LORD CHANCELLOR(Viscount Kilmuir).— The first of these appeals is a further appeal by the statutory successors of the defenders (appellants) in the action which was previously before this House in June 1956, and in which the opinions of your Lordships were given in July 1956. The first-named appellants are the South of Scotland Electricity Board, a public authority established under the Electricity Reorganisation (Scotland) Act, 1954. On 1st April 1955 they took over the functions of the South West Scotland Electricity Board, an Area Board established under the Electricity Act, 1947. The second appellants are the Electricity Council established under the Electricity Act, 1957. They are a public authority and are successors to the British Electricity Authority established under the Act of 1947 and renamed the Central Electricity Authority by the Act of 1954. The respondents were at all material times industrial consumers of electricity within the area supplied by the first appellants. The action was originally raised on 3rd August 1953, against the South West Scotland Electricity Board and the British Electricity Authority. It was and is an attack on three consecutive tariffs embodying charges for electricity, the first of which came into operation on 1st January 1952, and the third of which ceased to operate on 31st December 1955. The attack made on each tariff is now limited in effect to a simple declarator that the defenders exercised undue discrimination against high-voltage users like the pursuers, coupled with a conclusion for payment of Â£10,000. In the result the conclusions now insisted on are 1 (a), 3 (a), 5 (a) and 8.
The earlier history of this case is that both defenders (appellants) tabled pleas to the relevancy of the pursuers' (respondents') averments. On 7th January 1955 the Lord Ordinary (Lord Hill Watson) sustained those pleas and dismissed the action; on a reclaiming motion, the Second Division, on 10th June 1955, recalled the interlocutor of the Lord Ordinary and allowed a proof before answer (excluding certain averments); on 19th July 1956 this House dismissed an appeal by the appellants against the last-named interlocutor; after amendment, by interlocutor, dated 31st May 1957, the Lord Ordinary (Lord Hill Watson) allowed a proof before answer of the averments in support of certain of the declaratory conclusions, and quoad ultradismissed the action; on a reclaiming motion the Second Division (Lord Mackintosh dissenting on the first point) on 7th November 1957 recalled the Lord Ordinary's interlocutor, and allowed a proof before answer of the averments in support of the declaratory conclusions, which I have mentioned, and the conclusions for payment. When this action was previously considered by this House, the question was, whether on a true interpretation of section 37 (8) of the Electricity Act, 1947, the respondents had relevantly averred a case of undue preference or undue discrimination. The House then decided that the word "undue" was not restricted to signifying that the preference or discrimination was illegitimate, and was capable of signifying an excessive preference or discrimination. This House refused to consider an argument that, since high-voltage consumers (including the respondents) were charged less than low-voltage consumers, there were no relevant averments of any preference or discrimination, on the ground that this argument had not been advanced in the lower Courts. The appellants then amended their record to raise the question whether the respondents had relevantly averred that any preference or discrimination existed, and also the question of the relevancy of the averments relating to the alleged overcharge, and in a certain event the competency of the present action.
Section 37 (8) of the Electricity Act, 1947, is in the following terms:—
"An Area Board, in fixing tariffs and making agreements under this section, shall not show undue preference to any person or class of persons and shall not exercise any undue discrimination against any person or class of persons, and the Central Authority shall, in exercising their powers under the section in relation to the fixing of tariffs and making of agreements by Area Boards, secure compliance by Area Boards with this subsection."
It is also provided by subsection (3) of the same section that the prices to be charged by Area Boards for the supply of electricity by them shall, subject to any directions of the Central Authority, be in accordance with such tariffs as may be fixed from time to time by them, and those tariffs shall be so framed as to show the methods by which and the principles on which the charges are to be made, as well as the prices which are to be charged.
The first tariff here in question, after setting out the lower prices for a supply metered at or above a voltage of six thousand and higher prices in respect of a voltage less than six thousand, contains the following proviso:—
"(b) The unit charge shall be increased or reduced at the rate of Â·0008d. per unit for each penny by which the fuel cost per ton used for the purpose of, and shown on, the invoice for the supply of electricity in bulk by the British Electricity Authority to the board in the previous month is more or less than 38s. 0d."
Now, it is common ground that it is less costly for the defenders to supply electricity at high voltage than at low voltage. The amount of fuel required to produce and supply to the user a given amount of electricity on a high-voltage supply is substantially less than that required to produce and supply the same amount of electricity for a low-voltage supply by reason of the losses in transformation and distribution. This accounts for the difference in price charged to high-voltage and low-voltage consumers in the first tariff, Â·45d. and Â·475d. respectively. There is, therefore, a differentiation of Â·025d. per unit which represents a differential of 5Â·55 per centum. That was with the cost of coal at 38s. 0d. a ton. A change in the cost of coal is dealt with by the proviso which I have already quoted. The respondents aver that no differentiation is made in this fuel variation charge between high-voltage and low-voltage supplies, and, in consequence, it operates unfairly against high-voltage consumers. In the twelve months ended 31st March 1953 the average cost of fuel per ton was 67s. 3d., and approximately 38 per centum of the unit component (basic rate plus fuel addition) is attributable to the fuel variation charge. In the case of the second tariff, the differential in the new basic unit charge is only 3Â·78 per centum. In the case of the third tariff, it is 3Â·74 per centum. The respondents aver that the least differential in unit charge that can be given, without unduly discriminating against high-voltage users, is a differential of 5Â·55 per centum(when the cost of fuel is 38s. 0d. a ton) increasing (as the cost of fuel increases) in accordance with the increasing ratio of fuel component to on cost component in the unit charge. To the appellants, the vital point is that the high-voltage consumers, including the respondents, pay less than the low-voltage consumers.
On these facts, the appellants submitted, first, that the respondents have not relevantly averred that any discrimination (whether due or undue) was exercised against them. They supported this by the arguments that no person can establish a case of undue preference or discrimination without relevant averments that another person or class of persons is preferred to him, that whether there is preference must be judged, when the alleged preference is monetary, by the criterion of price, and that, judged by price, the respondents are not, upon their averments, discriminated against, but preferred to, the low-voltage consumers. They go on to say that the respondents' criterion of cost is wrong in law and has not hitherto been applied in electricity cases, and, further, that the respondents' case involves giving a positive meaning to a negative provision in the statute which will make the Courts a tariff-fixing body.
It is convenient to begin by considering what is the ordinary meaning of subsection (8). The fact that it contains the two phrases "undue preference" and "undue discrimination" seems to me to make clear that it places two prohibitions on the Area Board. The first prohibits making an undue difference between one customer and another in favour of one; the second prohibits making an undue difference between them against the other. It may well be that the many and important functions assigned to the Board will necessitate them approaching a problem with the desire to charge a consumer or group of consumers less than other customers. They may do so, but it must not be too much less. On the other hand, they may feel, for example, that the cost of electricity is so minor a constituent of the end-products of some other consumers that they should be charged more. Again, it must not be too much more. I cannot find that this construction is undermined by the negative form of the section.
The sternest injunctions, from the Ten Commandments onwards, have tended to be in this form. Equally, the duty of the Courts is clear and comprehensible; it is to step in when the making of a difference between customers goes beyond measure and reason. I therefore do not find difficulty either in the negative form of the subsection or in the argument that the Courts may be placed in the position of fixing tariffs. I am reluctant to construe any enactment as barring recourse to the Courts in the absence of clear words. Here, we are invited so to do on what appear to me flimsy implications.
I now come to the argument that the complainant must show that someone else is preferred in price, and that it is illegal to look at the cost of giving the supply. Counsel for the appellants accepted the position that, however unfairly a consumer has been treated, he must not come into Court unless he can find someone who pays less. They adopt Lord Mackintosh's interpretation of discrimination by amending the statute to read:
"shall not exercise any undue discrimination against any person or class of persons by giving to his or their competitors an undue preference in the matter of the charge to be made to him or them whether under a tariff or an agreement."
In fact, the argument amounts, in the words of Lord Patrick, to asking us to read into section 37 (8) some such words as:
"provided that, if amount of charge is in question, a person shall be deemed not to be preferred unless he is charged less than the person with whom he is compared, and no person shall be deemed to be discriminated against unless he has been charged more than the person with whom he is compared."
Looking at the words of the subsection, I can find no justification for such an addition, and I should be loath to read into the statute so manifest an intention to do unfairness. In many cases there will be a practical difficulty for a would-be complainant to base an attack on anything except price. In this case, however, the appellants, who are under a statutory obligation to set out the methods and principles of the tariffs, commence by creating a differential of 5Â·55 per centum between high-voltage and low-voltage consumers with the cost of coal at 38s. 0d. per ton. Thereafter, by their own fuel variation clause, they themselves say that they are causing the differential to diminish, although they do not dispute that it will be more expensive and will require more coal to supply low-voltage electricity. The respondents aver that 5.55 per centum, suitably adjusted as the price of coal rises, is the lowest proper differential. I am unable to see why, in these circumstances, they should not be allowed the opportunity of proving it unless there is some authority to the contrary. The appellants have introduced the question of cost to themselves and must abide the result.
