South of Scotland Electricity Board v British Oxygen Co Ltd

A statutory prohibition against undue discrimination in electricity tariffs may be engaged even though the complaining class pays a lower nominal price than the comparator class. Price alone is not conclusive. The court may consider the relative cost and character of the supplies, particularly where the supplier has itself made cost a basis of the tariff.

A customer who proves that a tariff imposed an unwarranted discriminatory charge may recover the resulting overpayment. The court may estimate the charge which would have avoided the discrimination. A tariff may also be challenged where it arguably fails to recognise a material cost advantage associated with a class of consumers, although the existence and undueness of the discrimination remain matters for proof.

Two appeals concerned electricity tariffs challenged by industrial consumers supplied at high voltage. The consumers alleged that the tariffs failed adequately to reflect the lower cost of high-voltage supply. Although they paid less per unit than low-voltage consumers, they contended that the differential was insufficient and therefore constituted undue discrimination contrary to section 37 (8) of the Electricity Act, 1947.

The first action also sought repayment of alleged overcharges. The second challenged a later tariff on the same high-voltage ground and because it contained no optional annual maximum-demand charge for consumers with exceptionally high load factors.

In each action the Second Division allowed a proof before answer. The central questions were whether discrimination could exist where the complainant paid the lower nominal price, whether cost of supply could be considered, and what remedies were available if undue discrimination were proved.

1. Disposition. Both appeals were dismissed. The first appeal was dismissed unanimously. The second was dismissed by a majority of three to two, Lord Reid and Lord Keith of Avonholm favouring exclusion from proof of the high-load-factor claim.
2. Meaning of undue discrimination. Viscount Kilmuir LC, whose reasoning Lord Tucker adopted and with whom Lord Merriman substantially agreed, held that section 37 (8) of the Electricity Act, 1947 imposed prohibitions against both undue preference and undue discrimination. A consumer need not prove that a comparator paid a lower nominal price. The section did not justify adding a rule that monetary discrimination exists only where the complainant is charged more.
3. Relevance of cost. The Board had established a differential between high- and low-voltage supplies and had linked the tariff to fuel costs. It was therefore open to the consumers to prove that applying the fuel variation mechanism without an adequate differential caused them to bear a disproportionate part of the supply costs. Lord Merriman likewise held that a fair distribution of costs between classes of consumer was relevant. Lord Keith agreed that proof should be allowed, although on the narrower ground that technical evidence might disclose a proper basis for comparison other than bare unit prices.
4. Recovery of overpayments. Per Viscount Kilmuir LC, a tariff charge which unduly discriminated against the consumers would be contrary to section 37 (8). Since the consumers had no practical alternative to payment until the court intervened, the Board could not retain the unwarranted excess. The court could estimate the amount by which the charge exceeded one that would have avoided undue discrimination. Lord Merriman and Lord Reid agreed that such overpayments were legally recoverable. The special remedial restrictions in the railway legislation did not establish a contrary general rule.
5. Later tariff and load factor. The majority held that the allegations concerning both the high-voltage differential and the omission of an annual maximum-demand option required factual investigation. The pleaded advantages of a stable, exceptionally high load factor and the alleged recognised tariff practice were sufficient to proceed to proof. Lord Reid and Lord Keith considered the load-factor claim irrelevant because it sought to require the Board to devise a different optional tariff rather than challenge an unlawful charge under the existing tariff.
6. Further relief. Viscount Kilmuir LC held that the Board had not shown that interdict was unavailable in the second action. The orders permitting proof before answer therefore remained in force.

1. House of Lords: Dismissed both appeals, leaving in force the orders for proof before answer. The second appeal was dismissed by a majority of three to two.
2. Second Division of the Court of Session: In the first action, recalled the Lord Ordinary’s interlocutor and allowed proof before answer on the declaratory and payment conclusions. In the second action, recalled the Lord Ordinary’s interlocutor, repelled the relevancy plea and allowed proof before answer.
3. Lord Ordinary: In the first action, allowed a limited proof before answer but otherwise dismissed the action. In the second action, sustained the relevancy plea on one matter and otherwise allowed proof before answer.
4. Earlier proceedings: The House of Lords had previously dismissed an appeal against an order allowing proof before answer. It held that “undue” in section 37 (8) of the Electricity Act, 1947 could signify excessive preference or discrimination, but declined to determine arguments not advanced below.