The first class action against water companies for polluting waterways could be imminent – could it mark a turning point?

A new collective action case is setting out to sue water companies in England for discharging sewage into seas and rivers. Could this first-of-its-kind case be an essential tool in the fight against the discharges of sewage?  

For context, a level of discharge from sewers is a consequence of the design of the sewerage system by the Victorians and Edwardians and permissible levels of discharge are ‘consented’ by the Environment Agency. The main focus should arguably be on breaches of those consents – and indeed on the consent setting process.  

Furthermore, Sustainability First has always argued that the policy focus should be on damage – to ecosystems and to health and amenities – and that while in some cases action of sewage discharges is the right solution in other cases greater enforcement of agricultural run-off would be equally appropriate.

The views expressed are those of the author, Liz Coll, not Sustainability First. 

Raw sewage in our seas and charges on our bills

In November, Professor Carolyn Roberts came one step closer to bringing a case on behalf of millions of consumers to get compensation from water and sewage companies for potentially unlawful discharges of untreated sewage and wastewater into waterways.  If the action goes ahead, it will be the first collective action against a water and sewerage companies filed in the UK based on environmental harms

Earlier that same month, some competition economists said consumers in England were entitled to be compensated financially for raw sewage that had been dumped by water/sewerage firms under UK competition laws, which ban exploitative practices by dominant monopolies. They called on the CMA (Competition and Markets Authority) to open both competition and consumer protection investigations. 

These two developments have come after increased public outrage at raw sewage dumping, compounded by a notably slow response from the regulator. Fines/penalties issued this year by Ofwat and the Environment Agency for specific bad practice associated with the discharging of raw sewage into the sea and/or waterways were welcome but arguably long overdue and highlighted a serious, long-standing problem about the limitations of existing protections to safeguard water consumers and the environment.  

And just this week Wild Justice, an environmental group seeking a judicial review against Ofwat, has been granted an appeal date in January, after being rejected by a judge in October, reports Utility Week. The organisation claims Ofwat failed in its responsibilities to regulate discharges of raw sewage under the Urban Wastewater Treatment Directive.

To understand why these new legal avenues for enforcement are being explored now, we must recall two important points: firstly, how this level of discharge has continued for so long, which is a combination of over lenient regulation, poor regulatory enforcement and water and sewerage company bad practice and; secondly, how the relatively new ‘opt-out collective action’ powers (which enable mass claims to be made more easily where consumer harms relate to competition breaches) are being rolled out in the UK.

Unchecked power

For a consumer paying for sewage treatment on their monthly bill, and for anyone concerned about the environment, it’s difficult to understand just how this has continued for so long. However, to date, water companies have had few economic or legal disincentives to hold them back (or indeed, incentives to behave differently).

Enforcement efforts by Ofwat and the Environment Agency (EA) could be effective if the regulators’ resources were able to adequately monitor company activity and take action when companies break the rules. However, persistent underfunding of UK regulators means they can’t. Rules intended to protect consumers and the environment are being broken, but no punishment ensues due to both inadequate monitoring and inadequate enforcement. Add to this that no individual (at a utility firm) has personal liability, and the challenge of holding large private companies to account becomes very hard.

In addition, it has been taken as given that Ofwat and the EA were the only organisations with powers to take action against private companies that cause harm. Subsequently, the water sector is an anomaly amongst other regulated sectors which also offer private rights of action through the courts. Private rights of action are an important addition to public enforcement, particularly where public enforcement resources have been hollowed out as they have in the UK.  

Rise of collective consumer actions 

A new form of collective private action rights has been available to consumers since the Consumer Rights Act of 2015. Prior to that, group actions were limited to opt-in cases called Group Litigation Orders. These had a limited impact and it required immense effort to ensure all affected people sign up to the case. There were also strict rules on how to define a shared harm for a group.  

Everything changed in 2015. Under the new rules, consumers have been able to bring collective, opt-out actions for competition claims, through the Competition Appeal Tribunal, if a harm has been caused by a competition infringement. Opt-out cases dramatically increase the number of consumers in the claim because everyone affected is automatically included, without the burden of having to get multiple people to sign up to the claim. 

These mass claims enable a much bigger role for private enforcement in implementing consumer rights and holding companies to account. The threat of paying out millions or even billions in compensation will inevitably give an additional financial incentive to companies to behave.  

In the pipeline are cases against excess charges by phone companies, unfair contract terms for insurance customers and mobile technology firms deliberately pushing consumers into buying upgraded devices.

The new rules enable third party litigation funding which opened up the potential for private enforcement cases. 

Collective actions in regulated industries

So far so good for consumers as claimants line up to fight for compensation for competition abuses. However, as with any new legal regime, the details of what type of cases are eligible to be brought are still being ironed out. In the flurry of new filings, some anomalies are emerging particularly regarding regulated sectors. 