The appellants, however, maintain that Parliament must be taken to have used the phrase "undue preference" as it was interpreted by the Courts under earlier electricity and railway statutes, and submit that there is no case where a person paying less has complained of undue preference. On this point, it must at once be noted that the decisions are under statutes whose wording is different. None of these cases turned on the meaning or effect of the words "discriminate against." Moreover, in no case did the question in issue in this case directly arise, although Sir Andrew Clark submitted that in Attorney-General v. Wimbledon Corporation, to which I shall refer later, the view was expressed that there could be a discrimination, although the consumers compared were paying the same. He further submitted that this is not a case where the compared consumers are receiving the same service, as one was receiving high-voltage and the other low-voltage electricity. This is a submission on which I do not feel it necessary to pronounce finally, as it could be elaborated when the facts are investigated.
With these general points in mind, I examine the electricity cases on which reliance was placed.
The first is Attorney-General v. Long Eaton Urban District Council . That decision purports to apply the distinction made by the railway cases between the legitimate and illegitimate reasons for making a "lower or preferential charge." It is illegitimate to charge less in order to get customers, but it is legitimate to charge less if it costs less. It was held, applying these principles to the facts of the case, that there was a breach of both section 19 (the "equality" section) and section 20 (the "undue preference" section) of the Electricity Act, 1882. The importance of the case is that, in his dissenting opinion in the instant case, Lord Mackintosh quotes the words of Sargant, J., "lower or preferential charge." With all respect, I am unable to build on a quotation which was natural on the facts of that case, but not addressed to the problem before us. On the other hand, the principle applied might well be thought to point to its converse that, where it is less costly to supply A than B, there ought to be a differentiation, and, if it is not granted, there will be a discrimination.
The second case was the Attorney-General v. Hackney Corporation, from which I have been unable to obtain any assistance on this part of the case.
The third case was Attorney-General v. Wimbledon Corporation.
In that case the material facts are stated in the headnote as follows:
"In 1936 [S.] discovered that other houses in the same area with the same floor space were subjected to an annual charge of about Â£7 only, and he applied for a reduction. The defendants replied that, being a large consumer, they could only reduce his fixed charge to Â£7 on condition that he submitted to a maximum limit of 2Â½ kilowatts at times of peak load. S. accepted this limit for a time, but made repeated efforts to find out from the defendants on what basis his original fixed charge of Â£15 was estimated. The defendants refused to supply him with any information on this matter and, after much correspondence, reimposed the fixed charge of Â£15."
It was held that the tariff was not per se ultra vires and illegal, and the action by the Attorney-General was dismissed. On the action brought by the relator in his own name, Simonds, J. (as he then was), says:
"The plaintiff had, in my judgment, no other course open to him than to bring his action, and he is entitled to relief. I have already indicated that I am not disposed to grant an injunction which would debar the defendants from operating by agreement this or any other kind of two-part tariff. It will, I think, meet the case if I grant an injunction following the language of sections 19 and 20 of the Act. It will be sufficiently clear from what I have already said that the attempts to impose upon the relator alone among consumers a limit of maximum demand cannot be justified."
The last sentence is important because it refers to a position which obtained for some time, although it had been altered before the action was commenced, when the relator paid the same charge as the compared consumers, but had imposed upon him a maximum demand. This the learned Judge thought unjustifiable.
Bearing in mind that opinion and the problems raised in these electricity cases, I cannot find anything which forces upon me an interpretation of section 37 (8) which could admittedly procure unfairness.
I now turn to the railway cases. In considering them it is necessary to state in broad terms the statutory background. Section 90 of the Railway Clauses Act, 1845, was in effect an equality section, but only permitted comparison when goods of the same description were hauled by the same type of engine over the same piece of line. By reason of its very limited effect Parliament soon passed the Railway and Canal Traffic Act, 1854. Section 2 of that Act prohibited undue preference and undue or unreasonable prejudice or disadvantage. Section 3 provided a special remedy. The effect of these sections, together with section 6, was to make that remedy exclusive, save that it preserved the position under the Act of 1845, where that was applicable.
The next relevant legislation was the Railway and Canal Traffic Act, 1888. I note, without elaborating, the provisions in sections 12 and 13 with regard to damages, and pass to section 27, which placed the onus on the railway company to disprove "undueness" where the complainant established that another was paying less than he. This did not alter the substantive law as to what was undue preference, or undue prejudice, or disadvantage, but enacted that, if you want to shift the onus, you must show that you are charged more.
It is important to have that outline of the statutory provisions in mind, because only two of the cases submitted to assist us were before the Act of 1888. These were In re Harris and Cockermouth and Workington Railway Co. and Murray v. Glasgow and South-Western Railway Co . The first was a case of giving lower rates to keep customers, although Cockburn, C.J.,and Crowder, J., deal with the materiality of cost to the railway company, and, indeed, the appellants in this case concede that cost is material and can be relied on by a board in rebutting "undueness." The second, so far as the first point in this case is concerned, does not seem to me to be of assistance to either side.
The cases after the Act of 1888 are all cases where the complainant was seeking to take advantage of the alteration of onus, and any dicta which may be abstracted were made on the hypothesis that the complainant was charged more, and must be viewed in that light.
In my opinion, therefore, the appellants do not establish that the interpretation of section 37 (8) is limited by attaching to undue preference or undue discrimination a special meaning drawn from previous authority. In my view, the appellants' first contention fails.
The second point of the appellants is that, on the assumption that the first appellants have exercised undue discrimination against the respondents, the latter have no remedy by way of recovery of any sums paid under a tariff which has been brought into force. The appellants seek to draw a distinction between the effect of an equality section and an undue preference section. I do not think that they succeed. In my opinion, the first governing principle is that a tariff which imposes a charge upon the respondents, involving their being unduly discriminated against, is contrary to section 37 (8) of the Electricity Act, 1947. The respondents were charged more than is warranted by the statute. Then, it is clear that, until a Court so declares, the respondents have no alternative but to continue to pay the charges demanded of them. In principle, the appellants should not be permitted to retain payments for which they have no warrant to charge. The respondents, may, therefore, recover whatever sum they may be able to prove was in excess of such a charge as would have avoided undue discrimination against them. I do not understand it to be disputed that the charges to the low-voltage consumers are correct. It is fully within the competence of a Court on the evidence before it to estimate the amount by which the respondents have been overcharged, and the respondents have, in my view, averred with sufficient specification the standard by which that amount should be estimated.
I cannot find anything in the cases decided under the railway and electricity statutes which would necessitate or lead to a contrary view. I respectfully agree with Lord Patrick that Great Western Railway Co. v. Sutton and Lancashireand Yorkshire Railway Co. v. Gidlow support this view. The appellants admit that, if a breach of an equality clause were established, any unwarranted excess charge could be recovered, but submitted that certain cases under the railway statutes justified the distinction that excess charges, proved to have been imposed in breach of a prohibition against undue discrimination, were irrecoverable. I find no ground for the distinction alleged. In Evershed v. London and North-Western Railway Co . two members of your Lordships' House affirmed the decision of both the Divisional Court and the Court of Appeal that overcharges could be recovered as a breach, both of an equality section and an undue preference section, while two relied on the equality section. In Budd v. London and North-Western Railway Co . the Court held that overcharges under an undue preference clause could be recovered. It is quite true that they omitted to consider the effect of sections 2, 3 and 6 of the Railway and Canal Traffic Act, 1854, and therefore their decision cannot stand, but on the present point the bent of the minds of the Judges is clear. In Murray v. Glasgow and South-Western Railway Co. Lord President Inglis was of opinion that the pursuer had stated a relevant breach of section 2 of the Act of 1854, but decided that the remedies provided by that Act were exclusive, and, therefore, that the claim for repayment could not succeed. That does not touch the principle here in question. Moreover, with the greatest possible respect to Lord Herschell, I cannot accept without qualification his statement in the Court of Appeal in the case of Phipps v. London and North-Western Railway Co .:
"Budd v. London and North-Western Railway Co . is … unquestionably no longer law. It was an action brought to recover differences which were said to constitute an overcharge by reason of difference of treatment under section 2 of the Act of 1854. The House of Lords has decided in the Denaby Main Colliery Co. v. Manchester, Sheffield and Lincolnshire Railway Co. that no such action will lie."
In the Denaby Main case this House decided, in the first part of the case, which included consideration of undue preference, that the plaintiff had failed to prove that there had been a breach of section 2 of the Act of 1854. They discussed the question, whether an action would lie for breach of the section, or whether the remedy under section 3 was exclusive. The House had Murray's case before them. Lord Halsbury reserved his opinion, Lord Selborne and Lord Fitzgerald did not mention the matter, while Lord Blackburn took the same view as the Lord President in Murray's case, that the remedy under the Act of 1854 was exclusive. I have already mentioned the position in which the matter was left in Budd'scase. There is no decision that, in principle and apart from the special provisions of the Act of 1854, an action cannot lie to recover overcharges made in breach of a section prohibiting undue preference or undue discrimination. I have read, with the care which they deserve, the doubts expressed by Lord President Inglis in Murray's case, when he says that the tolls were within the statutory limit, and then asks:
"What, then, made them unlawful? They were not so because Wilkie was overcharged, but because the Eglinton Iron Co. was charged less, and was thereby unduly favoured."
