H.T.v Ltd v Price Commission
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE SCARMAN,LORD JUSTICE GOFF |
| Judgment Date | 09 March 1976 |
| Judgment citation (vLex) | [1976] EWCA Civ J0309-4 |
| Date | 09 March 1976 |
| Court | Court of Appeal (Civil Division) |
[1976] EWCA Civ J0309-4
The Master Of The Rolls (Lord Denning)
Lord Justice Scarman and
Lord Justice Goff
In The Supreme Court of Judicature
Court of Appeal
Civil Division
Appeal from Order of Mr. Justice Mocatta,
Mr R.M. YORKE, Q.C. and Miss GENEYRA CAWS (instructed by Messrs Church Adams Tatham & Co., Agents for Messrs Osborne Clarke & Co., Bristol) appeared on behalf of the Appellants (Plaintiffs).
Mr T.H. BINGHAM, Q.C. and Mr C. BATHURST (instructed by The Treasury Solicitor) appeared on behalf of the Respondents (Defendants).
H.T.V. Ltd. (formerly Harlech Television Ltd.) is a programme contractor. It provides television programmes for Wales and the West Country. Many of their programmes are designed specially to appeal to the people in those places. H.T.V. Ltd. gets its revenue from advertisers who pay for the display of their advertisements on television.
The actual broadcasting of the programmes is done by the Independent Broadcasting Authority, They are broadcast in pursuance of contracts in writing made in 1968 and 1974 under the authority of the Television Act, 1964, and the Independent Broadcasting Act, 1974. Those contracts give the Company the right to provide programmes for broadcasting provided that they make payments to the Authority monthly in advance. In default of payment within seven days of falling due, the Independent Broadcasting Authority can terminate the agreements forthwith. These payments by the Company are divided into two parts. One part is for the Authority to keep for itself. The other part consists of "additional payments" to the Authority, which the Authority receive as an intermediary to pass on to the national exchequer. These "additional payments" are called in the trade the " exchequer levy".
From 1968 to 1974 the exchequer levy was calculated as a percentage of the advertising receipts. The first £1½-milllon receipts was a free slice which did not bear any levy. The next £6-million receipts bore an exchequer levy of 25%. Above those figures, the levy was 40%.
The business expanded rapidly. In 1968 the turnover was nearly £3-million and the exchequer levy £½ million. Butby 1973 the turnover was over £10-million and the exchequer levy over £1-million.
From June 1974 onwards, under the authority of Act of Parliament, the exchequer levy was calculated on a different basis. Instead of being calculated as a percentage of the advertising receipts, It was calculated as a percentage of profits. The first £¼-million of profits was a free slice. All profits above £¼-million bore an exchequer levy of 66.7% - that is, two-thirds of the profits.
Now H.T.V. Ltd. are subject to the Price Code. They cannot increase their charges to the advertisers except within the limits permitted by the Code. In 1975 H.T.V. Ltd. were affected, like everyone else, with the increase in costs. They sought a corresponding increase in the sums which they could charge to advertisers. They notified the Price Commission of their proposed increases. The Price Commission did not agree to the proposal. There was a difference of view as to the proper way of calculating the permitted increases. This difference has culminated in this action in the Courts. H.T.V. Ltd. claim a declaration in support of their view. Pending a declaration, H.T.V. Ltd. have not increased their rates to advertisers. But, as it is important to come to an early decision, the Courts have specially expedited the hearing.
The Price Code is very difficult to understand. I tried to explain it In the G.E.C. case (1975) Industrial Cases Reports at page 8. I gave an outline of "allowable cost increases" and Of "reference level". But my explanation then needs to be supplemented now, because in 1974 it was found that the price limitations operated harshly in some cases. The permitted prices were not enough to enable theManufacturer or trader to pay his way. So, in the revised Code of 1974 (which came into operation on 20th December, 1974) there were introduced "safeguards" so as to give relief to those whose profit margins were being eroded by higher costs. One of these safeguards is contained in paragraph 39 which is directly in issue in this case. It states (so far as material): "where the price of a product does not afford a margin over total costs per unit of output of seven-tenths of the percentage margin at 30th April, 1973 an enterprise may increase the price of the product concerned to the extent required to give such a margin".
H.T.V. Ltd. claim the protection of that safeguard. They say that the "total cost per unit of output" includes the exchequer levy, whereas the Price Commission say that, in calculating the "total cost" the exchequer levy is to be omitted.
