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Cite as: [2010] EWHC 1243 (Admin), [2010] ACD 77

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		Neutral Citation Number: [2010] EWHC 1243 (Admin)
		Case No: CO/900/2009

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

28/05/2010

B e f o r e :

MR JUSTICE CRANSTON
____________________

Between:

	The Queen on the Application of (1) DATA BROADCASTING INTERNATIONAL LIMITED (2) SIMPLEACTIVE LIMITED	Claimants
	- and -
	THE OFFICE OF COMMUNICATIONS	Defendant

____________________

Pushpinder Saini QC and James Segan (instructed by Taylor Wessing) for the Claimants
Dinah Rose QC and Jane Collier (instructed by Office of Communications) for the Defendant
Hearing dates: 12, 13 May 2010
____________________

HTML VERSION OF JUDGMENT
____________________

Mr Justice Cranston:

Introduction

The claimants in these proceedings hold licences under the Broadcasting Act 1990 which authorise them to broadcast data for commercial purposes by using spare capacity in the analogue terrestrial television frequencies allocated to Channel 3 (ITV) and Channel 4. The spare capacity used to broadcast these services, which are known as "additional services" under the statutory scheme, exists only as long as the analogue television services are available. The government has taken a policy decision to switch off analogue television signals and replace them with digital signals, a process known as the digital switchover. The analogue signals are being switched off, region by region. In the areas where analogue signals have been switched off the claimants are no longer physically able to provide services. Channels 3 and 4 do not have licences to provide an analogue service on those frequencies in these areas, and therefore the spare capacity which has been used by the claimants no longer exists. Ofcom has varied the claimants' licences, by removing specified stations from the licensed area as defined in the licences, at the same time that the analogue signals in each area are switched off.

In these circumstances, the claimants have brought proceedings for judicial review, challenging the variations made to their licences. In broad terms they allege that Ofcom has no power to vary their licences in this way, and assert that their statutory licences are to be regarded as contracts, giving rise to private law rights and obligations. The claimants' primary ground of challenge is that the variations in their licences necessarily involve a variation of the period for which a licence is to continue in force and that Ofcom was therefore obliged by section 3(4) of the Broadcasting Act 1990 and condition 22 of the licences to seek their consent. It did not do so. They seek a declaration to that effect and an award of damages. The damages they seek are substantial, in the region of £9 million, for alleged breaches of contract by Ofcom, or for violation of their rights under Article 1 of the First Protocol to the European Convention on Human Rights.

The parties and their operations

Data Broadcasting International Ltd ("DBI") and Simpleactive Ltd ("SA"), the claimants, are sister companies, both of which deliver data broadcast services within the United Kingdom. The data is carried by using spare capacity in analogue terrestrial television signals. Commercial applications include transferring data to prevent credit card fraud, conveying financial data and offering sporting information. DBI has held a licence under the Broadcasting Act 1990 since 1 January 1993 to deliver its services via spare capacity in the broadcasts of Channel 3. Following renewal, that licence is due to run to 29 September 2011. SA has held a materially identical licence since 1 July 1995 in respect of Channel 4. Following renewal, SA's licence is due to run to 1 January 2014.

In broad terms the way DBI and SA use spare capacity is possible because analogue television pictures are sent over their assigned frequency to the television receiver as a series of picture frames. Each frame is made up of 625 lines, split into two fields. Older analogue television receivers display each line in sequence on the picture tube of the television by firing a beam of electrons at the screen. Because of the way this beam is controlled within the television receiver, it takes time for it to return to the start of each line and a longer time to return the beam to the top of screen after each field. In early television receivers, it took a relatively long period of time to reset the beam to the top of the screen, and the broadcasters inserted what is known as a blanking interval into the signal to allow this fly-back operation to be completed before the start of the next field. This is the vertical blanking interval and it comprises 25 lines per field. As receiver performance improved, not all of the 25 lines were required to achieve the fly-back operation, so some of the lines became available for other uses. During the 1970s, some of the unused capacity was used to launch data services such as Teletext, Ceefax (the BBC text service) and subtitling.

The licences which DBI and SA hold are commercial additional services licences. These were created to ensure that there was no wastage of space once a television signal and any teletext signal has been inserted into a frequency. DBI's licence is for 6 lines of spare capacity on the ITV analogue signal, that is, 3 lines per television field, while SA's licence is for 6 lines of spare capacity on the Channel 4 analogue signal, that is three lines per television field. Commercial additional services licences piggyback off the television licences: there must be a Channel 3 and Channel 4 signal in which they sit, and there must be spare capacity within that signal which can be used for additional services.

The Office of Communications (Ofcom) is the licensing authority for DBI and SA. Ofcom's main powers and functions are granted by the Communications Act 2003. Under the Act it has a number of functions, powers and duties in relation to the electromagnetic spectrum. Section 3 of the Act sets out as its principal duties to further the interests of citizens in relation to communications matters, and to further the interests of consumers in relevant markets, where appropriate by promoting competition: s. 3(1). The things which Ofcom is required to secure in the carrying out of its functions include, in particular, the optimal use for wireless telegraphy of the electro-magnetic spectrum; the availability throughout the United Kingdom of a wide range of electronic communications services and of a wide range of television and radio services which are both of high quality and calculated to appeal to a variety of tastes and interests; and the maintenance of a sufficient plurality of providers of different television and radio services: s. 3(2). Under section 3(3) Ofcom must have regard, in all cases in performing its duties, to the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed, and any other principles appearing to Ofcom to represent the best regulatory practice. Section 3(4) provides

"(4) Ofcom must also have regard, in performing those duties, to such of the following as appear to them to be relevant in the circumstances –

…

(d) the desirability of encouraging investment and innovation in relevant markets;

…

(f) the different needs and interests, so far as the use of the electro-magnetic spectrum for wireless telegraphy is concerned, of all persons who may wish to make use of it".

Ofcom's licensing of the use of the electromagnetic spectrum is exercised under the Wireless Telegraphy Act 2006 (the "WTA 2006"), as well as its related functions, for the purpose of ensuring the effective management of that spectrum in the public interest. Ofcom's spectrum management functions were originally contained in the Communications Act 2003. However, chapter 2 and other parts of that Act were repealed and replaced in very similar terms by the WTA 2006. (The WTA 2006 also consolidated and replaced the various Wireless Telegraphy Acts, including the Wireless Telegraphy Act 1949 ("the WTA 1949")). In addition to Ofcom's duties under section 3 of the Communications Act 2003, section 3 of the WTA 2006 requires Ofcom to have regard to the extent to which the electromagnetic spectrum is available for use, and to demand for that spectrum, now and in the future. In carrying out its functions, Ofcom must also have regard, to among other things, the desirability of promoting the efficient management and use of the part of the electromagnetic spectrum available for wireless telegraphy, the economic and other benefits that may arise from the use of wireless telegraphy, the development of innovative services and competition in the provision of electronic communications services: s.3 (2)(a)-(c).

If a party is to use a frequency on the spectrum to provide a service two licences are required. First, there is the licence allowing the broadcasting company, be that a television, radio or an additional services company such as DBI and SA, to produce a service which is transmitted over certain frequencies. This is done by granting Broadcasting Act 1990 licences, and within those licences, listing the stations and frequencies over which the service is to be carried. DBI and SA have this type of licence, in their case a licence to provide commercial additional services. The second type of licence is one allowing the transmitter operator physically to transmit the wireless signal. This is done by assigning frequencies in WTA 2006 licences. The transmitter operator relevant to this litigation is NTL, known as Arqiva from January 2005 ("NTL/Arqiva"). NTL/Arqiva owns and operates the network of transmission stations from which the analogue Channel 3 and Channel 4 signals are broadcast.

Prior to December 2003, the Secretary of State was responsible for the management of the electro-magnetic spectrum, and had the power to assign frequencies. The Secretary of State, through what was the Radiocommunications Agency, was responsible for issuing WTA 1949 licences. The Secretary of State issued these WTA licences allowing operators physically to transmit signals over the air. These licences contained assignments of frequencies to operators. The Secretary of State granted NTL/Arqiva a licence to transmit on certain frequencies from certain stations on 1 January 1991. This is the licence which contains the relevant assignment of frequencies for our purposes. NTL/Arqiva's licence is what is called an omnibus licence, which it holds on behalf of all of its customers. Hence only one entry was needed for the DBI and SA frequency assignments. The licence was granted to reflect the fact that NTL/Arqiva had concluded contracts with Channel 3 and Channel 4 physically to transmit their television services from its transmission stations.

