Zockoll Group Ltd v Mercury Communications Ltd [1997] EWCA Civ 2317

EWCA-Civ
Zockoll Group Ltd v Mercury Communications Ltd
[1997] EWCA Civ 2317 · 1997-08-27

LORD JUSTICE SIMON BROWN:

I will ask Phillips LJ to give the first judgment.

LORD JUSTICE PHILLIPS:

This is an appeal by the Plaintiffs, "Zockoll" against an Order made by the Vice -Chancellor, Sir Richard Scott, on the 14th April 1997. By that Order he dismissed an application by Zockoll for an interlocutory injunction restraining the Defendants, "Mercury" from withdrawing from Zockoll the use of a particular telephone number, 0500 354448. Immediately upon that Order being made, Mercury withdrew that number from Zockoll and assigned it to another of their customers, Manchester Flights Limited ("Manchester Flights"). This necessarily alters the form of interlocutory relief that Zockoll now seek. They invite this Court to grant a mandatory injunction ordering Mercury to withdraw the number from Manchester Flights and restore it to them.Leave to appeal was sought and granted in respect of a single ground of appeal. Zockoll argued before the Vice-Chancellor that the withdrawal of the number would constitute a breach of contract by Mercury by reason of the provisions of Section 3 of the Unfair Contract Terms Act 1977. The Vice-Chancellor held that there was no arguable case that Section 3 applied. Zockoll challenge that finding and submit that, applying recently established principles governing this form of interlocutory relief, the number should be restored to them pending the determination of the issue of whether of not Mercury are contractually entitled to withdraw the number from them.

Background

When automatic dialling of telephone numbers first became possible, the dials of telephones were marked with both numbers and with letters, a group of three or four letters being attached to each number. This has remained the position in the United States, with the result that a telephonic address can there be described as a series of numbers, or of letters, or both. Where letters are used to describe a telephonic address these are, it seems, now described as alphanumerics. In a country where telephone key pads are marked with alphanumerics a telephonic address consisting of alphanumerics that make up a word has obvious appeal as being readily memorable and, in consequence, can enjoy a high commercial value, particularly if the word relates to the business of the owner of the telephonic address. In the United Kingdom the marking of telephone key pads with alphanumerics is by no means universal, and we are not yet accustomed to telephone addresses consisting of letters, or words, rather than numbers. Zockoll have, however, anticipated the development of the use of alphanumerics in this country and it is the significance of that anticipated development that lies behind Zockoll's application.Mercury is licensed under the Telecommunications Act 1984 to provide telecommunications services. In so doing Mercury allocates to its customers telephone numbers which are made available to Mercury by Oftel. These numbers fall into different categories. Most have a prefix 01, followed by a series of numbers which identify the geographic location of the telephone. A minority, known as Callink numbers, are non-geographic numbers with a distinctive prefix such as 0500 or 0645, which allow callers to make calls without incurring the normal charge rates. Typically a business will offer potential customers the facility to make a "Freephone" enquiry on one of these numbers, leaving the cost of the call to be paid for by the business. Where a Callink number has a memorable series of digits, such as 0500 123456, Mercury charge a premium for the supply of the number. Such numbers are referred to as "coveted" numbers. Where the number is particularly memorable ("a golden number") this premium can amount to £5,000 a year. For a less striking coveted number the premium is £1,000 a year. Where Callink numbers have no special numerical characteristics Mercury make a one-off set up charge of £100 per contract and thereafter charge no rental but look for their remuneration to the charges made in respect of the individual calls made to those numbers.

The contract

In December 1993 Zockoll entered into a standard form contract with Mercury for the provision of services on the Callink basis.50 ordinary Callink numbers were allocated under this agreement together with 3 coveted numbers. The former included the number which is the subject matter of this Action. The Standard Terms and Conditions to which the contract is subject make the following provisions in relation to the subject matter of the agreement.

"4. MERCURY'S OBLIGATIONS

Mercury agrees to provide the Service to the Customer upon the terms and conditions contained in this Agreement.3. THE CUSTOMER'S OBLIGATIONS...3.2 Use of ServicesThe Customer undertakes to use the Services in accordance with such conditions as may be notified in writing to the Customer by Mercury from time to time and in accordance with the relevant provisions of the Act, the Mercury Licence, any direction of the Director General of Telecommunications or other competent authority and any licence granted thereunder which governs the running of a telecommunications system by the Customer..."1 DEFINITIONS...q) Service(s) means the service specified by the Customer overleaf and as more particularly described in Mercury's Service Literature and as modified or substituted from time to time to be provided by means of the Mercury System."Apart from specifying the quantity of numbers to be supplied, the contract itself gives no details of the services to be provided. Mercury's Service Literature is not before the court. It is plain, however, that the services to be provided include the transmission of telephone messages to the numbers in question.Clause 2 of the contract deals with its duration and includes the following provisions:
"2.1 This Agreement shall come into force on the date of acceptance by Mercury and shall continue subject to the terms hereof unless terminated by either party giving to the other not less than 3 months prior written notice to expire at the end of the Initial Period or at the end of any month thereafter.
...2.3 Notwithstanding the provisions of Condition 2.1, the Customer shall have the right to terminate this agreement during the Initial Period on serving not less than three months' prior written notice on Mercury, subject to the payment by the Customer of the applicable Cancellation Charge in respect of the relevant Services....2.5 Notwithstanding anything to the contrary express or implied elsewhere in this Agreement Mercury (without prejudice to its other rights) may terminate this Agreement forthwith in the event that:"and various specific events are thereafter set out.The most important clause in the context of this appeal is Clause 8, which provides:

"8. ALLOCATION AND USE OF TELEPHONE NUMBERS

8.1 It is hereby acknowledged that the telephone number(s) allocated by Mercury to the Customer as part of the Agreement do not belong to the Customer and Mercury shall be entitled at its sole discretion at any time to withdraw or change any telephone number used by the Customer on giving the Customer reasonable notice in writing. The Customer accepts that it shall acquire no rights whatsoever in any telephone number allocated by Mercury and the Customer shall make no attempt to apply for registration of the same as a trade or service mark, whether on its own or in conjunction with some other words or trading style."Zockoll's business.The Zockoll group of companies specialises in franchising. In his affidavit of the 3rd April 1997, Zockoll's Chairman, Mr James Zockoll, described franchising as follows:
"Franchising involves the licensing of a successful and established business format. It combines the local market knowledge, entrepreneurial skills, and investment of franchisees with the proven product or service, brand, operating system and network support provided by franchisors."
Mr Zockoll appreciated that, if the concept of alphanumerics were to become established in the United Kingdom, anyone with the contractual right to use a telephone address that suggested a particular trade or business - e.g. "0500 PLUMBER" - would be in a position to franchise the use of this "generic phonename" to selected participants in that trade or business. Pursuing the example, any request for plumbing services telephoned to "0500 PLUMBER" could be routed to the nearest franchisee to the source of the call. Variations on this theme would be possible to the owner of an attractive alphanumerical number.Mr Zockoll's appreciation of the potential for exploiting alphanumerics was not, it seems, shared by the companies licensed to provide telecommunications services. Mr Zockoll formed a company as a subsidiary to Zockoll called Phonenames Ltd to exploit this potential. Zockoll proceeded to acquire from both British Telecom and Mercury a very large number of "choice genetic phonenames for services, products and companies". Those acquired from Mercury number, in total, approximately 3,000. The contract to which this Action relates was but one of a number by which Zockoll acquired the right to use the numbers that could be converted to these phonenames. The particular number that is the bone of contention, 0500 354448, converts into the phonename "0500 FLIGHTS" (the addition of the final, surplus, "S" will not affect the efficacy of the dialling) and has obvious potential appeal to any undertaking involved in the travel business.Zockoll claim to have devoted considerable energy and no little expenditure in seeking to arouse awareness and interest in the potential of alphanumerics in this country, but as yet to little avail. Nonetheless, advertisements are beginning to appear in which customers are invited to telephone a phonename rather than a number, and Zockoll purport to be confident that their investment will, in due course, prove profitable. So far as "0500 FLIGHTS" is concerned, Mr Zockoll deposed on the 15th August 1977 that this "is a golden number which I would wish to licence to many travel agents all over the UK in a licensing or franchising network". To date, however, nearly 4 years after Zockoll acquired the use of that phonename, they have succeeded in making little use of it. In the 6 months commencing with August 1996 the maximum monthly earnings of Mercury from calls made to that phonename were £45.The withdrawal of the number.On the 7th March 1997 Mercury wrote to Zockoll as follows:
"Mercury have been requested by one of our customers to provide them with the number above. They are guaranteeing extensive usage of this number and as Zockoll's use of this number is very low, i.e. less than £50.00 over the last six months, Mercury are exercising their right to withdraw the number.
...If you require another number as a replacement, please let me know and I will try to accommodate your request."Zockoll replied on the 14th March, and their letter summarises their contention as to the overall merits of this case as follows:
"... Mercury, have been kept well informed of our development plans. Mercury was well aware that our phonename concept was dependent on the time it would take to get the letters introduced on to the keypads of new telephones. When we started only 3% of the phones had letters on the key pads and now that figure is now at 30% with 80% of the phones coming off the assembly lines having an international standard key pad. Phonenames played a major part in bringing the alphanumeric concept to the attention of the phone manufacturers and suppliers. If Mercury had accepted our offers of a presentation they would have seen the amount of time, effort and money that had been invested.
Mercury was told as early as 1993 that there would be little or no usage on any of our 0500 numbers until such time as the alphanumeric market had been developed. It is on record that, at one of our meetings, I specifically asked Mercury to help contribute some finance to help generate the alphanumeric awareness to the consumer. After all Mercury would be the greater beneficiary as they hold the majority of numbers. This was rejected and Mercury declined to make any financial investment with Phonenames for this development. For Mercury now to threaten to take back one of our numbers, after having sat on the sidelines for the past 3½ years, and to give this particular ´jewel' phonename to a third party to benefit considerably as a result of our investment, is outrageous."Zockoll's application for an interlocutory injunction followed swiftly, and Mercury delayed the transfer of the FLIGHTS number to Manchester Flights until the rejection of the application by the Vice-Chancellor.Events since the Vice-Chancellor's Order.Each party has, with the leave of the Court, filed evidence of events since the transfer of the FLIGHTS number took place. Briefly summarised, Mercury have shown that in the month beginning the 18th August 42,949 calls were made to that number, of which 24,240 were answered. Mercury rely on this to demonstrate that they acted reasonably in transferring the number to a customer who would make vigorous use of it, thereby procuring for Mercury income which they were not enjoying while the number was reserved, infructuously, for Zockoll.Zockoll contend that any user of the number made by Manchester Flights is not attributable to its alphanumeric attraction, for Manchester Flights have been advertising the number numerically rather than alphanumerically, so that they would have been in exactly the same position had they been allocated any random number.Is there an arguable claim for breach of contract?In withdrawing the FLIGHTS number from Zockoll Mercury purport to have exercised the right expressly conferred by Clause 8(1) of their Standard Conditions. It is Zockoll's case that Mercury were precluded from acting as they did by Section 3(2) of the Unfair Contract Terms Act 1977. That Section provides, insofar as material:
"As against that party, the other cannot by reference to any contract term - (a) ... (b) claim to be entitled - (i) to render a contractual performance substantially different from that which was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all,except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness."This Section will only avail Zockoll if:

(i) Clause 8(1) is unreasonable and

(ii) Mercury's action in reliance upon that clause will have the effect of rendering their contractual performance substantially different from what was reasonably expected of them when the contract was concluded or, indeed, of rendering no performance at all of all or part of their contractual obligation.In contending that Zockoll have an arguable case that these requirements are satisfied, Miss Heilbron Q.C. has founded her argument largely on an unreported decision of this Court in Timeload Limited v. British Telecommunications PLC (Transcript 30th November 1993). The facts of that case were as follows:Timeload contracted with British Telecom for the use of what might be described as a golden BT Freephone number: 0800 192192. That number was golden because 192 is generally known and remembered to be the number for Directory Enquiries. Timeload used this number to provide a contact service. Anyone seeking professional or commercial services could phone Timeload who would then refer the enquiry to one of the providers of the service in question on Timeload's register. Timeload's remuneration was obtained by charging for entry on its register.BT gave notice of withdrawal of this number from Timeload, purporting to be exercising a right conferred by Clause 18.1 of their Standard Conditions, which provided:
"Termination of service by notice. At any time after service has been provided this contract or the provision of any service or facility under it can be ended.

(1) by one month's notice by us; or

(2) by seven days' notice by you."

Timeload sought and obtained an interlocutory injunction against the withdrawal of the number, and BT appealed against the grant of that injunction. One argument raised by Timeload and accepted by the Judge as arguable was that BT's conduct ran foul of Section 3(2) of the 1997 Act.On the question of whether this proposition was indeed arguable, Sir Thomas Bingham MR said (at page 13 of the transcript):
"The argument accordingly turns on section 3(2)9b) and that I find more difficult. Mr Hobbs submits that the subsection cannot apply where, as here, the clause under consideration defines the service to be provided and does not purport to permit substandard or partial performance. He says that the customer cannot reasonably expect that which the contract does not purport to offer, namely enjoyment of the telephone service under a given number for an indefinite period. That may indeed be so, but I find the construction and ambit of this subsection by no means clear. If a customer reasonably expects a service to continue until BT has substantial reason to terminate it, it seems to me at least arguable that a clause purporting to authorise BT to terminate without reason purports to permit partial or different performance from that which the customer expected. If, however, section 3(2) does not in its precis terms cover this case, I do not myself regard that as the end of the matter. As I ventured to observe in Interfoto Picture Library Limited v Stiletto Visual Programmes Limited [1989] QB 433 , 439, the law of England, while so far eschewing any broad principle of good faith in the field of contract, has responded to demonstrated problems of unfairness by developing a number of piecemeal solutions directed to the particular problem before it. It seems to me at least arguable that the common law could, if the letter of the statute does not apply, treat the clear intention of the legislature expressed in the statute as a platform for invalidating or restricting the operation of an oppressive clause in a situation of the present, very special, kind. I say no more than that there is, I think, a question here which has attracted much attention in Commonwealth jurisdictions and on the continent and may well deserve to be further explored here."
Zockoll's attempt to rely upon this decision in the court below was unsuccessful. The Vice-Chancellor held that there was the following significant distinction between that case and this (page 13 of the judgment):
"... the agreement between Timeload and BT involved only one number. The withdrawal of the number necessarily involved termination of the contract. In the present case, there are 53 numbers allocated under the contract in question. The power that has been exercised by Mercury is not the termination power conferred by para.2 but the power to withdraw any number allocated under the agreement, a power conferred by para.8.1. There are other factual differences between the Timeload case and the present case."
As to reliance on the 1977 Act, he said (at page 16):
"I can see no reasonably arguable basis for alleging that in this case there has been a breach of contract by Mercury in withdrawing the 0500 354448 number. Accordingly, issues regarding the adequacy of damages and balance of convenience do not, in my judgment, arise. Those are matters which it seems to me, on the arguments I have heard, are fairly balanced between the two sides. If, however, all that there is between the parties is a question of the length of notice that ought to have been given to qualify with the reasonable notice requirement, then in my view the balance of convenience would fall firmly against the grant of an interlocutory injunction. I can see that something more than a 14 days notice might reasonably be argued for. Whether the argument would succeed would depend upon a number of issues and the examination of all the facts of the case. I cannot contemplate, however, that the requisite notice would be more than, at most, six months. The difference between a 14-day notice and a six-month notice would be something that could be dealt with by damages. I do not myself think the amount could be very great, since the ability of Zockoll to achieve a worthwhile commercial exploitation of these alpha-numeric numbers seems still to be some distance away."