Again, I think that the answer could not be put better than in the words of Lord Patrick :
"It is beside the point that the complainer has been charged a less rate than the statute would have permitted. The same might be said in the case of an action for breach of an equality clause, but is no answer if in fact A has been charged more than B for the same service. It is equally no answer if in fact B has been unduly preferred to A in the matter of charges, in breach of an undue preference clause."
Again, I find nothing in the authorities under the railway and electricity statutes which prevents one applying the principle which I have previously stated, and the appellants fail on the second point. That is sufficient to dispose of the first appeal which, in my view, should be dismissed.
In the second appeal the South of Scotland Electricity Board are the appellants, and the British Oxygen Gases, Limited, a company to which the British Oxygen Company, Limited, has sold its undertaking in industrial and medical gases, are respondents. The appellants issued their first tariff with effect from 1st January 1956, and the respondents have taken large supplies of electricity at high voltage from the appellants under that tariff. On 12th July 1957 the respondents raised the present action against the appellants. They complain that by the new tariff the Board exercised undue discrimination against them as consumers of high-voltage electricity. This is the same type of complaint as the British Oxygen Company, Limited, make against the three tariffs in the first appeal. They also complain that by the new tariff the Board exercised undue discrimination against them as consumers having a high load factor of over 70 per centum. This appeal comes before us as an appeal against an interlocutor of the Second Division of the Court of Session in an action brought by the respondents for declarator, interdict and payment. The appellants tabled pleas to the competency of the action and the relevancy of the respondents' averments; on 7th February 1958 the Lord Ordinary (Lord Guest) sustained the appellants' plea to relevancy, so far as directed against one of the matters in issue, and quoad ultra allowed a proof before answer: on reclaiming motions (after amendment of the pleadings) the Second Division recalled the interlocutor of the Lord Ordinary, repelled the appellants' plea to relevancy and allowed a proof before answer.
The appellants argued before us—(1) that the respondents have not relevantly averred that the appellants have exercised any discrimination against them—(a) as high-voltage consumers, or (b) as consumers with a load factor of over 70 per centum; (2) that, on the assumption that the appellants have exercised undue discrimination against the respondents, the respondents have no remedy—(a) by way of recovery of any sums paid under a tariff which has been brought into force, (b) by way of interdict against the appellants charging prices fixed under such a tariff.
As far as the relevancy of the averments of discrimination against the respondents as high-voltage consumers is concerned, this raises first the question which I have already considered, and answered, in the sense that there can be undue discrimination, even where the party alleged to be discriminated against is not paying more. It was also suggested by the appellants in this case, that the respondents, by their failure to aver any fact or explanation of their averment that 5Â·55 per centum is a minimum fair differential, when the cost of fuel is 38s. 0d. per ton, have not given sufficient notice of the case which they intend to prove. This plea was fully considered by the Lord Ordinary, and by all four Judges in the Second Division. I accept their reasons for rejecting it, and I do not think it necessary to add anything to them.
Similarly, I need not repeat the reasons why, in my opinion, the respondents can, if they establish discrimination, recover whatever sum is in excess of such a charge as would have avoided discrimination. Furthermore, the appellants have failed to convince me that the Second Division are in error on the question of interdict.
This leaves the relevance of the averments of discrimination against the respondents as consumers with a load factor of over 70 per centum. The respondents maintain that the tariff here in question further discriminates against them, in that it fails to incorporate an annual maximum demand charge, which is defined as one in which the consumer is given the option of paying as an annual charge ten times the maximum monthly demand charge. They say that the cost of production and distribution of electricity is, and must be, related to the highest demand of the year. In other words, for part of the year there must be maintained surplus generating capacity which has to be paid for. On this they base their allegation that, from the point of view of the supplier, the consumer with a constant or relatively constant demand is more satisfactory than one whose demand is subject to major fluctuations. Load factor is the ratio, which the quantity of electricity, used in a year, bears to the quantity that would have been used, had the maximum rate of use of electricity been maintained throughout the year. The respondents are consumers whose load factor is exceptionally high, being of the order of 80 per centum, and it follows that their demand is responsible for little, if any, of the appellants' unproductive generating capacity. The respondents say that the charges under the said tariff are directly related to meeting the highest demand in a year, whereas the adoption of an annual demand charge would recognise that consumers, having a high load factor, should not be charged on the same basis as those, having a low load factor, whose seasonal demands inflate the fixed costs of electricity supply. The respondents further say that the provision of an annual demand charge is in accordance with proper, recognised and usual practice in such tariffs, and that ten of the twelve Area Boards in England and Wales make such an annual demand charge available to industrial consumers at the consumers' option. I respectfully agree with their Lordships of the Second Division that the respondents have in the foregoing deployed a case which requires that the facts should be ascertained before a final answer is given as to its relevancy.
I would also dismiss the second appeal.
LORD MERRIMAN.—The background of both these appeals is so fully set out in the opinion of my noble and learned friend, the Lord Chancellor, which I have had the advantage of seeing, that no recapitulation on my part is called for. Moreover, the Lord Ordinary (Lord Guest), in the second appeal, gives the history in detail of all the four tariffs for the supply of electricity involved in this dispute. The nature of the dispute is the same throughout: namely, whether the defenders have exercised undue discrimination against industrial users of supplies of electricity metered at, or above, a voltage of six thousand, including the pursuers.
As between the first three tariffs, with which the first appeal is concerned, and the fourth tariff, with which the second appeal is concerned, the parties, both suppliers and users, have changed; but nothing really turns upon this, and I shall refer to the pursuers and defenders throughout this opinion.
It is also observed that, as between the first and second appeal, the method of supply changed. In the case of the first three tariffs, the defenders bought electricity in bulk from the British Electricity Authority, and merely distributed it to the users, whereas, in the case of the fourth tariff, the defenders themselves generated the electricity they supplied.
I need only say, by way of preface, that a duty was placed upon the Area Board in framing a tariff to show the method, by which, and the principles on which, the charges for electricity are to be made. Some criticism (see Lord Patrick at page 35 B in the second appeal) has been made that the defenders have failed in this respect.
This much, at least, is clear about the construction of the first tariff: a distinction is made between supply metered at, or above, a voltage of six thousand and that metered at a voltage of less than six thousand, "generally of the order of four hundred and fifteen volts" (see answer 3 in the record of the first appeal).
These two supplies have been called throughout "high" and "low" voltage respectively, although the terms are not actually used in the first tariff, and in subsequent tariffs different measures of "high" and "low" are specified, and a "medium" range is introduced. It is unnecessary to refer further to these modifications, since it is upon the method and principles on which the first tariff has been constructed and upon the perpetuation thereof in subsequent tariffs that the pursuers found their case of undue discrimination. It is admitted that, in general, it is less costly to the defenders to supply electricity at high voltage than at low voltage, and that, in respect of the low-voltage supply, there falls on the defenders the loss entailed in transformation to the lower voltages, and, in the case of certain customers, the loss entailed in distribution; that the low-voltage supply tariff is based, inter alia, upon average transformation and distribution losses; and that, for that reason, there is a differential tariff between low and high voltage. The basic unit prices are fixed in the first tariff as Â·45d. for high voltage, and Â·475d. for low voltage, giving a differential of Â·025d., which, expressed as a percentage of Â·45d., is 5Â·55 per centum. Of this differential the pursuers make no complaint; on the contrary, they aver that this is the minimum percentage which avoids discrimination against them. This averment is repeated in relation to all the other tariffs; and it is the averred failure throughout to maintain at least this percentage of differential which the pursuers plead as discrimination against them.
From the fact that the defenders were buying electricity in bulk for distribution under the first three tariffs, it follows that the purchase of the extra units, required, as is averred, for the supply to users of low-voltage electricity, necessarily increased the defenders' costs in this respect. Accordingly, a clause, described as "the fuel clause," was inserted in the first tariff in the following terms:
"(b) The unit charge shall be increased or reduced at the rate of Â·0008d. per unit for each penny by which the fuel cost per ton used for the purpose of, and shown on, the invoice for the supply of electricity in bulk by the British Electricity Authority to the Board in the previous month is more or less than 38s. 0d."
As the fuel cost per ton was invariably more than 38s., the question of reduction can be ignored. This fuel clause is the crux of the first tariff, and its operation is reflected in the other tariffs.
The area of dispute clearly appears by contrasting two passages in the pleadings. In answer 6 in the first appeal, the defenders explain and aver that, although the basic cost of coal in the fuel clause of the old (that is, the first) tariff was 38s. per ton, the actual price of coal when the old tariff was introduced was not less than 60s. per ton, and the basic unit prices for high voltage and low voltage were fixed at levels which, when adjusted by the operation of the fuel clause, resulted in charges for high voltage and low voltage supplies appropriate to these defenders' costs at that time. Thus, as has been said (Lord Hill Watson) "the defenders have chosen to gear the price per unit to the cost of fuel by the fuel variation clause." I appreciate that this particular pleading is merely intended to repel the argument based on cost, if, as the defenders do not admit, the question of cost is relevant at all.
