Mercury Communications Ltd v Director General of Telecommunications [1995] UKHL 12

House of Lords
Between
Mercury Communications LtdAppellantDirector General of TelecommunicationsRespondent
Before
Lord Keith of KinkelLord Browne-WilkinsonLord Slynn of HadleyLord Lloyd of BerwickLord Nicholls of BirkenheadDate 9 February 1995

LORD LLOYD OF BERWICK

[1]My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Slynn of Hadley, and for the reasons he gives I too would allow this appeal. LORD NICHOLLS OF Birkenhead My Lords I agree, that for the reasons given in the speech of my noble and learned friend, Lord Slynn of Hadley, this appeal should be allowed. Date: 9th February 1995 Lord Keith of Kinkel Lord Browne-Wilkinson Lord Slynn of Hadley Lord Lloyd of Berwick Lord Nicholls of Birkenhead - - - - - - - - - - - OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE MERCURY COMMUNICATIONS LIMITED (APPELLANTS) THE DIRECTOR GENERAL OF TELECOMMUNICATIONS AND OTHERS (RESPONDENTS) - - - - - - - - - - - - - - - - - - - - - - JUDGMENT LORD KEITH OF KINKEL My Lords,[2]For the reasons given in the speech to be delivered by my noble and learned friend Lord Slynn of Hadley, which I have read in draft and with which I agree, I would allow this appeal.

LORD BROWNE WILKINSON

[4]My Lords,[5]I have read in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons which he gives ] too would allow the appeal.