Miss Heilbron argued that the significant features in Timeload are equally to be found in the present case and that the Vice-Chancellor fell into error in drawing a distinction between the two. In particular:1) In each case the customer required a specific telephone number or numbers for a specific purpose of which the supplier was made aware when the contract was concluded.2) In each case, the contract made provision for termination for specified causes.3) In each case the supplier claimed to be entitled to withdraw numbers under an additional clause which purported to permit this with or without good reason.4) In each case the withdrawal would defeat the very object for which the customer had entered into the contract.For Mercury, Mr Michael Douglas Q.C. argued that the Vice-Chancellor had been correct to distinguish the present case from Timeload. He relied particularly upon two grounds of distinction:1) The right to withdraw a number under Clause 8(1) was subject to a requirement to give reasonable notice. That rendered it impossible to contend that the clause was unreasonable. The length of notice would necessarily be tailored to the extent needed to render operation of the right of withdrawal reasonable. In an extreme case this might require as much as ten years' notice to be given.2) Mercury had withdrawn only one number out of 53 covered by the contract. It was impossible to contend that this rendered contractual performance "substantially different" from what was reasonably expected or that it "rendered no performance at all" in respect of part of Mercury's contractual obligation.I appreciate the force of both these arguments, but they do not persuade me that they necessarily lead to the conclusion thatSir Thomas Bingham's observations in Timeload have no application to the present case. If Zockoll are correct, Mercury have stood by and allowed Zockoll to invest millions in building up a market for alphanumerics in the hope and expectation of being able to make very profitable use of numbers provided by Mercury. One of the numbers with the most obvious potential value is the FLIGHTS number. Mercury has now claimed to be entitled to remove that number on 14 days' notice and before the stage has been reached when Zockoll could, or could reasonably have been expected, to use the number for the purpose for which it was acquired. It seems to me arguable that this conduct has rendered performance of the contract substantially different from what had been reasonably expected, or has resulted in non-performance of part of the contractual obligation. Nor would it be right to ignore the Master of the Rolls' observations on the potential operation of the common law.I turn to the submission that the requirement for reasonable notice renders Clause 8(1) a reasonable clause. That is an unattractive submission from a Defendant who has purported to give but 14 days' notice of withdrawal. If correct, the submission would seem to lead to the conclusion that, in the case of numbers acquired by Zockoll in order to benefit from the anticipated future adoption of alphanumeric telephone addresses in this country, notice of withdrawal of a number should be sufficiently lengthy to enable them to achieve this benefit. Such a conclusion might defeat a claim based on the 1977 Act, but it would open wide the door to a much simpler claim for breach of the notice requirement in Clause 8(1).For these reasons I do not accept that Zockoll have no reasonably arguable case that Mercury are in breach of contract such as canproperly found an application for interlocutory relief. At the same time I cannot accept Miss Heilbron's submission that the Court can "feel a high degree of assurance" that, at the trial,it will be established that a mandatory interlocutory injunction was appropriate. Mr Douglas has satisfied me that, while Zockoll have an arguable case, there are nonetheless substantial issues both of fact and law that will have to be resolved. If a note in the current Supreme Court Practice is correct, this is an impediment to the relief that Zockoll seek, but Miss Heilbron has submitted that the note in question does not reflect the current law.The approach to an application for a mandatory interlocutory injunction.The note at O.29/1/5 of the White Book ends with a paragraph that begins:
"The Cyanamid guidelines are not relevant to mandatory injunctions. The case has to be unusually strong and clear before a mandatory injunction will be granted at the interlocutory stage even if it is sought in order to enforce a contractual obligation."
This note is consistent with the statement of Megarry J. in Shepherd Homes Ltd. v. Sandham [1971] 1 Ch 340 at 351 that:
"... on motion, as contrasted with the trial, the court is far more reluctant to grant a mandatory injunction than it would be to grant a comparable prohibitory injunction. In a normal case the court must, inter alia, feel a high degree of assurance that at the trial it will appear that the injunction was rightly granted; and this is a higher standard than is required for a prohibitory injunction."
The note in the White Book is also consistent with the comment made by Mustill L.J. in relation to that statement by Megarry J. in Locabail Finance Ltd. v. Agroexport [1986] 1 WLR 657 at p. 664:
"It was pointed out in argument that the judgment of Megarry J. antedates the comprehensive review of the law as to injunctions given by the House of Lords in American Cyanamid Co. v Ethicon Ltd. [1975] AC 396 but to my mind at least, the statement of principle by Megarry J. in relation to the very special case of the mandatory injunction is not affected by what the House of Lords said in the Cyanamid case."
The note in the White Book continues, however:
"... where it is necessary that some mandatory order has to be made ad interim the Court will make the order whether or not the high standard of probability of success at trial is made out ( Leisure Data v. Bell [1988] F.S.R. 367)."