On the other hand, in condescendence 12 in the second appeal, the pursuers accept and aver that the low-voltage unit price and the fuel variations applicable thereto in all four tariffs are fair and reasonable in the circumstances, and it is upon that basis that they found their averment of overcharge.
Translating these averments into actual terms, it is asserted, on the one hand, that the basic unit prices of Â·45d. for high-voltage and Â·475d. for low-voltage supplies were fixed at levels which, when adjusted by the addition to each basic price of Â·0008d. per unit for each penny by which the fuel cost per ton was increased above the arbitrary figure of 38s. per ton (the italics are mine) resulted in charges for high-voltage and low-voltage supplies appropriate to these defenders' costs at that time. To this the pursuers reply that they expressly admit that the basic price of Â·475d. for low voltage is fair and reasonable, and so is the adjustment of that basic price by the operation of the fuel clause; and, as I have already said, it has never been disputed that the basic price of Â·45d. and the differential of Â·025d. is also fair and reasonable. But the pursuers say that it is self-evident that the fuel clause cannot operate to produce a charge for the high-voltage supply which is appropriate to the defenders' costs, since for every penny by which the cost of fuel rises above 38s. the identical figure of Â·0008d. is added to the basic price for high voltage, in spite of the admitted fact that the cost of high-voltage supply is less than that of low-voltage supply. This they assert, is undue discrimination against them.
In other words, the pursuers' case is that the indiscriminate addition to two different basic prices of an identical figure, on the 264 occasions on which the cost of fuel rises by one penny from 38s. to 60s., itself operates as a discrimination against them, inasmuch as, to use the words of the Lord Justice-Clerk in the first appeal,the pursuers are "being called upon to bear a disproportionate amount of the costs of distribution."
It is true that, in the second tariff, a differential is introduced into the additional charge per unit; namely, Â·0008d. for the low voltage, and the lower figure of Â·00075d. for the high voltage. Of this differential as such no complaint is made. But the pursuers aver that the discrimination against them in the first tariff is carried forward into the second tariff in the following manner, as appears from the analysis in Lord Keith's opinion in the former appeal to your Lordships' House:
"In the second tariff, the basic price is raised to 60s. per ton; the resultant of the increase of 22s. in the basic price at Â·0008d. for each one penny is Â·211d. This figure is added to each of the original price units of Â·45d. and Â·475d., producing new price units of Â·661d. for high voltage and Â·686d. for low voltage. This preserves a differential of Â·025d., but perpetuates the vice of having applied the same increased unit charge indiscriminately between the fuel costs of 38s. and 60s. per ton."
I do not think that it is necessary to go into detail about the third tariff. Suffice it to say that, on the introduction of the second tariff, the percentage of differential is said to be reduced from 5Â·55 per centum to 3Â·78 per centum, and, under the third tariff, it is reduced further to 3Â·74 per centum.
As to tariff IV: First, I think that in condescendence 10 and in condescendence 12 it is sufficiently averred that this tariff is tained by the vice in the first tariff. Secondly, however that may be, there is a definite averment that the minimum percentage of differential is 5Â·55 per centum, which plainly relates to the original differential of Â·025d. in tariff I before adjustment by the fuel clause in that tariff. It is averred that the differential in tariff IV is only 4Â·28 per centum in favour of high-voltage users."
Condescendence 12 also contains the important admission, already mentioned, that the pursuers accept and aver that the low-voltage unit price and the fuel variations applicable thereto in all four tariffs are fair and reasonable in the circumstances.
Secondly, as to the annual maximum demand charge, I am of opinion that there is a sufficient averment of a general recognition of the practice of offering such a tariff to industrial users with the high load factor, as now defined in the amended pleading, and I agree with Lord Patrick that the pursuers have in this regard presented a case which demands that the facts should be ascertained before a final answer is given as to its relevancy. I also agree with the Lord Justice-Clerk that "to cut and carve on the extent of the proof in the present case will serve no useful purpose and may even complicate matters if, as seems likely, the two cases will be investigated together."
The fundamental approach adopted in the argument for the defenders is that in section 37 (8) of the Electricity Act, 1947, the exercise of any undue discrimination against one user, or class of users, of electricity is merely a facet of showing undue preference to another user, or class of users. The next step is that the cases decided about the undue preference of one customer over another, under the Acts of Parliament governing railways, show that the question must be dealt with in two stages, namely:—First, whether there has been a preference—a question which, it is argued, can only consist in comparing a rate actually paid by one customer or class of customers with that paid by another: and it is only if preference in this sense is established, that the second question arises, whether the preference thus given is undue. By analogy, it is argued that the question of preference and discrimination in connexion with the supply of electricity can only be decided in terms of the price actually charged to the rival users, and, therefore, as it is admitted that the pursuers and other high-voltage users pay less per unit than do the low-voltage users, there can be no question of preference to the low-, or discrimination against the high-, voltage users respectively; and, therefore, that the question of undueness cannot arise at all.
On the other hand, it is conceded that, in considering whether a proved preference or discrimination is undue, the question of cost to the defenders, amongst other things, may be considered. The Lord Justice-Clerk pointed out that the defenders are forced to this splitting up of the problem into two stages, in order to reach a situation where they can get away from cost, which is fatal to them: but that it seems to ignore that what constitutes undue discrimination is fundamentally a question of degree. He also pointed out that the defenders' argument went practically the distance of saying that "preference" has become a term of art, and that it had significance only in relation to rate, adding:
"Indeed, this contention may well be essential to the success of the defenders' argument."
I agree with these comments.
It is easy to see how it is, that in the railway cases "preference" and "a lower rate" came to be treated as more or less synonymous, more especially after section 27 (1) of the Act of 1888 placed on the railway companies the onus of justifying the lower rate.
In Phipps v. London and North-Western Railway Co., a case much relied on by the defenders, Lindley, L.J., said:
"That clause appears to me to be perfectly intelligible. The moment one of two traders on the same line finds that the other is being charged at a less rate than he is, he is entitled to say to the railway company, ‘How do you justify that?’ As I understand this section, the burden of proof is on the railway company to show that such lower charge or difference does not amount to an undue preference."
He continues in the next paragraph:
"That gives rise to the question, What is an undue preference? Now, if you look at the sections which relate to this matter, beginning with the equality clause, section 90 of the Act of 1845, section 2 of the Act of 1854, and this section 27 of the Act of 1888, you find these expressions used, all of which appear to me to point to the same sort of mischief. You have ‘undue’, or ‘unreasonable,’ or ‘unfair’ ‘preference,’ or ‘prejudice’ or ‘disadvantage,’ or ‘favour.’ What is undue, andc., is a question of degree, and being a question of degree, it is obviously a question of fact …"
In the same case Lord Herschell, in considering whether the advantage of two competitive routes is a legitimate matter to be taken into account as between two traders, one of whom has, but the other has not, that advantage, says:
"All that I have to say is that I cannot find anything in the Act which indicates that when you are left at large, for you are left at large, as to whether as between two traders the company is showing an undue and unreasonable preference to the one as compared with the other, you are to leave that circumstance out of consideration any more than any other circumstance which would affect men's minds."
Moreover, it is not universally true that, even in the railway cases, "preference" only consists in a difference of rates. In Murrayv. Glasgow and South-Western Railway Co., another case much relied upon in the argument for the defenders, Lord President Inglis, discussing the remedy open to a complainant, said:
"It is to be observed that there may be other modes in which undue preferences may be granted by a railway company to one trader over another by which one loses and another gains time, a very important consideration in the eye of the trader. That is not an overcharge of rates, but that is one of the matters which are embraced in this statute."
Further, as regards electricity in Attorney-General v. Wimbledon Corporation, Simonds, J., as he then was, held that there could be undue preference or discrimination in spite of equality of the charge if, as against the complainant, an objectionable condition is attached to an equal charge.
In my opinion, Lord Mackintosh, in the first appeal, underrates the significance of this latter case, and is mistaken in thinking that Attorney-General v. Hackney Corporation is against the contention of the pursuers. Warrington, L.J., clearly thought that the fact that the relative cost of the supply of energy for power was less than that for light, and that supply of energy for both was less than the supply for light alone, were relevant factors, and that it was a commercial problem to be looked at broadly, and not with a meticulous examination as a question of mathematics of slight advantages or disadvantages in the manner of dealing with particular customers or classes of customers.
In my opinion, there is no justification whatever for the contention that discrimination can only be considered in relation to price, and that it is only if the pursuers pay more, that the undueness of discrimination in this limited sense can be considered.
