Royal Mail Group Plc v The Postal Services Commission

A statutory duty to have regard to published penalty guidance does not invariably require literal compliance. However, where Parliament requires a regulator to publish a policy governing both the imposition and amount of penalties, there must be very good reasons for departing from it. A regulator cannot disregard the policy merely because its prescribed methodology produces no workable figure in an unusual case. The proper course is to revise the policy. Where the policy makes financial benefit and third-party burden the starting point, and neither can reasonably be identified, imposing a financial penalty without applying the policy is unlawful.

Postcomm imposed a £1 million penalty on Royal Mail for breaches of licence conditions concerning safeguards against obtaining an unfair commercial advantage through downstream access services. No actual unfair advantage, financial benefit or third-party burden had been established. Postcomm accepted that its published benefit-and-burden methodology could not be applied rationally, departed from it, and imposed the penalty by reference to deterrence and the statutory promotion of competition. Royal Mail challenged the lawfulness of the penalty under section 36 of the Postal Services Act 2000.

1. Appeal allowed. The application was properly treated as an appeal under section 36 of the Postal Services Act 2000. Although the statutory wording was imperfect, a challenge to the lawfulness of the amount could be brought as a challenge to the imposition of the penalty. The appeal was limited to errors of law.
2. The ordinary meaning of an obligation to have regard to guidance or policy is that the decision-maker must take it into account and give clear reasons for any departure. Such an obligation does not invariably require the policy to be followed in every circumstance. The context and statutory scheme remain material. This approach was consistent with R (Khatun) v Newham LBC [2004] 3 W.L.R. 417, R (Munjaz) v Merseycare NHS Trust [2006] 2 A.C. 148, Gransden & Co v Secretary of State for the Environment (1985) 54 P & CR 86 and Argos Ltd and Others v OFT [2006] EWCA Civ 1318.
3. Section 31 required Postcomm to publish a policy concerning both whether to impose a penalty and how its amount was to be determined. The policy therefore materially constrained the manner in which Postcomm’s discretion was to be exercised. Very good, effectively exceptional, reasons were required before departing from it.
4. Paragraph 14 of the policy made financial benefit to the licence holder and burden imposed on others the starting point for the penalty. Paragraphs 17 and 18 did not create a freestanding power to impose a penalty or fill the gap left when paragraph 14 could not be applied. It was not permissible to replace the published methodology with a new deterrence-based approach.
5. It was reasonable to conclude that a penalty would be unnecessary where no benefit or loss could be identified. A nil figure was not a financial penalty, but that did not authorise Postcomm to disregard its policy. The appropriate remedy for the policy lacuna was revision of the policy. The £1 million penalty was therefore quashed.

The court treated the application against Postcomm’s final penalty decision as an appeal under section 36 of the Postal Services Act 2000. It allowed the appeal and quashed the £1 million penalty.