ON APPEAL FROM THE COMPETITION APPEAL TRIBUNAL
Marcus Smith QC, Peter Clayton and Professor Paul Stoneman
1115/3/3/10,  CAT 17
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE TOULSON
LORD JUSTICE SULLIVAN
| BRITISH TELECOMMUNICATIONS PLC
|- and -
|OFFICE OF COMMUNICATIONS
HUTCHISON 3G UK LIMITED ("Three")
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr G Read QC, Ms M Lester, Mr R Eschwege (instructed by BT Legal) for the Respondent
Mr B Kennelly (instructed by Baker & McKenzie) for The Intervener Three
Hearing dates: 22-23 February 2011
Crown Copyright ©
Lord Justice Toulson:
"1. In the event of a dispute arising in connection with obligations arising under this Directive or the Specific Directives between undertakings providing electronic communications networks or services in a Member State, the national regulatory authority concerned shall, at the request of either party, …issue a binding decision to resolve the dispute in the shortest possible time frame and in any case within 4 months except in exceptional circumstances. The Member State concerned shall require that all parties co-operate fully with the national regulatory authority."
"1. Member States shall ensure that effective mechanisms exist at national level under which any user or undertaking providing electronic communications networks and/or services who is affected by a decision of a national regulatory authority has the right of appeal against the decision to an appeal body that is independent of the parties involved. This body, which maybe a court, shall have the appropriate expertise available to it to carry out its functions. Member States shall ensure that the merits of the case are duly taken into account and that there is an effective appeal mechanism…. (Emphasis added).
2. Where the appeal body referred to in paragraph 1 is not judicial in character, written reasons for its decision shall always be given. Furthermore, in such a case, its decision shall be subject to review by a court or tribunal within the meaning of Article 234 of the Treaty."
"(1) This section applies to the following decisions –
(a) a decision by Ofcom under this part or any of parts 1 to 3 of the Wireless Telegraphy Act 2006 that is not a decision specified in Schedule 8;
(2) A person affected by a decision to which this section applies may appeal against it to the Tribunal.
(3) The means of making an appeal is by sending the Tribunal a notice of appeal in accordance with Tribunal rules.
(4) The notice of appeal must be sent within the period specified, in relation to the decision appealed against, in those rules.
(5) The notice of appeal must set out –
(a) the provision under which the decision appealed against was taken; and
(b) the grounds of appeal.
(6) The grounds of appeal must be set out in sufficient detail to indicate –
(a) to what extent (if any) the appellant contends that the decision appealed against was based on an error of fact or was wrong in law or both; and
(b) to what extent (if any) the appellant is appealing against the exercise of a discretion by Ofcom, by the Secretary of State or by another person."
"(2) The Tribunal shall decide the appeal on the merits and by reference to the grounds of appeal set out in the notice of appeal.
(3) The Tribunal's decision must include a decision as to what (if any) is the appropriate action for the decision-maker to take in relation to the subject-matter of the decision under appeal.
(4) The Tribunal shall then remit the decision under appeal to the decision-maker with such directions (if any) as the Tribunal considers appropriate for giving effect to its decision.
(5) The Tribunal must not direct the decision-maker to take any action which he would not otherwise have power to take in relation to the decision under appeal.
(6) It shall be the duty of the decision-maker to comply with every direction given under subsection (4).
(9) In this section "the decision-maker" means -
(a) Ofcom or the Secretary of State, according to who took the decision appealed against…"
"There shall be annexed to the notice of appeal –
(a) a copy of the disputed decision; and
(b) as far as practicable a copy of every document on which the appellant relies including the written statements of all witnesses of fact, or expert witnesses, if any."
"(1) The Tribunal may control the evidence by giving directions as to –
(a) the issues on which it requires evidence;
(b) the nature of the evidence which it requires to decide those issues; and
(c) the way in which the evidence is to be placed before the Tribunal.
(2) The Tribunal may admit or exclude evidence, whether or not the evidence was available to the respondent when the disputed decision was taken."
"(1) Subject to the provisions of these rules, the Tribunal may regulate its own procedure.
(2) The President may issue practice directions in relation to the procedures provided for by these rules."
"3.1 The Rules are based on the same general philosophy as the CPR and pursue the same overriding objective of enabling the Tribunal to deal with cases justly, in particular by ensuring that the parties are on an equal footing, that expense is saved, and that appeals are dealt with expeditiously and fairly.
3.4. The five main principles of the Rules are as follows:
(i) Early disclosure in writing
(ii) Active case management
(iii) Strict timetables
(iv) Effective fact-finding procedures
The Tribunal will pay close attention to the probative value of the documentary evidence. Where there are essential evidential issues that cannot be satisfactorily resolved without cross-examination, the Tribunal may permit the oral examination of witnesses. As regards expert evidence, the Tribunal will expect the parties to make every effort to narrow the points at issue, and to reach agreement where possible.
