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. Customers in the first instance should therefore contact the company setting out their complaint/claim, and attempt to resolve the matter before contacting Ofwat.
If the company and the customer cannot resolve certain disputes, the next step is for the parties to agree on an arbitrator to adjudicate the dispute. To assist the parties in agreeing on an arbitrator, the parties may wish to consider contacting:
- The Chartered Institute of Arbitrators (CIArb)
- The Centre for Effective Dispute Resolution (CEDR)
- The Royal Institute of Chartered Surveyors (RICS)
- The Institute of Civil Engineers (ICE)
If the company and the customer cannot resolve certain disputes, and also 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 party 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). 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.
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). CIArb arbitrators charge an hourly/daily rate for which both parties would be jointly and severally liable.
In certain 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;
- confirmation that there is no “full and final settlement” between the parties;
- confirmation that the parties understand the effect of the Arbitration Act 1996; and
- what the size of the claim is.
Where consumers are represented by a third party we will expect any referral to us to additionally include 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 Ofwat has any doubts or concerns about the letter of authority, Ofwat will require confirmation directly from the consumer before it proceeds to appoint an arbitrator.
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.
If a party provides a reasoned objection to Ofwat’s appointment of an arbitrator, Ofwat will consider whether its initial choice of arbitrator was appropriate. Thereafter, the parties will be notified of Ofwat’s final decision.
Once the Arbitrator is appointed, it will be for the arbitrator to settle the substantive dispute as well as any procedural issues. Ofwat 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). Ofwat will also not set the detailed terms of reference for the dispute (save that Ofwat will, prior to seeking to appoint an arbitrator, assure itself that there is a relevant dispute which Ofwat will then relay to the arbitrator on appointment).