Inquam Telecom (Holdings) Ltd v Primus Telecommunications Ltd
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE AIKENS |
| Judgment Date | 07 February 2007 |
| Neutral Citation | [2007] EWHC 181 (Comm) |
| Docket Number | Case No: 2006/462 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 07 February 2007 |
[2007] EWHC 181 (Comm)
IN THE HIGH COURT OF JUSTICE
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Aikens
Case No: 2006/462
Mr Timothy Dutton QC and Mr Stephen Brown (instructed by Mayer Brown Rowe & Maw, Solicitors, London) for the Claimant
Mr Philip Roberts (instructed by Bird & Bird, Solicitors, London) for the Defendants
Hearing dates: 16 th, 17 th and 18 th January 2007
Approved Judgment
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.
Mr Justice Aikens:
I. The parties and the background to the dispute
1. This dispute is between two companies in the mobile phone network sector of the telecommunications industry. It arises out of a “Service Agreement” (“the Agreement”) which was concluded between the parties on 12 May 2005. In essence the issue is: how much should the defendant (“Primus”) be paid for the products or services provided by Primus to the Claimant (“ITHL”) in respect of calls from mobile phones that are routed via ITHL to Primus’ international telecommunications network? To resolve this question it will be necessary to construe the Agreement, consider the effect of a further, more informal agreement between the parties made after the Agreement, in the latter half of 2005 and also the conduct of the parties in early 2006. Primus also has a counterclaim for damages said to have been suffered because ITHL was too slow in providing certain connection facilities under the Agreement and for breach of a “non – assignment” provision in the Agreement.
2. The trial took place between 16 -18 January 2007. I heard oral evidence from two witnesses for the claimant, Mr Tony Greaves and Mr Richard Pullin. I also heard evidence from two witnesses for the defendant, Mr Kishor Patel and Mr Oliver Mackereth. All of them were satisfactory witnesses, although it is debatable how useful or even admissible much of their evidence was for the purpose of deciding the issues in dispute. But it would have taken longer to sort out what parts of their witness statements were relevant than to allow them all to go in, on the understanding that I would disregard those parts of both their written (and oral) evidence that was inadmissible or irrelevant.
3. The Claimant, ITHL, was formed in July 2001. In October 2004 ITHL was bought by Mr Tony Greaves, who is now its Chief Executive Officer. His co-purchaser was Mr Richard Pullin, who is now the Business Development Director of ITHL. ITHL had been allocated 1.2 million mobile telephone numbers by OFCOM. All of these numbers have a prefix 07744 or 07755.
4. ITHL's business is to operate a telecommunications switch (i.e. an exchange) and a number provisioning service which it provides to other telecommunications service providers, known as “Mobile Network Operators” or “MNOs”, such as Orange and T-Mobile. This service is all part of the chain of telecommunications services which enable a caller using a mobile phone to make national or international calls. I will explain how these work further below.
5. Another relevant company which is associated with ITHL (through its shareholders) is Core Communications Services Limited (“Core”). It was incorporated in May 2005. Mr Greaves is the CEO of Core and Mr Pullin is its Business Development Director. They are the two shareholders of that company.
6. The defendant, Primus, is a telecommunications service provider. It provides services to retail end-user customers. These services include domestic and international long distance services, international toll-free services, calling cards and prepaid long distance services. Primus is a UK subsidiary of a large US telecoms company, Primus Telecommunications Group Inc. which has worldwide connections. However, in May 2005, Primus did not have a Mobile Licence in the UK. Primus provides further links in the chain whereby a caller using a mobile phone can make international calls. In all cases the object of Primus’ services is to enable the caller to make international calls at a lower cost than the usual cost of a direct call.
7. In early 2005, ITHL and Primus both appreciated that there could be mutual advantage in linking the services that the two companies could provide. The plan was to provide a service as follows: first it was known that many retail customers of MNOs (such as Orange and T-Mobile) have contracts with their MNO which enable the customer to use a certain number of minutes of call time per month in return for a monthly fee. This call time is known as “free cross network minutes” or “bundled minutes”. Such a contract enables the mobile phone user to telephone other mobile phone numbers (on the same or other mobile networks) at no additional cost up to the monthly limit of call time. MNOs, such as Orange and T-Mobile can have agreements with other MNOs. These are known as “interconnect agreements”. In early 2005, ITHL had only one interconnect agreement with another interconnect provider, which was BT.