(v) Short and structured oral hearings
12.1 Strict rules of evidence do not apply before the Tribunal. The Tribunal will "be guided by overall considerations of fairness, rather than technical rules of evidence"…
12.2 The function of a witness statement is to set out in writing the evidence in chief of the maker of the statement. Accordingly witness statements should so far as possible, be expressed in the witnesses' own words.
12.6 As regards witnesses of fact, a witness statement should simply cover those issues, but only those issues, on which the party serving the statement wishes that witness to give evidence in chief. Thus it is not, for example, the function of a witness statement to provide a commentary on the documents in the case files, to set out quotations from such documents or to engage in matters of argument.
12.8 As regards expert evidence, the Tribunal will take into account the principles and procedures envisaged by Part 35 of the CPR, notably that expert evidence should be restricted to that which is reasonably required to resolve the proceedings. It may be appropriate to organise, prior to, or at some stage during the hearing, a structured discussion, in the presence of the Tribunal, between the parties and their experts, in an endeavour to focus on the main points of dispute…
12.9 The Tribunal considers that, as under Part 35 of the CPR, it is the duty of the expert to help the Tribunal on matters within his expertise: that duty overrides any obligation to the person from whom he has received instructions or by whom he is paid. Expert evidence presented to the Tribunal should be, and should be seen to be, the independent product of the expert uninfluenced by the pressures of the proceedings. An expert witness should never assume the role of an advocate and should not omit to consider material facts which could detract from the expert's concluded opinion…
12.10 An expert's report should be addressed to the Tribunal and not to the party from whom the expert has received his instructions. An expert's report should, in particular, set out the material facts, and the substance of all material instructions on the basis of which it was written…
12.11 If the expert wishes, at any stage, to ask the Tribunal for directions then this should be mentioned to the Registrar who will raise the matter with the Tribunal.
"Overall provisional conclusion
1.13 We consider that, in certain circumstances…
(i) it could be fair and reasonable for BT to impose a termination charge for calls to 080 numbers hosted on its network, which originate on the 2G/3G MNOs network; …
1.14 However, in the light of all the relevant factors and the available evidence, our overall provisional conclusion is that neither the termination charges set out in NCCN 956 nor a payment to cover the costs of origination of any of 2G/3G MNOs has, in the present circumstances, been demonstrated as being fair and reasonable.
1.15 For this reason we provisionally conclude that the Parties to the Dispute, namely BT and each of T-Mobile, Vodafone, O2 and Orange, should revert to the terms on which they were trading prior to the introduction of the NCCN 956.
1.16 We further provisionally conclude that, to the extent that BT has received payments from one or more of the 2G/3G MNOs as a result of NCCN 956, it should repay any payments made by the 2G/3G MNOs and pay interest on those payments."
"Principle 1; the 2G/3G MNOs should not be denied the opportunity to recover their efficient costs of originating calls to 080 numbers hosted on BT's network…
Principle 2; the payment in either direction should, taking into consideration our statutory duty:
(i) Provide benefits to consumers, taking into account Direct, Indirect and Mobile Tariff package effects; and
(ii) avoid a material distortion of competition among either OCP's (Originating Communications Providers) or among terminating communications providers (TCPs).
Principle 3; following the submissions of the 2G/3G MNOs, it also important that the payment in either direction should be reasonably practicable to implement."
"1.11 Ofcom clearly concludes that it is appropriate, subject to Principle 1, for a terminating commutations provider to charge for 0800 or 0808 calls. BT's pricing clearly passes the proposed Principle 1 test as the disputing communication providers retain significant revenue over and above their efficient costs.
1.12 Ofcom originally chose to limit the scope of this dispute to the principle of when it would be appropriate to charge for terminating 0800 or 0808 calls. The scope does not extend to the nature or structure of the pricing or the charges specifically levied. By examining the details of the possible effects of BT's specific pricing proposal Ofcom is extending the scope unnecessarily. There is no reason for Ofcom to change this scope now…
1.13 In order to be consistent with the scope originally set for this dispute, Ofcom should refer this matter back to BT and the disputing communication providers to undertake the required commercial negotiation, in good faith."
"BT agrees that any originating operator (fixed or mobile) should be able to recover its efficient costs of originating any 0800 call."
BT challenged the conclusion that its charging scheme contravened the principle and suggested:
"The next step would be for further negotiations to ensue between BT and the 080 OCPs to resolve any issues in regard to the appropriate 080 termination charge, independant outside of this dispute (sic)."
