Consumer Council for Postal Services (Postwatch), R (on the application of) v Postal Services Commission & Anor [2005] EWHC 3163 (Admin)

Case No CO/1859/2005

[2005] EWHC 3163 (Admin)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

THE ADMINISTRATIVE COURT

Venue Royal Courts of Justice

Date Monday, 19th December 2005

Strand

London WC2

B E F O R E:

MR JUSTICE SULLIVAN

Between

THE QUEEN ON THE APPLICATION OF THE CONSUMER COUNCIL FOR POSTAL SERVICES (POSTWATCH)Claimant

-v-

Between

POSTAL SERVICES COMMISSIONDefendant

ROYAL MAIL GROUP PLCInterested Party

Computer-Aided Transcript of the Stenograph Notes of

Smith Bernal Wordwave Limited

190 Fleet Street London EC4A 2AG

Tel No: 020 7404 1400 Fax No: 020 7831 8838

(Official Shorthand Writers to the Court)

MR D PANNICK QC & MR M FORDHAM (instructed by MESSRS WRAGGE & CO) appeared for CLAIMANT

MR J CROW (instructed by TREASURY SOLICITORS) appeared for DEFENDANT

MR M BELOFF QC & MR P SAINI (instructed by MESSRS SLAUGHTER & MAY) appeared for INTERESTED PARTY

J U D G M E N T

Introduction

[1]MR JUSTICE SULLIVAN: In this claim for judicial review, the claimant, The Consumer Council for Postal Services ("Postwatch") challenges a decision by the defendant, The Postal Services Commission ("Postcomm"), contained in a letter dated 12th January 2005, not to take enforcement proceedings under section 22 of the Postal Services Act 2000, ("the Act") in respect of alleged breaches by the first interested party, Royal Mail Group PLC ("Royal Mail") of its licence conditions by a reason of Royal Mail's failure to comply with its Standards of Service Compensation Scheme ("the Scheme") determined by Postcomm on 7th October 2003.

[2]Postwatch contends that Postcomm and Royal Mail have misinterpreted paragraph 20(b) of the Scheme which is in these terms, so far as relevant:

"Bulk services - exclusions. 20. Royal Mail shall be under no obligation to provide compensation - ... (b) Where a sender is in default of credit terms without reasonable excuse ..."

[3]Postwatch further contends that if its interpretation of paragraph 20(b) is correct, Postcomm does not have power to decline to take enforcement proceedings under section 22 of the Act on the ground of "Regulatory fairness." The Parties

[4]Both Postcomm and Postwatch were established by the Act, see sections 1 and 2 respectively. The former is the independent regulatory body for the postal services industry in the United Kingdom and the independent national regulatory authority for the Postal Sector under the European Postal Services Directive 97/67/EC (as amended by 2002/39/EC) ("the Directive").

[5]The latter is the independent consumer organisation established to represent the interests of the users of postal services. Royal Mail is the designated provider of a universal postal service in the United Kingdom, pursuant to a licence granted by Postcomm under section 11 of the Act on 23rd March 2001 ("the Licence"). It is the universal postal service provider for the purposes of Article 4 of the Directive. The Licence

[6]Part 3 of the Licence is headed "Furthering The Interests Of Users Of Postal Services." Condition 4 is concerned with "Services standards of service and compensation." Part 1 deals with standards of service. It provides for minimum quality of service standards to be provided to users by Royal Mail, as set out in the Annex to Condition 4. The Annex sets out targets for each of the services provided by Royal Mail and requires Royal Mail to deliver a specified percentage of each type of mail within the time required. For example, for the year to the end of March 2004 92.5 per cent of first class mail should have been delivered the next working day. The setting of such standards is required by Article 16 of the Directive which provides:

"Member States shall ensure that quality-of-service standards are set and published in relation to universal service in order to guarantee a postal service of good quality."

[7]Part II of Condition 4 in the licence makes provision for a compensation scheme. Paragraph 10 requires Royal Mail to:

"... establish and at all times thereafter maintain a scheme to be known as the 'standards of service compensation scheme' for compensating users of postal services affected by failure to meet the quality standards applicable in accordance with the scheduled standards to any postal packet."

Paragraph 12(a) states that:

"The standards of service compensation scheme shall - (a) provide for the Licensee paying to any such person as is mentioned in paragraph 10 such compensation as may be specified in the scheme as being appropriate ..."

Article 19 of the Directive does not require Member States to adopt a scheme which includes provision for compensation, but they shall:

"... ensure that transparent, simple and inexpensive procedures are drawn up for dealing with users' complaints, particularly in cases involving... non-compliance with service quality standards... [and they] shall adopt measures to ensure that [such] procedures enable disputes to be settled fairly and promptly with provision where warranted, for a system of reimbursement and/or compensation."

Paragraph 13 in part II of Condition 4 in the licence deals with the terms of the scheme. If no terms have been agreed between Royal Mail and Postwatch, the scheme "shall be in such terms as may be determined in writing by Postcomm."

[8]Paragraph 15 provides that Royal Mail "shall meet its obligations under the [scheme]." Part III of Condition 4 deals with publication and modification.