LORD SLYNN OF HADLEY

[6]My Lords[7]The question on this appeal is whether an originating summons issued by the appellant ("Mercury") in the Queen's Bench Division on 17 December 1993 shou!d be struck out, as the Court of Appeal by a majority held, or whether, as Longmore J. in the Commercial Court and Hoffmann L.J. in the Court of Appeal held, that summons should proceed to a hearing.[8]The matter arises in this way. By the British Telecommunications Act 1981 the exclusive privilege in respect of telecommunications previously enjoyed by the Post Office was vested in a public corporation, British Telecommunications Plc, though the Secretary of State was given power to grant a licence to other persons for the running of a Telecommunication system. Such a licence was granted to Mercury in 1992 which allowed it to connect into the British Telecommunications system, and on 5 November 1982 an agreement was entered into between British Telecommunications and Mercury governing the interconnection of the two systems.[9]By the Telecommunications Act 1984 British Telecommunications' exclusive privilege was abolished and by Section 60 of that Act its property, rights and liabilities were to be vested in a company to be nominated by the Secretary of State. The latter and an officer appointed by him (the Director General of Telecommunications) were required by Section 3 of the Act of 1984 to carry out the functions vested in them in such way as they considered best calculated(a) to secure so far as reasonably practicable the provision in the United Kingdom of such telecommunication services as satisfy all reasonable demands for them,(b) to promote the interests of users in respect of prices charged for, and the quality and variety of, services provided and(c) to maintain and promote effective competition between persons engaged in commercial activities connected with telecommunications in the United Kingdom.[10]From the date of the abolition of British Telecommunications' exclusivity no person was lawfully to be able to run a telecommunication system in the United Kingdom unless authorised by a licence granted under Section 7 of the Act of 1984. Such a licence might authorise the connection of one telecommunication system to another and might lay down "such conditions ... as appear to me Secretary of State or the Director to be requisite or expedient having regard to the duties imposed on him by Section 3". By Section 16 the Director is empowered by final order to make such provision as is needed for the purpose of securing compliance with a condition of the licence which the Director is satisfied is being contravened.[11]On 22 June 1984 the Secretary of State granted a licence to British Telecommunications which by condition 13.1 required British Telecommunications to enter into an agreement with any person ("the operator") licensed to "run a Relevant Connectable System, if the Operator requires it to do so". British Telecommunications could only require that the agreement be subject to the terms and conditions permitted by paragraphs 13.4, 13.5 and 13.6 of the Licence. Those permitted included terms which were agreed between the Licensee and the Operator relating to the charges to be paid by the Operator for anything done under or as a result of an agreement. If British Telecommunications failed to enter into an agreement as required by the Operator then the Director "shall, on the application of the Operator or the Licensee, determine the permitted terms and conditions for the purpose of mat agreement which have not been agreed between the Licensee and the Operator being terms and conditions relating to the matters mentioned in paragraph 13.4 which appear to the Director reasonably necessary (but no more than reasonably necessary) to secure (a) that the Operator pays to the Licensee the cost of anything done pursuant to or in connection with the agreement including fully allocated costs attributable to the services to be provided and taking into account relevant overheads and a reasonable rate of return on attributable assets" and a number of other matters.[12]The charges fixed by the Director, if he is asked to do so by either party, must be in accordance with the detailed provisions set out in paragraphs 13.5A.1 and following. In particular the charges referred to and payable by the Operator in respect of the conveyance of any message shall cover "the Licensee's fully allocated costs of the conveyance calculated on a historic cost basis."[13]On 5 November 1984 the Secretary of State granted a licence to Mercury under Section 7 of the Act of 1984 for the running of a telecommunication system and on 18 March 1986 British Telecommunications and Mercury entered into an agreement which varied the 1982 agreement. The later agreement recited that on Mercury's application the Director General had on 11 October 1983 determined the permitted terms and conditions for the purpose of an agreement under condition 13 of the British Telecommunications Licence and those terms and conditions were contained in the agreement as set out in the schedule to the Director General's Determination. They coveted a large number of technical and administrative matters to which it is not necessary to refer save that in clause 29 of the agreement provision was made for a review of the terms of that agreement.[14]Under clause 29 either party might after five years require a negotiation of the agreement if it reasonably considered that a fundamental change in the circumstances had occurred. After two years either party might request the Director General to determine whether he was satisfied, inter alia, that there had been a material change in circumstances since the agreement was made and, if so, to determine whether the agreement should be amended. Such Determination had to be in accordance with the same criteria as are laid down in condition 13 of the British Telecommunications licence. Following such Determination the parties were bound forthwith to modify, replace or amend their agreement in accordance with the Director's Determination.