"Balancing these aspects there is no evidence that there will be downside direct effects from NCCN 956, and when considered in the broader context of the initiatives being taken on competition and termination, there is every reason to believe the contrary. One artefact of the structure of NCCN 956 is that it may induce MNOs' to lower retail tariffs given that volumes may rise at a lower price with the same absolute retention."
"Any proper consideration of your latest submission would require us to extend the period for reaching a final determination beyond the statutory deadline of 5 February 2010. As you are aware, Ofcom can only extend the review period in exceptional circumstances in accordance with section 188(5) of the Act. We do not consider that exceptional circumstances apply in this case."
"5.187 In relation to BT's including Dobbs' arguments that NCCN 956 may actually lead MNOs to leave 080 retail call prices unchanged, or even decrease them, there may be some scope for this but only under certain circumstances. This is because there are a complex set of factors…without detailed information on all of these factors, it is difficult to definitively conclude whether NCCN 956 would result in increased, decreased, or unchanged 080 retail charges.
5.188 However, we still cannot rule out a risk that 080 retail prices may increase as a result of NCCN 956…
5.189 Therefore based on available evidence, we do not consider it appropriate to accept BT's assertion that the structure of NCCN 956 would reduce the retail price of 080 calls from mobiles. In our view, there is still a risk that retail prices could increase. As a result, we have not changed our provisional conclusion set out in paragraph A3.73 that NCCN 956 is likely to have a negative Direct effect on consumers.
5.190 We have examined BT's comments on the scope of the Dispute above. While we consider it appropriate to consider the impact that NCCN 956 could have for the purposes of determining this Dispute, we would reiterate that we are of the view that the actual structure and level of termination charges should be subject to commercial negotiations between BT and the 2G/3G MNOs, and we would not want to pre-empt the outcome of such negotiations."
1. Ofcom adopted a formulaic analysis which failed to pay proper regard to relevant considerations, particularly the desirability that 080 calls should be free to the caller and that revenue in the platform which included 080 numbers should be fairly shared.
2. Principle 1 is doubtful and was applied in an unjust and simplistic fashion.
3. In applying principle 2, Ofcom placed an unreasonable burden on BT to demonstrate the absence of detriment to competition, and Ofcom's analysis of the effects of NCCN 956 on consumers and competition was superficial and flawed.
4. Having stated that the scope of the dispute did not include consideration of the specific charges introduced by BT in NCCN 956, it was unfair for Ofcom to do precisely that and to order the parties to revert to the trading conditions that applied before NCCN 956 came into effect. This gave an unjust negotiating advantage to the MNOs.
"Turning first to the benefit to consumers, BT annexes to this notice of appeal the following:
- Expert report of Professor Ian Dobbs, Professor of Business Economics and Finance at Newcastle University;
- Expert report of Dr Dan Maldoom, Economist and Partner of DotEcon Limited
- Statement of mathematician and BT Chief Network Services Strategist, Andrew Reid; and
- Statement of Paul Richards, Senior Regulatory Economist at BT."
"Whereas BT had previously said only that NCCN 956 might create incentives to reduce retail prices, the [new] evidence is designed to show that it did create those incentives. This argument is supported by complex economic and algebraic analysis. If the evidence is admitted, it will need to be evaluated for the first time by the Tribunal itself."
"Essentially, Ofcom contended for the existence of clear limits on an appellant's ability to adduce evidence in a section 192 appeal to the Tribunal. Those limits were two-fold:
(a) First, an appellant would not – save in exceptional circumstances – be entitled to adduce evidence before the Tribunal which could have been, but was not, submitted by the appellant to Ofcom.
(b) Secondly, an appellant would not –save in exceptional circumstances – be entitled to adduce evidence before the Tribunal which was in fact submitted to Ofcom, but too late to enable Ofcom to take that material into account when reaching its decision."
"107 …BT should have had the opportunity to be able to address the reasonableness and economic effect of the NCCN 956 charges, and for most of the Dispute Resolution Process was deprived of that opportunity. The Dispute Resolution Process is a short one, and between 6 October 2009 (when the process began) and 23 December 2009 (when the draft determination was issued by Ofcom), BT was under a misapprehension induced by Ofcom as to the scope of the dispute being determined.
108. For the Tribunal not to be able to hear evidence on the point would not be consistent with basic justice and would certainly not result in a proper appeal on the merits, given that (without this evidence) BT would be unable to challenge the application by Ofcom of its analytical framework."
1. Whether the grounds of appeal under s192 of the CA 2003 contain the limitation contended for by Ofcom as a matter of statutory construction;
2. whether the CAT ought to have applied a general exclusionary principle analogous to the rule in Ladd v Marshall;
3. whether the CAT erred in law in the exercise of its discretion by applying the wrong principle, failing to take into account relevant considerations or reaching a decision which was beyond the bounds of such discretion as it may properly have had.
The first and second issues reflect the distinction referred to in the introductory part of this judgment.