One of Ofcom's predecessor bodies was the Independent Television Commission ("the ITC"). Prior to December 2003 it was responsible for the licensing of independent television and radio broadcast services through the issue of Broadcasting Act 1990 licences. Under sections 90 and 96 of the Broadcasting Act 1990, the Secretary of State made allocations of spectrum to the ITC in order that it could discharge its duties to license broadcast services. This is the power under section 65 of the Broadcasting Act 1990 to assign to the ITC, for the purpose of the provision of services licensed by the ITC, such frequencies as the Secretary of State may determine. These allocations were in the form of a general delegation of a spectrum band which was to be dedicated for a specific broadcasting purpose, for example, analogue television broadcasting.

Following the coming into force of the Broadcasting Act 1996, the Secretary of State assigned frequencies to the ITC under the Broadcasting Act 1990, section 65 and the Broadcasting Act 1996, section 6. This meant that the ITC could use its powers under the Broadcasting Act 1990 to identify for specific services the specific stations and frequencies over which they could provide a service. The ITC made a series of location-specific allocations to licensees from this band. When taken in total by an individual licensee, they comprised the network operated by that licensee and enabled that licensee to achieve the coverage area as defined in the licence definitions. For NTL/Arqiva the frequencies in these licences matched the frequencies in the WTA assignment by the Secretary of State to it and the broader assignment of frequencies by the Secretary of State to the ITC.

When the ITC was merged with a number of other regulators to form Ofcom in 2003, Ofcom took on powers from the previous regulators, and was also granted new powers under the Communications Act 2003. A number of the Secretary of State's powers in relation to the spectrum were passed to Ofcom under the Act. More specifically, Chapter 2 of the Communications Act 2003 gave Ofcom the power to manage the spectrum. Ofcom was also given the power to grant licences under the WTA 1949. Section 65 of the Broadcasting Act 1990 was repealed. Ofcom now had the power to assign or allocate frequencies under section 164 of the Communications Act 2003, which required Ofcom to make an order, if considered appropriate, to impose limitations on the use of particular frequencies. The power to grant Broadcasting Act 1990 licences was transferred from the ITC to Ofcom. It was no longer necessary for the Secretary of State to issue an order making a specific frequency reservation to enable Broadcasting Act 1990 licences to be issued, as Ofcom was also responsible for the management of the radio spectrum.

The Communications Act 2003 also contained provisions for digital broadcasting. By sections 215 and 231 Ofcom is under a specific statutory duty to offer to issue a digital replacement licence to the Channel 3 companies and the provider of Channel 4's service in exchange for their previous analogue licences. These licences were issued in 2004. They require that the terrestrial television services be provided by a digital means, but they also require that the analogue terrestrial television service continues to be provided for a limited period. The licences have a back-stop date by which complete digital switchover must be achieved.

Government policy on digital switch-over

United Kingdom and European Union policy is that digital technology provides a more efficient method than analogue for transmitting data, including radio and television programmes, since it allows more information to be transmitted on a single frequency than does analogue technology. The benefits of digital technology are said to include benefits to consumers from extending and improving the coverage of the digital terrestrial network; long-term costs savings, thus releasing resources for investment in programming and other services; and improving the functioning of the United Kingdom broadcasting market by easing entry barriers.

The introduction of digital terrestrial broadcasting in the United Kingdom can be traced back to the White Paper "Digital Terrestrial Broadcasting, The Government's Proposals", 1995, if not earlier. In particular it considered the possibility that in the long term, it might be possible to switch off analogue transmissions of terrestrial broadcast services, releasing significant amounts of spectrum for further broadcasting or other uses. There was a change of government in 1997. In September 1999, Lord Smith, then Secretary of State for Culture, Media and Sport, set out the government's preferred timetable for digital switchover, a phased approach taking place from 2006 to 2010. That was in a speech to the Royal Television Society. The speech was reported in the media, published on the departmental website and repeated in a written answer to a Parliamentary question on 11 November 1999.

In December 2001, the Department of Culture, Media and Sport published a consultation document, called "Digital Decisions: Viewer Choice and Digital Television, a report by the Viewers' Panel to the Secretary of State", which set out the government's aspiration of switchover between 2006-2010, made clear that it was not simply possible to switch off the analogue signal overnight, set out the lack of awareness among viewers of switchover and emphasised that there would need to be a phased switchover timetable with detailed arrangements put in place to ensure that analogue viewers were protected. In early 2002 there was a further consultation document, "The Principles of Spectrum Planning", which recalled the announcement in September 1999 that the change from analogue to digital could start to happen as early as 2006 and be completed by 2010. It also noted that switching off the analogue signals, so digital signals could migrate to those channels, if this was the method used, could take an additional two years. DBI responded to this consultation on 7 March 2002. In its response to the latter, DBI stated that it could not agree that the switch off should begin in early 2006 and be completed by 2010.

"[T]his time frame is not realistic for a number of reasons including the fact that DBI is broadcasting under a 10 year government licence that does not expire until 29 September 2011. We agree that the transition from analogue to all digital terrestrial television transmissions must be properly planned but we emphasise that there must be absolutely no degradation in either the quality or the geographical coverage of analogue transmissions before 29 September 2011".

Throughout 2003 there were official statements about the switchover from analogue to digital. In April 2003 the Department issued a press release stating that the Secretary of State applauded the progress made by industry towards achieving the government's aim of switching over to digital television 2006-2010. Later in the year, a junior minister delivered a speech to the Royal Television Society, reported in the press, in which he said that switching over by 2010 remained achievable. He noted "that switchover will not happen overnight, but will be a phased process, perhaps over 4 years … [T]ransmitters will have to be converted, and switchover will happen region by region". Further announcements followed. For example, in March 2004 the government's document "Moving Forward on Digital Switchover" noted that switchover would take a minimum of four years and be phased region by region. In April 2004 Ofcom's report, "Driving Digital Switchover" recommended that digital switchover should be implemented region by region. In September 2004 Ofcom consulted on the replacement of the licences of the public service broadcasters – which include Channels 3 and 4 – including an indicative digital switchover timetable on a region by region basis.

The European Commission published a Communication on accelerating the transition from analogue to digital broadcasting in May 2005: COM (2005) 204. It built on an earlier Communication on the transition from analogue to digital broadcasting: COM (2003) 541. The Communication set out the benefits for consumers and the economy of switchover. It noted that there was little or no coordination of the switchover plans of Member States. Economic and social benefits for the European Union as a whole would only be fully achieved once all Member States have completed switch off. The Commission therefore proposed that the beginning of 2012 be agreed for switch off in all Member States. Those Member States who had not yet announced switch-off dates were encouraged to publish, by the end of 2005, plans to show how they would achieve switch-off by the beginning of 2012.

On 15 September 2005 the Secretary of State confirmed that digital switchover in the United Kingdom would take place between 2008 and 2012, on a region by region basis.

Part of the government's policy is that on completion of digital switchover, the platforms carrying the public service television channels such as Channels 3 and 4 should substantially match the coverage of the existing analogue networks. This necessitates the reuse of frequencies currently used for analogue broadcasting by the new, high power digital terrestrial television services which will operate after digital switchover. Accordingly, digital switchover requires the analogue services to be cleared. As digital switchover progresses, all the digital broadcasting licences relating to an area whose analogue signal is being switched off are also varied, to remove all references requiring the licence holder to provide an analogue service on the frequencies previously used for analogue broadcasting in that area. The analogue coverage of the Channel 3 and Channel 4 digital replacement licences is thus progressively being reduced in scope.

Issue and renewal of claimants' licences

In 1992, the ITC sent DBI a formal invitation to apply for a 10 year additional services licence as part of a competitive tendering process in which applicants made cash bids. The licences for these commercial additional services were to "provide for services to be broadcast throughout the United Kingdom, the Isle of Man and the Channel Islands". The submission of an application was regarded as an indication of an applicant's willingness to accept, if offered, the licence, subject to the conditions indicated. The invitation to apply provided that the Secretary of State "has powers under the legislation to revoke the assignment of frequencies, even if such frequencies are being used to carry additional and other services" (para. 36). The procedure for the competitive bidding was set out, it being explained that a licence would be awarded to the highest bidder, unless there were exceptional circumstances. It was also explained in the invitation to apply that the ITC was not guaranteeing that any service operated by the licence holder would be profitable (paras. 34, 61). The cash bid document, which was attached to the invitation to apply, required an applicant to give a signed commitment to offer to pay to the ITC, in the event of the application being granted, the amount of money specified.

On 30 June 1992 the ITC, in exercise of the powers under the Broadcasting Act 1990, awarded DBI a licence, with a 10 year term, from 1 January 1993. The annual fee was £29,500, increasing with inflation, plus 5 percent of qualifying revenues. On 12 January 1995, the ITC awarded SA a similar licence with a 10 year term from 1 July 1995 to 30 June 2005. The annual fee was £90,000, increasing with inflation, plus 5 percent of SA's qualifying revenues. In turn DBI and SA entered agreements with NTL/Arqiva, under which the latter provided them with transmission services.