[15]On 9 June 1992 British Telecommunications told the Director General that British Telecommunications and Mercury had for three months been "discussing the possible replacement of the existing agreement for telephony interconnection with a new, negotiated agreement". They thought that they could successfully negotiate "a great majority of the terms of a new agreement" but, considering it unlikely that they would be able to reach an agreement on pricing, they jointly referred to the Director under clause 29 of the 1986 agreement the amounts to be charged for connection and the conveyance of calls. At the same time they emphasised that the items they were to try to agree might affect the pricing issue, that they were willing to discuss matters with the Director General and that as in the past they would like the opportunity of commenting on his draft Determination.[16]On 2 December 1993 the Director General made his Determination. In addition to dealing with connection charges and payments for the conveyance of calls he substituted a new clause 29 "Review", including "provisions which give flexibility both to the parties and to the Director General to deal with developments in the market and the regulatory regime". (Clause 43 of me Determination). Thus under the new clause 29.1 either party at any time may by serving a written review notice on the other seek to modify the terms of the purposes of the agreement if(i) either licence is modified or replaced in a manner which is significant for the purposes of the agreement,(ii) there is a material change in any relevant circumstance which significantly affects, or which either party reasonably expects significantly to affect, the commercial basis on which the agreement is founded, or(iii) mere is any other event which the parties agree should give rise to a review of any term of the agreement under clause 29.1.3.[17]If such a review notice or a notice under clause 29.2 given within one month of 1 April 1997 requiring the agreement to be modified were served, the parties were obliged to discuss and to negotiate in good faith with a view to modifying the terms of the agreement.[18]The parties by clause 29.3.1 were obliged to incorporate the terms of the 2 December 1993 determination and on 1 October in each year thereafter to initiate a review of the charges thereby determined.[19]If unable to agree in their negotiations the parties were empowered by clause 29.4 to request a Determination by the Director General though by clause 29.5 his Determination should be limited to matters which he could have determined under condition 13 of the British Telecommunications licence or condition 12 of the Mercury licence and on the principles set out in those conditions. If the Director should not be willing or able to make a Determination under clause29.1.1 or29.1.2 then either party might determine the agreement and apply for a Determination under condition 13 or condition 12 of the respective licences.[20]The parties did not incorporate the Determination into their agreement though they accept that in equity they are bound by it and neither party has sought to set it aside as such. British Telecommunications considers that the Director's Determination is in accordance with condition 13 so that he has complied with clause 29. Mercury, however, contends that the Director has misinterpreted the phrases in condition 13 "fully allocated costs attributable to the services to be provided" and "relevant overheads". In both cases Mercury says that it is only appropriate to look at the marginal or additional costs caused by the provision of services to Mercury whereas the Director, supported by British Telecommunications, has taken such proportion of the total costs and total overheads incurred by British Telecommunications as is attributable to the proportion of its services provided to Mercury.[21]Mercury accordingly issued its originating summons asking for a declaration that on the true construction of the British Telecommunications licence and in particular conditions 13.5 and 13.5A the relevant costs and overheads were those for which it contended. Both defendants applied to strike out the summons on the ground that it was frivolous or vexatious or otherwise an abuse of the process of the Court, and/or under the inherent jurisdiction of the Court. The grounds stated were(a) that these matters could only be raised, if at all, in an application under Order 53 of the Rules of the Supreme Court,(b) that the relief sought would not settle the matters in issue between the parties and was academic and(c) that it could not be granted in the absence of other interested parties.[22]There is thus no issue before your Lordships as to whether Mercury is right as to its interpretation of the phrases in dispute. The sole issue is whether Mercury can raise these questions by the procedure which it has adopted or at all.[23]The respondents contend mat "the relationship between(1) the Director and(2) both Mercury and British Telecommunications in connection with any determination the Director may make, and any challenge to that determination, is governed solely by public law and that (adopting the words of Lord Bridge of Harwich in Roy v. Kensington and Chelsea and Westminster FPC [1992] 1 AC 624 , 628) the only issue to which these proceedings relate "depends exclusively on the existence of a purely public law right". Accordingly they say that, even if any procedure is open to Mercury to raise the issues it seeks to raise, it can only be by way of judicial review on the basis of O'Reilly v. Mackman [1983] 2 AC 237 . Longmore J., Hoffmann L.J. and Saville L.J rejected this submission. In view of his conclusions on other arguments Dillon L.J. did not find it necessary to comment on it.[25]The basis of Lord Diplock's speech in O'Reilly v. Mackman , as I read it, was that in view of the procedural changes introduced into an application for judicial review, which removed the disadvantages to the applicant in respect of, e.g., lack of discovery, of interrogatories and of the calling of oral evidence, it was wrong that public authorities should lose the protection of a time limit, of the need for the applicant to obtain leave to proceed and of the need for him to support his application by affidavit. These forms of protection were available to public authorities in proceedings by way of judicial review but were not available to such authorities in proceedings begun by writ or originating summons. It was for this reason that Lord Diplock said, at p. 285:
"It would in my view as a general rule be contrary to public policy, and as such an abuse of the process of the Court, to permit a person seeking to establish that a decision of a public authority infringed rights to which he was entitled to protection under public law to proceed by way of an ordinary action and by this means to evade the provisions of Order 53 for the protection of such authorities."
[26]He recognised, however, that the legislature had not prescribed that Order 53 was to be an exclusive procedure available by which the remedy of a declaration or injunction might be obtained for me infringement of rights that are entitled to protection under public law and he was "content to rely upon the express and the inherent power of the High Court, exercised upon a case to case basis, to prevent abuse of its process whatever might be the form taken by that abuse". He specifically recognised that there may be exceptions, "particularly where the invalidity of the decision arises as a collateral issue in a claim for infringement of a right of the plaintiff arising under private law, or where none of the parties objects to the adoption of the procedure by writ or originating summons." He added "Whether mere should be other exceptions should, in my view, at this stage in the development of procedural public law, be left to be decided on a case by case basis."[27]Claims which have been said to arise in a public context have already proceeded and defences have been raised whether by express approval or without comment in a number of cases since O'Reilly v. Mackman . Of these Roy v. Kensington and Chelsea and Westminster FPC (supra), Gillick v. West Norfolk , Wisbech [1986] 1 A.C. 112 and Wandsworth London Borough Council v. Winder [1985] AC 461 and An Bord Bainne Co-Operative Ltd. (Irish Dairy Board) v. Milk Marketing Board [1984] 2 C.M.L.R. 584 are only examples. The recognition by Lord Diplock that exceptions exist to the general rule may introduce some uncertainty but it is a small price to pay to avoid the over rigid demarcation between procedures reminiscent of earlier disputes as to the forms of action and of disputes as to the competence of jurisdictions apparently encountered in civil law countries where a distinction between public and private law has been recognised. It is of particular importance, as I see it, to retain some flexibility as the precise limits of what is called "public law" and what is called "private law" are by no means worked out. The experience of other countries seems to show that me working out of this distinction is not always an easy matter. In. the absence of a single procedure allowing all remedies - quashing, injunctive and declaratory relief, damages - some flexibility as to the use of different procedures is necessary. It has to be borne in mind that the overriding question is whether the proceedings constitute an abuse of the process of the court.[29]It is clear that in the present case the Director General's office is created by statute and he has statutory functions, some of which he shares with the Secretary of State. They are performing public duties when they seek to secure the provision of such telecommunications as satisfy ail reasonable demands. The granting of a licence containing condition 13 was an act performed under Section 7 of the statute. That does not mean that what the Director General does cannot lead to disputes which fall outside the realms of administrative law any more than that a Government department cannot enter into a commercial contract or commit a tort actionable before the court under its ordinary procedures. In the present case even though condition 13 is in the licence the interpretation of its terms arises no less in a dispute between two telecommunications companies because of the provisions of the amended version of clause 29 which the parties agree they must adopt in their agreement. The whole basis of the arrangements under clause 29 is that the parties shall discuss and negotiate in good faith changes in the agreement including modifications to charges. It is only if they cannot themselves agree the terms to be included that they contractually accept that the Director may decide and that they as part of their contract will give effect to his decision. Thus what the Director decides becomes a part of the contract; the dispute in substance and in form is as to the effect of the terms of the contract even if it can also be expressed as a dispute as to the terms of the licence.[30]Moreover it cannot be said here, in my view, that the procedures under Order 53 are so peculiarly suited to mis dispute (as they would be in a claim to set aside subordinate legislation or to prohibit a Government department from acting) that it would be a misuse of the Court's process to allow the originating summons to continue. On the contrary it seems to me that the procedure by way of originating summons in the Commercial Court is as least as well, and may be better, suited to the determination of these issues than the procedure by way of judicial review. In dealing with the originating summons the trial judge can have regard to, even if he is not strictly bound by, the procedural protection which would be available to a public authority under the provisions of Order 53.[31]I accordingly reject the contention that these claims can only be ventilated, if they can be ventilated at all, by way of an application for judicial review.