Waiver, full and final settlement of arrears and estoppel
As the supply of gas and electricity is covered by contracts, general principles of the law of contract may be applied to assist you. The legal principles are complex, but there is no reason why they should not be applied to arrears. Simply giving you time to pay off arrears does not deprive the supplier of the right to take recovery action for the debt, but other principles of contract law protecting you may apply.
In some cases, an energy company may be prepared to waive its rights to recover arrears, or remit a debt, either wholly or in part. A number of doctrines of contract law, including waiver, full and final settlement and estoppel may be of assistance to a consumer with arrears in seeking a solution. These principles have yet to be tested in relation to fuel supply contracts, but for information on the general principles see textbooks on the law of contract.
Legal advice should be sought before seeking a part payment or full and final settlement based on common law principles of contract; the law relates here to England and Wales and separate advice should be sought if considering settlement in Scotland.
In many cases, a supplier may prefer to reach a final settlement on arrears on commercial and economic grounds, rather than face the cost of recovery action through the courts for a debt. Under the small claims procedure of the County Court, a supplier will not be able to recover legal costs if the sum claimed is under £10,000. This often makes taking action through the County Court an uneconomic recovery option. The general attitude of suppliers is that they will issue court proceedings (including the magistrates’ court – see Chapter 9) to install a prepayment meter.
Some suppliers may be prepared to accept a one-off lump sum payment of arrears as settlement to a dispute. In contract law, parties may seek to be discharged of their obligations under an agreement by varying the terms and one party accepting a lesser payment. Many civil disputes are settled privately between parties without recourse to court action by entering into an agreement to conclude matters in a full and final settlement, rather than continue to court. The rules of court encourage parties to try to reach amicable settlements to legal claims, rather than using the court to settle disputes. There is no reason why reaching an agreement to pay a lesser sum as a full and final settlement to an energy debt should not be more widely used, as it is a common practice in other areas of commercial life.
Settlement by paying a lesser sum may be an option where you are in a position to switch supplier (although the successor company may be entitled to recover certain arrears if the debt is assigned, if a full and final settlement is not reached).
However, the legal rules can be quite complicated. Simply sending a small amount to an energy supplier is not sufficient to discharge arrears or a sum owed in interest.1Foakes v Beer [1881-85] All ER 106; Pinnel’s Case (1602) 5 Co Rep 117 The supplier is still lawfully entitled to recover the money, unless some benefit is derived from the terms you may offer to the energy supplier, along with the part-payment.
For part-payment to represent a settlement, the supplier must formally agree to waive its right to recover any sums in return for accepting a lump sum or by agreeing to relinquish some obligation upon itself, such as the requirement to read a meter or investigate a complaint. Alternatively, you might agree to a prepayment meter, varying the terms of an existing contract, in return for the supplier accepting a lesser sum in full and final settlement of the existing arrears. Where a supplier threatens legal action, it may be possible to reach a settlement whereby you make part-payment of the money owed in return for the supplier waiving its right to take legal action (thus saving itself the resources, time and expenses of litigation). You must make a clear offer to the supplier that you are willing to pay a smaller sum immediately towards clearing arrears and it is necessary for the supplier to agree and to waive the right of court action. Alternatively, the energy company may agree to waive its right to recover a sum in arrears if you have switched supplier. In some cases, you might agree to waive the right to issue a claim against the supplier, withdraw any existing claim issued against the supplier or to Ofgem for a breach of the licence conditions. In such a case, the supplier will have derived a benefit (ie, not being subject to a complaint or legal claim) and may agree to accept a lesser sum. The conferring of benefits on both you and company establishes a settlement to the debt.
Put forward your offer in open correspondence, in writing and clearly refer to acceptance being a full and final settlement of the sum and a waiver of further recovery action in future.
Any communications should be marked ‘full and final settlement’, including endorsing this on any final payment cheque and not be marked ’without prejudice’ to ensure that it is binding upon both parties.
Denise is a widowed pensioner who had been a customer of one supplier for many years. Before her husband died, he switched to a new supplier. The new company failed to read the meter and sent an estimated bill of over £1,000, which was carried over each quarter.
Efforts to negotiate proved fruitless, and letters went ignored. Denise contacted her previous supplier who had kept records of her good payment history. Denise paid sums she could afford, and repeatedly wrote to her new supplier offering to pay by instalments. No written response was forthcoming. The new supplier then threatened legal action to recover the arrears. On taking advice, she was recommended to make a payment of 10 per cent of the bill in full and final settlement. She sent a cheque for 10 per cent of the outstanding amount and the letter was clearly marked ‘cash this cheque only if you accept this sum in full and final settlement of the dispute’. She also endorsed the cheque ‘full and final settlement cheque’.
The new supplier cashed the cheque after Denise switched supplier, returning to her old energy company with whom she had a good payment record.
Four months after she returned to her old supplier, the new energy company presented her with a fresh demand. The letter in full and final settlement was cited in negotiations. It was argued that by cashing the cheque in response to the settlement letter the supplier had accepted the offer of settlement by Denise. Eventually the supplier agreed to waive recovery and wrote off the arrears when it emerged that it had not read Denise’s meter for over a year.
Disputes over whether a supplier has agreed to full and final settlement may come down to a dispute of fact where the energy company has accepted payment. Legal advice should be taken in such cases.
Front line staff may not be familiar with these principles, so you should seek to speak to the complaints handling team or a senior manager.
In some cases, a supplier may agree to forego the right to recover arrears for a period and not enforce a debt in return for a lesser sum in payment. During that period, the supplier cannot go back on the agreement and take action. What is known as the doctrine of ‘estoppel’ operates. This provides that where a person acts in reliance of a promise made on another, that other person cannot then break the promise and take enforcement action. For example, where a supplier agrees to grant a three-month suspension on paying arrears and you act accordingly, the supplier cannot demand the money in the three months. The supplier is said to be ‘estopped’ from taking action in the period.2Central London Property Trust v High Trees House Ltd  1 KB 1307. Switching supplier when you have arrears