On 8 May 2001, the ITC issued two documents, entitled "Commercial Additional Service Licence Renewal: Methodology and Procedure" and "Guidance Notes to Licensee Seeking Renewal of a Commercial Additional Service Licence from 2001. The "Methodology and Procedure" document explained that the renewal process would involve a licensee submitting an expression of interest with a business plan; the ITC informing it of the financial terms over 10 years on which it was prepared to grant the licence; and the licensee informing the ITC whether these terms were acceptable. If they were the licensee would submit a formal application and the ITC would renew the licence.

The ITC had already written to DBI on 22 June to say that, subject to DBI continuing to meet its licence obligations, it would accept an application for the renewal of the licence. DBI submitted its application for the renewal of its licence on 15 June 2001. This application anticipated that, during the last four years or so of the licence, there would be a loss of business in terms of both client numbers and increased pricing pressures as its clients either decided to wind down their data broadcast services or migrated them to alternative technologies. DBI forecast long term losses. In response to an ITC request for further information as to how DBI would address those losses in later years, DBI noted that it was clear that there would be substantial operating losses in the latter years, "the only question being as the pace at which the business will diminish."

When the ITC considered DBI's application internally it concluded that its business would be weakened by the eventual switch off of the analogue transmission signal, the government having already set out its plans for digital switchover, starting in 2006 and finishing by 2010. The ITC therefore agreed with DBI's analysis that the value of its licence would decline over time. There would be increasing pressure from competition and the future switch off of the analogue signal. On 21 September 2001 the ITC offered to renew the licence for an annual fee of £45,000, increasing with inflation, and 8 percent of qualifying revenue. DBI was told the terms were non-negotiable.

On 27 September 2001, the ITC wrote to DBI about how the procedure would be completed on 28 September 2001. The ITC would offer terms, in response to DBI's acceptance of those terms, and subject to the requirements of section 53(5)-(8) of the Broadcasting Act, ITC would then grant a renewal of the licence; and DBI should have available on 28 September "individual[s] of sufficient seniority within the company who are duly authorised to apply and to signify in writing to the ITC their acceptance of the terms which are offered". On 28 September 2001, DBI faxed a formal application document to the ITC. The ITC notified DBI of the financial terms on which it was offering a licence and DBI was asked to "confirm by facsimile its consent to these not later than 12 noon that day". DBI then faxed its acceptance of this offer and the ITC resolved to grant the renewal and issued the notice of renewal on the same day. Accordingly, the licence was renewed for 10 years, to 2011.

After its licence was renewed DBI revisited its terms with NTL/Arqiva in August 2002. Under the amended terms the agreement was, subject to early termination, to continue until ended by either party on not less than twelve months prior written notice to the other party, such notice not to expire before 29 September 2011. If not previously terminated, the agreement in any event automatically and immediately terminated on the date that the frequencies for the terrestrial broadcasting of the licensed service and/or any services of other licence holders by analogue means ceased lawfully to be available for such purpose. If the ITC or other relevant authority determined that the terrestrial broadcasting of television and/or data by analogue means should cease from any station by a given date, either party could terminate the agreement with respect to that station. If the agreement was terminated in relation to one or more, but not all, of the stations, the transmission fee was to be adjusted downwards by such aggregate percentage as was attributable to those stations, and there was no liability to pay the cancellation fee in respect of the transmission fee for those stations. Attached to the DBI – NTL/Arqiva agreement is a schedule of stations across the country with columns for each, with the attributable proportion of transmission fees and percentage of population covered.

On 8 May 2003, SA indicated to the ITC that it wished to apply for the renewal of its licence. On 30 July 2003 it submitted documents which forecast long term losses of £149,000 in 2012 and £512,000 in 2013. The supporting notes to SA's application stated that during the last four years or so of the licence term, it anticipated the loss of business in terms of both client numbers and increased pricing pressures as clients either decided to wind down their data broadcast services or to migrate them to alternative technologies. Correspondence ensued and in its reply on 15 September 2003 SA recognised the significant effect which digital switchover would have on its business.

"We have made the assumption that analogue TV transmissions will not be completely switched-off until the end of the licence in 2013 but that there will possibly be a transition period in the last 12-24 months of the licence during which time analogue transmitters will be progressively reduced in power and/or switched off … The Licence will provide significant reassurance to our prospects but we have assumed that due to the impending switch off, no more contracts will be concluded from 2008 and that existing contracts will start to end in 2010 as they migrate to alternative networks."

There were internal ITC deliberations about the adverse impact on SA's business of progressive regional switch-over from analogue to digital. The variation in the ITC's own assumptions about the date of switch-off in other licence renewals was noted, including in one case that it might go beyond 2012. On 24 November 2003 the ITC advised SA of the financial terms it proposed to offer. It was told that they were non-negotiable. The fixed part of the licence fee was cut by 90 percent, from around £93,000 to £9,000. Thus SA was required to pay to Ofcom £9,000 per annum, to be increased annually in line with the retail price index, plus 4 percent of qualifying revenues. On 1 December 2003, SA accepted these renewal terms and the licence was extended for a further 10 years until 31 December 2013.

As part of the background to the litigation it should be noted that on 30 November 2004 DBI was issued a digital additional services licence. However, DBI has never been able to obtain capacity to provide the service and the licence has proved worthless. Ofcom attempted over several years to facilitate DBI's and SA's attempts to enter into agreements with other broadcasters to buy digital capacity from them. Nothing came of this. For present purposes there is no need to explore the details or to attribute blame for the failure.

Subsequent events regarding the licences

On 21 September 2004 Ofcom wrote to DBI and SA that under current plans the switchover from analogue to digital would occur on a region by region basis from 2007 until 2012. Ofcom informed them that in due course it would be seeking their consent to vary the licences under condition 22(a) by bringing forward the end of the license period. Then in June 2006 Ofcom wrote to DBI and SA to inform them of proposed variations to the licences to reflect the regional switchover sequence. Reference was made to the power under section 3(4) of the Broadcasting Act 1990 to vary a licence. This letter stated: "This letter also notifies you that once the final region switches off the analogue signal, any licence that still remains in force will be of no use, and will be revoked". At the request of DBI and SA, Ofcom agreed to defer the variations.

On 23 September 2008 Ofcom wrote to DBI and SA informing them that it was minded to revoke the licences under condition 28(3)(h) of the licences, in respect of the various regions, on indicative dates between November 2008 and 2013, and that it would give the licensees advance notice once each of the dates was fixed. Ofcom indicated that the indicative date for the Selkirk transmitter and its 11 relays serving the Scottish Borders was 20 November 2008. On 27 October 2008 solicitors responded on behalf of DBI and SA. Amongst other things they indicated that in their view Ofcom had no power to revoke the licences in this way under condition 28(3)(h), and that under condition 22 (a) Ofcom required the licensee's consent to vary the licence period. The solicitors pointed out that Ofcom was proposing that the licences were to be amended so it would "progressively remove parts of the Licence Area".

On 17 November 2008 Ofcom wrote to the solicitors for DBI and SA to inform them of its decision to vary the licenced area of the licenses under condition 22(b), alternatively, to revoke the licences in stages under condition 28(3)(h). On 19 November 2008 Ofcom issued its decision letters in respect of each of the licences varying, or alternatively revoking, the licences as previously notified. On 9 July 2009, Ofcom wrote to DBI and SA proposing further variations to the licences, amending the relevant digital switchover dates for some regions. In the alternative, Ofcom proposed to revoke the licences on a phased region by region basis in accordance with the amended dates. After receiving representations from DBI and SA on 4 August 2009, Ofcom made further decisions on 27 August 2009. Ofcom notified DBI and SA that in October 2009 it would vary, alternatively revoke, the licences of DBI and SA for further areas on a variety of dates. It also indicated that it would shortly be issuing notices to Arqiva and Teletext to vary their respective licences with regard to switching off the analogue signal. The changes for DBI and SA became effective in December 2009.

Digital switchover took place in the Selkirk main station and its dependent relay stations on 20 November 2008. Ofcom had exercised its powers to vary Arqiva's WTA 2006 licence to revoke, with effect from 20 November 2008, the relevant frequency assignments of the signals carrying the television broadcasting services on which DBI's and SA's additional services were using spare capacity. The Channel 3 and Channel 4 digital licences were also varied so that services on analogue signals from those stations were removed. The analogue signal was switched off, and transmissions ceased with effect from 20 November 2008, in order to allow digital transmission to be made from those stations from that date. From then it was no longer possible for DBI and SA services to be carried within that analogue signal.