In some regulated sectors, where consumers have been harmed by the actions of a dominant market company, they have rights to bring action in addition to the regulators’ powers of public enforcement. For example:

  • In public transport Boundary fares cases: three companies have had cases filed against them on the same abuse of dominance charge – that Travelcard holders effectively paid twice when they purchased tickets for journeys that crossed out of the London Travelcard Zone Boundary. 
  • In telecoms: in January 2021, a case was filed against the BT Group alleging that it has abused its dominant position in two telecommunications markets by imposing unfair prices. BT is accused of charging uncompetitive prices for standalone residential landline telephone services. The majority of those affected are older or from low-income households who are amongst those consumers least likely to switch and shop around for deals. 

Where are the water cases? 

But, like the sewage filled rivers and seas, the case for the regulated water sector is far from crystal clear.   Inconsistencies in the regulatory landscape are partly responsible for this. For example, in the public transport boundary fare case, the Competition Appeal Tribunal found that rail companies can be subject to claims under competition law if a consumer harm occurs – for instance being overcharged for a rail ticket when there is only one train company that you could use - even though rail providers are monopolies and covered by their own sectoral regulations.  

However, the case is not clearcut for other types of essential or utility service providers covered by sectoral regulation. A recent appeal judgement in the Manchester Ship Canal vs United Utilities Water Ltd confirmed that some entities regulated on a sectoral basis were not subject to private enforcement in addition to public enforcement efforts from regulators. The High Court ruling in June 2022 accepted that the rules designed to regulate discharges under the Water Industry Act 1991 were “rather unclear”. In the case of UK water regulation, enforcement powers look like they are reserved for regulatory bodies.   

It's been understood so far then that consumers who suffered a damage due to the actions of say, a water company will find it very difficult to get redress through a private action, whilst a consumer who has suffered a damage due to the action of a train company will not. 

A sea change? 

Which is what makes the confirmation of funding for the collective action case by Professor Roberts so interesting.  Although the case hasn’t yet been filed, confirmation of litigation funder backing is significant; cases are expensive to bring and committing funding implies risks and likelihood of success have been carefully weighed up. 

Added heft comes from the analysis from Fideres LLP, a specialist in competition abuses who are calling for market regulator the CMA to open investigations into England’s water companies for abuse of dominance and resulting consumer harm. Typically, pricing abuses are in the form of excessive or unfair prices, but for water bills, Fideres take a different approach.

And this is the heart of the argument for taking legal action against water firms. Fideres argues that instead of raising prices, (or we could argue paying excessive dividends) companies have reduced investment in wastewater management to such an extent that they are not actually providing the service that they are billing consumers for. As consumers have no other option but to use the service provider in their area, the company is effectively exploiting its monopoly position. 

What might hold back the tide?  

If Professor Roberts’ case is certified by the Competition Appeal Tribunal, it will be the first time an environmentally based collective action has been filed in the UK, and we can expect similar cases to follow. And if some competition economists argue that underinvestment is an abuse of dominance, then that could have much wider implications for regulated industries responsible for infrastructure such as energy, telecoms and rail. 

However, its journey could be far from straightforward given the lack of clarity on environmental cases against utilities and the role of Ofwat in setting customer prices and company investment and service packages. It is also debateable whether competition law is the best basis on which to bring these claims, however in the absence of other routes it is easy to see why it has been chosen.

This leads to a wider point about the nascent UK regime - some argue that only allowing opt out collective actions when a harm is caused by a competition breach puts arbitrary limits on the type of case that can be brought. This is not the case in other jurisdictions. For example, the recent EU Representative Actions Directive extended collective redress options for any sectors governed by provisions which protect the interests of consumers.1 Rules like this allowed VW drivers throughout Europe to join successful mass claims against the car manufacturer for lying about emissions – resulting in redress for consumers and a solid deterrent against repeat behaviour which will help consumers and the environment.  

The future…  

Private enforcement is a powerful tool, but it is a slow one. Cases take between 3-5 years to reach a conclusion and companies are always keen to appeal. In the time it takes for the implications of Professor Roberts’ case to come to light, the risk then is that without regulatory or government intervention, millions more consumers will be paying for poor service and millions more tonnes of raw sewage will be pumped into our seas and rivers.

Relying on under-resourced sectoral enforcers to hold operators to account is not enough. 

Designing collective private enforcement regimes to supplement public enforcement can, despite the time challenges, help strengthen protections. 

The opt-out powers and the new collective proceedings regime in the UK are a promising and much needed addition to the regulation and enforcement landscape. However, they are limited as there is no dedicated regime for environmental harms, or consumer harms which do not occur because of anti-competitive behaviour. 

So far, the anomalies around protection in the water sector have created enough uncertainty to slow down the routes to justice for people and the environment.  Bringing collective claims for consumer and environmental damages up to the same level as those for other consumer damages because of competition infringement would expand the potential for private proceedings to hold companies to account. 

Until now this is something which public enforcers have been unable to do alone. In the absence of other routes and the context of weak monitoring and environmental breaches this would seem not only a welcome move but a necessary change.

Liz Coll is a consumer expert who has led digital consumer policy work at Citizens Advice, Consumers International and Consumer Futures. Liz has been certified by the Competition Appeal Tribunal to lead a class action on behalf of users of Google’s Play Store who she alleges have been unfairly overcharged by Google.