England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		23rd July 2001

MR JUSTICE GAGE: The first claimant is a limited company which, at the material time, was carrying on the business of selling mobile telephones and accessories from premises at 163 Green Street, London E7. These were shop premises. The second claimant, at the material time, was the managing director and principal shareholder of the first claimant.

The first defendant is the Federation of Communications Services Limited. This Federation, referred to as "FCS" is a company which carries out voluntary regulation of the mobile telecommunications industry. It operates a scheme within the industry called the Crime Prevention Scheme. This scheme consists of a number of rules governing the conduct of businesses in the industry. The object of the scheme is substantially to reduce the trade in stolen mobile telephones. At one stage, that trade had reached a considerable volume. The second and third defendants were, at the material time, inspectors employed by the first defendant. As their title implies, the inspectors carried out work on the ground visiting and enquiring into businesses dealing in mobile telephones.

The method of regulating the industry is through contracts made between manufacturers, service providers, suppliers and dealers in mobile telephones. To take this case, where a distributor of mobile telephones seeks to supply to a dealer, the contract between each party will contain a term binding the dealer to the crime prevention scheme operated by the first defendant. The rules of the scheme provide that every network operator, service provider or dealer shall ensure compliance with the scheme by requiring the incorporation into the contractual terms applying to any transaction between such entities, a condition that each party of the transaction shall undertake to comply with the rules of the scheme.

The second defendant's powers under this scheme have been described, correctly in my view, as draconian. Obviously, as I have already said, the purpose of the scheme is to stamp down hard upon anybody or person who deals in stolen mobile telephones.

The claimants in this case have been stopped from trading in mobile telephones by reason of alleged breaches of the rules of the scheme. They sue for damages for breach of contract and/or negligence. There is no dispute that at least the first claimant and the first defendant are contractually bound to the scheme.

In March 1998, DVH Self-Drive Limited (DVH) entered into an agreement with the first claimant to supply mobile telephones to the first claimant. DVH nominated the second claimant as a nominated stockist, bringing the first claimant into the scheme. That agreement was signed by the second claimant.

On the 27th May 1998, the second and third defendants, accompanied by police officers, entered and searched the shop at 163 Green Street. It is the defendants' case that 17 second-hand mobile telephones and one stolen mobile telephone were found at those premises, and that the first and second claimants were thereby in breach of rules 1 and 2 of the scheme. Accordingly, the second claimant was interviewed in the shop and subsequently a report was made to the head of operations for the Crime Prevention Inspectorate of the first defendant, Tony Russell. In turn, he reported the matter to the first defendant's company secretary. Each independently agreed that the facts reported to them represented a major and serious breach of the rules of the scheme with the result that the first claimant was notified of these breaches by the company secretary, James Malcolm. This notification is described as "Advice of intention to issue a Notice of Breach of the Rules."

The first claimant, as the scheme provides, applied for the matter to be referred to an independent panel set up in accordance with the scheme. In due course, the panel considered the referral and, by a letter dated the 30th September 1998, the panel confirmed the decision of the Inspectorate as a result of which a Notice of Breach of the Rules was issued. Effectively, this prevented both claimants from further dealing in mobile telephones until they applied to be reinstated as persons defined as of "good standing" under the rules.

Before embarking on the disputed facts of this case, it is necessary to refer to the scheme and the rules contained in it. In general, the rules at paragraph 3 of the scheme provide prohibitions against dealing in stolen mobile telephones and the requirement for the maintenance of records in respect of all mobile telephones. As I was told in evidence, and I accept, it is difficult to prove that a mobile telephone is stolen, so the importance for a dealer to keep records to demonstrate precautions taken against dealing in stolen mobile telephones is considerable. The scheme also provides for a Crime Prevention Inspectorate (paragraph 4); procedures for the issue of formal notices of warning or breaches of the rules (paragraph 5); a system of referral or appeal to an independent panel against the decision of the Inspectorate (paragraph 6); and a definition of those described as being of Good Standing and the effect of that term (paragraph 7).

Two rules are relevant to the issues in this case. They are rules 1 and 2. Rule 1 states:

"Every dealer shall ensure that any equipment dealt in, or connected by him, has not been stolen."