On 16 March 2009 Ofcom wrote to DBI and SA informing them that in the light of the government's switchover policy, it proposed to vary the licences to add a new Condition 2(1)(A) and a new Part V to the Annex, with the intention of inserting a digital switchover table. The proposed table indicated the dates on which analogue television broadcasting services must have ceased from the stations in each of the regions listed in Part II of the Annex. Ofcom also wrote that DBI and SA could surrender their licences if they chose. Having considered representations from DBI and SA, Ofcom wrote on 8 April 2009 informing them that it had decided to proceed with issuing the variation.

The licensing regime

Section 3 of the Broadcasting Act 1990 contains the general licensing provision for independent television services. Section 3(2) provides that a licence may be granted for the provision of such a service as is specified in the licence or for the provision of a service of such a description as is so specified. By section 4(1), a licence may include such conditions as appear to Ofcom to be appropriate, having regard to any duties which are or may be imposed on it, or on the licence holder, under the legislation. In particular section 3 contains the crucial power for this case to vary licences. Until 2003 it was exercisable by the ITC. Since then Ofcom has had the power. As far as is relevant it provides as follows:

"3(4) [ITC][Ofcom] may vary a licence by a notice served on the licence holder if –

(a) in the case of a variation of the period for which the licence is to continue in force, the licence holder consents; or

(b) in the case of any other variation, the licence holder has been given a reasonable opportunity of making representations to [ITC] [Ofcom] about variation.

(5) [S]ubsection (4) shall not authorise the variation of any conditions included in a licence in pursuance of section 19(1) …52(1) …"

Under section 3(8) the holder of a licence under the Broadcasting Act 1990 is not relieved of liability for a failure to hold a WTA license.

The operator of Channel 3 is dealt with in section 14 of the Broadcasting Act 1996. Under that section the ITC and later Ofcom have been obliged to do all they could to secure a national system of broadcasting service through Channel 3, although they have also been able to determine that the services should include different programmes for different parts, or different communities of an area: s. 14(1), (3). Section 15 contains the licensing provisions for Channel 3. Under the licensing regime for Channel 4, it has had to provide for so much of England, Scotland and Northern Ireland as may from time to time appear to be reasonably practicable: s. 24(3). Under the Communications Act 2003 Ofcom came under a duty to offer digital licences to holders of an existing analogue licence: e.g. s. 215 (Channel 3).

Additional services of the kind provided by DBI and SA were regulated until 2003 by the ITC: for example, Broadcasting Act 1990, s. 2(1)(b). Now under section 211(2)(e) of the Communications Act 2003 the services falling to be regulated by Ofcom include additional services (see also section 362(1)). The licences held by additional service providers such as DBI and SA are still issued under the Broadcasting Act 1990.

Under the arrangements operating until 2003, additional services were defined in section 48(1) as any service consisting in the sending of telecommunication signals for transmission by wireless telegraphy by means of the use of the spare capacity within the signals carrying any television broadcasting service provided on any frequency assigned under section 65(1), or on any other allocated frequency notified to the ITC by the Secretary of State. As described earlier section 65(1) enabled the Secretary of State to assign frequencies to the ITC. Section 65(4) provided for the revocation of such assigned frequencies "whether or not the frequency is for the time being one on which there is being provided a service licensed under this Part of Part II".

Reflecting the new regulatory regime since 2003, additional services are now defined to mean any service which consists in the sending of electronic signals for transmission by wireless telegraphy by means of the use of the spare capacity within the signals carrying any television broadcasting service provided on a relevant frequency: Broadcasting Act 1990, s. 48(1). For these purposes the spare capacity within the signals carrying any such broadcasting service is to be taken to be any part of the signals which is not required for the television broadcasting service for which the frequency has been made available, and is determined by Ofcom to be available for the provision of additional services: s. 48(2). ("Frequency" means a frequency made available by Ofcom for the purposes of a television broadcasting service: s. 48(6)). If they consider it appropriate to do so, Ofcom may, while an additional services license is in force, modify a determination made for the purposes of the license in any manner that does not reduce the amount of spare capacity made available for the licensed services: s. 48(2A).

Digital additional services are licensed under section 25 of the Broadcasting Act 1996. These are defined in section 24 of that Act in a manner which is not relevant for present purposes.

Section 49 of the Broadcasting Act 1990 contains the licensing powers in relation to additional services. Under that section the ITC, and later Ofcom, have had to do all that they can to secure that, for the frequencies falling within section 48(1), all of the spare capacity available for additional services on those frequencies is used for that purpose. An application for an additional services licence had had to be accompanied by a fee; a technical plan indicating the nature of the additional services to be provided; the cash bid; and other financial information as reasonably required: s. 50(3). Before any licence is granted sections 51(1) of the Broadcasting Act 1990 requires the ITC, and later Ofcom, to approve the technical plan of the bidder, and to satisfy itself that the services to be provided are capable of being maintained throughout the whole period of the licence.

Under section 52(1) an additional services licence must include conditions requiring the licence holder to pay in respect of the first complete calendar year the amount specified in its cash bid; in respect of each subsequent year the cash bid as increased by the appropriate percentage; and in respect of each accounting period an amount representing a specified percentage of the qualifying revenue for that period. The qualifying revenue for any accounting period of the licence holder consists of all amounts which are received using the spare capacity allocated by the license: s. 52(2). In other words, the licensee pays a share of its profits for the license.

An additional services licence is for ten years and may be renewed for a period of ten years on one or more occasions: s. 53(1). When an application for renewal is made it may only be refused if (a) the ITC/Ofcom are not satisfied that the additional service specified in the technical plan would be provided ; (b) the additional service would materially differ from what is authorised; or (c) they propose to determine that the spare capacity allocated by the licence is to cease to be available for the provision of additional services, in order that it may be used by the person providing television broadcasting on that frequency to enhance the technical quality of its service: s. 53(5). Section 53(7)-(8) provides for the amounts payable by the licensee.

As with other licensing regimes, it is an offence to offer the relevant service without a licence: Broadcasting Act 1990, s. 13(1). Section 13(1A) applies section 13(1) to additional services. As also with other licensing regimes, there is a power ultimately to withdraw a licence for failing to comply with its conditions: for example, Broadcasting Act 1990, s. 42 (power to revoke Channel 3 license). Section 42(4) also contains a power to revoke Channel 3's license, if appropriate, where it has ceased to provide the licensed service before the end of the period for which the licence is to continue in force. Section 42 applies in relation to an additional services licence as it applies in relation to a licence to provide a Channel 3 service: s. 55(4). Section 55 also contains specific power to impose a financial penalty on the holder of an additional services licence which has failed to comply with any condition of the licence or any direction given by the ITC/Ofcom. Under section 263(2) of the Communications Act 2003, it is the duty of Ofcom to do all that it can to secure that the holder of a licence complies, in relation to the licensed service, with the conditions included in the regulatory regime for that service.

Earlier in the judgment there was an explanation that two types of licence are relevant in this case. As well as the licensees under the Broadcasting Act 1990 for the broadcasting companies – the television and additional services providers – there is the licence for a transmitter operator under the Wireless Telegraphy Act 2006 ("the WTA 2006"), in this case NTL/Arqiva. The licensing provisions of the WTA 2006 are contained in section 8 of that Act. It is unlawful to establish or use a wireless telegraphy station, or to install or use wireless telegraphy apparatus, without a licence. Section 9(1) of the WTA 2006 enables the licence to be granted subject to the terms, provisions and limitations as Ofcom think fit. Particular limitations which can apply to a WTA license are then set out in the remainder of that section.

The terms of the licences

The licences awarded to DBI and SA have required them to provide a licensed service for the licence period and in the licensed area, by procuring that the licensed service is transmitted from the stations specified in Part II of the Annex to the licence, seven days a week, for up to 24 hours a day, on the spare capacity specified: condition 2(1). Part II of the Annex contains a list of main stations and relays, each of which is allocated a frequency.

Part 1 of the licences contain definitions. The "Licensed Service" is primarily the provision of information on a subscription basis. To make maximum use of the spare capacity licensed, the licensee is also to sub-licence spare capacity to providers of services to subscription and closed user groups. This was varied by amendment in 2005 to allow all of the spare capacity to be sub-licensed. The "Licence Period" is defined as "the Initial Licence Period or any Subsequent Licence Period, as the context shall require". That definition has remained unchanged in the renewal licenses.

In the original licence the "Licensed Area" is defined as the coverage area achieved when the licensed service is transmitted on the spare capacity allocated by the licence from the stations specified in part II of the Annex, as varied from time to time pursuant to condition 2(1). This definition was varied in 2003, by addition of a proviso, "subject to such stations being operated in accordance with the technical performance standards which apply to the television broadcasting service which is broadcast from those stations in accordance with the details set out in Part 2 of the Annex".