[32]It is said, however, by the Respondents that the issues to be resolved fall wholly within the competence of the Director General. What "fully allocated costs" and "relevant overheads" means has been referred to the Director General. It is for him and not the courts to make the necessary judgment. He is the "decision maker" under condition 13 of the licence granted under statutory power. The Respondents rely in particular on the decision of Sir Donald Nicholls vice-chancellor and of the Court of Appeal in Norwich Union Life Assurance Society v. P. & O. Property Holdings Limited [1993] 1 E.G.L.R. 164. In that case an application was made for an interlocutory injunction to restrain a nominated arbitrator from proceeding with the Determination of a dispute referred to him under a funding agreement pending the decision by the Court of a question of interpretation of the agreement. In financial terms much turned on the date defined in the funding agreement as "the completion date". Two questions arose - what was meant by "completed" and what were the relevant design drawings? The Vice-chancellor and the Court of Appeal both held that as a matter of the construction of the agreement these two matters had been remitted for the determination of the arbitrator and it was not for the Court to take over his function. Reference was made to Jones v. Sherwood Computer Services Plc. [1992] 1 W.L.R. 277 where the Court of Appeal held that in a case where parties had agreed to be bound by the report of an expert the report could not be challenged in the courts unless it could be shown that the expert had departed from the instructions given to him in a material respect. In that case the experts had done exactly what they were asked to do.[33]What has to be done in the present case under condition 13, as incorporated in clause 29 of the agreement, depends upon the proper interpretation of the words "fully allocated costs" which the Respondents agree raises a question of construction and therefore of law, and "relevant overheads" which may raise analogous questions. If the Director General misinterprets these phrases and makes a Determination on the basis of an incorrect interpretation, he does not do what he was asked to do. If he interprets the words correctly then the application of those words to the facts may in the absence of fraud be beyond challenge. In my view when the parties agreed in clause 29.5 that the Director General's Determination should be limited to such matters as the Director General would have power to determine under condition 13 of the British Telecommunication's licence and that the principles to be applied by him should be "those set out in those conditions" they intended him to deal with such matters and such principles as correctly interpreted. They did not intend him simply to apply such meaning as he himself thought they should bear. His interpretation could therefore be reviewed by the Court. There is no provision expressly or impliedly that these matters were remitted exclusively to the Director General, even though in order to carry out his task he must be obliged to interpret them in the first place for himself. Nor is there any provision excluding altogether the intervention of the Court. On the contrary clause 29.5 contemplates that the determination shall be implemented "not being the subject of any appeal or proceedings". In my opinion, subject to the other points raised, the issues of construction are ones which are not removed from the Court's jurisdiction by the agreement of the parties.[34]Then it is contended that even if this is right the present declarations which are sought relate to future, academic and hypothetical! questions. The Respondents under this head are entitled to say that the Court normally will not give a ruling as to the meaning of words to be applied by another decision maker before he has had a chance to express his own views about it and that the Courts will not answer questions which are wholly academic and hypothetical. In support of their contention they have relied on passages in the speeches in Russian Commercial and Industrial Bank v. British Bank for Foreign Trade [1921] 2 A.C. 438 and in the judgments In In re Barnato , decd., Joel v. Sanges [1959] Ch. 258.[35]The present case, however, in my view does not raise questions which are academic or hypothetical or wholly in the future in the sense that they may or may not arise. The Director General in the 1993 Determination has given his interpretation and he has made it clear in the present proceedings that he adheres to that. It is unreal to proceed on the assumption that he will or may change his mind. Longmore J. was right to regard the case as exceptional in this respect. Moreover British Telecommunications and Mercury are required to discuss and to negotiate the various issues between them. It is no less unreal to expect British Telecommunications to abandon its support for the interpretation adopted by the Director General. The meaning of the phrases in dispute is a key part of the negotiations and of the Director General's decision. It makes a good deal of sense, in view of the existing Determination and of the future steps which have to be taken by all three parties, that these matters should be raised and decided at this stage. I do not consider that Mercury is in any way barred from so raising them by the fact that it did not seek by judicial review to set aside the 1993 Determination or that it was willing on this occasion to adopt the figures arrived at whilst seeking to clarify the position for future negotiation and determination. So to act cannot in any way be regarded as creating an estoppel against it.[36]I do not for my part think that for Mercury to be allowed to take the course it has taken is in any way permitting it to rewrite the contract between Mercury and British Telecommunications. If as a matter of law the Court has jurisdiction to interpret the words at issue as, Saville L.J. accepted, then the contractual obligation undertaken must be, if the interpretation of these words is referred to the Court, that which the Court decides. For the parties to be bound by that interpretation is not to rewrite the contract.[37]In my view Longmore J. came to the correct conclusion. In any event I agree with Hoffmann L.J. that when it comes to a question of striking out for abuse of me process of the Court me discretion exercised by the trial judge should stand unless the arguments are clearly and strongly in favour of a different result to that to which he has come. That is not the present case.[38]I would accordingly allow this appeal and set aside the order of the Court of Appeal.

LORD LLOYD OF BERWICK

[40]My Lords,[41]I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Slynn of Hadley, and for the reasons he gives I too would allow this appeal.[42]LORD NICHOLLS OF Birkenhead My Lords[43]I agree, that for the reasons given in the speech of my noble and learned friend, Lord Slynn of Hadley, this appeal should be allowed.