Section 192(6)(a) of the CA 2003
"30 …it seems to me to be evident that whether the "appeal" went to the CAT or by way of judicial review, the same standard for success would have to be shown. In either case it would not be enough to invite the tribunal to consider the matter afresh – as though the award had never been made.
31 …it is inconceivable that Article 4, in requiring an appeal which can duly take into account the merits, requires Member States to have in effect a fully equipped duplicate regulatory body waiting in the wings just for appeals. What is called for is an appeal body and no more, a body which can look into whether the regulator had got something materially wrong. That may be very difficult if all that is impugned is an overall value judgment based upon competing commercial considerations in the context of a public policy decision."
1. Ofcom is the primary decision-maker, and its position as such is recognised in section 195 of the CA 2003. The CAT may remit a decision to Ofcom and give directions to Ofcom, but its role is essentially to review the decision of the primary decision-maker. This was recognised in the passage cited from the judgment of Jacob LJ.
2. As the statutory regulator, Ofcom's role is not simply that of an arbitrator. It has a positive statutory duty to consider the interests of consumers.
3. The purpose of an appeal is to provide a check on the way in which Ofcom carried out its decision making. Ofcom's proper role would be undermined if it were open to an appellate body not merely to review Ofcom's discharge of its duty on the material available to it, but to make an independent decision on material which Ofcom neither considered nor should have considered.
4. Speed is an important feature of the scheme. Article 20 of the Framework Directive and section 188 of the CA 2003 prescribe an intentionally short timescale for the determination of disputes. They are to be determined within 4 months, save in exceptional circumstances.
5. If a party considers the circumstances to be exceptional and requires further time to be able to place the material it wishes before Ofcom, it should ask for an extension. BT did not do so.
6. The deliberately short timescale reflects the need for the players in the market to have commercial certainty when they make pricing decisions. A party which loses a dispute is free to raise the matter afresh with Ofcom in the light of new evidence, and BT has done in the present case. It has introduced a variation of NCCN 956, which has led to a further referral to Ofcom. But the financial consequences of any ruling on the new scheme will be limited to the date of its introduction.
7. If it is permissible for a disputing party to put fresh evidence before the CAT, not only will the CAT's judgment be made without the benefit of the material having been considered by Ofcom, but the principle of swift adjudication would be undermined and the period of financial uncertainty for the parties would be extended for possibly a considerable time.
Rule in Ladd v Marshall
The CAT's exercise of its discretion
1. BT's response to the draft determination, which was not to ask for an extension of time but rather to put in evidence in support of the reasonableness of the NCCN 956 charging scheme, without complaining that it was unable to put in as much evidence as it would have wished due to shortness of time;
2. prejudice to the MNOs or consumers;
3. the need for legal and regulatory certainty; and
4. prejudice to Ofcom because of its inability to deal with the fresh material.
"33. In relation to Ofcom's handling of the Dispute, BT states that it was not possible for it to have produced all of the material which was served with the Notice of Appeal prior to the Final Determination….
35. …Ofcom does not accept that BT could not have anticipated Ofcom's approach until the Draft Determination, nor that the disputed evidence could not have been served earlier with reasonable diligence…
36. As to the suggestion that the deadline should have been extended, that matter is addressed by Ofcom at footnote 67 of the Final Determination and in its letter to BT of 3 February 2010. As is further explained by Mr Buckley (paragraphs 38-41), Ofcom did examine the evidence submitted on 3 February 2010 [Dobbs 2 and Maldoom 2] to determine whether it constituted the exceptional circumstances necessary to extend the statutory deadline. Ofcom properly and reasonably concluded that it did not constitute such exceptional circumstances….
95. What is conspicuous about this material [the new evidence] …is its detailed focus on the specific charging principles contained in NCCN 956….
97. It is not until the submissions of Reid/1, Richards/1, Dobbs/3 and Maldoom/3 that BT for the first time puts forward any in-depth analysis to explain why, in its submission, the specific charging structure in NCCN 956 will act in such a way as to incentivise MNOs to lower their retail prices…
98. This focus on NCCN 956 is in one sense unsurprising. It implemented the charging tariff that BT implemented in July 2009 and that is at the centre of the dispute. Nonetheless, what is surprising is that the focus on NCCN 956 emerged at such a late stage."
"The matters that Ofcom is handling under a dispute determination process are frequently of vital commercial interest to the parties. Unnecessary delay has the potential to exacerbate harm. As it was expressed in T-Mobile (UK) Limited v Ofcom  CAT 12 [at 81]
"…The tribunal recognise – and this was common ground among the parties – that the section 185 procedure is intended to provide a relevantly swift and certain solution to disputes between the participants in this sector." "
Lord Justice Sullivan:
The Chancellor of the High Court: