England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MRS JUSTICE GLOSTER)

		Royal Courts of Justice Strand, London, WC2A 2LL
		6th November 2007

Lord Justice Ward:

1. This is a renewed application by Dimension Data Network Services Ltd (whom I will call "DD"), made on notice to the respondent O2 UK Ltd (whom I will call O2), for permission to appeal against the order of Gloster J made on 20 April, when she dismissed an application by O2 for summary judgment, but instead ordered DD to make interim payments of some £387,000, with interest, on account of O2's claim for some £554,000, in respect of invoices rendered between February and May 2005.
2. Waller LJ directed that this be listed on notice to the respondents, with the appeal to follow if permission was granted. O2 is a well-known United Kingdom mobile telecommunications network operator.
3. O2 provides access to its customers, who can, in turn, sell on the services of airtime to other customers. DD is itself a telecommunications company; it became the customer of O2 early in 2002. In November 2002, the parties entered into an agreement called the Airtime Agreement, which provided for the supply of equipment and airtime for onward transmission to the DD customers at rates which were to be specified and on terms which include, relevantly for these purposes, the following: by Clause 4.2.2, O2 had to use its reasonable endeavours to keep and maintain accurate records of data, so as to ensure accurate billing. 7.2 is central to the appeal, and that provides as follows:

"7.2 The Customer hereby agrees to pay the Charges in full without any deduction or set-off to O2 within 30 days following the date of the invoice for such Charges."

4. 2 required that all the charges were to be based on data recorded or logged by O2, and 8.4 was to this effect:

"8.4 O2 reserves the right to review any credit applied to this Agreement."

5. This history of the trading between the parties, in a very brief summary, is this: O2 duly supplied their services, but it soon became apparent that DD began to complain that there was a serious overcharging of the agreed amounts, and this dispute rumbled on throughout the year in 2004, and into 2005. DD stopped paying the invoices which had been submitted, and eventually appeared to owe something in the region of £2.2 million. When the parties met on 18 March to resolve that large problem, as to how much should rightly have been charged under the Airtime Agreement, they entered into what has been called a Letter Agreement; and that provides, as set out on page 102 of the bundle, the following:

"1. Dimension Data shall make payment to O2, of £1,227,275 ('the Payment'). O2 shall apply the Payment against the O2 ledgered debt by Dimension Data of £2,263,580.

2. Upon receipt of the Payment, O2 will apply credits of £587,500 (£500,000 + VAT) as recognition of previously discussed credits ('Credit One') and £448,805 (£381,962 + VAT) in recognition of amended billing rates related to previously agreed variation of terms between the parties changing the tariff from Mobex to Groupworker ('Credit Two').

3. The application of Credit One and Credit Two against the debt will leave a nil balance outstanding on O2's ledger with Dimension Data [then the calculation is set out]…For the avoidance of doubt, charges relating to February and March 2005 are not included within this nil balance.

4. O2 acknowledge that Dimension Data have raised issues over billing accuracy relating to the period January 2004 to December 2004. The discrepancy within the billing is estimated by Dimensions Data to be approximately £300,000 to £350,000 less than the current billing on its account, to the end of January [2005].

5. Whilst some details of the nature of billing variance has been tabled by Dimension Data, the parties agree to work in good faith to resolve the remaining issues. The parties will meet and provide any additional documentation necessary to substantiate the claims of each party; including claims of billing variance [made] by Dimension Data and correctly applied rates by O2.

6. O2 will not unreasonably withhold any credits against the February and March 2005 invoices, nor will Dimension Data unreasonably withhold the payment of the February and March 2005 invoices once both parties have tabled documentation. O2 agrees to credit back any amounts substantiated and agreed between the parties that were billed in error against Dimensions Data during February and March 2005.

7. O2 agree to suspend the requirement for payment of the February and March 2005 invoices until the parties have reached agreement over the Outstanding Amount.

8. At the 31^st of March, O2 will discontinue all services to Dimension Data under the O2 Business Airtime Agreement between the parties."

6. Following that, invoices were duly rendered for the anticipated February and March billing. In fact, further invoices were rendered for April and May to cover bits and pieces that had been omitted, and in all, the sum of those invoices amounted to the sum of £554,000, which was to become the subject of an application for summary judgment. The parties did carry out the agreement to the extent that DD paid the £1.2 million, O2 gave the two credits, and the books were squared, subject to the respective obligations on each of them to provide the necessary data to enable some satisfactory resolution to be effective. Unfortunately, it appears that neither party could perform that obligation. O2 had either recorded over the data which justified their billing, or they had sent some of this to DD, but DD one way or another had lost the information. So, neither party could do what they had hoped would be done. Each blamed the other. Each alleged that the other had repudiated the agreement, but one way or another it seems now to be, if not common ground, indisputable that the Letter Agreement came to an end.
7. This litigation began, and O2 sought to recover the sum of one million pounds odd, being the sum of the two credits they had given under the March letter agreement, relying on Clause 8.4 for their entitlement to do so. They also sued for the £554,000 for the February to May invoices. A defence was put in, as I shall examine in a moment. O2 then applied for summary judgment in respect of the February to May invoices, and sought a judgment for £554,000 odd.
8. The latter came before Gloster J on a case management conference. She dealt with it in this way, in very brief outline: She analysed the defence. The primary defence was that there had not been a repudiation, and that consequently the moratorium still operated. That, she rightly dismissed on the basis that the defendant's own attorneys in Johannesburg had sought to terminate the agreement. She said the secondary defence did not relate to the February to May invoices. The third defence, characterised as one of overcharging, was in the defence and needed attention, but the fourth defence of illegality was abandoned. There was some discussion before her of the onus of proof and whether the claimant could ever satisfy the burden upon it to demonstrate that the charges were indeed properly imposed. The gist of her judgment, contained in paragraphs 6 and 7, was to this effect. She said in paragraph 6:

"…that, on the material before me there is at least some sketchy basis for a defence, that, in relation to the relevant period, that is to say the February to May 2005 invoices, there was possibly overcharging."

She analysed the evidence submitted by DD to support that allegation of billing variance. She said in paragraph 7 of her judgment:

"However, the evidence is extremely unspecific and does not adequately address what is said to have been the systemic failures of the claimants' billing system. As Mr Braithwaite submitted [counsel for O2, who appeared before her and before us], the defendant must be bound to accept that something is owing with regard to the February to May 2005 invoices, even if it wishes to pursue at trial the allegation that those invoices are wrongly calculated. The defendants' witness statements, in some places, contend that nothing at all is owing, on the basis of the assertion that the defendant is entitled to set-off other unidentified instances of overcharging, 'in aggregate over the life of the arrangements between the claimant and the defendant'. Reference is also made to an unwritten understanding to this effect. However, the defence, which is opaque to say the least, does not appear to rely upon set-off in relation to invoices covering other periods. In any event, the right to claim set-off in the sense of claiming credit in respect of invoices relating to periods other than February to May 2005 is expressly excluded by clause 7.2 of the agreement. [I omit some words; and she concluded] …although there is some evidence to support the alleged overcharging for the relevant period, it is tenuous in the extreme."

9. In the light of that, she held that she could not say there was no real prospect of the defence succeeding to satisfy the requirements of Part 24 of the CPR, but she went on to consider whether the claimants were entitled to an interim payment under Part 25.7 of the Rules. She was satisfied that the claimant would obtain a judgment for a substantial sum. She considered that the reasonable proportion of the likely amount of the final judgment was a figure consistent with the type of percentage reduction the claimant itself was asserting in respect of earlier invoices. In the end, she accepted the submission of Mr Braithwaite that he would be entitled to 70 percent of the amount claimed, and gave judgment accordingly.
10. Mr Donaldson QC appears for DD today, not having been in the case until now. He abandons some of the grounds of appeal and concentrates his fire (rightly, if I may say so) on a very short point: namely, that the error made by the judge was to restrict her gaze to any overcharging of the February to May invoices. The error was to refuse to take into account, by way either of set-off or counterclaim, of overcharging in respect of the earlier periods, going back to the beginning of the business relationship of these parties.
11. He relies upon other parts of Part 25.7. I must read 1 (c):

"The court may only make an order for interim payment where any of the following conditions are satisfied --

(c) it is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for an interim payment whether or not that defendant is the only defendant or one of a number of defendants to the claim".

Mr Donaldson draws our attention to sub-paragraphs 4 and 5, namely:

"(4) The court must not order an interim payment of more than a reasonable proportion of the likely amount of the final judgment.

(5) The court must take into account --

…(b) any relevant set-off or counterclaim."

