R v Independent Television Commission and Others

The Independent Television Commission (ITC) is a statutory body which owes its existence to section 1 of the Broadcasting Act 1990. By section 2(1) of the Act the function of the ITC is stated to be:

"to regulate, in accordance with this Part, the provision of the following services, namely—

(a) television programme services which are provided from places in the United Kingdom by persons other than the BBC and the Welsh Authority, and

(b) additional services which are provided from places in the United Kingdom,

and to regulate, in accordance with Part II, the provision of local delivery services….which are so provided."

Sections 43–45 (which are within Part I) are concerned with satellite television services. Flextech PLC (Flextech) and Sci-Fi Channel Europe LLC (SFC) operate in the pay television market (Pay TV). They are known as channel providers. Pay TV channels are delivered for direct-to-home (DTH) reception by satellite through British Sky Broadcasting Limited (B Sky B) or by cable transmission through cable operators. Until recently television services were only provided in analogue form but digital transmission has recently been introduced by B Sky B. In order to distribute their television services and obtain access to Pay TV subscribers, channel providers enter into agreements—referred to as "carriage agreements". B Sky B has a virtual monopoly in the distribution of DTH satellite television in this country and Flextech and SFC, as channel providers, have carriage arrangements with B Sky B. They also have carriage arrangements with cable operators for the distribution of their services by those carriers. Cable operators tend to have a virtual monopoly over cable distribution in the areas covered by their individual franchises. Two of the leading cable operators in the United Kingdom are Cable & Wireless Communications PLC (C+WC) and NTL Incorporated (NTL).

Within the Pay TV industry channels are known as "basic channels" or "premium channels". Basic channels are sold to subscribers as part of a basic tier or bundle of channels for which the subscriber is charged a single retail price. Generally, a subscriber has to buy a tier or bundle of a substantial number of basic channels which are not available individually or à la carte. Premium channels, which include the more popular sport and film channels, are sold individually to subscribers on an à la carte basis at a price per channel or as part of a small tier or bundle of channels. Their price per channel is higher than for basic channels. In an industry of recent origin and with high start-up costs, a number of marketing arrangements developed. For example, an arrangement whereby subscribers were not able to purchase premium channels without also purchasing a number of basic channels became known as "buy through". Another arrangement grew up whereby carriage agreements between channel providers selling basic channels and their carriers contained a clause under which the carrier agreed to distribute such channels to a predetermined proportion of the carrier's total number of subscribers, say 80%. This was known as a "minimum carriage requirement" (MCR).

Channel providers such as Flextech and SFC hold licences issued by the ITC. So, for that matter, do B Sky B (which is both a channel provider and a carrier) and cable operators. The basic licensing provisions are contained in sections 3–5 of the Act. By section 4(1)(a) a licence granted by the ITC may include "such conditions as appear to the Commission to be appropriate having regard to any duties which are or may be imposed on them, or on the licence holder, by or under this Act". Section 4(2)(a) states that a licence may include conditions requiring the licence holder

"to comply with any direction given by the Commission as to such matters as are specified in the licence or are of a description so specified."

The ITC has statutory duties imposed by section 2(2). They include the duty:

"(a) to discharge their functions under this Part and Part II as respects the licensing of the services referred to in sub-section (1) in the manner which they consider is best calculated.

(i) to ensure that a wide range of such services is available throughout the United Kingdom, and

(ii) to ensure fair and effective competition in the provision of such services and services connected with them."

As will become apparent, section 2(2)(a) is at the heart of this case.

In the licences granted by the ITC to channel providers such as Flextech and SFC, the following conditions are included:

"9. The Licensee shall:—

(a) not engage in any practice or enter into any arrangement which is prejudicial to fair and effective competition in the provision of licensed services and services connected with them; and

(b) comply with any direction from time to time issued by the Commission to the Licensee for the purpose of ensuring fair and effective competition in the provision of licensed services and services connected with them."

"12(1) The Licensee shall comply with any direction given to him by the Commission in respect of any matter, subject or thing which direction is in the opinion of the Commission appropriate, having regard to any duties which are or may be imposed on it, or on the Licensee, by or under the Act."

In 1996 the ITC received a complaint about the terms upon which a particular channel was being made available. This set in motion an inquiry and a process of consultation which eventually resulted in the ITC promulgating a Decision on 26 June 1998 ("the Decision") the effect of which was to prohibit types of clause in carriage agreements which were considered to be inconsistent with fair and effective competition. The Decision included the following direction:

"The ITC hereby DIRECTS the Licensee as follows:

(a) Subject to paragraphs B and E to G below with effect from 1 July 1998, the Licensee shall not enter into nor seek to enforce or observe any MCR.

(B) With effect from 30 September 1998, the Licensee shall not enter into nor seek to enforce or observe any Contract or contractual term which has the effect, either direct or indirect, of preventing subscribers from buying on an à la carte basis from any package of basic Channels any Premium Channel available to the Licensee and any premium Channel offered by the Licensee to subscribers must be made on an à la carte basis in combination with any package of Basic Channels.

(C) In the terms on which the Licensee contracts, or offers to contract for the distribution of a Channel or in any attendant circumstances including but not limited to the marketing and positioning of the Channel, the Licensee shall not show undue discrimination either against or in favour of a particular person providing the Channel (which for this purpose may include the Licensee itself) or a class of such persons providing Channels.

(D) (Omitted)

(E) MCRs contained in existing Contracts insofar as they relate to the distribution of a Channel for reception in analogue form may be enforced or observed up to 1 January 2000 or until the expiry of the relevant Contract, whichever is the earlier.

(F) MCRs relating to the launch of New Channels may be entered into and enforced or observed for up to twelve months from the commencement of the Contract to which they relate."

The Decision went on to define "contract" as "any contract, agreement, arrangement or other understanding howsoever recorded" and defined MCRs in a manner to which I shall have to return.

The present proceedings take the form of applications for judicial review of the Decision of 26 June. The Applicants are Flextech (and associated companies) and SFC. Following the grants of leave to move, B Sky B, C+WC and NTL have become involved as interested parties.

Miss Baxendale QC, on behalf of the Applicants, seeks to challenge the Decision on a number of grounds. In her Skeleton Argument, she identifies four "main issues" which are, in effect, the grounds of challenge. They are:

(1) whether the ITC had power under section 2(2) of the Broadcasting Act 1990 to interfere with existing contractual rights; alternatively whether it abused its power by purporting to do so;

(2) further or alternatively, whether the ITCs prohibition of MCRs was within its powers under section 2(2)(a);

(3) further or alternatively, whether the ITC's definition of MCRs for the purposes of the prohibition was void for uncertainty;

(4) further or alternatively, whether the ITC acted unfairly in failing to consult as to the definition of MCRs.

The ITC seeks to resist each and every challenge on the merits and also argues that the applications should fail by reason of delay. B Sky B, C+WC and NTL, whilst not supporting all the submissions put forward on behalf of the ITC, do not support the Applicants' challenges.

I Interference with Existing Contractual Rights and Legitimate Expectations.

The prohibition contained in the Decision applies to both existing and future contracts. This...