Mercury Communications Ltd v Director General of Telecommunications

The House of Lords held that an originating summons seeking declaratory relief as to the proper construction of licence provisions and incorporated contractual terms was not necessarily an abuse of process merely because the decision related to the exercise of statutory powers by a public decision maker. The court applied and limited the principle in O'Reilly v. Mackman, recognising that disputes involving public bodies may in some circumstances be litigated by ordinary proceedings where the question is primarily one of contractual construction or where the decision-maker has already given a clear and final determination. The Telecommunications Act 1984 (in particular ss.3 and 7) and licence condition 13 were material to the issues, but the court held that the interpretation of phrases such as "fully allocated costs" and "relevant overheads" could be reviewed by the courts even though factual application of those terms by the Director General might be immune from challenge absent error of law or fraud.

The appellant, Mercury Communications Limited, sought by originating summons a declaration as to the proper construction of licence-derived contractual provisions (notably condition 13 of the British Telecommunications licence and the incorporated clause 29 of the interconnection agreement) concerning what constituted "fully allocated costs" and "relevant overheads" for charges payable to British Telecommunications. The Director General of Telecommunications had made a Determination on 2 December 1993 incorporating a revised clause 29 and adopting an interpretation of those phrases that Mercury challenged as incorrect.

The respondents applied to strike out the summons as frivolous, vexatious or an abuse of process and contended that the matter was one to be raised, if at all, by judicial review (Order 53) because it concerned public law decisions. The High Court (Commercial Court; Longmore J.) and Lord Hoffmann in the Court of Appeal had held the summons should proceed; the Court of Appeal by majority had ordered strike out. The House of Lords allowed Mercury's appeal.

The principal issues were (i) whether the proceedings amounted to an impermissible attempt to evade the procedural protections and limits of judicial review as explained in O'Reilly v. Mackman; (ii) whether the matters in dispute were exclusively for the Director General to determine; and (iii) whether the declarations sought were academic or hypothetical. The court held that O'Reilly did not establish an absolute bar: there are recognised exceptions where contractual rights or purely private law issues are in substance involved, or where none of the parties object to the ordinary procedure. The contractual framework (clause 29) meant the Director's determination became part of the contract and the parties intended him to apply the correct legal meaning of the licence terms; therefore the correctness of the legal interpretation was reviewable by the courts. The court also found the dispute was not academic because the Director had already pronounced and the parties were required to negotiate and implement the Determination, so a present declaratory ruling was appropriate. The strike out application was therefore refused.

Appeal allowed. The House of Lords held that the originating summons was not an abuse of process and that the court had jurisdiction to determine the legal construction of licence-derived contractual terms. While factual applications of those terms by the Director General may be final, his legal interpretation is reviewable and the declaratory relief sought was not academic given the existing Determination and the contractual framework.

Commercial Court (Longmore J.): originating summons permitted to proceed; Court of Appeal: majority ordered strike out; House of Lords: appeal allowed and order of the Court of Appeal set aside. (Neutral citation of this decision: [1995] UKHL 12.)