Vodafone Ltd & Ors v The Office Of Communications

Factual and Procedural Background

This appeal concerns the recovery of payments made by four mobile network operators (MNOs) to a regulatory body, the Defendant/Appellant, under licence fee regulations that were subsequently quashed as unlawful. The 2015 Regulations, which increased annual licence fees (ALFs) payable by the MNOs under the Wireless Telegraphy Act 2006, were declared ultra vires by the Court of Appeal in 2017. The MNOs are entitled to recover some part of the payments made under these quashed regulations. The central procedural history involves a decision by a deputy High Court judge that the MNOs could recover the difference between the payments made under the quashed 2015 Regulations and the amounts legitimately due under the still valid 2011 Regulations. The Defendant/Appellant challenged this decision, arguing for a counterfactual approach to assess recoverable amounts.

The facts and sums in issue were agreed by the parties. The regulatory framework includes the Wireless Telegraphy Act 2006 and relevant EU Directives, notably Directive 2002/20/EC and Directive 2002/21/EC, which govern the imposition of fees for radio spectrum use. The 2010 Directions required the Defendant to revise licence fees to reflect full market value, leading to the 2015 Regulations. The MNOs challenged these on grounds of unlawfulness, resulting in the quashing of the 2015 Regulations.

Following the quashing, the MNOs' statutory obligation was to pay fees only at the 2011 Regulations rates. The Defendant issued revised invoices accordingly and later enacted new 2018 Regulations to comply with the court's guidance.

Legal Issues Presented

1. Whether the MNOs are entitled to recover the full amount paid under the quashed 2015 Regulations or only the difference between those payments and what the Defendant could have lawfully charged under a hypothetical lawful exercise of its powers.
2. Whether a counterfactual principle, allowing the court to consider what fees the Defendant could and would have charged lawfully, applies in claims for restitution under the principle established in Woolwich Equitable Building Society v. Inland Revenue Commissioners.
3. The scope and application of the principle of legality in the context of unlawful demands for fees by public authorities and its interaction with the law of unjust enrichment.
4. Whether the Defendant was enriched unjustly at the expense of the MNOs and if any defences or set-offs apply.
5. The relevance and application of EU law principles regarding reimbursement of unlawfully levied charges.

Arguments of the Parties

Appellant's Arguments

• The court should apply a counterfactual approach to restitution, assessing what fees the Defendant could and would have lawfully charged had it acted within its powers.
• The distinction between primary and secondary legislation is material; the court can hypothesize administrative or executive actions but not new legislation.
• The Defendant was not enriched by the full amount paid because the objective value of the payments corresponds to what could lawfully have been charged.
• If the counterfactual principle is rejected, the payments should be subjectively devalued to reflect what the Defendant would have obtained lawfully.
• The MNOs did not suffer relevant loss, and the enrichment was not unjust because the Defendant could have lawfully levied similar charges.
• The full value of the benefit received by the MNOs (access to spectrum) should be netted off against any loss from paying unlawful fees.

Respondents' Arguments

• The authorities cited by the Defendant do not support a counterfactual approach in restitution claims founded on the principle of legality as established in Woolwich.
• The principle of legality requires repayment of unlawfully demanded charges without reduction based on hypothetical lawful charges.
• Charges levied without lawful authority must be repaid in full unless a defence such as passing on applies, which is not the case here.
• The principle of parity supports symmetry between those who pay under protest and those who refuse to pay.
• EU law mandates full reimbursement of charges levied in breach of EU law, reinforcing the MNOs' entitlement to full recovery of unlawful fees.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by reaffirming the principle established in Woolwich that money paid to a public authority pursuant to an unlawful demand must be repaid as of right, resting on the fundamental principle of legality that taxes and levies cannot be imposed without parliamentary authority. The court rejected the Defendant’s argument for a counterfactual approach that would hypothesize what lawful regulations might have been enacted, holding that no case supports the reduction of a Woolwich claim by reference to hypothetical, unenacted legislation.

The court distinguished between hypothesizing administrative steps and hypothesizing new primary or secondary legislation, concluding that only the former has been accepted in prior cases, but even that is not applicable in Woolwich claims. The unjust factor in Woolwich is the absence of lawful authority to levy the charge, and this requires full restitution of sums paid beyond what was authorized by existing legislation.

The court noted that the Defendant conceded it had no claim for counter-restitution for the use of the licences, which reinforced the principle that the MNOs were entitled to recover sums paid beyond lawful charges. The court analyzed precedent cases such as British Oxygen, Waikato, and Hemming, finding that these did not support the counterfactual principle but rather limited restitution to the amount unlawfully charged over what could lawfully have been demanded under existing legislation.

The court rejected the Defendant's subjective devaluation argument and netting off of benefits, affirming that the Defendant was enriched at the MNOs’ expense by the unlawful payments, and that the MNOs suffered loss accordingly. The court also found no need to engage in a but-for causation test or to hypothesize what the Defendant might have done lawfully, as the principle of legality requires repayment of the unlawful excess in full.

Regarding EU law, the court acknowledged that the MNOs’ entitlement to repayment was consistent with EU principles but found no need to elaborate further since domestic law provided full recovery of the excess payments.

Ultimately, the court held that the Defendant’s counterfactual approach would undermine the Woolwich principle and the parties’ legal relations, and that the MNOs were entitled to recover the sums paid in excess of those due under the 2011 Regulations.

Holding and Implications

The court DISMISSED THE APPEAL, upholding the decision that the MNOs are entitled to restitution of the amounts paid under the quashed 2015 Regulations in excess of those payable under the valid 2011 Regulations.

The direct effect is that the MNOs recover the difference between the sums paid under the unlawful 2015 Regulations and the sums due under the 2011 Regulations. The court reaffirmed the fundamental principle of legality in public law restitution claims and rejected the introduction of a counterfactual approach that would reduce restitution based on hypothetical lawful charges.

No new precedent beyond the clarification and application of existing principles was established, but the decision reinforces the scope and limits of restitution claims against public authorities in cases of unlawful demands for payment.