Vodafone Ltd & Others v The Office of Communications [2019] EWHC 1234 (Comm)
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In Vodafone Limited & Others v The Office of Communications [2019] EWHC 1234 (Comm), Mr Adrian Beltrami QC, sitting as a Deputy Judge of the High Court in the Commercial Court, held that four mobile network operators were entitled to restitution of the full excess over statutory licence fees for spectrum use, rejecting Ofcom’s submission that recovery should be restricted by reference to fees that could hypothetically have been charged under lawful regulations.
The claimants were Vodafone, Telefónica (O2), Hutchison (Three) and EE. Each held wireless telegraphy licences for the 900 MHz and 1800 MHz spectrum bands. Between October 2015 and November 2017, annual licence fees were charged under the Wireless Telegraphy (Licence Charges for the 900 MHz frequency band and the 1800 MHz frequency band) (Amendment and Further Provisions) Regulations 2015. Those Regulations significantly increased fees compared to the earlier 2011 Regulations, which had set fees at rates unchanged since 1999. In November 2017, the Court of Appeal quashed the 2015 Regulations following judicial review proceedings brought by EE. The effect was that the 2011 Regulations had remained in force throughout. The claimants each brought claims under CPR Part 8 for restitution of the sums paid in excess of the fees due under the 2011 Regulations. The sums in issue were approximately £54.4 million for Vodafone and O2, £26.9 million for Three and £82.4 million for EE. The facts were agreed and the parties consented to interest at 2 per cent above base rate from the dates of payment.
The sole issue was the appropriate measure of restitution. The claimants argued for recovery of the net sum, namely the difference between the fees actually paid under the unlawful 2015 Regulations and the fees properly due under the lawful 2011 Regulations. Ofcom contended that the claimants should recover only the difference, if any, between the sums paid and the sums that would have been due had Ofcom acted lawfully in accordance with the Court of Appeal’s judgment, by making compliant regulations. Ofcom submitted that it could and would have made lawful regulations imposing fees at or near the level of the 2015 Regulations, pointing to the 2018 Regulations (which came into force after the quashing order and set fees at similar levels) as evidence of what it would have done. Ofcom described its approach as a “counterfactual principle” and argued that to reject it would be to grant the claimants a windfall and penalise Ofcom for its error.
Mr Beltrami QC began by addressing the common law framework. He noted that it was common ground that the claimants were entitled in principle to restitution under the Woolwich principle, namely that money paid to a public authority pursuant to an ultra vires demand is prima facie recoverable as of right. It was also agreed that Ofcom had no claim in counter-restitution for the use of the licences during the relevant period, and no statutory power to set fees with retrospective effect. The Court held that the 2011 Regulations exhausted the claimants’ obligations and Ofcom’s entitlements, and that the claimants had no claim for the return of fees due under those Regulations because those sums were paid for consideration and in satisfaction of a legal entitlement. The claims concerned only the excess over those fees.
The Court rejected Ofcom’s counterfactual principle. Mr Beltrami QC held that hypothesising new or different legislation would offend the principle of legality that underpins the Woolwich rule and the requirement that public authorities may not exact payments without lawful authority. He emphasised the constitutional importance of the principle, enshrined in article 4 of the Bill of Rights 1689, that there should be no taxation without Parliament. He said that permitting a public authority to retain unlawfully exacted charges by hypothesising alternative lawful regulations would subvert that principle, allowing the authority to benefit from the unlawful by hypothesising the lawful. He noted that Lord Goff in Woolwich itself had invoked the underlying justice of the taxpayer’s case and the coercive disparity of power between taxpayer and revenue, and that there was nothing in the earlier colore officii line of authority to support a defence of the kind advanced by Ofcom.
