Law Report: Phone dispute not for courts: Mercury Communications Ltd v Director General of Telecommunications and another. Court of Appeal (Lord Justice Dillon, Lord Justice Hoffmann and Lord Justice Saville). 22 July 1994

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Where the parties to a contract had agreed on a method of resolving differences between them, the court should only in the most exceptional circumstances change that method and substitute itself as the decision maker.

The Court of Appeal by a majority allowed appeals by the defendants, the Director General of Telecommunications and British Telecommunications plc, against the refusal by Mr Justice Longmore, sitting in the Commercial Court on 28 February 1994, to strike out proceedings in which the plaintiff, Mercury Communications Ltd, sought declarations as to the basis on which the charges it paid BT for the use of its systems were calculated. BT argued that this should be determined by the Director, not the courts.

BT was obliged by paragraph 13.1 of its telecommunications licence to conclude agreements with other licenced operators, such as Mercury, to connect and convey their calls on its systems. Under paragraph 13.5, either party could apply to the Director for a determination as to the terms of such an agreement.

Following a determination by the Director, Mercury and BT concluded an interconnection agreement in 1986, clause 29 of which provided for further review by the Director.

In 1992, both parties jointly referred to the Director, under clause 29, a dispute over the amounts to be charged by BT for the connection and conveyance of Mercury calls. The Director made his determination in December 1993. Mercury was content to accept the charges so determined and did not then challenged the Director's decision.

But Mercury contended he had erred in law in his interpretation of paragraphs 13.5 and 13.5A of BT's licence, on which the method of calculating the charges was based. Since, however, his interpretation was the one BT had contended for, Mercury deemed it unlikely BT would agree to reneg otiate future charges on a different basis, or that the Director General would change his interpretation of the disputed paragraphs. Hence Mercury's decision to seek the court's declarations on the issue.

Although BT won this appeal, Mercury was granted leave to appeal to the House of Lords.

William Charles and Paul Lasok QC (Treasury Solicitor) for the Director General; Alan Moses QC and Colin Edelman (Colin R Green) for BT; Sydney Kentridge QC and Nicholas Green (Coudert Brothers) for Mercury.

LORD JUSTICE DILLON referred to Norwich Union Life Ins Soc v P&O Property Holdings Ltd (1993) 1 EGLR 164 at 166, where Sir Donald Nicholls V-C said: 'If, on the proper construction of the agreement, the question sought to be put to the court is an issue within the scope of the matters remitted to the nominated arbiter, then (by definition) the parties have chosen, for better or for worse, to have that question determined by a tribunal other than the court.'

The judge sought to distinguish the Norwich Union case on the ground that in the present case there had already been a relevant determination by the Director in December 1993, from which it was known what his opinion was on the questions at issue.

Therefore it was said to be no intrusion on the functions allocated to him for the court to step in to correct known errors or misconceptions of law on his part, so that he could carry out any future determination on the correct basis. But in his Lordship's judgment, the judge misdirected himself in not applying the Norwich Union case.

Moreover, it was a well- recognised principle that the court would not exercise its powers of granting declaratory relief to decide hypothetical or future questions when there was no current dispute between the parties: see Re Barnato (1949) Ch 258 at 269, per Lord Green MR.

There was no lis or cause of action between BT and Mercury which would entitle either to sue the other for substantive relief. They were merely negotiating. There was therefore no basis for Mercury to force BT to come before the court on an application for merely declaratory relief where no other relief was available.

LORD JUSTICE HOFFMANN, dissenting, said that Mercury had entrusted to the Director the authority to reach a determination applying the principles set out in paragraph 13; it had not entrusted to him the authority to decide what those principles were. If he misconstrued those principles, the court could set aside his award. Whether at this stage the High Court should entertain Mercury's application or strike it out was a matter of discretion with which the Court of Appeal should not interfere.

LORD JUSTICE SAVILLE agreed with Lord Justice Dillon that the appeal should be allowed.