Water suppliers don't have to give rebates, right? Wrong ... ...

Hosepipe bans, leaky pipes, metering - the companies think the law is on their side every time.

Ofwat - the official consumer watchdog for the water industry - has recently called on water companies to pay rebates to customers who are forced to put up with a restricted supply of water owing to hosepipe bans or the use of standpipes. This call was echoed last week by Ofwat's own customer service committee, which has a statutory duty to keep under review all matters affecting the interests of water company customers.

The water companies have so far refused, however, and the debate appears to have reached stalemate. Even the fiasco surrounding the legal requirements for the valid implementation of a hosepipe ban by Severn Trent Water has apparently failed to provoke further thought about other possible legal restrictions on the power of water companies to act as they please in the present situation.

Yet new regulations came into force on 1 July that may well prove extremely significant as far as water consumers' rights are concerned. They are the Unfair Terms in Consumer Contracts (UTCC) Regulations 1994, and they are designed to put into practice a 1993 European Directive of the same name. The UTCC regulations declare that an "unfair term in a contract concluded with a seller or supplier shall not be binding on the consumer" where that term "has not been individually negotiated".

Contract terms that concern the price to be paid by the consumer are excluded from the ambit of these regulations, as are terms defining the "main subject matter of the contract" (here, water or sewerage) and certain other types of contracts.

But terms that govern the manner or quantity of water supplied by water companies to domestic consumers most certainly fall within the ambit of these regulations. Since it is also clear that domestic consumers do not "individually negotiate" the terms of their contract with their water company, the crucial question is precisely what is meant by an "unfair" term.

Since the regulations are so new, there is no case law to provide any guidance, but to overcome this obvious problem the regulations themselves contain, in Schedule 3, an "indicative and illustrative list of terms which may be regarded as unfair".

And, sure enough, paragraph 1(a) says that a term which has "the effect or object of ... obliging the consumer to fulfil all his obligations where the seller or supplier does not perform his" may be regarded as unfair. Since such unfair terms are now no longer binding on consumers, it follows that any term purporting to oblige a consumer to pay water rates in full while the water company renders only a limited or restricted supply is of no effect and can safely be disregarded.

Customers whose water supplies are subject to hosepipe bans, for example, are therefore probably entitled to a rebate.

Water companies may object that though rebates are available in certain other cases, there is no provision in their codes of practice for rebates in respect of this type of restricted supply. This is true. Indeed, it is precisely this omission that Ofwat wishes to see remedied.

However, as far as the law is concerned, this omission is entirely irrelevant since the UTCC regulations take precedence. And paragraph 1(b) of the indicative list of unfair terms includes terms having "the object or effect of ... inappropriately excluding or limiting the legal rights of the consumer vis-a-vis the seller or supplier ... in the event of total or inadequate performance by the seller or supplier". Any attempt by water companies to prevent domestic consumers from claiming compensation on the grounds of the wording of the codes of practice is therefore likely to come unstuck once again.

Water companies are therefore caught by the UTCC regulations whichever way they turn, though it should be stressed that the validity of hosepipe bans and any criminal prosecutions brought for alleged contravention of such bans remains unaffected. Nevertheless, where consumers are faced with such a ban (or with something even less palatable, such as the use of standpipes) there is little doubt that the UTCC regulations have the effect of entitling them to a reasonable sum of money in compensation.

Careful readers will have noted that I have referred throughout to the specific legal position of domestic consumers rather than that of water customers in general. This is because the UTCC regulations apply only to private consumers, so that water companies' business customers cannot claim enjoyment of the same rights as domestic households.

However, for private customers experiencing other difficulties with their water company, the UTCC regulations may continue to prove helpful in a variety of circumstances. Thus those concerned about water quality may be able to make use of paragraph 1(k) of the indicative list in Schedule 3. There it states that "terms which have the object of effect of ... enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided" may be regarded as unfair and therefore not binding on the consumer.

Where water supplied is of poor quality, compensation will therefore once again be payable, even if no proof of actual harm or damage can be proven.

Moreover, water companies that wish to insist on consumers having their supplies metered should also think again. To demand that a consumer should have a meter installed where he or she has no history of failing to pay bills would probably also fall foul of paragraph 1(k) in that it would change a characteristic of the service to be provided.

But even if 1(k) were deemed inapplicable, paragraph 1(j) certainly would apply. This considers terms to be unfair if they "have the object or effect of ... enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract".

Failure to pay bills on time would presumably constitute a valid reason, but otherwise it appears that water metering can now be introduced into domestic households only with the agreement of the consumer concerned.

Finally, any customers ordered by a water company to repair a leak on their own property at their own expense while their supplier continues to permit a large percentage of water to leak from its own pipes may wish to return to a consideration of paragraph 1(o).

Since both consumer and supplier are under a contractual obligation to maintain their pipes in a reasonable state of repair and to attend to any leaks with reasonable efficiency and dispatch, it is difficult to see how a water company could insist on a domestic consumer repairing every known leak while it allows 20 per cent or more of its supplies to be wasted.

A clearer instance of a contract term "obliging the consumer to fulfil all his obligations where the ... supplier does not perform his" is difficult to imagine. Under the UTCC regulations, such a term is unfair and therefore not binding on any consumers concerned.

And Ofwat may like to know that my own water supplier, Severn Trent, has been unable to supply me with a copy of the terms and conditions of supply according to which we are supposed to be contracted to each other. As any student of contract law knows, a person cannot be bound to terms which he or she has no reasonable opportunity of discovering.

But possible confrontation between water companies and consumers would be easily averted if water companies began to take into account their new legal obligations acquired this year. No doubt the director general of fair trading will soon be exercising his new powers under the UTCC regulations to consider bringing court proceedings against them to obtain an injunction restraining the use of such unfair terms.

The author is lecturer in law at Birmingham University.