THE YEAR ENDED 30th APRIL, 1973
I expect that any accountant can understand paragraph 39 easily. But I cannot understand it except by taking an actual illustration to see how it works. I propose to take the year ended 30th April. 1973, because that is the very date mentioned in paragraph 39. and I have extracted the figures for it. It works in this way:-
(i) " Unit of Output"
This company produced one single product, namely, advertising time on television (see paragraph 48). The output for the year was 5073 hours of television time. The "unit of output" was one hour of television time.
(ii) " income per unit of output"
The income of the Company was its income fromadvertising. It amounted for the year to £10,055,843, Divided by 5073, this gives an income of £1,982.23 per unit of output.
(iii) " Total costs per unit of output"
"The total costs of the company for the year was the combined total of two groups:-"
" Allowable Costs": These were the costs incurred by the Company on certain specified items, such as labour, materials, rent, rates, interest charges, depreciation and royalties (see paragraph 32). These amounted for the year to £7,018,050.
" Non-allowable Costs": These were the costs incurred by the Company on other items, such as exchequer levy, sales promotion, public relations. These came for the year to £1,436,000. By far the biggest item in this group was the exchequer levy which came to over £1,000,000. (At that time in 1973 the exchequer levy was calculated as a percentage on the receipts, not on the profits). The "total costs" for the year amounted to the sum of the "allowable costs" and the "non-allowable costs". These came for the year to £8,454,050. Divided by 5073,this gives the "total costs per unit of output" as £1,690.81.
(iv) The "margin" per unit of output is the profit made on each unit. It is calculated by taking the "income per unit" - that is, £1,982.23 - and deducting the "total costs per unit" - that is, £1,690.81. So it comes to £291.42 per unit.
(v) The "percentage margin" Is found by taking that figure of £291.42 and expressing it as a percentage of the totalcosts Of £1,690.81. It is 17.24%.
(vi) "Seven-tenths of the percentage margin at 30th April, 1973" is seven-tenths of that 17.24%. It is 12.07%.
Applying paragraph 39, therefore, it means that the Company is entitled to increase the price of its product (i.e. television time) to the extent required to give & percentage margin of 12.07% per unit of output.
THE YEAR ENDED 30th SEPTEMBER, 1975
In contrast to the year 1973 I now propose to take the year 1975: because, by so doing, I will be able to disclose the point at issue. The output for the year ended 30th September, 1975, was 5177 hours. The revenue came to £10,852,583. Dividing by 5177, that gives £2,096.31 as the "income" for 1975 "per unit of output". The "total costs" for that year came to £10,008,138. Dividing by 5177 gives the "total costs per unit of output" as £1,947.34. (In calculating that figure the Company took as part of the total costs the exchequer levy which came to about £1,000,000. In the year 1975, however, the levy was calculated as a percentage of profits, and not as a percentage of receipts, as It had been in 1973). The "margin" in 1975 was, therefore, the difference between the "income per unit" - that is, £2,096.31 - and the "total costs per unit", that is £1,947.34. That gives £148.47. When that £148.47 is expressed as a percentage of £1,947.34, it gives a percentage margin of 7.65%.
Applying paragraph 39, this means that the Company can increase their prices so as to bring the 1975 margin of 7.65% up to the 1973 margin of 12.07%.
THE POINT AT ISSUE
The Price Commission say, however, that the calculation for 1975 is erroneous. They say that the exchequer levy (amounting to £1,000,000) ought not to he counted as part of the "total costs" in 1975. They say that, when the exchequer levy was calculated as a percentage of profits, it no longer formed part of the "costs", but part of the profits. They liken the arrangement to a partnership in which the partners share the profits: and they liken the exchequer levy to a tax which comes out of the profits.
But the Company say that the exchequer levy retains the same characteristics both before and after the change. They say it formed part of the "costs": and that the "total costs per unit of output" should be calculated on the same footing for the base year 1973 as for the- subsequent year 1975.
As between the two rival views, the Price Commission rely upon the decision of this Court in G.E.C. v. Price Commission (1973) Industrial Cases Reports 1. They submit that the application of the Code is primarily a matter for the Price Commission: and suggested that this Court should not interfere save on the grounds specified In that case. The Judge accepted their submission. He felt that he could not interfere with a decision of the Price Commission.
In opening the appeal to us, Mr. Yorke, Q.C. for...
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