British Telecommunications Plc v Telefonica O2 UK Ltd: SC 9 Jul 2014

The parties disputed the termination charges which BT was entitled to charge to mobile network operators for putting calls from the latter’s networks through to BT fixed lines with associated 08 numbers. BT had introduced new tariff charges.
Held: The appeal was allowed unanimously and the decision of the CAT re-establised. BT was free to set the tarriff as they had first done.
Where the terms of the contract permit variation, Ofcom should give effect to that variation unless it would be inconsistent with its regulatory objectives, including under the welfare test.
Lord Sumption said: ‘As a general rule, the scope of a contractual discretion will depend on the nature of the discretion and the construction of the language conferring it. But it is well established that in the absence of very clear language to the contrary, a contractual discretion must be exercised in good faith and not arbitrarily or capriciously [citing Abu Dhabi, Gan, and Paragon, above]. This will normally mean that it must be exercised consistently with its contractual purpose [citing Ludgate Insurance, above and Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459 (Lord Steyn), 461 (Lord Cooke of Thorndon)].’
. . And ‘ it is not consistent with either the contract or the scheme of the Directives for Ofcom to reject charges simply because they might have adverse consequences for consumers, in the absence of any reason to think that they would. It is not consistent with the contract because it prevents BT from exercising its discretion to alter its charges in circumstances where there is no reason to suppose, and Ofcom has not found, that the limits of that discretion have been exceeded. It is inconsistent with the scheme of the Directives because it involves applying an extreme form of the precautionary principle to a dynamic and competitive market, in a manner which is at odds with the Directives’ market-oriented and essentially permissive approach. Logically, given the inherent difficulty of forecasting the extent of any direct or indirect effects, and the practical impossibility of forecasting the mobile tariff package effect, it would rule out any increases in termination charges other than those justified by reference to underlying costs. ‘

Lord Neuberger, President, Lord Mance, Lord Sumption, Lord Toulson, Lord Hodge
UKSC 2012/0204, [2014] UKSC 42, [2014] Bus LR 765
SC, SC Summary, SC Video, Bailii, Bailii Summary
Directive 2002/21/EC, Directive 2002/19/EC, Communications Act 2003 190
England and Wales
At CATTelefonica O2 Uk Ltd v Office of Communications and Another CAT 7-Oct-2010
OFCOM had disallowed a new termination tarriff imposed by BT on mobile network operators.
Held: The appeal succeeded. BT had the right to vary its charges subject to compiance with the appropriate European objectives and directives. Since the . .
CitedCommission v Poland (Industrial Policy) ECJ 13-Nov-2008
ECJ Failure of a Member State to fulfil obligations Electronic communications Networks and services Directive 2002/19/EC (Access Directive) Article 4(1) and the first subparagraph of Article 5(1) Incorrect . .
CitedTeliasonera Finland ECJ 12-Nov-2009
ECJ Judgment – Industrial policy – Telecommunications sector Electronic communications Directive 2002/19/EC Article 4(1) Networks and services Interconnexion agreements between telecommunications undertakings . .
CitedAbu Dhabi National Tanker Co v Product Star Shipping Ltd (No 2) CA 1993
Where parties enter into a contract which confers a discretion on one of them, the discretion must be exercised honestly and in good faith, and not ‘arbitrarily, capriciously or unreasonably’. The owner had acted unreasonably in that there was no . .
CitedLudgate Insurance Company Limited v Citibank NA CA 26-Jan-1998
Brooke LJ said that the circumstances in which the court will interfere with the exercise by a party to a contract of a contractual discretion given to it by another party are extremely limited. The courts will not intervene where the discretion is . .
CitedEquitable Life Assurance Society v Hyman HL 20-Jul-2000
The directors of the Society had calculated the final bonuses to be allocated to policyholders in a manner which was found to be contrary to the terms of the policy. The language of the article conferring the power to declare such bonuses contained . .
CitedGan Insurance Co Ltd v Tai Ping Insurance Co Ltd CA 3-Jul-2001
A reinsurance contract which contained a clause which provided that no settlement or compromise of a claim could be made or liability admitted by the insured without the prior approval of the reinsurers. The court considered how the discretion to . .
CitedParagon Finance plc v Nash etc CA 15-Oct-2001
The court was asked to consider whether there was any implied term limiting the power of a mortgagee to set interest rates under a variable rate mortgage.
Held: A loan arrangement which allowed a lender to vary the implied rate of interest, . .
CitedT-Mobile (UK) Ltd v British Telecommunications Plc CAT 20-May-2008
The dispute resolution functions of Ofcom are regulatory . .
CitedTeliasonera Finland ECJ 12-Nov-2009
ECJ Judgment – Industrial policy – Telecommunications sector Electronic communications Directive 2002/19/EC Article 4(1) Networks and services Interconnexion agreements between telecommunications undertakings . .
Appeal fromTelefonica O2 UK Ltd and Others v British Telecommunications Plc and Another CA 25-Jul-2012
BT had introduced a new tarriff for termination charges in respect of calls made from mobile phones to 08 numbers.
Held: The Court overruled the CAT and restored the decision of Ofcom. The CAT had been wrong to attach weight to their view that . .

Cited by:
CitedBraganza v BP Shipping Ltd SC 18-Mar-2015
The claimant’s husband had been lost from the defendant’s ship at sea. The defendant had contracted to pay compensation unless the loss was by suicide. They so determined. The court was now asked whether that was a permissible conclusion in the . .

Lists of cited by and citing cases may be incomplete.

Utilities, Media, Contract, Commercial, European

Updated: 09 November 2021; Ref: scu.533879