Rule 2 states:

"Every dealer shall maintain records which demonstrate to the satisfaction of the CPI (the Crime Prevention Inspectorate) the precautions taken by him in order to comply with rule 1."

The terms "dealer," "dealing," and "equipment" are defined in an interpretation section of the scheme. Since, depending on my findings on the facts, something may turn on the construction of those definitions, I propose to defer any recitation of any of those definitions until after I have set out my findings of fact.

Essentially, the defendants contend that at the inspection of the first claimant's shop, the second and third defendants found a stolen mobile telephone and 17 second-hand telephones, for none of which the claimants could supply any record or documents.

The claimants' case is that the telephone said to be stolen was not stolen, and that there were no more than four mobile telephones in the shop for which there were no records.

The second claimant said in evidence that he was never shown more than three or four telephones and that the defendants, through the second and third defendants, were not telling the truth when they gave evidence that 17 second-hand telephones had been discovered in the shop on that day. I am therefore faced with a sharp conflict of fact, which forms the main factual issue in the case.

It is common ground that on the 27th May 1998, a number of police officers armed with a warrant to search the premises, entered 163 Green Street together with the second and third defendants. It seems clear that both the second and third defendants and the police had separately received information that there was a possibility that stolen mobile telephones were present in the shop. As a result, the search of the shop was co-ordinated by the police.

At the time that the search started, at approximately 11 a.m., the second claimant was not present. At that time one employee, Khalpash Pavhan, and one part-time employee, Veejay Kumar, were in the shop. Both gave evidence. Each said that he was not told by any of those making the search that they had found a stolen telephone. Neither was shown any telephones by those carrying out the search. My impression from their evidence is that each of the two men were kept out of the way of those searching or, in the case of Mr. Pavhan, was occupied watching officers look through the paperwork.

At some point during the course of the morning, the second claimant arrived at the premises. Whether he arrived before the search had been completed or afterwards is not entirely clear. In his witness statement he said that he heard one of the police officers say to either the second or third defendant, "We can't charge him, there's nothing here." The response was, "We're going to get him."

He accepted that he was asked about a telephone which he was told was stolen. In his witness statement he said that he was asked about other telephones which he was told had been found without records. In his witness statement and in evidence he said that the first claimant only sold new telephones and did not deal in second-hand telephones. Furthermore, they only dealt with one service provider, namely 1 to 1. However, from time to time, they would take second-hand telephones in part-exchange and the second-hand telephones would be used for their parts as accessories.

In evidence, he said that he was shown four telephones, two of which he identified, one as belonging to a niece of his, and another to a friend. He denied that he was shown a schedule of telephones made by the third defendant, and that the telephones were laid out in front of him on a work surface.

He said of the telephone which was alleged to be stolen that he had not seen it before and that it was too badly damaged to be used. It was not a model which the first claimant dealt with.

During the course of the evidence, the tape of an interview conducted on the premises starting at 12:38 was played. A transcript of that interview is amongst the papers in the case. The second claimant stated that it was not a complete record of what was said. His evidence was that the interview inspector, the second defendant, stopped the tape on a number of occasions and there was further conversation between him and the second defendant which was not recorded.

In the course of the trial, counsel finally agreed that there were some 18 occasions when a click could be heard on the tape. However, it was not clear from the second claimant's evidence what other conversation he had with the second defendant.

What is clear from the transcript and the second claimant's evidence is that the second defendant, on a number of occasions, described various telephones by reference to numbers which coincide with the numbers of the telephones on the schedule which the second defendant said was prepared at the time of the search. The second claimant disputes that any such schedule was made at the time of the search. He said in evidence that 17 second-hand telephones could not have been found at the shop because they simply did not exist.

In cross-examination, the second claimant was asked about letters sent on his behalf by his solicitors who were acting for him at that time. In requesting a referral to the panel, his solicitors wrote on the 23rd June 1998 a letter which contained the following paragraph:

"The decision to issue the Notice was unsupported by the evidence obtained by the inspection team, or was against the weight of the evidence. The inspectors failed to consider the evidence given by Mr. Pabari in respect of the second-hand telephone alleged to be stolen. The alleged stolen telephone was not equipment dealt in or connected by Lexus Telecom Limited. The CPI failed to consider the evidence in relation to the brand new Orange telephones and 17 second-hand telephones."

In subsequent correspondence, the CPI asked the second claimant's solicitors for any further evidence in support of his appeal to the panel to be put forward. The only other evidence put forward were documents relating to the three new Orange telephones.

The second claimant was asked why, at no stage, was the panel told that the existence of the 17 second-hand telephones was disputed. His reply was that this was a mistake by his former solicitors. I find that explanation unconvincing. He said that a number of the alleged second-hand telephones were analogue telephones and as such were not telephones with which the first claimant dealt.

The defendants called two police officers who were present at the shop and participated in the search. Those officers were Police Constable Peter Cooke and Police Constable Philip Clarke. Each officer had given a statement to solicitors acting for the claimants and solicitors acting for the defendants. Unfortunately, the statements were given on different dates and contained a number of inconsistencies. For instance, in a statement dated 23rd May 1999 given to the claimants' solicitors, Police Constable Clarke stated:

"I did not see, nor were 17 second-hand telephones brought to my attention. We were searching under the Theft Act and anything found during the search would have been brought to my attention."

In his statement dated 12th May 2000 given to the defendants' solicitors, he said:

"I recall that police officers found a number of telephones, new and old, and these were passed to the members of the FCS who tested those telephones on a machine in order to detect whether they had been stolen."

Similarly, in a statement dated the 22nd December 1998 to the claimants' solicitors, Police Constable Cooke stated:

"There are only two rooms at the premises other than the cellar and it would have been impossible, were there 17 second-hand telephones, for them not to have caught my attention."

In a statement given to the defendants' solicitors he said:

"I do not know how many second-hand telephones were found on the premises. I was aware that some second-hand telephones were found on the premises and it may be that 17 such telephones were found. As I have said, I would estimate that I saw about 20 second-hand telephones on the premises though. As my job was to prevent a breach of the peace and not count second-hand telephones, I am not sure of the exact number."

When asked in evidence about these discrepancies both police officers were, in my judgment, unable to give any satisfactory explanation. It seems to me that each, in turn, sought to assist the party who was taking a statement from him. In the circumstances, I find it quite impossible to rely upon the evidence of either officer where that evidence touches a material issue in dispute.

It is common ground that the officers did seize the telephone which was alleged to have been stolen. It is number 21 on the schedule and is produced in court as an exhibit. It did not appear to be damaged and no suggestion was made to any witness as to how it was damaged.

The principal evidence called by the defendants in respect of the search was the evidence of the second and third defendants. The second defendant, a former detective constable, was, at the time, the more experienced inspector. He did not compile the schedule or list of telephones recovered at the shop. He said he did make some written additions to the schedule. The third defendant said that he completed the schedule. He was present as police officers found the telephones and he recorded on the schedule such details as, from time to time, were available. He said that at no stage did he think of getting the second claimant to sign the schedule. He said it was not the practice to do so.

The schedule is an important document in the case. The claimants dispute that it was compiled in the shop at the time of the search. In addition, because they deny the existence of the second-hand telephones, it must follow, as Mr. Tolley, who appeared on behalf of the claimants, was constrained to accept, that the claimants' case is that it was a false document. Accordingly, much time was necessarily taken up in cross-examination of the second and third defendants about this schedule. Each stated that the schedule was prepared contemporaneously. The third defendant said that he added information to the schedule as and when the information came to hand. The second and third defendants also said that by the means of a Smith Myers machine they were able to discover the ESN and MIN numbers of those second-hand telephones, which were analogue telephones.

Where the ESN and MIN numbers were not on the telephone itself, those numbers were obtained by means of the Smith Myers machine and the information placed on the schedule in an appropriate column. In order to use the Smith Myers machine, the telephone would have to use the power supply provided by that machine, which was itself powered by a supply from the mains.

The Smith Myers machine would produce, in respect of each telephone tested in this way, a printout. The third defendants said that the printouts were all put into an envelope and taken back to the office. Those printouts appeared on separate pages in the core bundle and attached to the third defendant's statement in bundle 2. The two different pages do not contain the same layout of the printouts. Mr. Tolley argued that this threw doubt on the authenticity of the printouts.

Both the second and third defendants stated that when the second claimant came to be interviewed, the schedule was available and the telephones were laid out on a work surface in front of him. The second claimant denied this. It was the evidence of the second and third defendants that there was no paperwork for the 17 second-hand telephones, nor for the allegedly stolen telephone.

In cross-examination, the third defendant at one stage appeared to say that the second claimant at interview was asked individually about each telephone. While he insisted that the transcript of the interview was both full and accurate, the transcript of the interview shows that at one stage the second claimant was asked the following question: "So let's be clear about this. Do you have any documentation, paperwork or otherwise in respect of the second-hand phones?" Answer: "No, no I don't."

A study of the originals of the schedule shows that a copy of it contains the fax number of the shop, the date - 17th May 1998 - and the time - 7.20 a.m. The apparent explanation for the time of 7.20 a.m. was that the fax clock was not accurate.

The second and third defendants said that this copy is the copy of the schedule faxed to their office from the shop on that date. That faxed copy contains different information in a different hand than the paperwork column. The third defendant said that this information was inserted by their assistant in the office. He recognised the handwriting. The original of the schedule shows the single word "Nil" entered against a number of telephones in the same column. The defence suggests that this demonstrates that the schedule was made contemporaneously with the search and that the additional entries were made either at the time of the search or immediately afterwards.

The evidence of the second and third defendants was that in relation to telephone number 21 on the schedule, information was received before the interview from their office that their central computer showed that it was stolen. When asked about that telephone at interview, the second claimant accepted that it had been found at the premises but denied that he had any knowledge of it and, in particular, knowledge that it was stolen. The transcript shows that he was unable to give any explanation of where it had come from or how it had been obtained. Both the second and third defendants deny saying that they were "going to get" the second claimant.

In due course, the defendants sought to obtain further information about telephone number 21. The documents show that on the 1st June 1998, a faxed request was made to BT Cellnet Direct for information about the telephone with the ESN number 45024. In fact, this was an error. The number related to telephone number 22 on the schedule. The ESN number of telephone 21 was 12442.

By some extraordinary coincidence, Mr. Edward Dorsman, the business development manager for BT Cellnet Direct, on receipt of the facts, found the record for the correct telephone, namely telephone 21. He responded by saying that the telephone had been barred on the 3rd January 1996. Subsequent investigations by Mr. Dorsman showed, as he said in evidence, that telephone number 21 (12442) was categorised on the BT Cellnet computer (ABS) as "stolen" and barred on the 3rd January 1996. He said that its status today is still classified as barred. Further, Mr. Dorsman explained that the word "stolen" is entered on the computer when a telephone is stolen or lost. The third defendant agreed that in this context he understood that "stolen" meant either lost or stolen. Mr. James Malcolm, the first defendant's company secretary, also agreed that he understood "stolen" meant either lost or stolen. The second defendant said that he always thought that "stolen" meant stolen.

The provenance of this telephone is further confused by a Carphone Warehouse document which purports to show that this telephone was sold to a Mr. Keith McVeigh on the 27th September 1997. Mr. Dorsman, in evidence, said that this document would have had to be sent to BT Cellnet as an application to activate the telephone. At that stage, it was inevitable that it would have been found to have been barred. Had its status been changed at that time, or subsequently, the BT Cellnet computer would have been altered.

Finally, before setting out submissions and my findings, I must record that the claimants called Mr. Paul Baker who, in 1998, was a commission only agent for DVH, the distributors, who had entered into the agreement with the first claimant by which the latter, as I have indicated, bound itself to the terms of the scheme. Mr. Baker spoke of the success of the claimants' operation. At that time he visited 163 Green Street two or three times a week. He had never seen a second-hand telephone at the premises and he could see no reason why the claimants should be involved in dealing in Vodafone or BT Cellnet telephones. He accepted in cross-examination that some dealers took telephones in part-exchange for new telephones.

Mr. Holland, on behalf of the defendant, invites me to find, first, that on the 17th May 1998, the second and third defendants found 17 second-hand telephones for which there was no proper paperwork. Secondly, that telephone number 21 was the telephone which had been reported to BT Cellnet as stolen. He further submits that I should make four subsidiary findings of fact. They are:

1. That the schedule was made contemporaneously and is genuine;

2. The tape of the interview with the second claimant on the 17th May 1998 is a substantially accurate record of what was said.

3. Telephone number 21 was in working order and could function, had it not been barred.

4. At no stage did either of the second or third defendants say that they were "going to get" the second claimant.

In support of these submissions, Mr. Holland made a number of detailed submissions on the evidence of the witnesses and the documents.

Mr. Tolley, in his submissions on the findings of facts, submitted that there was no proper proof that telephone number 21 was stolen. He further submitted that there were a number of reasons for rejecting the defendants' evidence that second-hand telephones were found at the shop on the 17th May 1998. In support of his submission in respect of telephone number 21, Mr. Tolley relied heavily on the evidence that BT Cellnet made no distinction between a telephone reported as lost and a telephone reported as stolen. He submitted that in the circumstances it was quite impossible for me to find that this telephone was stolen. He further relied on the Carphone Warehouse document to cast additional doubt on the issue of whether the telephone was stolen.

As to my findings in respect of the second-hand telephones, Mr. Tolley relied on 15 separate points of evidence which he submitted threw doubt on the results of the search as reported by the second and third defendants. I hope Mr. Tolley will forgive me for not referring to these points individually. A number were concerned with points of credit. Some were points of detail concerning the evidence. By way of an example only, he submitted that because counsel had agreed that the transcript of the interview had contained substantially more clicks indicating stops on the tape than the second and third defendants had recorded on the transcript produced by them, this threw doubt on their evidence. He submitted that the two different photocopies of the printouts from the Smith Myers machine threw doubt on the second and third defendants' evidence.

In addition, Mr. Tolley submits that it is inherently unlikely that claimants who were carrying on a successful business would have had on their premises telephones without the proper paperwork which could not be connected to a service provider with whom the claimants dealt. He submits that the absence of evidence showing how these telephones could have been activated supports this submission.

Essentially, each party submits that I should prefer the evidence of its witnesses to the evidence of the other party's witnesses.

I turn to my findings of fact.

In my judgment, it is impossible for me to find that telephone number 21 on the schedule was stolen. Despite all the confusion over the way in which the information was obtained, I have no difficulty in finding that the second and third defendants received information from either their central computer or Mr. Dorsman, or both, that the status of that telephone was recorded as stolen. However, that is not an end of the matter.

The only information about this telephone, apart from the Carphone Warehouse document, comes from Mr. Dorsman. His evidence was that he could not tell from records kept by BT Cellnet whether the telephone had been lost or stolen. Although I accept his evidence that the probability is that the Carphone Warehouse documents does not controvert the information on the BT Cellnet computer, it still leaves the problem of whether the telephone was lost or stolen. It may have been stolen, yet it may not have been. In the circumstances, in my judgment, it is impossible for me to find that it was stolen.

I accept, however, that the second defendant at least believed that it was. I see no reason to doubt his evidence that he was unaware of the additional meaning attributed to the word "stolen" in service provider usage. The fact that his colleague, the third defendant, recognised the dual meaning of the word "stolen" does not seem to me to be sufficient reason for rejecting the second defendant's evidence on this point. As will become apparent later in this judgment, I found the second defendant an impressive witness and more reliable than the third defendant.

Although I do not think it is strictly necessary for me to do so, I find as a fact that this telephone was in working order apart from the fact that it was barred. Although the solicitors acting for the claimants wrote on the 8th October 1998 that the telephone was not in any condition to be capable of connection to any network, no attempt was made in the course of the evidence to show that it could not be connected to a network if it was unbarred.

I turn now to the second-hand telephones and the absence of records. Although the claimants' case is pleaded as breach of duty in contract and in tort, in effect their case is that the second and third defendants have lied about the existence of the second-hand telephones. As I have already said, it follows that their case is that the schedule and the information contained on it are false. The second claimant said that the second and third defendants, or one or other of them, made the remark that they were "going to get him." Having heard the evidence of the three principal witnesses on this issue, namely the second claimant, the second defendant and the third defendant, I have no hesitation in preferring the evidence of the latter two. In particular, the second defendant, in my opinion, gave his evidence in a clear and impressive manner. In my judgment, he was more impressive than the third defendant whose evidence at times appeared to be a little confused. However, I have no doubt that the third defendant was an honest witness and was doing his best to give me accurate evidence.

By contrast, I did not find the second claimant an impressive witness. He is obviously an intelligent and forceful man. He did not shrink from calling both the second and third defendant liars. At times, when asked questions, he sought to challenge the relevance of the question in a way which seemed to indicate a reluctance to answer.

But quite apart from my impressions of these three witnesses, there are a number of reasons why I preferred the evidence of the defendants than the evidence of the claimants.

First, as I have already said, I found the second claimant's explanation as to why the existence of the 17 second-hand telephones was not denied from the outset unsatisfactory and unconvincing. In my judgment, when faced with the statement of the breach of the rules dated the 11th June 1998 which stated that "… Mr. Pabari was interviewed on tape and was unable to offer any explanation for his position on the stolen phone or produce any paperwork, he was then asked to produce the documentation for the three brand new Orange phones and 17 second-hand phones and was unable to do so …" it is impossible to believe that he would not have raised at that juncture the fact that he denied the existence of those telephones had that been his case from the outset. As I have said, it was clear from his evidence that he is an intelligent and forceful man. I have no doubt that, faced with an untruthful allegation, he would have made the strongest possible protest from first to last.

Secondly, I am quite satisfied that the third defendant created the schedule of the telephones at the time of the search. The transcript shows, and the second claimant agreed, that when interviewing the second claimant, the second defendant referred to a number of telephones by the numbers on the schedule. It seems to me in the highest degree likely that those telephones were numbers which had already been allocated to the telephones on the schedule by the second and third defendants.

Thirdly, the faxed copy of the schedule with the correct telephone number and date on it is entirely consistent with the second and third defendant's evidence. In addition, the existence of the original, with different information on it from that which is written onto the faxed copy, as the defence suggest, in my judgment, supports the evidence that the schedule was faxed from the shop to the defendants' office so that further information could be obtained about the telephones. I cannot see how a copy of the schedule could bear the claimants' fax number and the date, 17th May 1998, unless it had been compiled at the shop at the time of the search.

Fourthly, the Smith Myers printouts would have to be false in order for the claimants' case to be correct. The information contained on the printouts, in my view, must have been obtained by using the telephones. Their existence is entirely consistent with the defendants' evidence.

Fifthly, it seems to me inconceivable that the second and third defendants would have been prepared to create in such detail a false case against the claimants. I am quite satisfied that they did no such thing, and I am further satisfied that neither made the observation, "We are going to get him."

In the circumstances, I am quite satisfied that the second and third defendants' evidence is correct, that 17 second-hand telephones were found in the shop, and it follows that there were no records in respect of these telephones, nor are there any records in respect of the alleged stolen telephone number 21.

Having made these findings of fact, I turn to their effect on this case. The claimants plead that both were contractually bound to the scheme. In contract the case is pleaded as a breach of an implied term to act with due care and diligence in and about any inspection and consequent action taken under the scheme and "… in particular, in and about the preparation of an accurate report of such an inspection": see paragraph 5 of the Statement of Claim.

Alternatively, the claim is put as a breach of duty to take care at common law. In paragraph 9, the alleged breach of duty is pleaded as follows:

"Wrongfully, and in breach of the aforesaid implied term and/or duty of care, the inspection was negligently carried out and the report inaccurate in that no such stolen cellular telephone was on the premises at the commencement of the said inspection, and no such further 17 cellular telephones were on the premises either at the commencement of the said inspection or at all. Further, the said stolen telephone was so damaged as not to be capable of use on or in connection to a network."

The defendants admit that the first defendant is contractually bound to the first claimant but, by an amendment to their defence which I allowed, they deny any contractual relationship with the second claimant. The implied term is admitted but any duty of common law is denied. Further, the specific breach of duty is denied.

Mr. Holland submits that if I find that there were 17 second-hand mobile telephones without paperwork on the premises on the 17th May 1998, the claimants' pleaded case must fail. He points to the fact that in paragraph 9 of the Statement of Claim, as I have indicated, the only pleaded allegation of breach of duty is that no stolen telephone and no second-hand telephones were present in the premises before or at the time of the search. The only material additional pleading is that the alleged stolen telephone was so damaged that it could not be used.

Relying on the evidence of Mr. James Malcolm and Mr. Tony Russell, Mr. Holland submits that a finding that 17 second-hand telephones without paperwork were on the premises is quite sufficient to find a serious breach of the rules, and the service of a notice of the breach of the rules which follows.

Mr. Tolley's main submission is that I should accept the second claimant's evidence that there were no second-hand telephones found on the search and that the alleged stolen telephone was not, in fact, stolen. Having found against his clients on the issue of fact in relation to the second-hand telephones, in my judgment his pleaded case on breach of duty, whether in contract or at common negligence, must fail. The fact that I have found the telephone was not stolen, as I shall explain later in this judgment, does not affect this conclusion.

In his opening skeleton argument, Mr. Tolley sought to make a number of alternative submissions, some of which, as he subsequently accepted, were not covered by the pleadings. He repeats those submissions in his final address to me. They are:

1. The second claimant was a party to the contract made between the first claimant and the first defendant. As such, he was owed a duty of care in contract.

2. Alternatively, the second claimant was owed a duty of care in common law by the first defendant.

3. Even if there was a finding that telephone number 21 was stolen and/or that 17 second-hand telephones found by the defendants at the search, a correct interpretation of the rules of the scheme did not lead to a finding that the claimants were in breach of the rules.

I will deal with the first two submissions shortly. In my judgment, it matters little whether the second complainant was contractually bound to the scheme or not. If he was not, I am prepared to accept, for the purposes of argument, that he was owed a duty of care by the first defendant. As it is, in my opinion, there is no evidence that the second claimant was contractually bound to the scheme. The agreement by which the first claimant became contractually bound to the scheme was signed by the second claimant "… by or on behalf of the nominee stockist (the first claimant) by his authorised signatory."

Mr. Tolley argues that because of the terms of the scheme, and because Mr. Malcolm expressed the view that a dealership might appeal under the scheme to a panel, it must be inferred that the second claimant was a contractual party to the scheme. I disagree. The question of the enforcement of the scheme seems to me a separate issue. The agreement, in my view, makes it quite clear that the second claimant was not signing the agreement on his own behalf but only as the authorised signatory of the first claimant. However, as I have already stated, I am prepared to accept, for the purposes of argument in this case without going into the matter in depth, that the first defendant owed the second claimant a duty of care at common law.

The question arises, on Mr. Tolley's third submission whether, on the facts which I have found, any of the defendants are proved to be in breach of duty. It is this submission which is not covered by the pleading. Nevertheless, I did not stop Mr. Tolley from making this submission. In a skilful argument, he submits:

1. That although the burden of proving a breach of duty is on the claimant, the burden of proving a breach of the rules of the scheme for the purposes of serving a notice of breach of the rules, is on the first defendant (see Regina v The Panel of the Federation of Communication Services Limited and the Federation of Communication Services Limited, Ex Parte Cubis, an unreported judgment of Tucker J. of the 3rd September 1997 in the Crown Office Lists.)

2. It would be negligent for the defendants to serve a notice of breach of the rules unless the factual basis for doing so showed a proved breach of the rules.

3. On a correct interpretation of the rules, there was no breach even if the 17 second-hand telephones were found at the shop without records.

The latter submission depends upon the interpretation of the rules in conjunction with the definition paragraph of the scheme.

On my findings, it is necessary to concentrate on rule 2 which I have already recited. However, Rule 2, by its terms, refers back to Rule 1. These rules contain the words "dealer," "dealt" and "equipment." These three words are defined in the interpretation section as follows:

"A dealer 'means a person (other than a manufacturer, network operator or service provider) who deals in or arranges the connection of equipment, either directly or through another person, in the United Kingdom.'

'Dealing in equipment means the acquisition or supply of equipment, whether by purchase or sale or otherwise.'

'Equipment means any form of cellular telephone equipment (including a subscriber identity module) intended for or capable of use on or in connection to a network.'"

In my judgment, both the claimants come within the definition of "dealers." In respect of the definition of "dealing" and "equipment" Mr. Tolley submits that neither of the claimants were dealing in equipment as defined in respect of the 17 second-hand telephones. He submits that in the definition "dealing" the word "acquisition" must be read as acquisition for the purpose of sale or supply and cannot mean simple possession. He submits that there is no evidence that the claimants were going to supply or pass on these telephones. Further, he submits that there is no evidence that the telephones were either "intended for" or "capable of use on or in connection to the network" so as to come within the definition of equipment.

Mr. Holland submits that acquisition means just that. The rules are, he submits, designed to stamp out dealing in stolen telephones. For that reason the keeping of records is of paramount importance. To add the words "supply" to acquisition would provide a substantial gap in the rules through which unscrupulous dealers might escape.

As to the submissions on the definition of equipment, Mr. Holland submits that the word "intended" must be construed objectively and not subjectively. In any event, he submits that there is clear evidence that these telephones are capable of being used on a network.

The unchallenged evidence was that it is comparatively easy for unscrupulous persons to alter the ESN of an analogue telephone. By that means, the telephone can be activated. In addition, the evidence that the Smith Myers machine was able to obtain a printout for a number of analogue telephones was evidence that they were capable of use.

In respect of these submission, I prefer those of Mr. Holland. In my judgment, the definition of dealing, including as it does the words "whether by purchase or … otherwise," is clear. In my opinion, it does not include by implication the addition of the words "for the supply or for sale." The addition of these words would unduly restrict the effect and purpose of the rules, the object of which is to stop dealers dealing in stolen telephones. In my judgment, the rules are designed to ensure that any telephone in the possession of a dealer is covered by proper paperwork so as to satisfy the requirement that the dealer has taken proper precautions to ensure that he does not deal in such telephones. The time at which such precautions can best be taken is at the point of acquisition, hence the requirement for records to be obtained at that point.

On the issue of equipment, in my opinion Mr. Tolley's submissions also fail. In my view the evidence shows, on the balance of probabilities, that the second-hand telephones were not only capable of use on a network but, if it is necessary to do so, I find that the claimant intended that they be used on a network. Having found that the second claimant has not told the truth about their existence, I infer that the reason for this is that those telephones were to be used to pass on to others. After all, why else would he deny their existence? There is evidence that they were in sufficient working order so as to emit and receive a signal on the Smith Myers machine. The fact that no equipment was found in the shop capable of carrying out the operation of changing the ESN and that the claimants had no need to deal in such telephones does not persuade me that it would be wrong for me to draw this inference, and I do so.

Accordingly, having found that the 17 telephones were in the shop on the 17th May and that no paperwork was available in respect of them there is, in my judgment, a breach of rule 2.

Next, Mr. Tolley sought to argue that Mr. Malcolm and Mr. Russell were wrong and in breach of duty to conclude that such a breach was a serious and major breach of the rules so as to justify the service of a notice of breach of the rules under the procedures set out in paragraph 5 of the scheme. Once again, this submission is not covered by the pleadings. It is based upon observations made in an affidavit sworn by the Panel Chairman in Ex Parte Cubis. In my judgment, there is nothing in this submission. I accept the evidence of Mr. Malcolm and Mr. Russell that any telephone for which there is no proper records can be sufficient to find a serious and major breach of rule 2. Even in this case, if two of the telephones were not in working order, as Mr. Tolley submits I should find by reason of such an assertion in the statement of the third defendant, I am quite satisfied that this submission gets nowhere near forming the basis for a finding of Wednesbury unreasonableness.

One final matter remains for me to deal with. The fact that, as I have found, telephone number 21 has not been proved to be stolen does not, in my judgment, have any effect upon any of my conclusions in this case. That telephone was not supported by any paperwork and therefore adds to the evidence in relation to the breach of rule 2. Even if I felt constrained to hold the defendants were in breach of duty by putting it forward as a ground for service of the notice of breach of the rules, in the circumstances and for obvious reasons it cannot have caused any loss.

It follows from the above that, in my judgment, the claim of both claimants fail. In summary, I hold that on their pleaded case the claimants have not established that the defendants were in breach of duty as particularised in paragraph 9 of the Statement of Claim. At no stage during the case did the claimants seek to amend their pleadings but, in any event, the additional submissions made by Mr. Tolley on behalf of the claimants, in my judgment, would also have failed even if I had allowed any proposed amendments. Accordingly, in this case there must be judgment for the defendants.

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