Arbitration

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 be resolved by the appointment of a single arbitrator. The arbitrator is to be agreed by the parties or, failing agreement, 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?

If the company and the customer cannot resolve certain disputes, and 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). We must be satisfied there is a dispute as envisaged by the relevant section.

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 the 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. In addition, section 62 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.

Taking this into account, arbitration can involve significant costs to both parties.

How will we appoint an arbitrator?

As a starting point, we consider using a professional body to facilitate the process of appointing an arbitrator to be sensible. As such, in the first instance, we will approach the Chartered Institute of Arbitrators (CIArb) setting out our understanding of the issues in dispute so that an appropriate arbitrator may be appointed. CIArb will provide us with the names of three potential arbitrators and, in general, we will appoint one of those three to be the arbitrator. CIArb arbitrators charge an hourly/daily rate for which both parties would be liable.

In exceptional circumstances, and where we consider it appropriate to do so, we may deviate from this approach (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 check whether we have the information we need to process the request. This will include:

  • details of the parties involved;
  • why we are being requested to appoint an arbitrator;
  • what the dispute is about; and
  • what the size of the claim is.

Where consumers are represented by a third party we will expect any referral to us to include a current letter of authority setting out that the third party has been instructed to act on behalf of the customer.

We will then write to both parties requesting that they consider the claim in question and either settle or reach an agreement on the appointment of an arbitrator. Where this is not achievable, we will expect both parties to be able to clearly demonstrate that they have exhausted the possibilities of either settlement or agreeing on the appointment of an arbitrator. We will typically give parties two weeks to respond to this request.

If the parties are unable to reach a mutual agreement regarding claims, and we consider, based on the evidence provided, that parties have exhausted the possibilities of either settlement or the appointment of an arbitrator, we will take steps to appoint an arbitrator in accordance with the relevant WIA91 provisions and following the process set out above.

In order to appoint an appropriate arbitrator, it will also be necessary for us to understand the nature and complexity of the dispute and we will, therefore, request that parties set out clearly for us their understanding of the issues in dispute to facilitate the appointment of an appropriate arbitrator.

If we consider, based on the evidence provided, that parties have not exhausted the possibilities of either settlement or the appointment of an arbitrator without our intervention, then we will inform the parties that we will not be appointing an arbitrator at that stage.