In my opinion, considerations that are relevant to the question whether a discrimination is undue are relevant to the question whether there is undue discrimination. I think that the phrase "shall not exercise any undue discrimination" has to be considered as a whole, and that a fair distribution of the cost of supplying electricity as between one class of users and another is not to be left out of consideration "any more," to revert to Lord Herschell's phrase already quoted, "than any other circumstance which would affect men's minds."
It is a matter for the pursuers to establish at the proof that 5Â·55 per centum is the lowest percentage of differential which avoids discrimination against them, but, taking this averment and the averment of the reduced percentages under the second, third and fourth tariff proveritate, it is my opinion that these averments are relevant as showing the exercise of varying degrees of undue discrimination against high-voltage users.
It was suggested that, as the basic unit prices themselves show a preference in favour of the high-voltage users, it is absurd to say that at the same time there is a discrimination against them. No doubt this would be so, if that were the case, but the so-called preference, which nobody has suggested in this case is an undue preference, in the fixing of the basic unit prices, is exercised once for all when that differential is fixed, whereas the discrimination which lies in the adjustment of those prices by the operation of the fuel clause occurs progressively on each of the two hundred and sixty-four occasions on which the price of coal rises by one penny per ton between 38s. and 60s.
In substance I agree with the reasoning on this point of the Lord Justice-Clerk and Lord Patrick in the first appeal.
As regards the remedies, assuming that the averments are proved, the pursuers, in my opinion, are entitled to conclude both for repayment of the amounts overpaid and for declarator. I do not agree with the submission that the fact that the first three tariffs are now superseded would produce a bare declarator, if only because of the effect which a declarator would have upon the costs of the proceedings both in your Lordships' House and below.
Mr Mackenzie Stuart also satisfied me by reference to Maclaren's Court of Session Practice (1916), at pp. 649, 650, and the cases there cited, that the Court will allow an action of declarator to be brought by a party whose liability for a money payment under an Act of Parliament is in question with the object of construing the statute. This covers the present cases.
As regards the claim for the repayment of moneys overpaid, it is unnecessary to refer at length to Parker v. Great Western Railway Co . or to Great Western Railway Co. v. Sutton or Lancashireand Yorkshire Railway Co. v. Gidlow, per Lord Chelmsford.
It is sufficient to say that in Maskell v. Horner Lord Reading, C.J., referring to these authorities, and in particular to the advice given by Willes, J., in Great Western Railway Co. v. Sutton —where that learned Judge said that he had "always understood that when a man pays more than he is bound to do by law for the performance of a duty which the law says is owed to him for nothing, or for less than he has paid, there is a compulsion or concussion in respect of which he is entitled to recover the excess by condictio indebiti, or action for money had and received"—said that "such claims made in this form of action are treated as matters of ordinary practice and beyond discussion."
It should be noted, too, that Lord Patrick is correct in pointing out in the first appeal that Lord Herschell's opinion in Phipps v. London and North Western Railway Co. that no such action would lie is based on a faulty interpretation of the decision in the Denaby Main Colliery Co. v. Manchester, Sheffield and Lincolnshire Railway Co.
I agree with counsel for the defenders that, unlike the railway cases based on an equality clause, this is not a simple question of the recovery of the difference between two rates. But I do not agree with his submission that the Court is singularly ill-fitted to deal with the question. On the contrary, I see no reason, when all the relevant factors have been established in the course of the proof, why a Judge should not be able to arrive at a fair figure to reimburse the pursuers in respect of the loss, if any, they have sustained. Here, again, I agree with the Lord Justice-Clerk and with Lord Patrick.
For these reasons I would dismiss both these appeals.
LORD REID.—This is the second occasion on which the first of these two cases has been before your Lordships. On the first occasion, the present appellants failed on the contentions which they had maintained in the Court of Session, but they also put forward contentions which they had not maintained below. This House refused to deal with these contentions, and the case was sent back. The record was then extensively amended, and, as the case now stands, the main contention of the pursuers and present respondents is that three tariffs made by the original defenders, the South West of Scotland Electricity Board, which were in operation successively between 1951 and 1955, and under which they paid for electricity supplied to them, contained provisions which unduly discriminated against them. They further claim that, if they are successful in proving undue discrimination, they are entitled to recover overpayments due to such discrimination.
These tariffs were in two parts. Against that part which imposes a charge per kilowatt of maximum demand no complaint is made, although there is a complaint against such a charge in the second case now before the House. The complaint in this case is against the other part of the tariffs which made charges per unit of power supplied. The pursuers were, and are, users of electricity supplied at high voltage, which admittedly costs less to supply than the same amount of power at low voltage. The defenders recognised this by charging a higher price per unit to low-voltage consumers, but the pursuers' case is that the difference of price under the tariffs does not adequately reflect the difference in cost, and that, in fact, the price charged for high-voltage supply was not as low as it ought to have been, in comparison with the price charged to low-voltage consumers. That, they say, constituted undue discrimination against them and other high-voltage consumers.
The main contention of the defenders, the present appellants, is that there can be no discrimination, let alone undue discrimination, against any consumer in respect of the price which he has to pay per unit, if the price per unit charged to him, is less than the price per unit charged to the other consumers with whom he makes a comparison. Determining whether there has been discrimination or preference in respect of charges must involve a comparison between the charge made to the pursuer and the charge made to some other consumer. Shortly stated, the defenders' contention is that what must alone be compared are the prices charged, while the pursuers' contention is that, in making a comparison, one must have regard to the costs of supply to the two classes of customer. So the defenders maintain that the pursuers' averments are irrelevant, and that the action should be dismissed because, admittedly, the price charged to them per unit was less than the price charged to low-voltage consumers. The pursuers maintain that they are entitled to proof of their averments, and they support the interlocutor of the Second Division under which proof before answer is ordered.
The last of these three tariffs ceased to be in force on 31st December 1955, while the former appeal to this House was pending. The original defenders, the South West of Scotland Electricity Board, have now ceased to exist, their functions and liabilities having been taken over by the appellants, the South of Scotland Electricity Board, who have wider functions than the old Board. In addition to seeking declarators that in fixing their tariffs the old Board unduly discriminated against them, the pursuers sue for the amount of the overcharges caused by such discrimination. In their defences the defenders now plead that the action is incompetent. They say that, even if there was undue discrimination, and even if the amount of overcharges which resulted from such discrimination could be proved, the pursuers are not entitled in law to recover any such overcharges from them. Then they say that, if the pursuers have no right to recover anything, the declarators sought ought not to be granted, because they would have no practical value or effect.
The plea that the action is incompetent ought, in my opinion, to be disposed of now before proof is allowed, even though the proof to be allowed is only proof before answer. I would repel this plea, because I think there is nothing in law to prevent recovery of any sums which can be proved to have been overcharged. The only reason advanced for the contrary view was that overcharges made by railway companies were said to be irrecoverable, if they were due to the company having given an undue preference to another consumer. It is therefore necessary to look at the railway legislation and the authorities under it.
The Railway Clauses Consolidation Act of 1845, and certain private Acts, contained an equality clause which made it illegal for a company to charge one customer more than they charged another in similar circumstances, and it is quite clear that a person who proved breach of an equality clause could recover from the company any overcharge which he had paid, that is, the difference between what he had paid and what he would have paid, if the company had charged him as the equality clause required—Great Western Railway Co. v. Sutton —and recovery was not prevented by the fact that, when he paid the charge demanded, he knew that he was being overcharged.
Equality clauses were soon found to be an inadequate protection. They applied only where the journeys compared were precisely the same, so that a trader whose goods were carried a shorter distance than the goods of his competitor, but who was charged more than his competitor, got no relief under these clauses. So there was enacted the Railway and Canal Traffic Act, 1854. I need not quote section 2. The effect of it was to prohibit any undue or unreasonable preference or advantage or prejudice or disadvantage, and this applied where the journeys were not identical. We were not referred to any earlier use of the expressions "preference" or "prejudice" in any Act in such a connexion, and, when prohibitions of undue preference were later introduced into Acts dealing with electricity and other matters, it is not unreasonable to suppose that Parliament had in mind the Act of 1854, and the way in which it had been interpreted by the Courts. If there were clear and binding authority under the railway legislation that overcharges resulting from undue preference or prejudice could not be recovered, I might be inclined to hold that the same rule should apply here, but there is not. The 1854 Act contained in sections 3 and 6 provisions for an alternative form of remedy, and a prohibition against proceeding by way of action, so cases under it which decided that it was not competent to sue for the amount of overcharges were really decided on the special terms of sections 3 and 6, and they can only assist in cases under other legislation, where there is nothing corresponding to section 6 of the 1854 Act, in so far as they contain expressions of opinion as to the effect of undue preference clauses standing alone. We were referred in particular to the opinion of Lord President Inglis in Murrayv. Glasgow and South-Western Railway Co., and the judgment of Lord Herschell in Phipps v. London and North-Western Railway Co. I agree with what has been said by my noble and learned friend, the Lord Chancellor, about these opinions, and with his approval of the criticism of them by Lord Patrick, and I find no difficulty in holding that the plea to competency fails.