8. The second element in the plan was that ITHL would enter into a contract with Primus and sub—allocate to it certain of the telephone numbers which OFCOM had allocated to ITHL. The object of this was to enable the mobile phone caller to use these ITHL numbers that were allocated to Primus to call up Primus, thereby gaining access to its international network.
9. The third element in the plan was to utilise the resources and telecommunications connections that Primus has worldwide to enable a mobile phone caller in the UK to connect to a receiver in destinations all over the world. Thus a caller in the UK could dial an ITHL number that had been sub—allocated to Primus, wait for a short pause, then dial the international number required. That number would be connected through the Primus network.
10. The route was helpfully put in a diagrammatic form in the Outline Argument of Mr Philip Roberts, who appeared for the defendants. This diagram assumes that the call would come to ITHL via the BT interconnection, which was the only possibility at the time the Agreement was concluded.
11. This arrangement would, potentially at least, have advantages for three parties. First, the mobile telephone user can use the connection via ITHL and Primus to make international calls more cheaply than calling the number directly. There is an even greater advantage to the mobile phone user if the ITHL number is one that the caller's MNO permits to be included in the “bundled minutes” as part of the contract between the mobile phone user and the MNO. However, there can be savings to the customer even if the international call via ITHL and Primus, is outside the “bundled minutes”.
12. Secondly, the arrangement is of advantage to ITHL. If it has a service agreement with Primus, then ITHL will be able to route calls from mobile telephone users through an ITHL number that has been sub—allocated to Primus. This will mean that ITHL will obtain a fee for taking the call from an MNO (such as Orange), which is known variously as an “interconnect fee” or “rebate”. Obviously, the more calls that are routed through ITHL and Primus, the more interconnect fees that ITHL will obtain from MNOs through whom the mobile phone user has to route a call to utilise the Primus connection to an international destination.
13. Lastly, the scheme is of advantage to Primus. It will obtain a fee from ITHL for permitting the connection (via the ITHL number) to its network. This payment is variously called a “royalty payment” or a “rebate”. Once again, the more calls that are routed through the MNO to ITHL and then Primus and on to the international destination, the more royalty payments Primus will get. However, Primus has to pay the international mobile and land line connectors out of its revenue. Primus is also responsible for the marketing of this facility in the retail mobile phone users’ market.
14. In early 2005, ITHL had an interconnect agreement with BT only. At that stage, Mr Greaves and Mr Pullin, in their capacity as officers of Core, were negotiating an interconnect agreement between Orange and Core. The plan was to route calls originating from Orange through Core and then, via ITHL, which had the physical connections, to the Primus network. Subsequently in 2006, as I will relate, ITHL entered into a further interconnect agreement with T-Mobile.
15. It is obvious that if ITHL and Primus wished to operate this proposed scheme profitably, then there would be a number of factors to consider. First, it is in the interests of ITHL and Primus that ITHL obtains the highest possible interconnect rate from all MNOs that connect to ITHL. This is because the higher the rate that ITHL obtains then the more flexibility there is for ITHL to pass on a good royalty rate to Primus. Secondly, it was known in the mobile phone business that interconnect rates tend to reduce over time. If interconnect rates as between MNOs and ITHL reduce, then that would “squeeze” ITHL unless it could pass on the reduction in the royalty rate that it paid to Primus. Thirdly, Primus was responsible for paying interconnect rates to international telecommunications carriers to the various destinations that Primus offered. Some of these rates were very high and others were low. If the interconnect rate paid by ITHL to Primus was lowered, then it might make some of the international destinations offered by Primus unprofitable for it. Primus could, of course, refuse to offer particular destinations if they became unprofitable. However, if it did so, then that would reduce its “customer base” for international calls, thus reducing the...
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