12. Mr Donaldson submits that whatever the state of the pleadings, the court is required to analyse for interim payment purposes whether there is any relevant set-off or counterclaim which would affect the final judgment of the court. He relies, perhaps only in passing, on CPR 40.13.2, that if there is a balance in favour of one of the parties, it may order the party whose judgment is for the lesser amount to pay the balance.
13. He therefore submits, in effect, this: looking at the history of the transaction, it was at least arguably acknowledged by O2 that DD would be entitled to a credit in the region of half a million pounds plus VAT. He submits that, in fact, DD were contending during the exchange of correspondence leading to the March Agreement that they were entitled to a sum in the region of some £521,000 plus VAT, relevant to the period March 2003 to February 2004.
14. In addition, they were contending, as he submits was made plain by the Letter Agreement, for a further credit of between £300,000 and £350,000 for the period subsequent to February 2004, namely, to the end of January 2004. In fact, he says his evidence supports a submission that the figures went back, not to February 2004, but to earlier than that. All in all, he submits that taking those figures into account, this is not a claim where the court could be satisfied that there would be a substantial amount of money due to the claimant at the end of a trial.
15. There are, however, difficulties in his path. He puts a submission which had, I have to say, a fairly compelling attraction to it, and in other circumstances may well have had more force than was given to the arguments, if they were presented in that way, before Gloster J. His difficulties, it seems to me, are these: first, he is confronted by Clause 7.2, which expressly provides (as I have read) that the customer agrees to pay the charges in full, without any deduction or set-off. It seems to me (and I do not think Mr Donaldson disagrees) that that, on its ordinary meaning, is a clause which, to quote him: "amounts to pay now and grumble later" – a paraphrase, which I accept. It does not, however (he submits), preclude a counterclaim. In my judgment, the difficulty is that his own defence really precludes the running of this argument and is inconsistent with it, for the reasons Mr Braithwaite submits. The defence, when properly analysed, is to this effect.
16. The secondary case pleaded in the defence is that the defendant contends that credits should be given for the over billing, and paragraph 12 of the defence is crucial. Paragraph 12 is to this effect: firstly, it is denied that there was any contractual right under Clause 8.4 to review the credits; but then more relevantly, further or alternatively on the basis of the defendant's tertiary case (referred to paragraph 8 herein, namely, overcharging), if the claimant is entitled to review such credits in any sum which may be held as due to the claimant, these must be reduced, extinguished or set-off by the amount the claimant has overcharged the defendant. The defendant hereby expressly reserves the right to provide further particulars of its tertiary case, and to issue a counterclaim should this become necessary.
17. Clarification was also sought of the defence, and in answer to the request for information, DD pleaded to the extent that if there are any sums due, only those terms and conditions set out in the Airtime Agreement (the terms and conditions in the variation agreement which are relevant to the determination of the claimant's claims for payments of his February and March 2005 invoices and the defendant's claims for credits against those invoices and the invoices raised by the claimant during the period January 2004 inclusive) continue to have effect after the Letter Agreement was entered into; in other words, that 7.2 continues to have effect.
18. In my judgment, Mr Braithwaite is correct. He has submitted, to quote from his skeleton argument in paragraph 15.3:

"DD says that clause 7.2 was superseded by the Letter Agreement so that O2 cannot rely upon it with the respect to the Feb-May 05 invoices. This argument is not open to DD".

19. As it is, its pleaded case is that O2's terms and conditions continue to apply in full as regard the payment of the February to May invoices, and have not been superseded by the letter and agreement (see the reply which I have just recited). He also ignores the fact that the letter agreement has been terminated, the effect of which will be to bring to an end, not only the moratorium, but also any consequential right derived from Clause 4 of the Letter of Agreement that is said to modify Clause 7.2 of the terms of conditions.
20. I agree. It seems to me that the effect of the Letter Agreement was to put Clause 7.2 into suspense. When the letter agreement was terminated, 7.2 revived. 7.2 precludes a set-off. No set-off was in fact pleaded in respect of the £554,000, probably wisely, because the pleader recognised that no set-off would have been permitted, by the express words of 7.2. The only set-off pleaded was that in respect of the million pounds, not in respect of the sums claimed here.
21. I cannot see that the judge was wrong in her conclusions in paragraph 7 of her judgment that I have recited. That being the position, and there no longer being a challenge to the discretion of the judge to apply a 30 percent discount, it seems to me that whereas Mr Donaldson's arguments certainly justify the grant of permission to appeal, the appeal nonetheless must fail, and I would dismiss it.

Lord Justice Laws:

22. I agree that permission should be granted but the appeal dismissed for the reasons given by my Lord.

Order: Application granted; Appeal dismissed