A favourable Supreme Court ruling for the Manchester Ship Canal Company against United Utilities Group PLC (LSE:UU.) will have far-reaching financial and litigation consequences for British water companies, analysts believe.
The long-running litigation concerns discharges of foul water contaminated with untreated sewage by the North West supplier into the Manchester Ship Canal.
The Supreme Court was asked to decide whether the Manchester Ship Canal Company, as owner of the beds and banks of the canal, could bring a claim against United Utilities for the discharges.
United Utilities asked the court to rule against any right of action, but judges unanimously voted in favour of Manchester Ship Canal Company, paving the way for costly litigation against United Utilities.
In delivering the judgement, the court stated: “The starting point is that the owner of a canal or other watercourse has a property right in the watercourse, including a right to preserve the quality of the water.
“That right is protected by the common law. The discharge of polluting effluent into a privately-owned watercourse is an actionable nuisance at common law if the pollution interferes with the owner’s use or enjoyment of its property.”
In light of the ruling, water companies face a “flood” of legal challenges over dumping sewage into waterways, one lawyer told the BBC.
Partner Paul Greatholder at Russell Cooke said the "floodgates are open" for litigation following the ruling.
Fundraising fallout
Now, analysts warn that water companies may face fundraising bottlenecks as litigation in the sector heats up.
“Legal action cases, and also risk around political action means the sector may be viewed as largely uninvestable,” Citigroup analyst Jenny Ping said.
Fears that the privatised UK water industry will become uninvestable were raised earlier this year for a different reason.
Facing a default on billions of pounds worth of loans, Britain’s largest water supplier Thames Water remains on the brink of nationalisation.
Barclays in April warned that punitive action against the utility could make it hard for other providers to raise funds.
Barclays surveyed investors in water sector bonds, who responded that protecting the investment grade rating for Thames' operating company and avoiding losses for bondholders had to be a priority.
Thames Water bonds fell to just 5.8p on the pound in May.