(a) requires Royal Mail to:

"... publish the schedule of established services and standards, particulars of the standards of service compensation scheme... in such manner as will ensure reasonable publicity for them."

Royal Mail and Postwatch were not able to agree upon the terms of the standards of service compensation scheme, so the scheme was determined by Postcomm following a lengthy consultation exercise. The Decision Document

[9]The Determination is Appendix 1 to a Decision Document and Determination published by Postcomm on 7th October 2003. The summary at the beginning of the Decision Document explained its purpose:

"This is a decision document explaining a determination for a compensation scheme for delay by Royal Mail Group plc ("

Royal Mail") in the conveyance of letters and postal packets. Suggested schemes were previously discussed in the following consultation and decision papers issued by Postcomm • October 2002 A Proposals Document - Review of Consignia's Price and Service Quality Regulation: A Compensation Scheme. • February 2003 Final Proposals Document - Review of Royal Mail Group plc's Price and Service Quality Regulation. • March 2003 Licence Modification and Decision Document - Review of Royal Mail Group plc's Price and Service Quality Regulation, and • April 2003 A Compensation Scheme for Delays by Royal Mail - Supplementary Consultation on a Proposed Determination." The introductory chapter in the Decision Document explained its purpose in more detail:

"it explains the results from [the above] consultation documents."

[10]Having referred to Condition 4 and summarised the four stages of the consultation process, paragraph 1.9 said this in respect of the last round of consultation:

"Seven substantive responses were received and these respondents are listed below. Full published responses can be viewed on Postcomm's website at www.postcomm.gov.uk. These are summarised later in this document, under related headings, and material points raised are assessed."

[11]The decision document then summarised in Chapter 2 the main features of the scheme (see paragraph 2.1). The scheme distinguishes between compensation for delay for senders or recipients of "retail mail", typically a private individual posting items of mail (postal packets) in a postbox for delivery by Royal Mail; and compensation for delay by senders or "bulk mail", typically businesses posting larger numbers of postal packets under the terms of a contract with Royal Mail for one of the many types of service offered by Royal Mail to such users, for example Mailsort 1, 2 or 3, Pressstream 1 or 2, et cetera. By contrast with "retail mail" users who will pre-pay for Royal Mail services, "bulk mail users" may operate as account holders with Royal Mail and be afforded credit terms by Royal Mail.

[12]These proceedings are concerned with the scheme's provisions for compensating senders of bulk mail. Paragraphs 2.3 and 2.4 of the Decision Document explained:

"2.3 Compensation for delay for senders of bulk mail will be as follows. • Bulk mail services as listed in the Annex to Condition 4 of Royal Mail's Licence - compensation will be payable at a rate of 0.1 % of the customer's payments for the service in the year in question for each 0.1 % failure against the relevant service target in the event that Royal Mail fails to achieve a quality of service target by at least 1 %, subject to a payment ceiling of 5 %. • Claims - payment will be made on an automatic basis by Royal Mail no later than the end of the fourth month after Postcomm confirms its views of Royal Mail's performance figures for the year to which the quality of service target applies. "2.4 The provision for complaints and exceptions are similar to those for retail mail ... • Complaints - to be dealt with expeditiously. Where a claim cannot be settled it will be referred to Postwatch. • Exceptions to the scheme - include non-compliant mailings, force majeure (which does not include industrial action by Royal Mail staff), default of credit terms (without reasonable excuse), and delay caused by third parties over whom Royal Mail has no control."

Chapter 3 of the Decision Document dealt with the evidence necessary to support retail claims and Chapter 4 with whether compensation should be paid to recipients of delayed bulk mail. Chapter 5 dealt with "other response issues and assessment." Paragraph 5.1 explained:

"Many responses raised arguments discussed earlier in the consultation process. Where minor suggestions have been accepted, these have been incorporated into the final scheme for determination (attached). Where material points were raised, these are discussed below."

This format is consistent throughout the Decision Document: under a sub-heading which identifies the point being discussed, Postcomm summarises the material points made by the respondents to the final round of consultation, and then gives its own response.

[13]Under the heading "Method of payment to bulk mailers in arrears" paragraphs 5.41 and 5.42 said:

"5.41 Royal Mail requested that it should be able to 'net off' payments to bulk mailers against their accounts with Royal Mail if the bulk mailer were in debit. Postcomm's response. 5.42 Because this proposal fits with general commercial practice, Royal Mail will not be obliged to pay compensation where a sender is in default of credit terms, without reasonable excuse. Postcomm considers that a default outside a suitable industry standard, such as Royal Mail's suggestion of payment to terms 80 % of the time, would fall into this category as it should cover all issues which could be considered as a 'reasonable excuse' such [as] delays in receipt of an invoice, queries on the invoice and disputed services. Postcomm also considers it reasonable for Royal Mail to 'net off' any payments to bulk mailers against their accounts where a bulk mailer owes them money."

The Determination

[14]The Determination, Appendix 1 to the Decision Document, states that the terms of the scheme shall be the terms set out in the Annex to Appendix 1. Under the heading "Compensation to be provided by Royal Mail" paragraphs 1 and 2 say:

"1. Compensation shall be paid by Royal Mail Group plc ("

Royal Mail") in accordance with this Scheme to users of postal services provided by Royal Mail affected by failure by Royal Mail to meet the quality standards applicable to the conveyance of postal packets sent by services referred to in the Scheme. "2. This Scheme is intended to ensure that users of postal services receive compensation for delay in the conveyance of postal packets by Royal Mail." Paragraphs 3 to 13 deal with "Retail services - Nature and extent of compensation payments" in respect of such services, procedures for payment and exclusions.

(b) can be considered in its proper context:

"14. Compensation in accordance with paragraphs 14 to 17 of this scheme shall be payable by Royal Mail to senders of postal packets using the bulk mail services in respect of failure by Royal Mail to achieve the required standards of service for any of those services in any of the target years as set out in the Annex to Condition 4 of the Licence, by 1% or more. "15. The level of compensation to be paid to each user of each of the bulk mail services shall be calculated at the rate of 0.1% of their annual expenditure on that service in the year in question for each 0.1% failure by Royal Mail to achieve the standard for that service in that year, provided that compensation for any user for any service shall not exceed 5% of the user's expenditure on that service in that year. "16. Any expenditure on mailings that were not compliant with the terms and conditions of the contract for the relevant service shall be excluded from the annual expenditure used to calculate compensation payments. "17. Compensation payable for delays to bulk mail services shall be announced by Royal Mail no later than the end of a three month period after the date at which final adjusted and audited quality of service performance figures for the year to which the minimum target percentages apply are accepted by Postcomm. "18. Payment will be made by way of credit against future expenditure or, if requested by the user, by cheque and arrangements for payment shall be made (and cheques issued if required) within one month of the announcement of compensation payments. "19. ... "

Bulk services - exclusions. "20. Royal Mail shall be under no obligation to provide compensation - (a) where the event giving rise to the claim was caused by circumstances outside Royal Mail's control, including exceptionally severe weather conditions, acts of terrorism and vandalism and acts of third parties with whom Royal Mail has no contractual relationship, but excluding the failure of the employees, sub-contractors or agents of Royal Mail, to provide services to or for Royal Mail as a result of industrial action by them, (b) where a sender is in default of credit terms without reasonable excuse ..." Approach to Interpretation

[15]By the end of the hearing, it was apparent there was a large measure of agreement between the parties as to the approach to be adopted when interpreting the Determination, and in particular as to the extent to which extrinsic evidence was admissible as an aid to its interpretation. The parties were agreed, and I accept, that the Determination must be read as a whole, that it should be remembered that it is a scheme produced by an industry regulator and not an enactment, and that it should be construed in a common-sense and straightforward way and not in a legalistic or pedantic manner. It is important to bear in mind that the determination is not a private agreement between Postcomm and Royal Mail, it is a public document which confers rights to compensation upon ordinary members of the public - the users of retail services - as well as the users of bulk mail services.

[16]On behalf of Royal Mail, Mr Beloff QC submitted that Postcomm should be allowed some latitude in the way in which it interpreted its own regulatory scheme. He relied upon the following passage in the judgment of Sir John Donaldson MR in R v Take-over Panel, ex-parte Datafin plc (C.A.) [1987] Q.B. 815, at page 841 d to e:

"When it comes to interpreting its own rules [the panel] must clearly be given considerable latitude both because, as legislator, it could properly alter them at any time and because of the form which the rules take, i.e. laying down principles to be applied in spirit as much as in letter in specific situations. Where there might be a legitimate cause for complaint and for the intervention of the court would be if the interpretation were so far removed from the natural and ordinary meaning of the words of the rules that an ordinary user of the market could reasonably be misled."

I agree with the submission of Mr Pannick QC in reply on behalf of Postwatch that those observations of the Master of the Rolls were not intended to be of general application, and were a response to the particular features of that case: the Panel was a "truly remarkable body" which performed its functions "without visible means of legal support" (see page 824), the City Code on Take-overs and Mergers laid down principles, it was not directed to the general public, but to those in the City who were expected to comply with both the spirit and the letter of the Code. By contrast, the Determination is made by Postcomm, acting under its statutory powers, to determine the conditions on which licences shall be granted under section 11 of the Act (see section 13) and then to make determinations in accordance with the requirements of those conditions. The Determination does not purport to lay down general principles which must be observed in spirit, it prescribes, in some detail, the circumstances in which ordinary users of the postal service will or will not be entitled to receive compensation.

[17]In any event, this dispute is academic since Mr Beloff submitted that the court should place considerable weight upon a Regulator's explanation of its own regulatory scheme, if such an explanation has been provided. I agree. Although the court's task is to interpret the Determination, all the parties were agreed that it should not be considered in isolation, but in the context of the explanation provided in the Decision Document. The nearest analogy is perhaps the Ministerial Decision Letter determining an appeal, for example against a refusal of planning permission. The letter will set out the Minister's reasoning and conclude with the Minister's formal determination of the appeal. If the appeal is allowed and permission is granted, subject to conditions, then the Minister's reasoning, in the earlier part of the Decision Letter, may be used as an aid to interpreting the permission and the conditions, if there is any uncertainty as to their meaning.

[18]Although the Act does not require Postcomm to give reasons for its determination, it has chosen to do so and, in any event, the requirements of fairness would probably have obliged it to do so. Where a regulator has issued a public decision document with the express purpose of explaining a determination, the court should be slow to adopt an interpretation of the determination which is at odds with the regulator's explanation, and should do so only if the former cannot be reconciled with the latter. In that event, the formal determination must prevail.

[19]Subject to one matter raised by Mr Crow, on behalf of Postcomm, the parties were also agreed that extrinsic evidence, for example internal communications within Postcomm itself, or between Postcomm and Royal Mail were not admissible for the purpose of interpreting the Determination. I have no doubt that the parties were correct in adopting that approach. The Determination is a public document addressed to all mail users. It is one element of procedures which are intended to be "transparent, simple and inexpensive" (see Article 19 of the Directive).

[20]Any approach to interpretation which required ordinary mail users to do anything more than read the Determination with the assistance of Postcomm's explanation in the Decision Document, would be neither transparent nor simple and might well (depending upon the extent of historical investigation required) not be inexpensive. It is largely for these reasons that I do not accept Mr Crow's submission that it was permissible to look at the earlier consultation documents and perhaps even at the full text of the responses thereto in order to resolve any ambiguity in either the Decision Document or the Determination itself.

[21]There is a further reason why the mail user, seeking to understand the Determination, should not be required to investigate what was said in the earlier consultation documents and/or the responses thereto. On its face, the Decision Document purported to summarise the consultation process and to set out Postcomm's final position. Although it stated that full copies of the responses to the final round of consultation could be found on Postcomm's website, readers of the Decision Document would have had no reason to look at the full copies of the responses because paragraph 1.9 of the Decision Document had said that they were summarised later in the document "and material points raised [were] assessed." Paragraph 5.1 made it clear that where "material points" had been raised, they were discussed in Chapter 5. Since Postcomm had identified the points which it considered were material and then discussed them, there would be no sensible reason for a mail user to investigate further in an attempt to identify immaterial points that might have been raised to which Postcomm was not responding.

[22]In any event, the earlier consultation documents do not take the matter any further since, insofar as they deal with the issue at all, they merely repeat the phrase "in default of credit terms without reasonable excuse" without giving any explanation as to what it might mean. Since each consultation document states that it is summarising the responses to the consultation exercise, there would again be no reason to look at the full text of the responses even if it was appropriate to look at the consultation documents. While Royal Mail's responses explain its position, what matters from the point of view of the mail user seeking to understand the Determination is Postcomm's response to the views expressed by the consultees, including Royal Mail.

(b) The Rival Interpretations

[23]Postwatch submits that paragraph 20(b) is, in effect, a "net off" provision which enables Royal Mail to withhold compensation if a bulk senders' account is in default without reasonable excuse. When Royal Mail would otherwise be under an obligation to provide compensation under the Scheme, compensation may be withheld to the extent that the sender's account is in default.

[24]Postcomm and Royal Mail submit that the words "is in default of credit terms without reasonable excuse" refer to the bulk senders' credit performance over the target year in respect of which compensation has been calculated, and that whether a sender is "in default of credit terms without reasonable excuse" is to be determined, at least initially, by a reference to an 80/20 rule of thumb. If, over the target year, a sender has paid to terms 80 per cent of the time, it will be assumed that he has a reasonable excuse for the 20 per cent of payments in default. If, on the other hand, he has not paid to terms 80 per cent of the time, it will be assumed that he has no reasonable excuse for the default unless he provides evidence which demonstrates that he does, in fact, have a reasonable excuse, because for example large numbers of invoices were lost in the post.

[25]Moreover, Postcomm and Royal Mail contend that paragraph 20(b) is not a netting off provision. "No obligation to provide compensation" means what it says. Paragraph 20(b) is an exclusion clause. No compensation is payable where a sender is in default of credit terms without reasonable excuse (as determined by his credit performance over the target year) regardless of the extent of that default. Absent any particular justification for the failure, a bulk mail sender's failure to meet the 80/20 rule of thumb by a small margin, may therefore result in its being deprived of a large amount of compensation if, as happened in the first year of the scheme, Royal Mail failed to meet all of the relevant service targets. Submissions and Conclusions on Interpretation

[26]For the reasons set out below, I have no doubt that Postwatch's interpretation of paragraph 20(b) is correct. The starting point must be the language used by Postcomm: "is" (present tense) in default of credit terms, not "was" or "has been" in default of credit terms. Both Postcomm and Royal Mail submit that "is" cannot refer to a point in time and must therefore be regarded as referring to a period of time, because paragraph 20(b) does not specify the point in time when a default of credit terms will trigger the exclusion.

