JML Direct Ltd v Freesat UK Ltd

A commercial contract giving one party discretion over a matter affecting parties with different interests is likely to contain an implied obligation against arbitrary, irrational or capricious decision-making. Where the contract requires specified factors to be taken into account, the decision-maker must give each factor conscious consideration. It may rationally give a factor no weight.

An incorporated regulatory requirement to publish an objectively justifiable allocation method may permit broad criteria. The decision-maker may use any rational evidence to assess those criteria unless the instrument requires greater specificity. An irrational subsidiary reason breaches the contractual duty only if it caused or significantly influenced the decision.

JML Direct Ltd contracted with Freesat UK Ltd to list two television shopping channels on Freesat’s electronic programme guide. The agreement incorporated Freesat’s Listing Policy and required compliance with Ofcom’s Code of practice on electronic programme guides. Freesat allocated JML’s channels lower positions than JML expected.

JML alleged that Freesat had used unpublished material to assess viewer convenience, had failed to take account of the dates of channel providers’ agreements, and had relied partly on an irrational consideration. Blackburne J dismissed the claim in [2009] EWHC 616 (Ch).

The appeal concerned the contractual scope of Freesat’s discretion, the meaning of “take into account”, and whether one irrational ground invalidated an otherwise rational decision.

1. Appeal dismissed. Moore-Bick LJ delivered the judgment, with which Toulson LJ and the Master of the Rolls agreed. The claim arose in private law. Public law concepts therefore had no direct role in construing the parties’ contract, although a distinction developed in public law could express a principle equally applicable to commercial decision-making.

2. The agreement gave Freesat a discretion to allocate channel numbers in accordance with its Listing Policy. That discretion was subject to compliance with the Policy and an implied obligation not to act arbitrarily, irrationally or capriciously. Such an obligation is likely to arise where a commercial contract authorises one party to decide a matter affecting both parties when their interests differ.

3. The Ofcom Code required publication of an objectively justifiable method of allocating listings. It contemplated light-touch regulation and permitted broad criteria. “Viewer convenience and expectations” was sufficiently objective when considered with the other published factors. The Code did not require Freesat to publish every item of evidence it might use. Freesat could therefore use audience ratings and existing Freeview listings as rational means of assessing that criterion.

4. The obligation to “take into account” the dates of EPG agreements required conscious consideration, rather than the attribution of positive weight. Freesat retained discretion to give any factor such weight as it rationally considered appropriate, including no weight. The judge had found rational grounds for disregarding agreement dates, and that finding was not appealed.

5. A merely irrational consideration did not itself establish breach. JML had to show that the decision resulted from, or was significantly influenced by, an arbitrary, capricious or irrational consideration. Freesat’s two reasons for disregarding agreement dates were independent. The rational difficulty caused by delayed signatures was sufficient by itself, and the evidence did not establish significant influence from the irrational concern about identifying contract dates. No breach was proved.

1. Court of Appeal (Civil Division): In [2010] EWCA Civ 34, the court unanimously dismissed JML’s appeal.
2. High Court, Chancery Division: Blackburne J dismissed JML’s contractual claim in [2009] EWHC 616 (Ch), holding that Freesat had acted within its contractual discretion and had not breached the incorporated regulatory requirements.