"Qualifying Revenue" is defined as the aggregate of all amounts received by the licensee or by any connected person referable to the right to use, or to authorize persons to use, the spare capacity allocated by the licence. As indicated, a percentage of the qualifying revenue is payable for a licence, along with the cash bid.

As well as definitions, Part 1 of the licences provides that the Interpretation Act 1978 applies and the licences "shall be governed by English law". The licences provide in Part 1 that they shall remain in force until surrendered or revoked in accordance with their conditions.

The original licences stated that the ITC could amend Part II of the Annex to reflect variations in the coverage area of television broadcasting services by substituting stations for an area, by adding stations for an additional area (condition 2(1)(a) – (b)) and

"by deleting references to any station or stations where such deletion is required pursuant to the revocation by the Secretary of State, pursuant to Section 65(4) of the [Broadcasting] Act 1990, of the assignment of any frequency": Condition 2(1)(c)).

Between 1995 and 2000 a number of stations were added to DBI and SA's licences pursuant to condition 2(1). In a consultation letter on 19 September 2003 Ofcom proposed that conditions 2(1)(a)-(c) be removed from the licences on the basis that the power to make such changes was already covered in condition 22. DBI and SA did not respond to Ofcom's consultation on this variation. The change was made and condition 2(1) no longer contains any power to substitute or delete stations. Condition 2(2) continues to provide as follows:

"Nothing in this Licence shall constitute or imply any warranty, representation or obligation on the part of Ofcom as to the size or location of the areas actually capable of receiving the additional television service(s) provided by the Licensee pursuant to the Licence or that services provided by the holder of any other licence (including an additional television service (s) licence shall not be capable of reception in the whole or any part of the Licensed Area."

A central aspect of the licence for this litigation is condition 22, which is the variation condition. The side note reference in the amended licence is to section 3(4)-(5) of the Broadcasting Act 1990.

"Ofcom may by a notice served on the Licensee:

(a) vary the Licence Period provided that the Licensee consents to such variation (and without prejudice to the powers and duties of Ofcom under Section 55 of the 1990 Act); or

(b) vary the Licence in any respect not mentioned in paragraph (a) above provided that the Licensee has been given a reasonable opportunity to make representations to Ofcom concerning the proposed variation, (emphasis added)

provided always that paragraphs (a) and (b) above shall not authorise the variation of Condition 4 to the extent that that Condition requires the payment by the Licensee to Ofcom of: -

i. (in respect of the first complete calendar year falling within the Licence Period) the amount of the Cash Bid:

ii. (in respect of each subsequent year falling wholly or partly in the Licence Period) the amount of the Cash Bid as increased by the Appropriate Percentage; and

iii. (in respect of each accounting period of the Licensee) the Relevant Percentage of Qualifying Revenue).

Condition 25 is a force majeure provision. Then there is condition 28, concerned with the revocation of a license. Included in the circumstances where a licence may be revoked is if the licence provides the licensed service while failing to hold, or have held on its behalf, a WTA licence: condition 28(3)(e). The side note refers to section 3(8) of the Broadcasting Act 1990. Another circumstance is if the licensee ceases to provide the licensed service before the end of the license period: condition 28(3)(f). The reference in the side note is to section 42(4) of the Broadcasting Act 1990, as applied by section 55(4) of that Act. That side note reference also applies to condition 28(3)(h), which provides:

"Ofcom may revoke the Licence by notice in writing served on the Licensee and taking effect either from the time of service or on a date specified in the notice, in any of the following circumstances:

…

(h) if Ofcom shall revoke the assignment of frequency on which the Licensed Service is for the time being provided for the purpose of (i) fulfilling its functions under the enactments relating to the management of the radio spectrum as defined in Section 405 (1) of the Communications Act …"

Breach of the licences?

(a) The claimant's case on breach

The claimants' case is that their licences were national licences, and were always intended to be so. That can be traced back to the ITC's original "Invitation to Apply" in June 1992. It is on that basis that they operated and built their businesses, from that time onwards. There was never any market demand to provide TV regionally orientated data broadcast services. The ITC, as part of the licence renewal exercises for DBI and SA in 2001 and 2003 respectively, engaged in detailed scrutiny of their respective businesses. Having conducted that exercise, the ITC cannot, or at least should not, have been left in any doubt that the commercial viability of DBI and SA depended upon maintaining national coverage.

The variations in Ofcom's various decisions, by implementing a region-by-region termination programme for digital switchover, destroy the national nature of the licences. The effect of the switchover timetable is that the licensees have already suffered the removal of the Border, Westcountry, HTV Wales, Granada and HTV West regions. By 30 September 2011, the date on which DBI's licence formally expires, the Channel, Grampian, Scottish, Central, Yorkshire, Anglia and Meridian regions will also have been removed. By 31 December 2012, the whole of the country will have been removed from SA's licence, even though it runs until 1 January 2014. The effect of all of this on the businesses of DBI and SA has been catastrophic. The effect of the termination programme is that both DBI and SA have already lost a very substantial portion of their licences; both DBI and SA will suffer even more extensive erosion between now and the date of expiry of DBI's licence; and in the case of SA, it will have substantially no licence at all over a year before the stated expiry date of the licence.

Nothing in condition 2(2) could detract from the implied obligation on Ofcom's part not to detract from the national coverage which DBI and SA had. That should not be effected through the back-door of the withdrawal of Arqiva's stations under its WTA license. If condition 2(1)(a)-(c) of the original licence would have enabled variation, the fact is that that condition has now been deleted from the licence. The assertion in the consultation letter of 19 September 2003 which led to that deletion – that condition 22 contained equivalent power – cannot be used to assist interpretation. Condition 2(2) covers purely "machinery" type failures: under it Ofcom has no liability should stations not be able to transmit or should there be spectrum interference.

Condition 22 was engaged. It mirrors section 3(4) of the Broadcasting Act 1990. There has been a variation in fact of the licence period and under condition 22(a) the licensee's consent was required. Under the variations, by 31 December 2012, in SA's case, it will have no licence left, since the entirety of the country will have been removed from its purview. In substance, that involves "a variation of the period for which the licence is to continue in force". For the last whole year of the ten-year licence period, SA will have no licence. It cannot be that only the licensed area will have been varied, and not the "licence period". A licence with zero coverage cannot remain a licence valid for the period of its original duration.

In the interpretation of statutory provisions, such as section 3(4) of the Broadcasting Act 1990, on which condition 22 is based, Mr Pushpinder Saini QC submitted that literalism should be avoided, and a meaningful and purposive interpretation given: Attorney General's Reference (No 5 of 2002) [2005] 1 AC 167, [31]. Similarly, he submitted, in the interpretation of contracts, the principles of which apply to "any other instrument or utterance", the House of Lords has also repeatedly emphasised that the exercise of interpretation should be guided by commercial sense: Chartbrook v Persimmon [2009] 1 AC 1101, [14]. Lord Steyn's words in Sirius v FAI [2004] 1 WLR 3251, [19], were specifically cited:

"There has been a shift from literal methods of interpretation towards a more commercial approach. In Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201, Lord Diplock, in an opinion concurred in by his fellow Law Lords, observed: "if detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense ... The tendency should therefore generally speaking be against literalism."

Applying those principles to the present case, there must logically be a point, looking at the commercial reality of the situation, at which a variation of the licensed area constitutes a "variation of the period for which the licence is to continue in force". One cannot adopt a literal approach. It cannot credibly be maintained that Ofcom could, for instance, have reduced the licensed area to the Isles of Scilly alone on the first day of the ten-year licences without engaging condition 22(a). Such an interpretation created an obvious and a significant scope for abuse. The only question is whether, as a matter of fact and degree, the erosion of the licensed area which is contemplated by the variation in question does or will amount in substance to a variation of the licence period.

Mr Pushpinder Saini QC submitted that this interpretation of condition 22 of the licences, and section 3(4) of the Broadcasting Act 1990, is supported by important contextual factors. Thus condition 22 expressly prevents any alteration of the key commercial terms of the licence, being the cash bid and the appropriate percentage of qualifying revenue. Indeed, the definition of qualifying revenue referred to the "right" to use spare capacity. It is therefore extremely unlikely that condition 22 was ever intended to permit Ofcom to make the sort of dramatic variations which it has sought to make in this case, without consent. If that were not so then condition 22 would hardly have fixed immutably the commercial terms between the parties which were arrived at on the basis that DBI and SA would have a national licence for all, or virtually all, of the licence period.