[27]The same objection applies to Postcomm and Royal Mail's submission that whether a sender is in default of credit terms must be assessed by reference to the sender's credit performance over a period of time: what period? Postcomm and Royal Mail submit that the period can be ascertained from the remainder of the Determination (which must be read as a whole). Thus, the period must be the target year in respect of which compensation is payable (see paragraphs 14 to 18 of the Determination above).

[28]Just as it would have been possible to ascertain the relevant period of time if paragraph 20(b) had said "where a sender has been in default of credit terms" so it is possible to ascertain when the Royal Mail "shall be under no obligation to provide compensation" where a sender "is" in default of credit terms. Paragraph 14 of the Determination provides that compensation shall be payable in accordance with paragraphs 14 to 17. Paragraphs 14 and 15 deal with the basis upon which compensation is payable and how it is to be calculated. Royal Mail's obligation to provide compensation arises after it has had time to carry out the relevant calculations and when it announces the compensation payable to each user of bulk mail services in accordance with paragraph 17 of the Determination. Paragraph 18 then deals with the method of payment.

[29]Postcomm and Royal Mail point out that the date when compensation is announced under paragraph 17 is not fixed, and will depend upon how long it takes for Royal Mail's quality of service figures to be finally adjusted and audited, when they are accepted by Postcomm, and how much of the three month period thereafter is then taken up by Royal Mail in preparing the announcements. While it might be more desirable to have a fixed date, I can see no real difficulty in Royal Mail announcing, under paragraph 17, that it is under no obligation to pay compensation to bulk mail services user X because it is in default of credit terms without reasonable excuse.

[30]I realise that there may be problems with outstanding payments being made during the calculation process, but these should not be exaggerated. The scheme is a regulatory instrument, not a taxing statute, and any purchaser or provider of goods or services on credit will be familiar with the demand for an overdue payment that ends with the words "if you have paid within the last few days, please ignore this letter."

[31]If one is concerned with practical difficulties, Postcomm and Royal Mail's approach to paragraph 20(b) presents a much greater problem. If paragraph 20(b) enables Royal Mail to refuse to pay compensation by reference to the credit performance of bulk mail sender over the target year, does the exclusion bite if there has been any default of credit terms, however minor, without reasonable excuse over the target year, or is the sender's credit performance to be averaged out over the target year in some way and, if so, how? Neither Postcomm nor Royal Mail argued for the former approach which could operate particularly harshly against a sender with an almost unblemished credit record. However the Determination is completely silent as to how default of credit terms, if it is to be assessed by reference to a sender's credit performance over a period of a year, should be measured.

[32]To remedy that glaring lacuna, Postcomm and Royal Mail have to refer to the second sentence in paragraph 5.42 of the Decision Document which refers, with approval, to Royal Mail's suggestion that "payment to terms 80 per cent of the time" would be an appropriate standard. Having thus incorporated reference to this standard into the Determination, Postcomm and Royal Mail then proceed to argue that if such a standard is to be applied, it makes sense only if it is applied over a period of time (they say the target year) rather than at a point in time.

[33]In my judgment, Postcomm and Royal Mail's submissions in this respect ignore both the need to read paragraphs 5.41 and 5.42 as a whole and in a common sense way; and the basic format of the Decision Document in which Postcomm summarises the material points made in the final consultation exercise and then gives its response to those points. In that context, there is simply no warrant for Postcomm and Royal Mail's assertion that paragraph 5.42 is not merely responding to the request summarised in paragraph 5.41, but to some other point altogether: an exclusion clause rather than a netting off provision.

[34]If there was any doubt as to whether "is in default of credit terms" in paragraph 20(b) was intended to refer to present indebtedness, that doubt would be resolved by paragraphs 5.41 and 5.42 which are dealing with the method of payment to bulk retailers who are "in arrears." Paragraph 5.41 summarises Royal Mail's request as a request to "net off" payments "if the bulk retailer were in debit". It is difficult to see how any netting off arrangement could be based on the bulk retailers' credit performance over some earlier period. The final sentence makes it clear that netting off is reasonable "where a bulk retailer owes [Royal Mail] money" [my emphasis]. Paragraph 5.42 does not stand in isolation, it is Postcomm's response to Royal Mail's request summarised in paragraph 5.41 and not to some other request that is not even mentioned in the Decision Document. Thus, the first sentence is not to be read (as Mr Beloff submitted that it should be read) as though it was dealing with two matters: first Postcomm's conclusion that "this proposal" ie the netting off request, fitted with general commercial practice and secondly a separate conclusion that there should be an exclusion clause:

"Royal Mail will not be obliged to pay compensation where a sender is in default of credit terms without reasonable excuse."

[35]Mr Beloff submitted that this exclusion clause, which is in the same terms as paragraph 20(b) of the Determination, was then further considered in the second sentence which introduced the concept of payment to terms 80 per cent of the time. Turning to the third sentence, he submitted that the word "also" indicated that in addition to the exclusion clause discussed in the latter part of the first sentence and the second sentence of the paragraph, Postcomm also considered it reasonable that there should be a netting off provision.