The main controversy turns on the meaning of section 37 (8) of the Electricity Act, 1947. It required that the defenders in fixing their tariffs should not "show undue preference to any person or class of persons" and should not "exercise any undue discrimination against any person or class of persons." Before coming to the pursuers' averments, I think it necessary to consider what is meant by the expressions "undue preference" and "undue discrimination." It was argued that these phrases are composite phrases, so that it is wrong to ask, first, was there a preference, and then, was it undue: in other words, an undue preference does not mean a preference which is undue. I cannot accept that argument. It appears to me to be a complete answer to a complaint of undue preference to prove that, in fact, there was no preference at all; and similarly with regard to discrimination I cannot imagine a case in which it could be said: true there is no preference, but there is an undue preference.
It is undisputed that, whatever be the meaning of these terms, they imply a comparison of the treatment of the pursuers with the treatment of some other consumer. The section provides that "in fixing tariffs" there shall be no undue preference, andc. So the comparison must be between the effects of the tariff on the pursuers and on the other consumers. And any comparison must surely be made by reference to some criterion or "yardstick." The case for the pursuers seems to me to amount to this: a Board is prohibited by the section from fixing any tariff which results in unduly unfair treatment of any one consumer in comparison with any other, and in judging what is unfair a very wide inquiry is necessary. If that had been the intention of Parliament, I think that very different words would have been used to express it.
A tariff necessarily involves the grouping together of a large number of consumers. The cost of supplying one will be different on a minute analysis from the cost of supplying another, and, even on the wider basis of taking into account the whole circumstances, meticulous justice would require different charges for different consumers, and would prevent any large-scale grouping. The 1947 Act for the first time required tariffs to be fixed, and it must have been recognised that this would necessarily produce some measure of injustice by imposing the same charges in cases where costs of supply and other circumstances might justify a difference. It was left to the Boards, under the general control of the Central Authority, to make such tariffs as they should think proper. The right of a customer to challenge a tariff by legal action is limited. He must be able to show that, in fixing the tariff, the Board has shown undue preference or exercised undue discrimination. I read that as meaning that legal action is excluded, unless there is preference or discrimination, and that, once preference or discrimination is established, the question then arises whether, in the whole circumstances, it was undue. And if I am entitled to look at the railway legislation, where the expression "undue preference" originated, I am reinforced in this view. At first, the customer had to prove that there was a preference and that it was undue, but, by the Railway and Canal Traffic Act, 1888, section 27, once the customer had proved that there was a preference, the company had to discharge the burden of proving that the preference was justified—that it was not undue. There is high authority that this did not alter the substance of the law, and it is, to my mind, clear that there were always two steps—is there a preference and is it undue?
Once a preference has been shown to exist there can be a very wide inquiry whether or not it was undue. So, ask the pursuers, why should there not be that inquiry, without the need first to show that there was a preference? I would answer that in this way: the whole idea of tariffs is to produce equality of charging over wide areas, and the 1947 Act appears to me to be saying to the Boards—if you depart from equality of charging, you must be prepared to defend any in equality in a Court of law by showing that there is good reason for it. That is a real safeguard, but it is a very different thing to say that it is open to every consumer to allege that a Board has carried the policy of equality of charging too far, and to attack the Board's grouping by saying that justice requires that he should get better treatment than the rest of the group. That would open the door so widely that a Court could, in effect, be required to review the whole policy of the Board and of the Central Authority in relation to charging and the making of tariffs. If that had been the intention, I would have expected the Act to have been very differently drafted.
The pursuers complain, not of undue preference to others, but of undue discrimination against themselves, and, if I am right so far, the first question to ask is, whether there has been any discrimination against them. They argue that discrimination is not merely the converse of preference, but that it must be judged in a different way and by a different standard. Admittedly, they pay less per unit of electricity than the consumers with whom they make a comparison: but they say that, even if this is regarded as a preference to themselves, they are nevertheless being discriminated against, because the preference given to them is unduly small. I find that very difficult. In the first place, it does not seem to me to accord with the ordinary use of language. If I already pay less than my competitor, but justice requires that I should pay still less, I might well say that I am being unfairly treated, but it would not occur to me to say that the seller is exercising discrimination against me in comparison with the way in which he treats my competitor. Under this Act, preference or discrimination must be established on a basis of comparison. It is not enough to say that you are paying more than is just, and the pursuers' whole case is based on a comparison with the low-voltage consumers, who already pay more than they do per unit. The only argument, which appears to me to have any weight, is that "discrimination" appeared for the first time in the 1947 Act: in the earlier electricity legislation there was only a prohibition of undue preference. So it is possible to say that Parliament must have intended the new word to add something. It is certainly more appropriate, where one person is being required to pay more than a large group of other people: one would, I think, say that discrimination is being exercised against him, rather than that the others are getting a preference. This may be what Parliament had in view. But I cannot think that merely adding this new word was intended to have, or has, the effect of introducing an entirely new and different standard, so that at one and the same time the same person can be held to have a preference, and yet to be discriminated against.
What, then, is the standard by which preference or discrimination is to be judged? The defenders say price charged to the consumer, and the pursuers say cost of supply. The Act uses these words in connexion with the fixing of tariffs which deal with prices, and not with cost of supply, and one would expect these words in this context to refer to price. Moreover, prices are easily ascertained by inspection of the tariff, but costs of supply are not: their ascertainment probably involves highly contentious questions of costing and the like. So, if preference is a matter of cost, it would be impossible to tell whether there is any preference or discrimination, until an elaborate investigation had been made. Then, again, prices remain stable until a tariff is altered, but costs of supply vary, and the costs of supply to a particular consumer may vary, not only with the general costs of production, but with the way in which he spreads his demand. And, finally, I find no trace of cost of carrying the goods being held relevant under the railway legislation. It, therefore, appears to me that preference and discrimination here do not refer to cost of supply. But it is possible to have discrimination in some matter other than price, which directly affects the consumer, for example, requiring him to observe some condition which is not imposed on other consumers.
Many authorities were cited in the course of argument. In the course of judgments dealing with quite different matters, expressions are found which, taken by themselves appear to assist one side or the other. I shall not detain your Lordships by dealing with them, because none of them appears to me to indicate that the learned Judge had come to any conclusion about any of the questions now before the House; he may not even have had such questions in mind.
For the reasons which I have stated, I reject the pursuers' contentions that undue discrimination means something other than a discrimination which is undue, that discrimination is something other than the converse of preference, and that it is to be judged by reference to costs of supply, and not by prices charged. So I turn to the pursuers' averments to see whether they disclose some specialties which cannot be decided without proof.
In the first action, the pursuers lay great stress on the method by which the charges per unit to high-voltage and low-voltage consumers were determined. There were first basic prices per unit of .45d. and .475d. respectively, which were to apply with the cost of coal at 38s. per ton, and then there was an additional amount of .0008d. per unit for every penny by which the cost of coal exceeded 38s. The difference between the basic charges for the two classes of consumer is 5.55 per centum. The addition made in respect of the rising cost of coal was the same for both classes so that, although the charges per unit rose substantially as the cost of coal rose, the gap between the two charges remained .025d. and did not increase proportionally with the charges. The result was that, in the end, the gap represented only a proportion of 3.74 per centum of the total charge.
Admittedly, it is cheaper to supply at high voltage, and the main reason appears to be that electricity is generated at high voltage and must then be transformed before it can be supplied at low voltage. This process involves losses, so that to supply, say one hundred units at low voltage, more than one hundred units must be generated. For this and other reasons, the pursuers say that the differential of 5.55 per centum originally allowed by the defenders, if coal cost 38s., is the minimum that ought to be allowed in every case, if undue discrimination against them is to be avoided. They say that the differential ought to increase, and not diminish, as the cost of coal rises, but they accept this differential of 5.55 per centum as adequate for the range of coal prices involved in this case.
If the pursuers are right that there can be discrimination against them, although, in fact, they paid lower prices, then I think that their averments are clearly relevant. But if they are wrong on the meaning of discrimination, then, apart from one matter to which I shall come, I do not see how their averments can be relevant. It is true that the defenders tied their charges to the cost of coal, and it is said that, on their own showing, it was manifestly unfair to add the same additional sums to both unit charges. Let me assume that their is so: I do not see how it helps them. If the pursuers are right about the meaning of discrimination, they do not need this additional argument, although these facts might help them at the proof. But if they are wrong about discrimination, that means that, however manifestly unfair the tariff might be, there would be no remedy under section 37 (8) unless and until such unfairness resulted in their being charged more than the low-voltage consumers.
But there is one argument for the pursuers which causes doubt in my mind. I have said that it is necessary to generate more than one hundred units—say one hundred and five—in order to supply one hundred units at low voltage. The defenders argue that a unit is a unit no matter at what voltage it is supplied, and that the only relevant comparison is between prices per unit. The pursuers say that, even ruling out cost of production as irrelevant, price per unit is not the proper comparison; electricity at low voltage is, so to speak, a different article, and the defenders have to perform a costly service in converting high-voltage electricity into low-voltage. This, they say, cannot be left out of account in comparing prices: to compare like with like, one must take the one hundred and five units which are converted into one hundred units at low voltage. I am not at all sure that this argument is open to the pursuers on their present record. But if it is, it raises technical matters, and I would not like to express any opinion about it without having evidence on it. If, therefore, your Lordships are of opinion that there should be proof before answer in the first case, I would not dissent.
