Severn Trent faces legal battle in US

WATER company Severn Trent, already under investigation by regulators over allegations of fraud against its customers, is facing similar claims in America, Financial Mail has established.

In one case, the company is accused of deliberate deception and fraud and is being sued for $32m (£17m). It has also lost municipal water contracts in Florida in a row over charges that ended in litigation.

Severn Trent Services, the company's US arm, has written off £70m in the past two years as a result of problems in the American business.

The $32m claim has been filed by Kevin Murphy, a New Hampshire businessman who sold his company Hydra-Stop to Severn Trent in 2000.

Ralph Hardesty, Murphy's lawyer, told Financial Mail that the claim involved allegations that Severn Trent had not paid Murphy all it owed him. The company, headed by chief executive Robert Walker until he becomes chairman of WH Smith at the end of February, said it is 'robustly defending' the action.

Severn Trent also had problems with contracts in Fort Myers, Florida, and Portland, Oregon. In Fort Myers, Severn Trent won a contract in 1999 to run water supplies, but it was cancelled after the Americans claimed that not all work charged for had been correctly carried out.

A Severn Trent spokesman said a settlement had been reached in which the municipal authority paid to terminate the contract. He added that the Portland dispute related to a computer contract.

Ofwat, the water services watchdog, is investigating accusations revealed in Financial Mail that Severn Trent exaggerated bad debts in Britain to justify bigger price rises.

The Serious Fraud Office is considering a file on the case and might launch its own investigation.