[36]For the reasons set out above, such a salami slicing approach to paragraph 5.42 is wholly inappropriate. "This proposal" in the first sentence of paragraph 5.42 is plainly a reference to the netting off request that was described in paragraph 5-41. There is no dispute that netting off is indeed a general commercial practice. It was not suggested that exclusion clauses, in accordance with Postcomm and Royal Mail's interpretation of paragraph 20(b) are common practice in the commercial world, since comparable compensation schemes are not general commercial practice.

[37]The latter part of the first sentence is not dealing with some other (exclusion) proposal, but is making it clear that when paragraph 20(b) states that Royal Mail shall be under no obligation to provide compensation where a sender is in default of credit terms without reasonable excuse, it means that compensation will not be payable to the extent that a sender is in default without reasonable excuse because such a netting off "fits with general commercial practice." That is reinforced by the final sentence of paragraph 5.42 which makes it clear that Postcomm also considers that netting off compensation, where the bulk mailer owes Royal Mail money, would be reasonable.

[38]I readily accept Postcomm and Royal Mail's submission that absent the explanation in paragraph 5.42, "where" in paragraph 20(b) would be interpreted as meaning "in circumstances where" rather than "to the extent that". But the latter is a possible meaning of "where", and not to adopt it would fly in the face of the explanation in paragraph 5.42, particularly when it is remembered that if paragraph 20(b) is not a netting off provision, there is no such provision in the Determination, despite the fact that Postcomm considered that such a provision both fitted with normal commercial practice and was reasonable.

[39]Although both Postcomm and Royal Mail laid considerable stress on the second sentence in paragraph 5.42, I accept Mr Pannick's submission that it is not concerned with whether a sender is in default, but with whether the sender who is in default has a reasonable excuse for that default:

"Default outside a suitable industry standard ... would fall into this category as it should cover all issues which could be considered as a reasonable excuse..."

[40]If a bulk mailer is "in arrears" or "in debit" or "owes [Royal Mail] money", ie is in default of credit terms, there is no reason why Royal Mail should not, at least as an initial sieve, apply an 80/20 rule of thumb to the sender's account over a period (which may, but need not necessarily, be the target year) in order to decide whether the sender is likely to have a reasonable excuse. Of course, the application of such a rule of thumb will not be determinative of the issue against the sender because the sender must always be able to demonstrate that, regardless of the rule of thumb, there is in fact a reasonable excuse for its default.

[41]Such an approach to the 80/20 rule is no different to the approach adopted by Postcomm and Royal Mail, when applying the rule under their interpretation of paragraph 20(b). The 80/20 rule is determinative of the issue of whether there is a reasonable excuse in favour of the bulk mail sender, but is not determinative of that issue against it. Any other approach to the 80/20 rule would conflict with the express terms of paragraph 20(b). Given its terms, it must always be open to a sender, who would otherwise be entitled to compensation, to be able to establish that there was a reasonable excuse for the default in question.

[42]Postwatch's interpretation of the scheme is also supported by the scheme's avowed intention (see paragraph 2 of the Decision Document): to ensure that users of postal services receive compensation in recompense for Royal Mail's poor performance, not to penalise Royal Mail's account customers for their poor credit performance.

[43]Although I do not attach much significance to the point, for the sake of completeness I should mention the fact that the compensation provisions for users of bulk mail services came into effect on 1st April 2003. The Determination was made on 7th October 2003. It would be surprising if a sender was to be deprived of compensation, to which he would otherwise be entitled, by reference to an examination of his credit performance over a period, a substantial part of which was prior to the making of the Determination. Postcomm and Royal Mail point out that the Determination places Royal Mail under a retrospective obligation to pay compensation, calculated as from the coming into effect of the scheme, and ask why there should not be reciprocity. The short answer to that question is that if retrospective obligations are to be imposed, they should be expressly and clearly imposed, especially in a scheme that purports to be simple and transparent. Merely because retrospective obligations are expressly imposed on Royal Mail, it does not follow that it would be right to infer that retrospective obligations were also being imposed on bulk mail senders.

[44]For all of these reasons, Postwatch is correct in its interpretation of the scheme and is entitled to declaratory relief, as sought in the Claim Form, to that effect. Regulatory Fairness

[45]Postwatch also sought a declaration that there was no principle of legitimate expectation or substantive unfairness which permitted Postcomm to do other than enforce the scheme, in accordance with its proper interpretation. That was a response to the Treasury Solicitor's reply, on behalf of Postcomm, to the letter before claim sent by Postwatch's solicitors on 31st January 2005. The Treasury Solicitor's reply, dated 14th February 2005, said Postcomm's response could be summarised as follows:

"1. Postcomm disagrees with your client's interpretation of the Scheme. "2. Even if your client's interpretation of the Scheme was found to have merit, it would in the circumstances be unfair for a regulator in postcomm's position to seek to enforce the Scheme against Royal Mail on the basis of that interpretation, bearing in mind the fact that neither Postcomm nor Royal Mail intended or understood it to have that effect."

