Easy Air Ltd v Opal Telecom Ltd

JurisdictionEngland & Wales
CourtChancery Division
JudgeTHE HONOURABLE MR. JUSTICE LEWISON,Mr. Justice Lewison
Judgment Date08 Apr 2009
Neutral Citation[2009] EWHC 339 (Ch),[2009] EWHC 779 (Ch)
Docket NumberCase No: 7MA91089

[2009] EWHC 339 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

MANCHESTER DISTRICT REGISTRY

Royal Courts of Justice

Strand, London, WC2A 2LL

Before: The Honourable Mr. Justice Lewison

Case No: 7MA91089

Between
Easyair Limited (trading As Openair)
Claimant
and
Opal Telecom Limited
Defendant

Miss Lesley Anderson QC (instructed by Cobbetts LLP) for the Claimant

Mr. Michael J. Booth QC (instructed by Mason Hayes) for the Defendant

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Hearing dates: 4, 5 February 2009

2

Approved Judgment

3

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

THE HONOURABLE MR. JUSTICE LEWISON
4

Mr Justice Lewison:

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1. Until the end of April 2004 the Claimant, Easyair Ltd (which traded as “Openair”), operated a business providing SIMs to its business customers under a service provider agreement with O2, the mobile phone network. Openair's customers, in turn, used those SIMs to connect to the O2 network. However, they were not the end users of mobile phones. They connected to the O2 network as GSM gateways. GSM gateways allow a call made from a fixed line telephone to a mobile telephone to be recognized as a mobile to mobile call. The latter may be cheaper for the caller, particularly if he is recognised as being on the same mobile network as the recipient of the call. GSM gateways are often used in conjunction with software which determines whether a particular call will or will not be cheaper if treated as a mobile to mobile call and automatically selects the cheaper alternative.

6

2. At that time a distinction was drawn by mobile network operators (MNOs) and the regulator (OFCOM) between “private” GSM gateways (used solely by a single end user for its own calls) and “public” GSM gateways (through which intermediaries enabled end users to make calls from fixed lines at potentially lower cost). Subsequently, a three-fold categorisation was adopted, distinguishing self-use gateways, commercial single-user gateways (“COSUGs”) and commercial multi-user gateways (“COMUGs”). Openair's pleaded case asserts that its customers inserted the SIMs supplied by Openair into COMUG GSM gateways.

7

3. At that time there was some doubt about whether an MNO could lawfully permit public gateways to connect to its network, without being in breach of its own licence conditions. O2 published its own policy about gateways. There were at least two versions of the policy. One version, issued in December 2003, stated:

“The term ‘GSM Gateway’ is used to describe equipment which enables the routing of voice calls from fixed line equipment to a mobile phone, yet it gives the impression it's a mobile to mobile call.

This type of equipment is being deployed widely across mobile networks without the prior consent of the network operators and is resulting in quality impairments, network congestion and safety/security concerns.

New legislation has been introduced which has allowed us to review our policy on the use of GSM Gateways.

Permitted use

The use of GSM Gateways by private users is permitted providing that the system is operated by or on behalf of the customer for the sole use of that customer

A private GSM Gateway registration process is being introduced in January 2004 which will allow us to strictly control the use of these devices on our network.

Non permitted use

The use of public GSM gateways for the conveyance of third party traffic is not permitted on the O2 UK network and where found we will withdraw the service.”

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4. Openair ran its business under a service provider agreement with O2. It is not in evidence. It is thus not clear whether, under the terms of its agreement, Openair was bound to comply with O2's statement of policy which does not in terms purport to have contractual force. I will assume that it was not. It is also alleged on behalf of Openair that it had the consent of O2 to facilitate the connection of public (including COMUG) gateways to the O2 network. I will assume this allegation to be true. It is not, however, alleged that any consent given by O2 was irrevocable.

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5. As part of its business Openair had a lot of information about its customers. This information was potentially valuable. However, in order to exploit the information itself, Openair need to be able to supply its own customers with O2 airtime. To do this, it needed a contractual relationship with O2. However, for reasons that do not matter O2 refused to renew Openair's service provider agreement, which was due to expire at the end of April 2004.