In Leisure Data Dillon L.J. also referred, at p. 372, to the statement of Megarry J. He went on to observe:
"The statutory authority, however, for the grant of mandatory and prohibitory injunctions stems alike from section 37 of the Supreme Court Act 1981. The court is required, as Lord Diplock pointed out in N.W.L. Ltd. v Woods [1979] 3 All E.R. 614 at 625, to give full weight to the practical realities of the situation and weigh the respective risks that injustice may result from a decision one way or another."
Later in the same case at p. 376 Neill L.J. referred, with approval, to the statement of Eveleigh L.J. in Cayne v. Global Natural Resources [1984] 1 All E.R. 225 at 233 that the broad principle is "...what can the court do in its best endeavour to avoid injustice?" and to the statement of May L.J. at p. 237 in the same case that "the ´balance of the risk of doing an injustice' better describes the process involved".These observations in Leisure Data were consistent with the conclusions of Hoffman J. in Films Rover Ltd. v. Cannon Film Sales Ltd. [1987] 1 WLR 670 at 680. These were not cited to the Court, but were subsequently to be approved by Lord Jauncey in Factortame No. 2 [1991] 1 AC 603 at p. 683 and were relied upon by Miss Heilbron as representing the current state of the law:
"The principal dilemma about the grant of interlocutory injunctions, whether prohibitory or mandatory, is that there is by definition a risk that the court may make the ´wrong' decision, in the sense of granting an injunction to a party who fails to establish his right at the trial (or would fail if there was a trial) or alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been to have been ´wrong' in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle.
The passage quoted is from Megarry J. in Shepherd Homes Ltd. v. Sandham [1971] Ch. 340, 351, qualified as it was by the words ´in a normal case', was plainly intended as a guideline rather than an independent principle. It is another way of saying that the features which justify describing an injunction as ´mandatory' will usually also have the consequence of creating a greater risk of injustice if it is granted rather than withheld at the interlocutory stage unless the court feels a ´high degree of assurance' that the plaintiff will be able to establish his right at a trial. I have taken the liberty of reformulating the proposition in this way in order to bring out two points. The first is to show that semantic arguments over whether the injunction as formulated can properly be classified as mandatory or prohibitory are barren. The question of substance is whether the granting of the injunction would carry that higher risk of injustice which is normally associated with the grant of a mandatory injunction. The second point is that in cases in which there can be no dispute about the use of the term ´mandatory' to describe the injunction, the same question of substance will determine whether the case is ´normal' and therefore within the guideline of ´exceptional' and therefore requiring special treatment. If it appears to the court that, exceptionally, the case is one in which withholding a mandatory interlocutory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel a ´high degree of assurance' about the plaintiff's chances of establishing his right, there cannot be any rational basis for withholding the injunction.In Shepherd Homes Ltd. v. Sandham , Megarry J. spelled out some of the reasons why mandatory injunctions generally carry a higher risk of injustice if granted at the interlocutory stage: they usually go further than the preservation of the status quo by requiring a party to take some new positive step or undo what he has done in the past; an order requiring a party to take positive steps usually causes more waste of time and money if it turns out to have been wrongly granted than an order which merely causes delay by restraining him from doing something which it appears at the trial he was entitled to do; a mandatory order usually gives a party the whole of the relief which he claims in the writ and make it unlikely that there will be a trial. One could add other reasons, such as that mandatory injunctions (whether interlocutory or final) are often difficult to formulate with sufficient precision to be enforceable. In addition to all these practical considerations, there is also what might be loosely called a ´due process' question. An order requiring someone to do something is usually perceived as a more intrusive exercise of the coercive power of the state than an order requiring him temporarily to refrain from action. The court is therefore more reluctant to make such an order against a party who has not had the protection of a full hearing at trial."I would concur with this passage as providing detailed guidance to the approach of the court when considering an application to grant a mandatory interlocutory injunction. A more concise summary, which I would commend as being all the citation that should in future be necessary, is the following passage in the judgment of Chadwick J. in Nottingham Building Society v. Eurodynamics Systems [1993] FSR 468 at p. 474:
"In my view the principles to be applied are these. First, this being an interlocutory matter, the overriding consideration is which course is likely to involve the least risk of injustice if it turns out to be ´wrong' in the sense described by Hoffmann J.
