Tele2 International Card Company SA and Others v Post Office Ltd

JurisdictionEngland & Wales
JudgeLord Justice Aikens,Lord Justice Richards,Lord Justice Ward
Judgment Date21 January 2009
Neutral Citation[2009] EWCA Civ 9
Docket NumberCase No: A2/2008/0595
CourtCourt of Appeal (Civil Division)
Date21 January 2009
Between
(1) Tele2 International Card Company SA
(2) Kub 2 Technology Limited (formerly known as C3 Calling Card Company (Ireland) Limited)
(3) Kub 7 Technology Limited (formerly known as Calling Card Company (Uk) Limited)
Appellants/Claimants
Post Office Limited
Respondent/Defendant

[2009] EWCA Civ 9

Before: Lord Justice Ward

Lord Justice Richards and

Lord Justice Aikens

HHJ Seymour QC

(sitting as a Judge of the High Court)

HQ06X00067

Case No: A2/2008/0595

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

Mr John McCaughran QC and Mr Matthew Cook (instructed by Fox Williams, LLP, London) for the Appellants

Mr Jeffery Onions QC and Mr Ben Strong (instructed by Lovells, LLP, London) for the Respondent

Hearing dates: 1 st, 2 nd, 3 rd and 4 th December 2008

Lord Justice Aikens

Lord Justice Aikens:

A. The Background to the Appeal

1

This appeal, from an Order of HHJ Seymour QC dated 25 February 2008, arises out of a written agreement dated 9 November 2001(“the Agreement”) between companies in the “Tele 2” group, the parent company of which is based in Sweden, and Post Office Limited (“POL”). POL runs Post Offices in the United Kingdom, where it is possible to purchase items such as pre – paid phonecards. Permission to appeal was refused by the judge but granted, on a paper application, by Pill LJ.

2

The parties to the Agreement on the Tele2 group side were Tele2 UK Communications, (“Tele2 UK”), which was not a party to the litigation giving rise to this appeal, 1 Tele2 International Card Company SA, (“Tele2 International”), a Luxembourg company, the First Claimant and First Appellant, and C3 Calling Card Company (Ireland) Limited, (“Tele2 Ireland”), which subsequently became KUB2 Technology Limited. It is an Irish company. It was the Second Claimant and is the Second Appellant.

3

The Third Claimant and Third Appellant is KUB 7 Technology Limited, an English company, which was formerly called Calling Card Company (UK) Limited, (“C3 UK”). It was not a party to the Agreement. It was the Claimants' case at the trial that there had been a novation of the Agreement, by conduct, so that C3 UK became a party to it. The judge rejected that claim. 2

4

For convenience I shall refer to the companies in the Tele2 Group collectively as “Tele2”.

5

Tele2 makes and supplies phonecards and phonecard services to companies, such as POL, who wish to sell phonecards and phonecard services to the public. A purchaser of a phonecard will pay a certain amount, eg. £5, £10 or £20, when buying the card, which entitles the user to make either national or international calls from a landline or a mobile telephone, either until the credit on the phonecard has been used up or until the expiry of the period for which the phonecard is valid. In this case the period of validity was usually 6 months.

6

The advantage to the user of buying and making telephone calls through a phonecard is that the costs of calls will be below those charged by providers of landline or mobile telephone network services. All the phonecard user has to do is dial the telephone number and the PIN given to him when he purchased the phonecard. The user will then be connected to the telephone number he wants to call and will be charged at the appropriate rate fixed by the phonecard supplier. Under the Agreement with POL, the Tele2 group provided both the physical cards and also the telecommunications connections between the telephone of the purchaser or user of the

phonecard and the number which the phonecard user wished to call. Tele2 bore the costs of producing the phonecards and the cost of providing the telephone connections through telecommunications suppliers, such as BT or mobile phone network suppliers. Those costs are called “interconnect costs”.

7

There are two central issues that arise on this appeal. The first is whether the judge was correct to hold that POL was entitled to give a written notice to the Tele2 parties on 1 December 2004 terminating the Agreement as from 1 April 2005. POL said that it was entitled to do so because the Tele2 parties had failed in due time to provide Parent Company guarantee letters for the year 2004, in accordance with clause 3.10.2 of the Agreement and this entitled POL to terminate in accordance with clause 11.4.1 of the Agreement. The Tele2 parties said that POL had delayed so long in giving notice (by nearly a year after it could have done so) that it had affirmed the Agreement by election. The judge held that POL was entitled to give the notice and that it had not elected to affirm the contract. 3 The Tele2 Appellants challenge that conclusion.

