What is a spectrum licence? The decision in Data Broadcasting International Limited and Simpleactive Limited v Ofcom

This article was first published in the Entertainment Law Review, 2010 Vol.21 Issue 8 and was also included in the November issue of Network - the Communications sector newsletter

This article examines the key issues arising from a recent application for judicial review in which two broadcasting spectrum licensees challenged Ofcom’s decision to reduce the geographical area of their licences as part of the Digital Switchover process. The licensees alleged that the licences were contracts and claimed nine million pounds in damages for alleged breaches of contract and/or for violation of their rights under the European Convention on Human Rights. Their unsuccessful claims are likely to discourage similar claims as to the nature of spectrum rights.

Background

The claimants, Data Broadcasting International Limited (DBIL) and Simpleactive Limited (SAL), held licenses issued by Ofcom under the Broadcasting Act 1990 which authorised them to broadcast data for commercial purposes by using spare capacity in certain analogue terrestrial television frequencies. These licences allowed DBIL and SAL to provide services which would otherwise have been illegal. In statutory terms, these broadcast services are known as “commercial additional services” and they can only be provided as long as the spare capacity in the relevant analogue television signals is available.

Digital Switchover - a nationwide scheme under which the analogue signal will be switched off and replaced with a digital signal on a region-by-region basis - will have a terminal impact on these kinds of additional services. Once the switchover scheme is fully deployed, all analogue services will have been switched off, some of the requisite spare capacity will be required by digital providers and the other “returned” to Ofcom which proposes to offer it for disposal. Therefore, it will no longer be possible to provide additional services.

DBIL’s original ten year licence was granted in 1993 and SAL’s in 1995. At the point of the respective renewal it was already clear that Digital Switchover would have a significant impact on the licensees’ ability to deliver additional services. This was taken into account and indeed SAL was granted a 90% discount on its renewal licence fee. DBIL’s licence was renewed until 2011, and SAL’s until 2014.

The key provisions in the licence agreements for the purposes of this case relate to Ofcom’s right to vary the terms or revoke the licence. Condition 22 of the licences stated that whilst Ofcom must seek the licensee’s consent if it wished to vary the licence period, all other variations could be made provided that the licensee was given a reasonable opportunity to make representations about the suggested variation. Condition 22 was drafted to reflect section 3(4) of the Broadcasting Act 1990 under which Ofcom granted the licences. Condition 28(3)(h) of the licences also gave Ofcom the right to revoke the licence in the event of the revocation of the assignment of frequency on which the licensed service is provided.

Following initial correspondence in September and October 2008, in November 2008, Ofcom notified DBIL and SAL that their licences would be varied so that certain stations would be removed from the licence area as soon as the analogue signals to the relevant station areas were cut off. The claimants brought proceedings for judicial review to challenge the variations made to their licences. In a statement in July 2009 following the Administrative Court’s decision to allow the claimants to pursue a claim for judicial review, the joint chairman of DBIL and SAL made the following public statement:

“This case will decide whether Ofcom can simply change its mind and turn a 10 year licence into an 5 year licence overnight by salami-cutting the licence area away to nothing or whether in fact the representations made by regulators about the licences they are granting and conditions implied into those licences have any meaning. In short, did we get what we paid for or not?”

The claimants alleged that Ofcom did not have the power to make unilateral variations to the geographical area because the rollout plan for Digital Switchover meant that such a variation would, ultimately, involve a variation to the licence period and that under Condition 22 of the licence and section 3(4) of the Broadcasting Act, Ofcom was obliged to seek the licensees’ consent to such a variation. Furthermore, it was claimed that the licences should be regarded as contracts giving rise to private law rights and obligations.

DBIL and SAL sought an ultra vires declaration. This application for judicial review is fairly particular to the circumstances of Digital Switchover because the claimants did not seek a quashing order. There would have been very little point as Digital Switchover would have marched on regardless of whether the licences were varied or not and the relevant analogue signals would still have been switched off. Furthermore, the claimants recognised that a quashing order would simply have left them subject to licence conditions with which they were incapable of complying. Instead they sought to demonstrate that the licences were contracts and to claim the substantial sum of nine million pounds in damages for alleged breaches of contract and/or for violation of their rights under Article 1 of the First Protocol to the European Convention on Human Rights (ECHR).

The judge found that DBIL and SAL were neither entitled to a declaration nor to damages for contractual breach or violation of their rights under the ECHR. Ofcom had exercised a legitimate power, conferred by the Broadcasting Act 1990 and set out in the licences, to vary the geographical scope of the licence. The licence area was found to be distinct from the licence period and therefore Ofcom was not obliged to seek the licensees’ consent to the geographical variations. Furthermore, licences are statutory instruments rather than contracts so Ofcom could not be liable for damages. In his concluding remarks, the judge reminded the claimants that, if they were unable to continue to offer the additional services on a commercially viable basis, they were free to surrender their licences and cease making the annual licence payments.

Commentary

Providers of additional services will not be the only licensees that will suffer as a result of Digital Switchover or other public policies of similar scope and impact. Whilst this case may not provide a welcome precedent for other licensees who may wish to challenge the decisions of Ofcom or other statutory bodies, it does provide a valuable summary of the court’s approach to reviewing a regulator’s statutory powers at a time when there may be more than two disgruntled licensees.

Can you treat your regulatory licence as a contract?

When asked to examine the nature of the licences, the judge concluded that there was no express agreement between the parties in the contractual sense. The terms of the documents were largely derived from statutory provisions and it was clear that by granting the licences, Ofcom had simply acted in accordance with its statutory duties without any intention to enter into private law legal relations with the licensees.

The claimant submitted evidence that the licences had been negotiated and alleged that this was proof of an intention to create a contractual relationship. But the judge maintained that the licences were merely instruments derived from an over-arching statutory regime which governed the relationship between the parties. Interestingly, he went on to express concern that “if these licences should be treated as contracts, Ofcom would be exposed to unlimited liability for damages for breach of contract if it breaches their conditions”.

The public interest concern won out and the judge refuted the imposition of a private law contractual relationship between the parties. Accordingly, damages for breach of contract were out of the question.

Did Ofcom breach the claimants’ right to the peaceful enjoyment of their licences?

Article 1 of the First Protocol of the ECHR provides that every natural and legal person shall be entitled to the peaceful enjoyment of his possessions and that no one shall be deprived of those possessions except in the public interest and subject to certain conditions set out in the Convention. The claimants alleged that Ofcom’s variations had deprived them of substantially the whole of their licences and had therefore deprived them of their enjoyment of the licences. Damages were sought under section 8 of the Human Rights Act 1998.

Whilst the judge agreed that there can be no dispute that the licences (together with the resulting economic benefit and goodwill) are possessions within the meaning of Article 1, he held that there had been no interference with their rights to peaceful enjoyment and therefore no violation had been committed. He also pointed out that Article 1 does not protect any expectation of being able to continue activities where the licence itself contains provisions for its variation. No award for damages was made.

Conclusion

Organisations considering their position in relation to their regulators should take note of the court’s robust refusal to construe public law instruments in private law terms and understand that it will be difficult to argue the implication of certain private law terms in similar situations. If an organisation has yet to enter into a licence agreement with Ofcom or another regulator, it is advisable to review the terms of any licence so that it enters into any agreement with its eyes wide open and comfortable with the terms that will be imposed. The best time to influence the imposition of and agree terms is in the policy making and consultation phase.