Secondly, in considering whether to grant a mandatory injunction, the court must keep in mind that an order which requires a party to take some positive step at an interlocutory stage, may well carry a greater risk of injustice if it turns out to have been wrongly made than an order which merely prohibits action, thereby preserving the status quo.Thirdly, it is legitimate, where a mandatory injunction is sought, to consider whether the court does feel a high degree of assurance that the plaintiff will be able to establish this right at a trial. That is because the greater the degree of assurance the plaintiff will ultimately establish his right, the less will be the risk of injustice if the injunction is granted.But, finally, even where the court is unable to feel any high degree of assurance that the plaintiff will establish his right, there may still be circumstances in which it is appropriate to grant a mandatory injunction at an interlocutory stage. Those circumstances will exist where the risk of injustice if this injunction is refused sufficiently outweigh the risk of injustice if it is granted."These are the principles to be applied to the facts of the present case.The facts.Manchester Flights' involvement.When the Vice-Chancellor rejected Zockoll's application for an interlocutory injunction he also rejected an application for leave to appeal and refused a request by Zockoll to seek an undertaking from Mercury not to withdraw the FLIGHTS number from Zockoll pending an application to this Court for leave to appeal. The following day Mercury disconnected the number from Zockoll and entered into an agreement with Manchester Flights on terms similar to their agreement with Zockoll. Manchester Flights had assured Mercury that they wished, in contrast to Zockoll, to proceed at once to make use of the number, to the benefit of Mercury.Mr Velissarides, Mercury's marketing manager, has stated on affidavit that, on the basis of recent dealings with Manchester Flights, he believed that if Mercury did not transfer the number promptly to Manchester Flights, Mercury would lose this business opportunity and that, accordingly, Mercury transferred the number immediately after the rejection by the Vice-Chancellor of Zockoll's application. Zockoll lost no time in informing Manchester Flights of their intention to apply for leave to appeal, and Manchester Flights were further informed of the result of that application and of the date of this hearing. They have not, as they could have done, applied to intervene in these proceedings.Each party has, with the leave of the Court, adduced evidence of the use made by Manchester Flights of the FLIGHTS number. This evidence is not significantly in conflict. Manchester Flights have advertised their services with reference to the FLIGHTS number, both in yellow pages and teletext but, subject to an insignificant exception, they have advertised the conventional numerical version of the number rather than the alphanumerical version. In the light of evidence provided by Mr Zockoll, Zockoll's chairman, this is not surprising. In an affidavit sworn on the 15th August 1997 he stated:
"In assessing the usage of an alpha numeric number, it is vital to remember that at present, less than 10% of the telephones in the UK have a letter keypad, according to the Henley Report 1994, which has been confirmed to me by Alan Pridmore of OFTEL. Thus only those with such keypads could currently use an alpha numeric number. Effective advertising would, therefore, have to be directed to the numerical number in order to attract custom."
Manchester Flight's advertisement of the number has resulted in the substantial user of it that I detailed earlier in this judgment.In the absence of any evidence from Manchester Flights, I draw the following inferences from these facts:1) Manchester Flights had no commercial need to acquire a Mercury Freephone number for conventional numerical advertising. They already had the benefit of a BT Freephone number and there is nothing to suggest that they had anything to gain by using, in addition or substitution, a Mercury number.2) The reason that Manchester Flights wished to acquire the FLIGHTS number was because they appreciated the potential value of the alphanumerical version of the number at such future time as the use of alphanumerics should become established in this country.3) The offer by Manchester Flights to make significant immediate use, which was inevitably conventional numerical use, of the FLIGHTS number was made by way of incentive to induce Mercury to transfer the number to them.4) Manchester Flights were at all material times aware of Zockoll's claim to contractual entitlement to this number.5) There was no urgent commercial need for Manchester Flights to have the FLIGHTS number transferred to them.6) There was no reasonable basis for Mr Velissarides' belief that, if the FLIGHTS number was not immediately transferred to Manchester Flights, that company would lose interest in it.What significance do these facts have? Miss Heilbron's submission was that the transfer of the number to Manchester Flights was, or in the absence of evidence from that Company should be treated as having been, a tactical move to improve Mercury's prospects on this appeal, and that the transfer and its consequences should be disregarded for the purposes of this hearing. I would not go that far. The transfer to Manchester Flights was an action that was perfectly proper having regard to Zockoll's failure to obtain any holding order or undertaking pending their application for leave to appeal. But at the same time, Manchester Flights' position cannot be given the same consideration as if they had contracted with Mercury bona fide and without notice of Zockoll's rival claim to the number. Had that been the case, this Court would, I believe, have hesitated long before ordering interlocutory relief which would have required Zockoll to break their contract with Manchester Flights. As things are it seems to me that the Court should simply consider the practical implications to Manchester Flights, as well as to Mercury and to Zockoll of the grant and the refusal of the mandatory interlocutory injunction that Zockoll seek.The reasons advanced by Mr Zockoll for seeking interlocutory relief, as set out in one of his affidavits, are as follows:
"... 1. The loss of 0500 FLIGHTS to another subscriber for any length of time would be once and for all. An alphanumeric is a marketing tool. It is important the number is reconnected to Zockoll as soon as possible before ´0500 FLIGHTS' becomes too closely associated with one of Zockoll's competitors.