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6. Openair thus looked for another way of making money. It entered into negotiations with Opal Telecom Ltd (“Opal”), which is a subsidiary of The Carphone Warehouse plc. Opal had its own business providing airtime on the O2 network. It is alleged on behalf of Openair that Opal also had consent from O2 to facilitate the connection of public gateways to the O2 network. I will assume this to be true.

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7. On 30 April 2004 Openair and Opal entered into two agreements:

i) A sale and purchase agreement (“the SPA”) and

ii) A dealer agreement.

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8. There was another collateral agreement, to which I will return, and another agreement (referred to as the services agreement) which plays no part in this case.

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9. Under the terms of the SPA Openair sold to Opal its rights under existing subscriber contracts, and also its subscriber base. Under the terms of the dealer agreement Opal appointed Openair as its non-exclusive agent for attracting subscribers, and agreed to pay commission on business introduced, as well as on continuing contracts that had passed under the SPA.

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10. In June 2004 O2 issued a revised version of its policy about GSM gateways. That said:

“1. Prohibition on the use of public GSM Gateways

Public GSM Gateways are not permitted to operate using the O2 network. O2 does not agree to provide service to operators of public GSM Gateway operators. Where they are found to operate, O2 will take steps to withdraw service, on the basis that their continued operation effectively puts O2 in breach of its Conditions of Entitlement

2. Private GSM Gateways should be permitted

The operation of private GSM Gateways does not appear to be inconsistent with legal or regulatory requirements. On that basis, there is no general prohibition. However, Gateway operators should ensure to O2's reasonable satisfaction that they adhere to OFCOM's guidance on the provision of correct CLI information.”

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11. O2's policy on GSM gateways was enforced by requiring subscribers to sign a form confirming that the SIM cards issued to them would be used exclusively for telecommunications traffic generated by them during the normal course of business and that they accepted the policy.

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12. In September 2004 O2 disconnected some 7000 SIMs from its network. Those SIMS had been issued to customers who had formed part of the subscriber base that Openair had sold to Opal. In the run up to the disconnection there had been correspondence between Opal and O2 in which Opal tried to dissuade O2 from disconnecting the SIMs. Opal has said that the reason why the SIMs were disconnected was that they were COMUGs and illegal (in the sense that, as the June 2004 policy statement said, allowing COMUGs to operate would have put O2 in breach of its own licence, which was a standard form licence for operating a mobile telephone network). Openair dispute this. They hint at some sort of hidden agenda, but say that without disclosure they cannot make good or even formulate any real allegation. On the evidence it is clear that the reason why O2 disconnected the Sims was that they were COMUGs and that O2 considered that they were illegal in the sense just mentioned. Openair argued that O2 were wrong to say that COMUGs were illegal, and relied on a decision of the Competition Appeal Tribunal (CAT) in Floe Telecom Ltd v Office of Communications [2006] CAT 17. That case concerned (among other things) the interpretation of a licence granted to Vodafone. The CAT decided that, on the true construction of the Vodafone licence, the licence conditions permitted Vodafone to provide a telecommunications service, including COMUGs, provided that the COMUGs complied with the technical requirements of European legislation. At the hearing before me it was known that judgment on an appeal from the CAT was due to be handed down by the Court of Appeal in the following week; and so I deferred judgment until the result of the appeal was known. Both parties made additional written submissions following the hand down of judgment on the appeal. The Court of Appeal reversed the CAT on the question of construction ( Office of Communications v Floe Telecom Ltd [2009] EWCA Civ 47). They held:

i) The Vodafone licence did not, on its true construction, permit the use of GSM gateways, let alone COMUGs;

ii) The construction of the licence was not affected by European legislation. As Mummery LJ put it (§ 102):

“It is not, however, correct to construe that directive and then to hold that the licence must be construed to be compatible with that directive. It is wrong because the licence is neither domestic law made to implement the EC directive, nor is it any other kind of “law” in the generally understood sense of general rules laid down either in the form of legislation or of case law.”

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13. In the light of that decision, the legal foundation of Openair's claim that O2 was not entitled to disconnect the SIMs has completely disintegrated. Ms Anderson QC, appearing for Openair, argued that there might still be an issue of European law. However, it is not suggested that O2's standard from of licence differed in any material respect from Vodafone's; and the Court of Appeal has decided that European law is not relevant to interpreting the scope of the licence. There is, in consequence, no live...

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