[46]In a later passage, having summarised Postcomm's understanding of the history of the matter, the Treasury Solicitor said:

"It therefore appears to us that the approach that we and Postcomm think is appropriate coincides with the intentions and understanding of Postcomm, of Royal Mail and, in Postcomm's view, of Postwatch at the time that the determination establishing the Scheme was made.

(b) "

[47]In its grounds for judicial review, Postwatch contended that there was no principle of legitimate expectation or substantive unfairness which permitted Postcomm to do other than enforce the scheme in accordance with its proper interpretation. In its summary grounds of defence, which served also as its detailed grounds, Postcomm contended:

"For the reasons outlined in Postcomm's letter of the 14th February 2005 under the heading 'Regulatory Fairness'... Postcomm will submit that it would be unfair to Royal Mail for the scheme to be implemented in accordance with Postwatch's interpretation, even if that proved to be the correct interpretation."

That submission, somewhat amplified, was repeated in Mr Crow's skeleton argument on behalf of Postcomm. However, it emerged during the course of his submissions that there had, in fact, been no decision by Postcomm that it would be "unfair" to Royal Mail to take enforcement proceedings under the Act upon the basis that the scheme should be implemented in accordance with Postwatch's interpretation. Postcomm had not taken such a decision because it had disagreed with Postwatch's interpretation of the scheme.

[48]While I accept that explanation from Mr Crow, it sits uneasily with the terms of Postcomm's summary grounds (see above) and the explanation of the decision making process within Postcomm, in respect of this aspect of the case, was far from satisfactory. Postcomm should be under no misapprehension that if it had decided not to take enforcement proceedings simply upon the basis that to do so would be "unfair" to Royal Mail, I would have had no hesitation in quashing its decision.

[49]Postcomm is a creature of statute. Its powers and duties are set out in the Act, its functions in respect of enforcement orders are, as far as relevant for present purposes, set out in sections 22 and 25 of the Act as follows:

"22 Final orders. "(1) If the Commission is satisfied that a licence holder - (a) is contravening any condition of his licence, or (b) is likely to contravene any such condition, The Commission shall by order make such provision as is needed for the purpose of securing compliance with the condition. "(2) An order under subsection (1) - (a) shall require the licence holder to do, or not to do, such things as are specified in the order or are of a description so specified, (b) shall take effect at such time, being the earliest practicable time, as is determined by or under the order, and (c) may be revoked at any time by the Commission. "(3) An order under subsection (1) shall have effect until such time (if any) as the Commission revokes it. "(4) This section is subject to section 25 ... "25 Exceptions from duty to make or confirm enforcement orders. "

The Commission shall not make a final order or make or confirm a provisional order if it is satisfied that - (a) the duties imposed on it by sections 3 and 5 preclude it from doing so, (b) the licence holder has agreed to take and is taking all the steps that the Commission considers appropriate to secure or facilitate compliance with the condition concerned, or (c) the contraventions or apprehended contraventions are trivial."

[50]Sections 3 and 5, as far as relevant, are in these terms:

"3(1) The Commission shall exercise its functions in the manner which it considers is best calculated to ensure the provision of a universal postal service ... "5(1) Subject to section 3, the Commission shall exercise its functions in the manner which it considers is best calculated to further the interests of users of postal services, wherever appropriate by promoting effective competition between postal operators. "(2) [sets out a number of interests to which the Commission shall have regard] ... "(3) Subject to section 3 and subsection (1), the Commission shall exercise its functions in the manner which it considers is best calculated to promote efficiency and economy on the part of postal operators. "(4) In exercising any of its functions in relation to licence holders under part II, the Commission shall have regard to the need to ensure that such licence holders are able to finance activities authorised or required by their licences."

[51]Sections 22 and 25, in stating when orders shall be made and when they shall not be made, is highly prescriptive. The duties imposed by sections 22 and 25 are to be contrasted with the more general discretions conferred by subsection 30 subsection (1) and subsection (3) of the Act:

"(1) If the Commission is satisfied that a licence holder - (a) has contravened any conditions of his licence, or (b) is contravening any such condition, The Commission may impose on the licence holder a penalty of such an amount is reasonable. "(2) No such penalty shall exceed 10 per cent of the turnover of the licence holder (determined in accordance with provisions specified in an order made by the Secretary of State). "(3) The Commission may impose a penalty under this section in respect of a contravention of a licence condition irrespective of whether it has made or may make a final or provisional order in respect of that contravention." (Emphasis added).

[52]When Parliament wishes to confer a discretion on Postcomm, it uses the word "may", when it wishes to impose a duty, whether a positive or negative, it uses the word "shall". It is also instructive to compare the mandatory terms of section 22 with the broad discretions conferred by other enactments dealing with enforcement. For example, section 172 of the Town and Country Planning Act 1990, which empowers a local planning authority to issue an enforcement notice where it appears to them that there has been a breach of planning control and "that it is expedient to issue the notice".

[53]No such general discretion is conferred by section 22 and where Parliament has stated what shall be done and what shall not be done, there is no scope for inferring the existence of such a general discretion, sandwiched between the two express duties. If Parliament had wished to say "if the Commission is satisfied that the licence holder is contravening any condition of his licence... the Commission may make an order for the purpose of securing compliance with the condition," It could and would have said so: see, for example, subsections 30(1) and (3).