2. The Plaintiff cannot run its business and make deals with potential franchisees and licensees while the threat of de-connection of any number without cause hangs over them. Zockoll's entire business must be put on hold if it seems that Mercury can take back numbers at its whim. The Plaintiff can operate in an environment of losing a number if it breaches the Agreement, but it is impossible to run the business not knowing when or whether the number will be taken away from it.3. If Mercury can reclaim numbers from Zockoll pending a hearing of our appeal, then the Plaintiff fears it is likely that other numbers, especially its most valued ones, will quickly follow 0500 FLIGHTS as other potential competitors and customers of Zockoll realise the fast increasing potential for the use of alphanumerics and that the numbers can be obtained cheaply by simply asking Mercury to withdraw the numbers from Zockoll.4. In short, Zockoll's business, which it has built up over three and a half years of heavy investment, management commitment and hard work, will quickly crumble if its core assets, the most valuable alphanumerics, are stripped away. I would emphasise that the Plaintiff for 35 years has been in the business of franchising and it is only the jewels like 0500 FLIGHTS that can be franchised.5. By contrast, the only loss which Mercury may suffer if they are prevented from connecting the number to another customer is the short-term cashflow from line usage generated by the other customer. This sum is easy to calculate and is eminently compensatable in damages."As to the first of these points, Miss Heilbron sought to persuade us that there was a significant danger that the FLIGHTS number would become tarnished by association with Manchester Flights so that its potential value to Zockoll would be lost once and for all. In the four months that have elapsed between the Vice-Chancellor's order and this hearing it is Zockoll's evidence that this has not occurred. In his affidavit of the 15th August Mr Zockoll says this:
"... there is no evidence before the Court that Manchester Flights have achieved a brand awareness with the alpha numeric number or have incurred any significant expenditure in advertising. Mercury's evidence as to usage of the number and revenue generated does not support any direct relationship between revenue earned and use of the alpha numeric number. It appears likely, given all the above factors, that the alpha numeric number as a source of revenue has been minimal."
Miss Heilbron has valiantly attempted to persuade us that if we refuse interlocutory relief, this may prove to be the signal that Manchester Flights have been waiting for to seek to promote a general association of the phonename FLIGHTS with their Company. I can see no reason to anticipate any such scenario. If the Vice-Chancellor's decision that Zockoll had no arguable case was not enough to encourage such activity, I cannot see why this court's decision should encourage a change of attitude by Manchester Flights, pending the substantive trial. The reality seems to me that until substantially more telephones are equipped with alphanumerical keypads, neither Manchester Flights nor Zockoll are likely to seek or to be able to promote public recognition of the phonename FLIGHTS. Provided that the substantive trial takes place before that point is reached, it will be of little moment whether the right to use that phonename is meanwhile vested in Manchester Flights or Zockoll.Allied to this point has been a fear expressed by Miss Heilbron that, in the interval between this hearing and the trial, events may take place which will strengthen Mercury's case for opposing a mandatory injunction. As to that, Mr Douglas has conceded that his clients could not fairly seek to take advantage on the substantive hearing of any change in the situation attributable to their having successfully resisted interlocutory relief.The 5th point made by Mr Zockoll is something of an oversimplification. If Manchester Flights are, at this point, deprived of the FLIGHTS number, not only are Mercury likely to lose the revenue that they are currently enjoying as a consequence of Manchester Flights' use of that number, but they will be at risk of facing a claim for damages by Manchester Flights. The precise nature of such a claim is not clear. When the consequences of granting the mandatory injunction sought were explored in evidence, Miss Heilbron accepted that some form of transitional arrangements would need to be introduced to accommodate the fact that Manchester Flights have now built up a substantial user of the numerical form of the FLIGHTS number. These complications weigh, and in my judgment weigh quite significantly, against the grant of the interlocutory relief that is sought.It is my belief that points 2, 3 and 4 advanced by Mr Zockoll provide the principal motivation for this interlocutory battle. They are points with which I have considerable sympathy. They are not, however, points which would be resolved were this Court to grant the interlocutory order sought. There is no basis for believing that the grant or refusal of interlocutory relief is likely to have a significant effect on the credibility of Mr Zockoll's alphanumerical enterprise. Certainly there is nothing to suggest that Mercury's resounding interlocutory success before the Vice-Chancellor resulted in any general prejudice to Zockoll. What it seems to me that Zockoll needs, and needs cogently, is a speedy substantive determination of whether or not clause 8.1 of the contract entitles Mercury to withdraw numbers from them at will. For the reasons that I have given, I do not consider that Zockoll have made out a case for an interlocutory mandatory injunction. I would, however, if so requested, grant them an order that the trial be expedited.