Mr Beltrami QC also distinguished between hypothesising a change in the law and hypothesising the completion of an administrative step required under existing legislation. He accepted that in cases such as South of Scotland Electricity Board v British Oxygen, Waikato Regional Airport and Hemming v Westminster City Council, courts had been prepared to assess what a lawful fee would have been by reference to administrative steps not taken, such as a proper costs assessment or a determination of a reasonable fee. However, he held that those cases did not involve hypothesising new legislation or a change in the law. He said that even if those cases involved counterfactual reasoning, the present case was fundamentally different because Ofcom sought to hypothesise not the filling of a legislative vacuum but the replacement of an existing, valid and extant statutory regime. The 2011 Regulations remained in force throughout as the law of the land, and the law of unjust enrichment should not be used to undermine the legally binding arrangements by which the parties had defined and thereby restricted their mutual obligations.
The Court held that it was irrelevant whether the 2015 Regulations were characterised as a weak form of legislation. Secondary legislation was as much the law of the land as primary legislation, and no coherent distinction could be drawn between them for the purposes of unjust enrichment. Mr Beltrami QC observed that Ofcom’s analysis, if accepted, would permit hypothesising even different primary legislation in appropriate circumstances, for which there was no authority. He also noted the logical incoherence in Ofcom’s position: if a claimant had refused to pay more than the 2011 Regulations fees, Ofcom would have had no claim against it, yet Ofcom submitted it should retain fees unlawfully charged from those who did pay.
Turning to the four questions in unjust enrichment, Mr Beltrami QC held as follows. First, Ofcom had been enriched by the receipt of money, which was an incontrovertible benefit. He rejected Ofcom’s submission that it was not enriched because it could and would have obtained the fees “for free” under alternative lawful regulations. He also rejected Ofcom’s argument based on subjective devaluation and its “net enrichment” analysis, which he held was dependent on the rejected counterfactual principle and in any event was properly the province of counter-restitution, which Ofcom had accepted it could not claim. Second, the enrichment was at the claimants’ expense. In a direct transfer of money, the payer was disbenefited by the value paid in the same way as the payee was benefited by the value received. Third, the enrichment was unjust. There was no unjust factor where a party received a payment to which it was legally entitled, but there was an unjust factor where the receipt was itself unlawful or represented an unlawful overcharge against an existing lawful regime. Fourth, no defences were available to Ofcom.
The Court did not find it necessary to determine issues arising under EU law, including whether the Court of Appeal had found a breach of EU law and whether the principle in Lady & Kid v Skatteministeriet applied beyond unlawfully paid taxes. Those issues did not arise because the claims succeeded in domestic law.
In short, judgment was given for each claimant in the net sum claimed, together with interest at 2 per cent above base rate from the dates of payment, on the basis that the claimants were entitled to recover the full excess over the fees due under the lawful 2011 Regulations and that the law of unjust enrichment did not permit Ofcom to retain sums by hypothesising alternative lawful regulations.
Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70
R (EE Limited) v Office of Communications [2016] EWHC 2134
Benedetti v Sawiri s [2013] UKSC 50; [2014] AC 938
Lord Clarke. In Menelaou v Bank of Cyprus UK Ltd [2015] UKSC 66; [2016] AC 176
Investment Trust Companies v Revenue & Customs Commissioners [2017] UKSC 29; [2018] AC 275
Data Broadcasting International Ltd v The Office of Communications [2010] EWHC 1243
ex parte Woolwich Equitable Building Society [1990] 1 WLR 1400
Waikato Regional Airport Ltd v Attorney General [2004] 3 NZLR 1
R (Hemming) v Westminster City Council [2013] EWCA Civ 591; [2013] PTSR 1377
F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295
Scotland Electricity Board v British Oxygen Co Ltd [1959] 1 WLR 587
Lindum Construction Co Ltd v Office of Fair Trading [2014] EWHC 1613; [2014] Bus LR 681
Littlewoods Retail Ltd v Revenue and Customs Commissioners [2014] EWHC 868; [2014] STC 1761
Kleinwort Benson Ltd v Sandwell Borough Council [1994] 4 All ER 890