Secondly, Ofcom's argument would deprive section 3(4)(a) of the Broadcasting Act 1990 of much, if not all, of its effectiveness. By requiring the licensor to seek the licensee's consent to any variation of the licence period, Parliament enacted an important protection, for the benefit of the licensee. On Ofcom's argument, however, such protection could be circumvented entirely by, for instance, excising the entirety of the country from the licensed area as an alternative to formally varying the licence period. In such a situation, the licensee would still formally possess a licence which lasted, in theory, for ten years, even if in substance it was incapable of doing anything meaningful under that licence during that period. It is inconceivable that Parliament can have intended this result.

Thirdly, Parliament assumed when passing the Broadcasting Act 1990 that the broadcasting services in whose signals additional services such as DBI's and SA's services are delivered, in this case Channels 3 and 4, would have national reach, as indicated by sections 14(1) and 24(3) of the Broadcasting Act 1990. It is unlikely to have ever been contemplated by Parliament, therefore, that the section 3(4) power could be used unilaterally to transform national licences into merely regional ones. On the contrary, when enacting section 3(4), Parliament drew a deliberate distinction between a "variation of the period for which the license is to continue in force", for which consent was needed, and other variations. Parliament therefore intended to prevent rather than to permit the type of unilateral extinction of a license-holders' rights which Ofcom seeks to achieve in this case. Piecemeal termination is, as set out above, no more than a device designed to circumvent that deliberate distinction drawn by Parliament.

Fourthly, any other interpretation would result in the taking away of a valuable property right by a public authority without redress or compensation. The licences are valuable rights for which DBI and SA are required to pay substantial fixed sums of money annually, supplemented by variable sums calculated as a percentage of turnover. Chapter V of Part 1 of the Broadcasting Act 1990 required Ofcom and the claimants to go through a detailed bidding process when those licences were applied for and when they were renewed. As part of that process, the ITC/Ofcom scrutinised in detail DBI's and SA's financial projections, commercial assumptions and technical plan. It was on the basis of those projections, assumptions and plan that the licences were granted and renewed. It cannot be right that Ofcom can, at any time since the licences were granted, remove from the licensed area any part of the United Kingdom, however large or small, without DBI and SA having any entitlement to withhold their consent or to alter the monies which they are obliged to pay Ofcom for the privilege.

However, if these were contextual features which supported the interpretation which DBI and SA proffered, Mr Pushpinder Saini QC submitted that reference could not be made to the changes which DBI and SA later made in their own arrangements with NTL/Arqiva. That came after the licences were renewed, did not constitute a waiver of rights on their part, and were simply an attempt to protect their position.

Having regard to the commercial substance of the matter, therefore, there must be a point at which a variation of the licensed area will involve a "variation of the period for which the licence is to continue in force". That point has been reached, and far surpassed, by the variations in the present case, which effectively package a national licence into a number of regional licences and sequentially terminate those regional licences early. The variations do not merely add or remove the odd transmitter, or tinker around the edges of the licensed area. They are a systematic programme for the termination of the licences, and designedly so. That this is the correct analysis of the licences is supported by Ofcom's own correspondence, notably the letter dated 21 September 2004, referred to earlier. Ofcom's switch in analysis only occurred in its decision letter of 17 November 2008. Its present analysis of condition 22 is, for the reasons advanced, erroneous.

Finally, Mr Pushpinder Saini QC rejected any broader argument, to the effect that digital switchover is a vital policy objective and that this should in some way affect the interpretation of the relevant licence provisions. It was a misrepresentation that DBI and SA are seeking to hold up digital switchover. They recognise that the government has set a policy objective and that as a matter of practicality there is little or nothing they can do to hold up the process. However, the manner in which the government and Ofcom have elected to implement that policy involves breaches of their licences. The statement that digital switchover is a very important national policy cannot alter that. The fact that the switchover policy has been set by the government and then implemented by Ofcom can hardly be an answer to a claim that Ofcom has breached the licences. DBI and SA do not have licences from the government, they have them from Ofcom. If government policy causes Ofcom to breach a licence, no doubt that can addressed as between Ofcom and the government. In any event, the time-line for digital switchover was not as clear cut as Ofcom now portrayed.

(b) Ofcom's power to vary the licences

At the outset it is necessary to identify the appropriate principles for the interpretation of these statutory licences. For reasons given later in the judgement statutory licences of this character do not constitute contracts between the regulator and the licensees. That being the case, the principles of statutory interpretation are more appropriate to interpreting them than those applicable to contractual interpretation, in the event that there is a difference. The case for using the principles of statutory interpretation for these licences is perfected because, in crucial aspects, the license conditions track the statutory provisions.

There is no need to dwell on the applicable principles of interpretation. In broad terms one must give meaning to the words in the light of their context. Among the contextual features here are the statutory background and the commercial nature of additional services licences. In my view it is unhelpful to draw a dichotomy between the literal and purposive approaches so that the interpretative exercise demands a choice of one over the other. One must begin with the words but give them meaning with the relevant background features in mind. That encompasses both literal and interpretative elements.

As to the words of the licences Ofcom's power to vary them is derived from section 3(4) of the Broadcasting Act 1990. Both the statutory provision and condition 22 distinguish between the licensed period, which can only be varied with the consent of the licensee, and other conditions, which can be unilaterally varied by Ofcom. Elsewhere in the licence, it is clear that the scope of the licensed period is separate from the licensed area. The definition of licensed area at condition 1(1) refers to it as "varied from time to time". So Ofcom's variation of the licensed area is contemplated by the licence.

Thus on their face both the statute and condition 22 enable Ofcom to make the variations to the areas available to these licensees for the provision of additional services. The words provide that the requirement for consent to a variation specifically apply to the licence period, and not the licensed area. The licences provide that they may be varied in any respect without consent, except in relation to the licence period and licence payments. Following the decisions, the licence period remains 10 years. It is the licensed area, and not the period, which has been varied. The variations to the licences fall under condition 22(b) and accordingly can be made without the licensee's consent. The additional limitation on Ofcom's power to vary the licences in condition 22, in relation to licence payments, has no bearing on the scope of the earlier provisions on variation.

The issue then becomes whether any contextual features undermine that conclusion. First, there is the argument about implied national coverage. Since the licensees are not contracts there is no scope for the implication of any term to that effect. Neither is there scope, in my view, for somehow confining the power to vary the licensed area. The context quite clearly indicates otherwise. In particular there is the first part of condition 2(2), to the effect that nothing in the licence shall imply any warranty, representation or obligation on Ofcom's part as to the size or location of the areas actually capable of receiving the additional television services provided by a licensee pursuant to the licence. While the second part of condition 2(2) might be of a "mechanical" nature – there is no warranty, representation or obligation on Ofcom's part that there will not be interference from the holder of any other licence – there is no reason that this should limit the ambit of the words in the first part of the condition.

Then there is the contention that this interpretation of the licences will create obvious and significant scope for abuse, because Ofcom could grant a licence and, one day into it, reduce the licensed area to the Isles of Scilly, effectively truncating the period. But any abuse of power would be unlawful and challengeable by way of judicial review. Ofcom is required at common law to act in accordance with fairness and not for an improper purpose, a point underlined by the statutory duty to act in accordance with best practice in section 3(3) of the Communications Act 2003.

A further contention is that this interpretation would frustrate the intention of Parliament because Parliament assumed when passing the Broadcasting Act 1990 that the broadcasting services in whose signals additional services are delivered, Channels 3 and 4, would have national reach and therefore did not contemplate or intend the use of the power under section 3 (4) of the Broadcasting Act 1990 to transform national licences into regional licenses. It is certainly the case that sections 14(1) and 24(3) of the Broadcasting Act 1990 are intended to secure, as far as possible, the nationwide broadcasting of the public service channels Channels 3 and 4. But this has no bearing on additional services licences, which are granted to take advantage of spare capacity. By contrast with sections 14(1) and 24(3), there is no provision in the legislation suggesting that additional services licences should have national reach. Section 65 of the Act, now repealed, suggested the opposite. It provided that any frequency assigned by the Secretary of State under section 65(1) may be so assigned for use only in such area or areas as may be specified by the Secretary of State when making the assignment. Thus Parliament clearly envisaged that some services would be provided only in certain areas.

In any event, additional services are parasitic on spare capacity, as is evident from the definition in section 48. Whether or not the licences were varied, DBI and SA would not now be able to provide their services in areas where the analogue signal has been switched off. It is the digital switchover, and not the variation of the licences, which has had this effect. The combination of the removal of the frequencies from the Arqiva WTA license, and the Channel 3 and Channel 4 analogue television licences, means that as digital switchover switchover progresses on a region by region basis the necessary WTA licence authorisation is no longer being held by Arqiva on behalf of DBI and SA in the respective region. The spare capacity, on which their services are operated, no longer exists in that region. The analogue signal has been turned off. If there is no analogue signal carrying any television broadcasting service on a particular frequency, there can be no additional service using the spare capacity within that signal. The variation of the licences has simply avoided the situation in which DBI and SA would have been unable to fulfil their obligation in condition 2(1), to provide services in areas in which this was no longer possible. If Ofcom had left their licences unchanged, their position would in practical terms be no different, but they would be unable to comply with their licence conditions. Ofcom was under a statutory duty to do all that it could to prevent such a situation occurring under section 263(2) of the Communications Act 2003.