[54]Mr Crow submitted that Postcomm had a discretion to conclude that no provision was needed for the purpose of securing compliance with paragraph 20(b), because it would be unfair to Royal Mail or otherwise unnecessary or undesirable to secure compliance in accordance with Postwatch's interpretation of the condition. I do not accept that submission. There is an area of discretion in section 22(1)(a) but it is strictly limited. It does not enable Postcomm to say that compliance with a condition, which it has imposed and which is being contravened, is not needed. Postcomm's duty, subject to section 25, is to make an order for the purpose of securing compliance with a condition. It has a discretion, but only as to what provision is needed for that purpose; not for the purpose of not securing compliance with the condition.

[55]Postcomm will have to consider the exercise of its statutory duties under sections 22 and 25. Although Mr Pannick invited me to conclude that, on the facts, Postcomm had no alternative but to make an order under section 22 requiring Royal Mail to make compensation payments in accordance with the scheme, as interpreted by the court, (which would require Royal Mail to recalculate the compensation payable under the bulk mail scheme for the year 2003 to 2004), I am not persuaded that it would be appropriate for this court to preempt Postcomm's decision making process. Parliament has imposed the duties in section 22 and 25 of the Act upon Postcomm. If it errs in law in discharging those duties, then its decision to make or not to make a final order will be susceptible to judicial review.

[56]I would add one further word of warning on the issue of "fairness". Postcomm did not argue that there was a legitimate expectation. The concept of "abuse of power" is well established in public law. It is unnecessary to rehearse the authorities, they have been recently analysed by the Court of Appeal in R (on the application of Bakhtear Rashid) v The Secretary of State for the Home Department

[2005] EWCA Civ. 744

, see in particular the judgment of Pill LJ between paragraphs 18 and 28. However, it does not follow that merely because it would be "unfair" to take enforcement action, it would necessarily be unlawful to take such action. The test is a stringent one. A claimant alleging abuse of power must be able to demonstrate "conspicuous unfairness", see paragraph 23 of Pill LJ's judgment.

[57]Moreover, the authorities are silent as to whether even the most conspicuous unfairness can prevent a public authority from performing a statutory duty (as opposed to exercising, or not exercising, a statutory power in a particular manner).

[58]Mr Pannick rightly submitted that while a legitimate expectation may restrict the manner in which a power is exercised, it cannot be used to frustrate the exercise of a statutory duty, see for example, R v the Secretary of State for Education and Employment ex parte Begbie

[2000] 1 WLR 1115

, per Laws LJ at page 1129e; and R (Bibi) v Newham Borough Council

[2002] 1 WLR 237

[2001] EWCA Civ 607

, per Schiemann LJ, giving the judgment of the court at paragraph 46.

[59]Since failure to give effect to a legitimate expectation is merely one of the ways in which a public body may be held to have acted with conspicuous unfairness and therefore abused its power (see paragraph 22 of Rashid), Mr Pannick submitted that it would be surprising if abuse of power could be relied upon to prevent a public body from discharging a statutory duty. He acknowledged that Lord Templeman had referred to both statutory duties and statutory powers in his speech in In re Preston

[1985] AC 835

in which he said at page 864:

"The court can only intervene by judicial review to direct the Commissioners [Inland Revenue Commissioners] to abstain from performing their statutory duties or from exercising their statutory powers if the court is satisfied that 'the unfairness' of which the applicant complains renders the insistence by the Commissioners on performing their duties or exercising their powers an abuse of power by the Commissioners."

However, he submitted that Lord Templeman's reference to statutory duties was not the subject of any further explanation or analysis. In this context, see also per Laws LJ in R (Nadarajah) v Secretary of State for the Home Department published in The Times on 14th December 2005, after the parties had concluded their submissions in the present case.

[60]Since Postcomm has not taken any relevant decision under sections 22 and 25, any view expressed by me as to the ambit of the concept of abuse of power would be obiter, and since Postcomm has not even addressed the "conspicuous unfairness" threshold, it might well also prove to be wholly academic. I therefore do no more than say that the test is not simply whether it would be "unfair" to Royal Mail for the scheme to be implemented in accordance with Postwatch's (correct) interpretation. The Court's Discretion

[61]For the sake of completeness, I should mention that Mr Beloff would have invited the court to exercise its discretion not to make any mandatory order, which would have had the effect of requiring Royal Mail to recalculate the compensation payable for the first year of the scheme. In my view, it would be premature to consider how the court might exercise its discretion in response to a decision which has not yet been taken by Postcomm.

[62]It would not be appropriate for me to say or do anything other than to remind the parties that if further proceedings are contemplated, the granting of relief, especially mandatory relief in judicial review proceedings, is a discretionary exercise. Bearing that in mind, it may well be that the parties will be able to agree upon the measures that are necessary to implement the scheme, now that it has been correctly interpreted without the need for there to be any further recourse to the court.