remedies available to an arbitrator.

Some provisions in the 1996 Act are mandatory and these have effect notwithstanding any agreement to the contrary, whereas non-mandatory provisions allow the parties to make their own arrangements by agreement but provide rules which apply in the absence of such agreement (see section 4 of the 1996 Act).

One such mandatory provision, is the rule that both parties are jointly and severally liable for the costs of the arbitration (including the fees and expenses of the arbitrator who will charge an hourly/daily rate). In addition, section 61 of the 1996 Act sets out that unless the parties otherwise agree, or it appears to the arbitrator to not be appropriate in the circumstances, an arbitrator will award costs on the general principle that costs should follow the event – i.e. that the losing party pays the costs of the successful party. Ofwat cannot mandate that the parties agree alternative costs rules, or that the arbitrator sets a different arrangement. In the event of any dispute about costs, this will be for the arbitrator to determine.

Taking this into account, arbitration can involve significant costs to both parties. Ofwat will confirm that the parties understand these costs prior to seeking to appoint an Arbitrator.

Where we consider it appropriate to do so, we may deviate from the above and will, for example, approach legal chambers for the appointment of a barrister as arbitrator.

What process will we follow?

In the first instance, after we receive a request to appoint an arbitrator, we will review the request for evidence that the customer and the company have:

Attempted to resolve the dispute – we will expect to see correspondence between the parties that shows that reasonable steps have been taken to settle the dispute. A company will typically only settle a claim if the customer has provided relevant information to the company substantiating its claim. As such, we are likely to refuse to appoint an arbitrator if we consider that there has not been appropriate disclosure by the customer to the company; and
Have attempted to appoint an arbitrator – we will expect to see evidence that the customer and the company have taken reasonable steps to agree an arbitrator.

If we consider that a customer has sufficiently demonstrated that reasonable steps, as outlined above, have been taken, we will proceed with processing the request. If, however, we consider that the customer has not sufficiently demonstrated that reasonable steps have been taken, we will write to the customer setting that this needs to happen before we can process the request any further.

Once a customer has demonstrated it has attempted to resolve its dispute, or settle its claim, and that the parties have attempted to agree the appointment of an arbitrator, we will consider whether the following three conditions have been met:

There is a relevant dispute as envisaged by the relevant section of the WIA91 – see above for more information;
There is a live dispute between the parties (e.g. it has not been full and finally settled); and
Any representative of a customer has provided proof that it has authority to refer a dispute to arbitration on the customers behalf – we will expect a current and valid letter of authority setting out that the third party has been instructed to act on behalf of the customer, and that the customer is aware of (and has consented to) the possible adverse costs implications of arbitration. In circumstances where we have any doubts or concerns about the letter of authority, we will require confirmation directly from the consumer before proceeding.

At this stage, we will also ensure that we have the following additional information:

Details of the parties involved;
What the dispute is about; and
The quantum of the claim.

If a customer has sufficiently demonstrated that is satisfies the three conditions set out above, and has provided all the information we require, we will proceed with processing the request to appoint an arbitrator. If, however, the customer has not done so, we will write to the customer setting out the information we require.

Once we have all the information we require, we will carry out a preliminary assessment which will determine whether we will open a case and proceed to appoint an arbitrator. Should be decide to proceed with appointing an arbitrator, we will then write to both parties confirming that we will be proceeding with such an appointment. We will endeavour to do propose an appointment within two weeks of the date of the letter.

If a party subsequently provides a reasoned objection to our appointment of an arbitrator, we will consider whether our initial choice of arbitrator was appropriate. In terms of objections to our appointment, we will consider potential conflicts of interest and concerns on expertise and cost. However, the decision on whether to appoint an arbitrator is for Ofwat. Thereafter, the parties will be notified of our final decision.

Once the Arbitrator is appointed, it will be for the arbitrator to settle the substantive dispute as well as any procedural issues. We will not determine the procedural rules governing the arbitration (which will be for the parties and the arbitrator to determine in accordance with the Arbitration Act 1996). We will also not set the detailed terms of reference for the dispute (save that we will, prior to seeking to appoint an arbitrator, assure ourselves that there is a relevant dispute which we will then relay to the arbitrator on appointment).