Thus both the words of the licence and the context lead to the conclusion that Ofcom has the power to vary the licences under condition 22(b). The decisions do not vary the licence period. This outcome is consistent with the operation of a statutory regime which gives the highest priority to Ofcom's promotion of the public interests, including the optimal utilisation of the electro-magnetic spectrum. The upshot is that the private commercial interests of parties licensed to use parts of the spectrum for particular purposes must give way to the policy, recognised in statute, of digital switchover.

The commercial interests of DBI and SA are protected, in part, because the effect of digital switchover was taken into account when the ITC valued the renewed licences. In the case of SA, the licence was valued on the assumption that digital switchover would be introduced on a phased basis between 2008 – 2013 and the fixed annual licence payment was cut by 90 percent. In the case of DBI, the ITC also took into account the move towards digitalisation, and the uncertainty surrounding its timetable. In both cases, the substantial majority of the payments which have been made under the licences since 2003 have been the part calculated as a proportion of turnover, so that any reduction in the profitability of the licences which they have suffered as a result of digital switchover has already been taken into account in the licence fees they have paid. DBI and SA are entitled to surrender the licenses pursuant to Condition 1(7) if they consider that a variation has rendered them commercially disadvantageous. In the event of surrender, the only liability will be to pay the outstanding cash sum for the remainder of that calendar year, pursuant to Condition 28(5).

There is one further point. Up until a late stage Ofcom purported to justify changes to DBI's and SA's licences under the revocation condition, in particular condition 28(3)(h). It is clear that condition 28(3)(h) does not confer any power to revoke a licence on a partial basis, for example a region-by-region basis. The power is to revoke the licence, which applies on its face only to the licence as a whole. That natural meaning of the concept of revoking a licence is supported by clause 28(5), under which the licensee on revocation must pay the then outstanding portion of the cash bid for the calendar year in question. No provision is made for part payment or for the continuation or amendment of any financial obligations: see also Broadcasting Act 1990, s. 52. Additional argument against a power of partial revocation derives from clause 1(7) of the licence, which provides that "the licence is to remain in force until surrendered by the licensee or revoked by Ofcom in accordance with the conditions of the licence." The concept of revocation contained there does not contemplate partial revocation.

But condition 28(3)(h) does support Ofcom's contention that there is no express or implied obligation on Ofcom's part to ensure that the frequencies over which DBI's or SA's licensed services are to be broadcast remain national for the whole of the licensed period. Condition 28(3)(h) expressly provides that Ofcom may revoke the licences if it revokes the assignment of frequency on which the licensed service is for the time being provided, for the purpose of fulfilling its functions under the enactments relating to the management of the radio spectrum. In other words, the continuation of the licences is contingent on the spectrum continuing to be available. The existence of the licences does not guarantee the continued availability of spectrum.

Condition 28(3)(h) enables Ofcom to revoke additional services licenses once digital switchover occurs nationally. Contrary to a submission of Mr Pushpinder Saini QC each of the powers to revoke conferred in conditions 28(1), (2) and (3) are independent powers and are not confined to default situations. That is obvious from the face of condition 28. In particular there is condition 28(3)(f), with its side note reference to section 42 of the Broadcasting Act 1990, as applied by section 55(4) of that Act. These empower Ofcom to revoke an additional services license when the holder of the license has ceased to provide the licensed service before its expiry. At present Arqiva continues to hold the WTA licence on behalf of the analogue and low power digital terrestrial television broadcasters. (Those broadcasters hold their own WTA licences for their post digital switchover licences). As indicated Ofcom is revoking the assignment of frequencies contained in Arqiva's WTA licence on a phased basis as digital switchover proceeds. Once all these frequencies are revoked then condition 28(3)(h) applies.

Are the licences contracts?

If Ofcom has breached the licences, Mr Pushpinder Saini QC's case is that they are entitled to damages, as well as a declaration. The first basis for damages he advances is contract. By entering into the licences, he contends, the ITC/Ofcom entered into a legally binding agreement with each of DBI and SA. The terms of the agreement are set out in the licence. In particular, in return for the grant of a licence, DBI and SA are obliged to perform the services and to pay Ofcom the sums stipulated. Both parties owe obligations to each other. One dimension to this reciprocity is the profit sharing nature of the relationship in terms of the annual payments. Since the licences are contractual, condition 22(a) has contractual effect. By implementing the variations, Ofcom breached the licences and such breach has caused DBI and SA loss and damage. They seek a judgment for damages to be assessed.

(a) The case for contract

In advancing the case that the licences constitute contracts, Mr Pushpinder Saini QC invoked hornbook law: it is not the subjective intention of the parties which is relevant, but rather the effect of their words or conduct objectively construed. He cited a recent statement by the Supreme Court in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] USSC14; [2010] 1 WLR 753, [45], where Lord Clarke said:

"Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations."

In his submission, when the words and conduct of the parties in this case are objectively analysed, the parties intended to create legal relations and agreed upon all the terms which were essential for the formation of a contract. All of the usual incidents of a contract – offer and acceptance, consideration, intention to enter legal relations – were present.

As for the words and conduct leading to DBI's first licence, the ITC's "invitation to apply" document of December 1991 invited applications for one or both of two separate licences; said that it would regard the submission of an application as an indication of the applicant's willingness to accept, if offered, the licence subject to the conditions indicated; provided that the licences were each to be awarded by competitive tender; and required the potential licensee to make a cash bid in respect of the licence, being an offer to pay a specified amount of money. It was on this basis that DBI applied for, and was granted, a licence. Mr Pushpinder Saini QC submitted that it is clear from this, the ITC's own document, that DBI's first licence involved a process of offer and acceptance, during which commitments were made by both parties to the other, and that the licence was not a unilateral grant by the ITC.

There was also the process by which the licence was renewed. The parties followed the steps towards the renewal of DBI's licence set out in the "Methodology and Procedure" document of 8 May 2001. On 15 June 2001 DBI submitted an expression of interest, along with the requisite application fee; ITC gathered further information on DBI's business plans; on 21 September 2001 the ITC offered financial terms and asked DBI to inform it whether or not it intended to apply for renewal of the licence; and on 25 September 2001 DBI indicated that it accepted the terms and would therefore be applying for renewal. Then there was the renewal process itself, described earlier, on 27 and 28 September 2001.

All this, submitted Mr Pushpinder Saini QC, was redolent of offer and acceptance in the consummation of a commercial contract. Throughout the process, the fact was that the ITC itself spoke and wrote in terms of "offer" and "acceptance". The mere fact that the ITC was not prepared to negotiate on the financial aspects of the renewal does not mean that the offer was incapable of acceptance or that contractual relations did not arise. It is perfectly commonplace for one potential contracting party to make a non-negotiable offer to the other; a wide range of goods and services are offered every day on such terms.

Moreover, upon what Lord Clarke in RTS described as "a consideration of what was communicated ... by words or conduct" the parties in this case must objectively be regarded as having intended to create legal relations. The licences were the product of a lengthy process of proposal and counter-proposal. The licences made cash bids as part of what the ITC itself regarded as a competitive tender process. Objective consideration of the words and conduct of the parties leaves no doubt that they intended to create legal relations. Further, the licences contain a number of terms which would be either unnecessary or irrelevant if the documents were not a contract. Condition 1(9) provides that a licence is to be governed by English law, which would be entirely unnecessary were the licence merely a permission under a statute like a driving or television licence. Condition 25 exempts the licensee from liability for breaches of the licence caused by force majeure, the incorporation of another typical contract term. Condition 2(2) excludes a particular category of implied warranty, representation or obligation, odd language, submits Mr Pushpinder Saini QC, in respect of a purely public law instrument. Thus, he contends, the language of the licences themselves is inconsistent with the notion that there was no intention to enter into legal relations.

Finally, the licences clearly involved an extensive assumption of reciprocal obligations. Under condition 2(1) of the licences, the licensees were not merely permitted to provide the licensed service but rather were obliged to do so on each day of the week and for up to 24 hours a day. Conditions 3 and 4 of the licences obliged the licensees to pay sums for the privilege of providing such services. The licences were obliged under condition 16 to comply with any direction given by Ofcom. There was an obligation under condition 26 to pay interest on late payments. Many such terms were not specifically required by the Broadcasting Act 1990, but were included pursuant to section 4(1), permitting Ofcom to include such incidental and supplemental matters as appear to be appropriate. The equation of a mere permission under a statute, such as a driving licence or a television licence, with the detailed reciprocal obligations assumed in the present case, is unwarranted.

