Supreme Court judgment goes against sewerage undertaker: The Manchester Ship Canal Company Ltd v United Utilities Water Ltd No 2

The Supreme Court has handed down its judgment in The Manchester Ship Canal Company Ltd v United Utilities Water Ltd No 2 [2024]* which deals with the question of whether the Water Industry Act 1991 (the 1991 Act) operates to bar an action for nuisance or trespass in the absence of negligence or deliberate misconduct where water is polluted by discharges of foul water from statutory sewerage undertakers.

*You can read the full judgment here. 

The underlying dispute centres on whether:

• United Utilities is able to discharge foul water into the Manchester Ship Canal (the Canal) without permission from the Canal Company and free of charge (based on the argument that actions in nuisance or trespass are barred, as above); or, alternatively
• United Utilities has to pay the Canal Company for a licence to do this.  

Where foul water has been discharged into a privately-owned watercourse, there will be, in principle, an actionable nuisance at common law. The issue here was whether such a claim is excluded by the legislative scheme - this is a matter of statutory interpretation.  

At first instance and in the Court of Appeal, it was decided that a common law action in trespass or nuisance was barred. The discharge of inadequately treated effluent was unlawful, but United Utilities had not caused it by negligence or deliberate wrongdoing, and the only way they could prevent it was by carrying out improvements to the sewerage system.

In reaching their decision, both lower courts had applied the decision of the House of Lords in Marcic v Thames Water Utilities Ltd [2003] which held that Thames Water had a special position as a sewerage undertaker. Marcic was interpreted by the Court of Appeal as excluding claims whenever the underlying cause of the nuisance was the inadequacy of sewerage infrastructure. If a common law action could be brought, it would undermine the statutory scheme applicable to the enforcement of sewerage undertakers’ duties.

Before the Supreme Court, United Utilities’ position was that, although the discharges into the Manchester Ship Canal are unauthorised (and this was accepted by United Utilities), enforcement action can only be taken by the Secretary of State or Ofwat under s18 of the 1991 Act. So, it was contended, in the absence of negligence or deliberate wrongdoing, no action could be taken by the person affected ie the Canal Company.

Decision of the Supreme Court

The Supreme Court overturned the decision of the Court of Appeal, holding (in favour of the Canal Company) that where foul water has been discharged by a sewerage undertaker into a privately-owned watercourse and there is an actionable nuisance at common law, it is not excluded by the 1991 Act.  

Key points of interpretation of the Water Industry Act 1991

• The 1991 Act does not authorise sewerage undertakers to cause a nuisance or to trespass by discharging untreated effluent into watercourses. S117(6) of the 1991 Act prohibits a sewerage undertaker from carrying out its statutory functions so as to create a nuisance.
• S94(4) of the 1991 Act provides that the remedies available in respect of breach of the duties under Part IV of the 1991 Act (which includes s117(6)) shall be “in addition to” the remedies available under ss94-95. Therefore, the statutory remedies in ss94-95 are in addition to any common law claim in nuisance that arises out of a nuisance prohibited by s117(6). 
• It would be anomalous if (as contended by United Utilities) the statutory scheme prohibits nuisance but provides no compensation for such nuisance and at the same time, ousts the private law remedy. 
• S180 and Schedule 12 of the 1991 Act provide compensation to any person for damage caused by the authorised acts of sewerage undertakers, but not for unauthorised acts causing damage. The Supreme Court agreed (with the Canal Company) that if persons suffering damage were also deprived of their common law right of action, the result would be “perverse” as it would mean “that the victims of unauthorised interferences with their property are treated less favourably than the victims of authorised interferences”.
• S18(8) of the 1991 Act expressly preserves common law remedies where a contravention enforceable under s18 is not an essential ingredient of the cause of action.
• Any potential incompatibility between an injunctive remedy for a private claim in nuisance and the scheme of the 1991 Act does not provide a basis for excluding the common law cause of action which is expressly preserved in the 1991 Act.

The Supreme Court cited Lord Neuberger in the Supreme Court decision in Manchester Ship Canal Co Ltd v United Utilities Water plc [2014]: “There is in my view a strong presumption that (i) private rights are only to be taken away by a statute by means of clear and specific words, and (ii) where a statute deals in considerable detail with the rights and obligations in a certain field, it is intended to be exhaustive”.