The second action deals with two quite different matters. The first is, to my mind, indistinguishable from the matters raised in the first action. But the other requires separate consideration. The tariff in this case included (as did the tariffs in the other case) a charge per kilowatt of maximum demand supplied in each month, and that is defined as meaning twice the number of units consumed during that half-hour in the month in which the recorded consumption is highest.
The pursuers' case as stated in condescendence 11 is:
"The said tariff further discriminates unduly against the pursuers in respect that it fails to incorporate an annual maximum demand charge, that is one in which the consumer is given the option of paying as an annual charge ten times the maximum monthly demand charge."
Then they say that their annual load factor is 80 per centum, which is exceptionally high, and that it is cheaper to supply them than customers with a low load factor, because their consumption does not rise in the winter months. Then they aver:
"In the circumstances condescended upon the most accurate measure of their utilisation of generation and distribution capacity is an annual and not a monthly demand charge. The adoption of said annual demand charge recognises, as should be done in fixing a tariff without undue discrimination or undue preference, that consumers having a high load factor should not be charged on the same basis as those having a low load factor whose seasonal demands inflate the fixed costs of electricity supply. By charging the pursuers on the basis of a monthly demand charge instead of an annual demand charge, the defenders, by their failure to incorporate such a charge in their tariff, discriminate unduly against the pursuers and against other customers having a load factor above 70 per centum of maximum supply throughout the year. The pursuers believe and aver that the said percentage load factor is the highest that can be charged on a basis of monthly demand without undue discrimination being exercised against high load factor users."
And then they say that it is the usual practice of other boards to provide an annual demand charge. They admit that consumers with a high load factor already get an advantage, but say that that does not affect their claim.
There is no question here of the units of electricity supplied being different in any way. The only difference is that it is more economical to supply a consumer if his demand is regular and does not fluctuate. The pursuers are content to pay the same price per unit as is paid by those with lower load factors, and they do not even say that the monthly maximum demand charge is excessive, or seek repayment of part of it. They seek to dictate to the Board what kind of tariff they should have; they do not object to anything in the present tariff; what they ask for is an optional alternative to part of it. And their money claim is for the amount they would have saved, if they had been offered such an option and had taken it. The fact that this may have been the practice of other Boards could show only that the defenders might have adopted this course; there is no compulsion on all Boards to act in the same way.
I would hold these averments to be irrelevant, even if, contrary to my view, a person who already pays less can be said to be discriminated against. It is one thing to say that a consumer can recover part of what he has paid under an existing tariff. But it appears to me to be going very much farther to say that the Board was bound to make a different form of tariff, and that, if it had, the pursuers would have escaped more lightly, and then to sue for the difference between what the pursuers paid under the actual tariff and what they would have paid, if a different tariff had been in operation.
When proof before answer is allowed on part of a case in the ordinary way, I would not refuse proof before answer on the rest. But the two parts of this case are quite different, and to allow proof on the second part would add considerably to the expense and to the time occupied. I would therefore allow this appeal to the extent of holding irrelevant the averments in condescendences 11 and 12 which are directed to support conclusion 1B in the second action.
LORD TUCKER.—I agree that both these appeals should be dismissed for the reasons which have been stated in the opinion of my noble and learned friend the Lord Chancellor.
LORD KEITH OF AVONHOLM.—When this case came formerly before your Lordships, in a somewhat different guise, on appeal by the present appellants, the appeal was dismissed, with the result that the case should normally have proceeded to a proof before answer, in accordance with the interlocutor of the Second Division, dated 10th June 1955, affirmed by this House. At the previous hearing in this House, various questions were raised for the first time, which the House declined to consider, on the ground that they had not been taken and considered in the Courts below, and that your Lordships had not the benefit of judgments of the Court of Session on the points raised. It is not surprising that, after ventilation of these new points in this House, the defenders on their return to the Court of Session amended their record and stated four new pleas, with the result that amendments were also made by the pursuers. In the result there was presented to the Lord Ordinary what, in material respects, was a new record, which he had to consider afresh, being so moved by the defenders, before proceeding to proof.
On the fresh arguments submitted to him, the Lord Ordinary held that the pursuers were entitled to a proof before answer on the question whether the defenders had shown an undue preference to users of low-voltage supply, and had exercised undue discrimination against the pursuers as users of high-voltage supply. He held that the pursuers had made no relevant averments in support of declarators that the defenders' tariffs were ultra vires and ought to be reduced. He further held that the pursuers had made no relevant averments for payment of overcharges. In the result, by interlocutor of 31st May 1957, he allowed the pursuers a limited proof before answer of their averments in support of their conclusions that the first-named defenders had exercised undue discrimination against industrial users of electricity metered at or above a voltage of six thousand, including the pursuers, contrary to section 37 (8) of the Electricity Act, 1947, in respect of three separate and consecutive industrial demand tariffs.
On a reclaiming motion to the Inner House, the Second Division, while formally recalling the Lord Ordinary's interlocutor, in effect repeated it, with the addition of allowing the pursuers a proof before answer on their conclusion for payment of overcharges. It is in this state that this case comes for a second time to your Lordships' House, without any proof having yet been taken into the facts of the case. Although on the previous appeal this House sent the case back to the Court of Session for a proof before answer, no exception, in my opinion, can be taken, in light of what has subsequently happened, to the case returning here for further consideration of its relevancy on the amended pleadings. This possibility may not have been foreseen in some of the speeches on the former appeal to this House, but, in view of the procedure which has since been followed out before the Lord Ordinary and in the Inner House, no question as to the propriety of the present appeal arises.
Two main questions have been argued. The argument, which this House refused to consider on the previous occasion, that the pursuers have made no relevant averments of discrimination exercised against them, has been repeated. This argument has now received full consideration both by the Lord Ordinary and by their Lordships of the Second Division. It is also reinforced by an admission of the pursuers, relied on by the defenders and added to the record, since the case was last in this House, as follows:
"Admitted that the pursuers have in fact been charged throughout a lower price than have low-voltage consumers taking a supply under the same conditions as to load and load factor."
Counsel on both sides have presented very closely reasoned arguments on this question. Shortly stated, for the appellants (whom I shall call the defenders) it was submitted that in the matter of charges made for supply there is no warrant for preference or discrimination being considered, except by reference to relative prices charged to two competitors for the service supplied. Reliance was placed on precedents under the Railway Acts and earlier Electricity Acts. The pursuers, on the other hand, submit that under the Electricity Act, 1947, discrimination can be exercised against a consumer by charging him more than is proportionate to the relative cost of supply to him and others like him, as compared with the cost of supply to other consumers. In the present case, it is common ground that the cost of supplying the pursuers, who are high-voltage consumers, is less than the cost of supplying low-voltage consumers, and the complaint of the pursuers is that the tariffs imposed on them do not fairly represent the relative difference in cost. The complaint is particularly directed to the operation of the cost of fuel variation clause. I dealt in detail with this clause on the previous appeal, and do not propose to explain its operation again. The respective contentions of the parties do not really turn on this clause. They have a much wider range. Nor does the argument touch the question whether there is undue discrimination. It is conceded that, if the pursuers have relevantly averred discrimination, the question whether it is undue must be a matter of proof. The discrimination with which the Act is concerned is discrimination which is undue. It is conceded, as I understand, by the pursuers that there may be discrimination which is not undue and of which they could not complain. But the defenders' contention here is that there is no relevant averment of discrimination at all, whether due or undue.
In the Court of Session the Lord Ordinary, proceeding largely on the cost of fuel variation clause, considered that the pursuers' averments were relevant to show a preference to users of low-voltage supply and a discrimination against users of a high-voltage supply. "As counsel for the pursuers put it," the Lord Ordinary said"‘the defenders have chosen to gear the price per unit to the cost of fuel by the fuel variation clause.’" It may be observed that the Lord Ordinary seemed to regard preference and discrimination as correlative terms. What is a preference to A is a discrimination against B. Their Lordships of the Inner House, with the exception of Lord Mackintosh, have taken a less restricted view. "Discrimination" they regard, if I read their opinions correctly, as a somewhat elastic word not necessarily related to preference, and covering any kind of treatment that could not be regarded as fair on a basis of comparative costs. As Lord Patrick puts it, the only clue which the statute provides to the considerations which must determine the different rates to be levied on different classes of consumers, is the fact that the system is one providing for the recovery of costs alone. "Prima facie," he says,"such a system, contemplating as it does different rates for different classes of consumers, would link the different rates in some way to the different costs of giving the different supplies." I am not satisfied that very much the same might not have been said in the days of railway companies and electricity companies, with the profit element added, subject in the case of railway companies to the statutory maxima fixed by their special Acts. Lord Mackintosh dissented from the rest of their Lordships of the Second Division in this matter. He would make the matter of preference or discrimination depend on the relative position of the complaining consumer and his competitor in the matter of the price charged to each for his supply and not on the costs to the undertaker of giving the supply.