(b) The licences are public law instruments

In my view these licences are not contracts. A contractual analysis distorts their juridical character. The licences are public law instruments. They constitute statutory authorisation permitting the licensees to undertake activities which would otherwise be unlawful and, in this case, place them under particular obligations, breach of which exposes them to the risk of the imposition of statutory financial penalties or ultimately to revocation of the licenses. In granting them, the licensing authority acts pursuant to its statutory duties and functions, and there is no intention to enter into any private law legal relations with the licensees. There is no express agreement between the parties in the contract sense. In the main the conditions in the licences are derived directly from statutory provisions.

Detailed submissions before me focused on whether the licence conditions were subject to negotiation between the parties. For Ofcom Ms Rose QC submitted that Ofcom's statutory discretion as to what conditions to include had to be exercised in accordance with its statutory duties and the conditions could not have been waived by agreement. She cited Norweb v Dixon [1995] 1 WLR; [1995] 3 All ER 952 and Rushton v Worcester City Council [2001] EWCA Civ 367; [2002] HLR 2 In Norweb, which involved the relationship between a tariff customer and a public electricity supplier, Dyson J held that legal compulsion as to both the creation of the relationship and the fixing of its terms were inconsistent with the existence of a contract. Rushton concerned the exercise of a "right to buy" a local authority property and it was held not to give rise to "a consensual agreement arising on the acceptance by one party of the terms of an offer made by the other", per Potter LJ at [57].

For DBI and SA Mr Pushpinder Saini QC submitted that the present case was about as far away from paying an electricity utility or exercising a right to buy as it is possible to get. In both the Norweb and Rushton cases the price was fixed by statute, the purchasing party was not obliged to do anything other than pay the fixed price, and upon payment of that price, the other party was obliged to perform the service in question, i.e. supply electricity or convey the freehold. In the present case, however, the contract price was the subject of an offer, the cash bid, and a counter-offer, the financial terms offered by the ITC, which was, as appropriate, accepted or rejected by the applicant. The applicant, if successful, was required, as well as permitted to provide, a wide variety of services under an ongoing relationship. Further, the ITC was not obliged to grant the initial licence to anyone, albeit that on renewal its discretion was confined. In short, there was a detailed reciprocal commercial relationship entered into in this case. Applying the test in the Rushton case, of whether there was a consensual agreement arising on the acceptance by one party of the terms of an offer made by the other, the answer was clearly in the affirmative.

In as much as the degree to which the parties were able to negotiate the terns of the renewed licenses is crucial to determining their juridical character, it seems to me clear that there was little for DBI and SA to negotiate about once they took the decision to renew the licences. The financial terms were, as they were told, non-negotiable. The other terms of the license were, in the main, determined by the statutory regime, as illustrated by the statutory references set out as side notes to the license conditions in the renewed licenses. The ITC inserted additional terms, which were not specifically mandated by statute, but these were incidental and in any event inserted in the exercise of the general statutory duties imposed on the regulation. As far as the ITC was concerned, it was almost compelled to renew the licences, pursuant to section 53(5). The renewal period had to be ten years; any lesser period was not possible under the Broadcasting Act 1990. In broad terms the ITC was under an obligation to grant these renewed licences and to fix their characteristic terms in the way it did.

Whatever freedom the parties had to negotiate the terms of the renewed licences, the key feature in fixing their juridical character is in my view that they were issued pursuant to a comprehensive statutory scheme governing the relationship between the parties. Floe Telecom v Ofcom [2009] EWCA Civ 47; [2009] Bus LR 1116 did not concern specifically whether a licence under the WTA 1949 had contractual effect but considered instead whether it was an instrument to which the Marleasing obligation applied, so that it would be construed conformably with European Union law. In the course of his reasoning, however, Mummery LJ observed:

"[103] The decision of the national regulatory authority to grant a licence and the carrying out of that decision is an administrative act done under and in accordance with the law. A licence is obtained to do things which it is unlawful to do without that licence. It is the legal mechanism for authorising something which is required by the general law to be officially authorised."

Similarly in this case the issue of the renewed licences was an administrative act, and those licences enabled DBI and SA to provide additional services by use of the spectrum, which would otherwise have been unlawful.

The conduct of the ITC in offering the renewed licences to DBI and SA, and their conduct in accepting them, are not inconsistent with the parties acting pursuant to a statutory scheme. In the absence of any express provision to that effect there is no material which could justify the conclusion that in these circumstances it is necessary for a contract to ensue. The discussions leading to the issue of these statutory licences do not support any inference of an intention to contract. Some of the conditions such as those for a governing law and force majeure may have been reminiscent of contract, but that does not mean contractual agreements came into existence. The situation is comparable to other instances where, as here, a comprehensive statutory scheme governing the relations between the parties displaces the existence of any common law rights and duties: Johnson v Unisys [2001] UKHL 13; [2003] 1 AC 518, [21] per Lord Steyn; Monro v Revenue and Customs Commissioners [2008] EWCA Civ 306; [2009] Ch 69, [22], per Arden LJ.

Finally, I am troubled that if these licences should be treated as contracts, Ofcom would be exposed to unlimited liability for damages for breach of contract if it breaches their conditions. That seems to me to be inconsistent with the statutory scheme and the role and responsibilities of ITC/Ofcom as the statutory regulator. Potentially it would expose the public purse to enormous damages claims from telecommunications providers and broadcasters who are subject to conditions in licences fixed by Ofcom in the exercise of its statutory functions. I cannot detect that in enacting the Broadcasting Act 1990 there was any intention on Parliament's part that ITC/Ofcom should be liable to individual undertakings in damages for breaches of statutory duty, or that merely by issuing licences in accordance with its statutory duties ITC/Ofcom was to incur liability as if it had entered into private contractual relations. It seems to me that the imposition of a private law contractual relationship with a licensee may well fetter Ofcom's statutory duties to act in the public interest, as required by the legislation, in particular to secure the optimal use of the spectrum.

Breach of property rights?

DBI's and SA's final contention is that if Ofcom has acted improperly they are entitled to damages under section 8 of the Human Rights Act 1998 for Ofcom's breach of Article 1 of the First Protocol of the ECHR. That provides that every natural or legal person is entitled to the peaceful enjoyment of his possessions, and no one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law. Ofcom's variations of those licences, it is said, have had the effect of depriving the licencees of substantially the whole of their licences from a commercial point of view, and interfering with their enjoyment of those licences. The variations were not exercised in accordance with law, indeed, were directly contrary to clause 22(a) of the licences and section 3(4) of the Broadcasting Act 1990. They were also manifestly disproportionate. Accordingly, Ofcom's decisions were in breach of its duty as a public authority under section 6 of the Human Rights Act 1998 and damages are sought under section 8 of that Act. There should be a judgment for damages to be assessed.

There is no dispute that the DBI and SA licences, and the economic benefit and goodwill derived from them, are possessions within the meaning of the Article: Jain v Trent Strategic Health Authority [2009] UKHL 4, [2009] 1 AC 853; [12] per Lord Scott, [44] per Baroness Hale. But there has been no interference with their rights to the peaceful enjoyment of their property under Article 1 of the First Protocol to the Convention. As I have held Ofcom has acted in accordance with the terms of the statutory scheme and the licence conditions in varying the licences. Article 1 does not protect any expectation of being able to continue activities where the licence itself contains provisions for its variation, if the licence is varied in accordance with those provisions: Pudas v Sweden (1998) 10 EHRR 380. In any event, for the reasons I have given, any interference was also plainly justified and proportionate as Ofcom acted in accordance with its statutory duties.

Conclusion

For the reasons set out in the judgment, DBI and SA are not entitled to the declaration they seek that Ofcom's decisions on varying the licences were unlawful, or to damages for breach of their licences, or under section 8 of the Human Rights Act. Ofcom has simply exercised a power, conferred by the Broadcasting Act 1990, and contained in the licences, to vary the licensed areas available to them. The licences are not contracts. Despite my initial concerns there is, in fact, nothing commercially unjust in this result. DBI and SA knew about digital switchover at the time their licences were renewed. Digital switchover was built into the terms for the renewed licences. In particular DBI and SA understood that digital switchover would occur on a phased basis. What has happened accords with the statutory scheme governing the allocation and management of the electro-magnetic spectrum. If DBI and SA are not able to offer additional services on a commercially viable basis they can surrender their licences and they will no longer be obliged to make the annual licence payments.