When the utility company calls twice: the first case of estoppel as a defence to a claim for underpayments

When the utility company calls twice: the first case of estoppel as a defence to a claim for underpayments

Eon Energy Ltd v The Brackley Antique Cellar Limited (Derby CC case No 0QZ05100 14 August 2013) is a landmark case, being the first reported decision in which a customer of a utility supplier has successfully defeated a claim for recovery of charges following underbilling by the utility supplier, writes John Denis-Smith.

 The Facts

The facts were relatively straightforward. The Claimant electricity provider supplied electricity in circumstances where the industry and provision of electricity is regulated by the Electricity Act 1989 but pursuant to a contract with the Defendant, a company.

The Claimant had in 1999 taken over the supply to the Defendant’s premises from a previous supplier. Throughout the period of its supply to the Defendant it would charge on the basis of estimated usage, although meter readings taken periodically by its personnel indicated that usage was actually considerably higher. In particular, although the meter was a 6 figure meter and readings of 6 figures were received, the Claimant would then “correct” the reading to a 5 figure reading or would ignore the reading entirely and provide a new estimated reading.

On some occasions, the Defendant’s own personnel would supply readings, some accurate but on occasion mistaken. Occasionally, the Claimant would not adjust the meter readings and the bill provided would then be accordingly much higher but, when the Defendant queried the increase, the Claimant stated that this was a mistake and changed the bill to reflect the level of billing previously sent. Eventually, the Claimant realised that consumption had been far higher than the estimates and sent a bill calculated by reference to the actual consumption. The Defendant refused to pay and proceedings ensued.

Various issues arose, in particular:

  1. Whether a mistake in a bill as to the electricity consumed itself prevented the Claimant subsequently correcting the error and claiming the money due. The Court held that it did not: the contract provided that a meter reading would be final between the parties (subject to any malfunctioning of the meter) but not that a bill would be final. Accord and satisfaction did not amount to a defence in those circumstances; otherwise a customer would be prevented from recovering an overpayment
  2. Whether an electricity supplier could ever be estopped from reclaiming underbilled sums. The Claimant contended that it could not, in reliance on various American authorities and a Privy Council decision in a Canadian case, Maritime Electric Company, Limited, Appellants v General Dairies, Limited, Respondents [1937] AC 610. This however was distinguished: in that case the company supplying electricity was under a statutorily imposed duty to supply and the customer to pay for electricity supplied at “scheduled rates”. The rates were imposed for the benefit of the public and the supplier was not permitted to vary or reduce the rates charged – indeed to do so would constitute a criminal offence. It was that which made it impossible for the defence of Estoppel to run. In the case of supply under the Electricity Act 1989, no such duty had been shown to apply.
  3. Whether the Defendant made out the defence of estoppel. The Court held that the Defendant established both estoppel by convention and estoppel by representation. The parties had acted on an assumed assumption that the bills correctly reflected the meter readings; the Defendant so acted by making payments on the basis of the bills and by charging its own customers by reference to the sums it had been billed. Similarly, for the purposes of estoppel by representation, the Claimant made (false) representations that the bills were based on readings taken and knew that the Defendant would accept their accuracy. The Defendant had not been informed by the Claimant of the fact that the Claimant was ignoring or altering its own meter readings. The Defendant acted to its detriment in not recovering the higher sums it would have been entitled to recover had it been charged correctly; with the turnover of customers over the years it would be unable to recover those sums now. In those circumstances it would not be just to permit the Claimant to recover the underbilled sums now.
  4. The Defendant’s limitation defence also succeeded in relation to part of the claim. Although there was a running account between the parties, this was not a case in which the claimant could appropriate payments made for electricity supply in the period following the cessation of underbilling to the prior period (distinguishing In re Footman Bower [1961] Ch 443). The Defendant had made clear that it was intending to pay only the later, unchallenged bills and those payments could not be appropriated to the challenged bills which resulted from discovery of the underbilling.

Practical implications

There may be many cases where a supplier misreads or “corrects” its own meter readings and bills on the basis of a lower estimate. In such circumstances it is important for a customer to show (a) that it was not and could not reasonably be expected to have been aware of the underbilling (b) that it acted on the basis of the underbilling. In the case of a business customer, evidence of passing on the costs of electricity to customers will be important evidence going to detriment and whether it would be just for the supplier to recover payment

For utility providers, full investigation of discrepancies between billings and actual meter readings is crucial. If the meter is accurate, “corrections” made for the purposes of billing may prove to lead to irrecoverability of the shortfall. However, if such corrections are made, the customer should be notified, together with a caveat that these are provisional and that, if the reading later proves to be correct, the supplier will be entitled to recover the shortfall.

Where payments are made by reference to a running account (as it usually the case), any appropriation by the supplier to the earliest date should be made explicit. The customer however should ensure that it makes clear that payments made for subsequent supplies are in respect of those supplies and not the disputed bills.

Court details

Court: Derby County Court

Judge: Mr Recorder Tidbury

Date of judgment: 14 August 2013

John Denis-Smith is a barrister at 39 Essex Street specialising in commercial and construction work.

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