LORD JUSTICE SIMON BROWN:

I agree and wish to add only the briefest comments of my own on each of the two aspects of this appeal. 1. "Is there a reasonably arguable basis here for alleging that Mercury breached their contact with Zockoll by withdrawing the 0500 FLIGHTS number?" In common with my Lord, and in respectful disagreement with the Vice-Chancellor below, I think there is. Miss Heilbron's preferred way of putting Zockoll's case is on the Timeload analogy. There are, of course, differences between the two cases but none, she submits, which serve to distinguish them in principle when it comes to the application of section 3(2)(b) of the Unfair Contract Terms Act 1977.Mr Douglas' most persuasive argument for such a distinction is to my mind that which fixes upon the requirement under Clause 8(1) for any notice of withdrawal to be reasonable. How, he asks rhetorically, can it be inherently unreasonable to give a power to withdraw a number which by definition can only be withdrawn on reasonable notice? With the best will in the world however, that seems to me to leave intact Zockoll's central case. This is that it was unfair and unreasonable for Mercury to withdraw this particular number at two weeks' notice, a period eventually extended to five weeks, or indeed to withdraw it at all within a period to be measured in years rather than merely weeks.This is a number whose alphanumeric potential Mercury knew Zockoll were intent upon exploiting and in which they had made a considerable commercial investment. Mercury withdrew it expressly so as to transfer it to another operator, Manchester Flights, whose only possible interest in acquiring it can have been so as themselves to exploit its alphanumeric use. Whether that involves "a contractual performance substantially different from that which was reasonably expected" of Mercury or the giving of an unreasonably short period of notice appears to me little to the point; or rather it is essentially a pleading point.2. "Were does the balance of convenience lie?" or, to my mind the preferable formulation of this issue:
"Which course carries the lower risk of injustice?"
On this issue I confess to having had somewhat more hesitation than my Lord in reaching ultimately the same conclusion. For this reason. Had Mercury not, immediately following their success before the Vice-Chancellor, transferred this number to Manchester Flights I think that given our view on issue 1 the justice of the case would have required that Mercury be enjoined against doing so. Although Mercury were undoubtedly entitled to have acted as they did in this matter, their conduct to my mind reflects little credit upon them. No doubt discovery in the action hereafter will illuminate the precise circumstances in which they came to effect this speedy transfer, but for the present I find less than convincing Mr Velissarides' explanation for the urgency with which Mercury acted: to ensure, so he suggests, that it did not lose its commercial opportunity with Manchester Flights. For my part I can see no possible reason why Manchester Flights required this number as a matter of urgency. As my Lord has explained, save only perhaps to get their foot in the alphanumerical door, they could not hope to exploit its commercial potential for some time to come.In short, Mercury's conduct seems to me to fall readily into the character of stealing a march on Zockoll with regard to the outcome of this appeal (see in this regard Shepherd Homes Ltd. v. Sandham [1971] 1 Ch 340 at 349 C-D and the citation from Halsbury's Laws to be found approved in Locabail International Finance Ltd. v. Agroexport [1986] 1 WLR 657 at 663H). To that extent, the changes in the situation that Mercury's conduct brought about should, in my judgment, be substantially discounted. Nevertheless, for the reasons given by my Lord, discount them though one may, these changes cannot be wholly disregarded and in the end they seem to me to tip the balance given these two central further considerations: first, that this action plainly now cries out for early trial and, second, that in the meantime Zockoll can demonstrate no persuasive case for asserting any real damage at all.In the result, I too would dismiss the appeal and refuse to grant the interlocutory mandatory injunction sought. I have no doubt, however, that this is a case in which an expedited trial must be afforded.

Order

Applications allowed; appeal dismissed; trial be expedited; time estimate 5 days; to be heard if possible in first six weeks of fresh term; costs of the appeal be defendant's costs in the cause; directions to be agreed.

Cited in 1 later judgment