8

The second central issue only arises if we reverse the judge's conclusion on POL's right to terminate the Agreement. POL would accept that if it was not entitled to give the termination notices, then that would constitute an anticipatory renunciation of the Agreement and its failure to continue to perform after 1 April 2005 would be an actual repudiatory breach of the contract. The issue then is whether any of the Tele2 parties is entitled to claim substantial damages for the repudiatory breach by POL. The judge concluded that the only Tele2 company that would have been entitled to claim damages was Tele2 Ireland. But he also concluded that it had suffered no loss and so could not recover substantial damages. 4 The appellants accept that Tele2 Ireland is the only Tele2 company that can claim substantial damages, but they challenge the judge's conclusion that Tele2 Ireland suffered no loss. If this court concludes that Tele2 Ireland is entitled to substantial damages, a host of other issues on damages will require consideration.

9

There are three further issues on the appeal. The first concerns the correct construction of provisions in Schedule 4, Part III, paragraph 1 of the Agreement on how “Expiry Revenues” are to be apportioned between the POL and Tele2 parties to the Agreement. “Expiry Revenues” consist of any unused credit on a phonecard at the end of its period of validity. The judge held that, on the true construction of the provision, the “Expiry Revenues” are to be divided so that POL and the Tele2 parties would each receive half of the remaining face value of the phonecard. 5 The Appellants say that this construction is wrong and the true effect of the provision is that POL should receive only 25% of the remaining face value of the phonecards.

10

The second of these issues concerns the judge's conclusion 6 that there had been no subsequent variation of the Agreement whereby POL agreed to accept only 25% and then 12.5% of the Expiry Revenue. The Tele2 Appellants challenge those conclusions.

11

The last issue arises from a Respondent's Notice by POL. After the trial had finished, POL made an application to amend its defence. POL wished to plead that no substantial loss could be claimed by any Tele2 party because POL would have been, in any event, entitled to terminate the Agreement on 31 March 2005 because the Tele2 parties failed to provide POL with certified copies of Parent Company guarantee letters for 2005 by the relevant date, viz. 23 December 2004. The judge declined to entertain this application, which was in any case an unnecessary one, given his conclusions. POL submits that the judge was wrong to refuse the amendment. If it is allowed, then POL argues that Tele2 has no answer to the point, so that no Tele2 party can recover substantial damages in any event.

B. The terms of the Agreement

12

I have set out the relevant clauses to the Agreement, which is governed by English law (clause 30.3) in an Annex to this judgment. However, I can summarise the essential structure of the Agreement here. By clause 3.1, Tele2 Ireland agreed to provide pre – paid phonecards and pre – paid phonecard telecommunications services. 7 By clause 2.1 of the Agreement, POL agreed to promote the phonecards and the services that Tele2 provided “to no lesser extent than it promotes similar products and services from time to time through” its Post Office Outlets, internal marketing publications and through other suitable communication channels.

13

By clause 4.1, a party to the Agreement that had contracted to provide a particular service to another was entitled to invoice the other for the fees due under the Agreement. Thus, as Tele2 Ireland had contracted to provide the pre-paid phonecards and associated services, it was the Tele2 company that was entitled to payment of fees in respect of those phonecards sold by POL. But POL had to account to Tele2 Ireland only in respect of the pre – paid phonecards that had actually been bought by members of the public. 79% of the cost of the pre – paid phonecards sold to the public was to be remitted to Tele2 Ireland and 21% of the cost was retained by POL: see Schedule 4, Part II, paragraph 1 of the Agreement.

14

The Agreement provided (effectively) that it would run from 15 October 2001 until the expiry of the “Initial Term” on 31 March 2005. After that, the Agreement was terminable upon 24 months written notice from either side, unless the Agreement had been terminated earlier in accordance with the terms of the Agreement, in particular those set out in clause 11: see clause 11.1.

15

As I have noted already, the provision which precipitated the present litigation concerned the provision of parent company guarantees of the Tele2 contracting companies. By clause 3.10.1, each of the Tele2 contractors was obliged to provide to POL, within 20 days of the execution of the Agreement, a certified copy of a Parent...

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