Can the House of Lords' decision in Marcic be distinguished from the current case?

The Supreme Court held that the 2003 decision in Marcic can readily be distinguished and therefore reconciled with this decision. One of the distinctions was that in the Marcic decision, it was not alleged that Thames Water had created or adopted the nuisance caused by the escape of sewage on to Mr Marcic’s property.  Rather, it was contended that they continued the nuisance by failing to construct a new sewer to address the problem.  As set out above, the statutory breach was an essential ingredient of Mr Marcic’s cause of action (which did not itself give rise to a common law cause of action). 

The Supreme Court held that the Court of Appeal’s interpretation of Marcic was based on a misreading of the decision. In Marcic, on a correct reading, “[t]he difficulty was not that a contravention of the statutory duty was an underlying cause of the nuisance, but that it was an essential ingredient of the cause of action for which there was no independent basis at common law”. Mr Marcic had no cause of action at common law. Accordingly, his claim had been dismissed as it was based on the breach of a statutory duty (to build more sewers) for which section 18 of the 1991 Act provides an exclusive remedy.

In this case, United Utilities is responsible for the discharge of untreated effluent into the Canal which constitutes a nuisance at common law.  The 1991 Act does not authorise the commission of such a tort and does not exclude a common law right of action, as clearly set out at the end of the Supreme Court judgment.

Commentary

This judgment is limited to the principle of whether common law actions can be brought in this scenario in the absence of negligence or deliberate misconduct and does not make an ultimate finding of liability between the parties. Notwithstanding, it is a significant decision for sewerage undertakers, leaving an exposure to common law actions in no-fault discharges of foul water into watercourses, in addition to statutory remedies. 

The Supreme Court has not overruled the House of Lords’ ruling in Marcic, but has been keen to stress the circumstances in which Marcic would apply. In addition to the distinctions mentioned above, there was a key factual difference in that Marcic, at its core, was a case concerning the lack of capacity in the sewage system and the failure to construct new infrastructure. This was to be contrasted with the current matter which related to a discharge of sewage from outlets or channels which were built for the purpose of carrying it. The discharge into the Canal was considered unauthorised and without permission of the owners of the Canal, giving rise to the nuisance, whereas in Marcic, the sewage undertaker had not directly caused the flooding complained of.  

Whilst this initially appears to be a limiting of the previous ruling in Marcic, the Supreme Court has in fact provided a useful clarification of the interaction between the Water industry Act 1991 and common law claims for damages, confirming that the legislation does not oust common law causes of action.

The initial concern for any sewage undertaker will be the situations in which there may be an unauthorised discharge of untreated foul water onto private land or into a water course, as there is a clear potential for a claim in nuisance to be presented, especially if the undertaker is aware that this may occur. In the case of a water course there may be a number of landowners affected by such a discharge who would potentially be entitled to damages as a result.  

This ruling will also be welcomed by property owners and their insurers as it provides a further route of recovery in claims involving damage caused by escapes of foul water from sewer systems. Whilst this may be seen as a small movement towards the strict liability position seen with clean water leaks, the initial impact of this ruling is likely to be contained to the specific circumstances of the case.

Considering general flooding claims, a sewage undertaker will still be at liberty to take advantage of the issues raised in Marcic, where the claim is essentially one of capacity. In other cases, the key hurdle for claimants will be meeting the criteria for nuisance, especially evidencing that the sewage undertaker knew or ought to have known about the cause of the escape of foul water. 

It is likely that property claims will face opposition on the grounds that the sewage undertaker had not caused the initial incident or circumstance (ie where there is a blockage) or that it was unaware of the circumstances leading to the leak at the time of the damage. However, as with claims in negligence, there would be potential scope for an award of damages after an undertaker was notified and if further incidents occurred (ie where a nuisance is adopted).     

Overall, claims brought in nuisance are likely be limited to situations such as those underlying this case ie knowingly discharging foul water without permission on to third party property. Notwithstanding, this comes at a time when environmental issues are in the spotlight and when there has been public anger at the condition of British water courses. As the Government has further announced legislation and potential sanctions to tackle pollution by water companies, it would appear to be the start of stricter controls on sewage undertakers. However, as sewage undertakers gradually improve the networks, the impact of such changes will be reduced.