Like the Lord Ordinary, Lord Mackintosh necessarily treats preference and discrimination as correlative terms. But, unlike the Lord Ordinary, he considers that the pursuers' averments show that in fact they were getting a preference in price over the low-voltage consumers and so there is no relevant averment of discrimination. I confess that this reading of the word "discrimination" in the Act of 1947 is the one that naturally occurs to me. The earlier Electricity Supply Acts prohibited undue preference but did not use the word "discrimination" or any corresponding expression. The Railway Clauses Consolidation Act of 1845 used the terms "prejudicing" or "favouring," and the Railway and Canal Traffic Act, 1854, in section 2, used the terms "preference and advantage" and "prejudice and disadvantage," and, in no case, so far as I have observed, have these expressions been regarded as other than expressions of the same thing from a different point of view. I think Mr Hunter, in his argument for the defenders, was well warranted in saying that "preference" was an apt word to use with reference to a person who was receiving preferential treatment in comparison with most other persons, and "discrimination" the apt word to use with reference to a person to whom most other persons were being preferred. I find it difficult to think that Parliament intended the difference between "preference" and "discrimination" in section 37 (8) to be anything different from the conception of the difference between "favouring" and "prejudicing" in the Acts of 1845 or between "preference and advantage" and "prejudice and disadvantage" in the Act of 1854. The idea also that consumers of electricity are to have their tariffs regulated on the basis of the cost of supplying them seems to me to carry with it the most far-reaching consequences. In the matter of the supply of electricity, the conditions and the costs of supply vary infinitely from consumer to consumer. Carried to its logical conclusion, it would follow that the consumer, or class of consumers, whom it was most costly to supply, would have to be charged proportionately high tariffs, if the board wished to escape complaint from other consumers of undue discrimination. I find great difficulty in seeing how this conception can be carried out consistently with such statutory directions as are contained, in the interests of "rural areas," in section 1 (6) (b) of the Act of 1947, or with the provision for simplification and standardisation of methods of charge in section 1 (6) (d) of the same Act. Complaint of discrimination, of course, would not be enough. It would have to be said that the discrimination was undue, and undueness, on the pursuers' submissions, would have to be related to the cost of supply. In the present case, it may be that their task would be limited and made easier by the terms of the cost of fuel variation clauses in the respective tariffs, although it will be noted that the terms of these clauses vary with each tariff. But that is, in a sense, accidental to the present case, and, if the pursuers are right, I see no stopping-place between examination of a cost of fuel variation clause and examination of the cost of any other component entering into the costs of supply, or indeed the costs at large of giving the supply. If costs are brought in as the criterion of discrimination, they must equally be brought in as the criterion of preference. Preference and discrimination become then not really a matter of comparison of prices or charges as between consumer and consumer, but a comparison of prices with the costs of the producer. This amounts, as I see it, very much to saying that consumers are entitled to claim preferences. The statute only prohibits undue preferences. Equality of charge is not prohibited. Reference was made to a passage in the judgment of Warrington, L.J. (as he then was) in Attorney-General v. Hackney Corporation, where he says:
"It is conceded that users of energy for power as a class are entitled to be charged at a lower rate than those who use it for light alone."
Later, he refers to consumers of energy for both power and light as "entitled to better terms" than consumers of energy for light alone. I do not read this reference as meaning that any consumer is entitled to demand a preference from the supplier in appropriate circumstances. I take the Lord Justice as meaning that, in a question with another consumer complaining of a preference, the preferred consumer may be heard to say, "I am entitled to a preference over you." The passage, I think, has reference to the argument for the plaintiff thus stated:
"The mere fact that he takes 80 per centum for power and 20 per centum for light does not entitle the defendants to differentiate the charge for light as against non-power consumers."
When this case was last before this House, I made some general observations on some problems arising on the case as then presented, intended to be of an entirely tentative character. I would refer only to one of these. I said:
"The question may be put thus: whether discrimination may not be exercised against one consumer and a preference given to another where both are charged the same rate in circumstances which justify a differential rate between them. If the answer is ‘yes’ it would equally follow that where the differential was too small, a like complaint could be made."
In using the word "rate" I had in mind price, or tariff, though I may not have made that clear. I also had in mind the case of Phipps v. London and North Western Railway Co., where the tariff charged to the complainer for carriage of his pig-iron was 5s. 2d. per ton, whereas the charge to two of his competitors was 5s. 8d. per ton. But when these charges were related to carriage per mile it was found that the complainer was being charged 1.05d. per ton mile and his competitors .95d. and .85d. per ton mile. There was very good reason for calculating the charges upon the basis of the ton mile, for section 90 of the Railway Clauses (Consolidation) Act, 1845 (corresponding to section 83 of the Scottish Act), provided for equality of rates "per ton per mile or otherwise." There is no equality clause in the Act of 1947, nor was there any common factor indicated in the equality section of the Electric Lighting Act, 1882, to which prices could be related, but it does not follow that some factor could not be found to provide a fair and proper basis for ascertaining whether there exists undue preference or undue discrimination. Even if cost be eliminated as a basis per se, other factors may come in in comparing the tariffs for a high-voltage supply with those for a low-voltage supply. I take one illustration. The price per unit consumed may show a preference to the high-voltage customer over that charged to the low-voltage customer. It may be, however, that on the units generated to supply these respective consumers, the result comes out the other way, owing to variation in transmission and distribution or other losses between the two classes. I find myself unable, in these circumstances, to decide the question of undue preference or discrimination without evidence. Accordingly, although perhaps for different reasons from those moving the majority of their Lordships of the Second Division, I agree that a proof before answer must be allowed on this branch of the case.
If there is to be an inquiry on the issue of undue discrimination, there seems no strong ground for refusing an inquiry on the other main question in the case, the recovery of overcharges. This matter was also canvassed at the previous hearing in this House, although not with the same exhaustiveness as on this appeal, and some doubts were expressed as to the competency or appropriateness of this remedy. There seems to have been no instance of overcharges having ever been recovered in a case of undue preference under the Railway Acts or earlier Electricity Acts, except in the somewhat doubtful decision of Budd v. London and North Western Railway Co., where the competency of such a remedy seems to have been assumed. Great Western Railway Co. v. Sutton was a claim under an equality clause, and the point in the case was whether overcharges wrongfully imposed and paid under compulsion could be recovered as money had and received. Lancashire and Yorkshire Railway Co. v. Gidlow was a case where damages were awarded in respect of illegal charges levied from the complainer and restrictions imposed in carrying his goods, which were not warranted by the terms of the company's statute. So was it also in Evershed v. London and North-Western Railway Co . But, under the Railway Acts, the remedies in respect of undue perferences to competitors were defined by statute, and common law remedies were held to be excluded. Under the Electricity Acts the point seems never to have arisen. The attempt to reduce the tariffs complained of has now been abandoned, and, until evidence has been led and it can be seen how the Court approaches the problem of assessing overcharges, I find it unnecessary and undesirable to express any further views under this head.
On the view which I have taken, I find it unnecessary to consider the other submissions raised by counsel for the appellants.
For the reasons given I would dismiss the appeal.
The general considerations to which I have already referred apply to conclusion 1A of the action of British Oxygen Gases, Limited, against the South of Scotland Electricity Board, which is the subject-matter of the second appeal to this House. I find difficulty in connecting this action in any way with the earlier action, for, although the pursuers set forth the earlier tariffs imposed on their predecessors, the British Oxygen Company, Limited, these appear to me to be entirely unconnected with the tariff complained of in this action. This tariff was fixed by a different board operating in a much wider area of supply and with wider powers, including both generating and distributing powers. While the defenders took over the functions of the South West Scotland Electricity Board, who previously supplied the pursuers' premises, that does not, in my opinion, associate them with the tariffs fixed by their predecessors. In the matter of the new tariff it would seem that the defenders must be considered as an entirely independent authority. The pursuers, however, still base their case on an inadequate differential as between high- and low-voltage users, and on this aspect of the case I can make no distinction between the two actions.
This second action, however, raises a new point under conclusion 1B. The pursuers claim special treatment in respect of what they say is their exceptionally high load factor of 80 per centum, and they invoke the example of tariffs in the area of other electricity authorities, where, they say, such special treatment is accorded. They claim that special maximum demand charges should be allowed to consumers with a load factor above 70 per centum of maximum supply throughout the year. Failure by the defenders to have incorporated such an allowance in their tariff is averred as the exercise of undue discrimination against the pursuers. This raises in undiluted form the question of the relevance of equating charge to cost. It further seems to me to take an entirely arbitrary datum line of 70 per centum. In my opinion, the pursuers have stated no relevant ground on which such a claim should be allowed to go to proof.
In the result I would in this case allow a proof before answer, excluding from probation any averments in support of conclusion 1B of the summons.