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PhonepayPlus:  Some Thoughts on the Ordanduu Case

09 July 2014
Victoria Russell

Those close to the UK mobile services industry will have had a close eye on the recent application for Judicial Review, made by Ordanduu GmbH, against UK phone regulator PhonepayPlus.  Having seen their application for permission knocked back on paper, Ordanduu applied for a hearing on the issue.  At the hearing, permission was granted for Judicial Review of PhonepayPlus’ decision to invoke the Emergency Procedure against and to shut down Ordanduu’s UK services. 


There are many points which arise out of the hearing which are of interest.  Perhaps most pointedly, the case involves an argument over the proper application of a European directive and the “country of origin” principle (which establishes that save for certain exceptions providers of services need only comply with the regulatory frameworks in their own member state).  The case also throws into question aspects of the Executive’s handling of the case, particularly in the strong-arm tactics in ‘shutting off’ services, and also asks a few questions of the regulatory process instated by PhonepayPlus.  We take each of those three angles in turn. 


1. The European Dimension


Ordanduu pointed to the serious restriction on the freedom of movement should the ‘country of origin’ principle be disregarded, and took the Court through the permitted derogations from the principle, which are limited to a number of strictly defined exceptions: member states may take measures to derogate only if (i) the measures are necessary (in this case) for the protection of consumers, and (ii) the measures must be taken against a service which actually prejudices this objective, or which presents a serious and grave risk of prejudice to this objective, and (iii) the least restrictive measure is used (the proportionality principle).  Ordanduu argued that there must be evidence of either actual prejudice to consumers or a serious and grave risk of prejudice to consumers.


Most significantly, before taking any such measures, the member state must first go back to the provider’s home country and invite them to take measures (the notification obligation).  The wording of the condition is of interest:


The Member State has asked the Member State referred to in paragraph 1 [that is the home country] to take measures and the latter did not take such measures or they were inadequate, and it has notified both the Commission and that Member State of its intention to take such measures.


In this case, it was noted that PhonepayPlus had not complied with the notification obligation before taking measures against Ordanduu.  PhonepayPlus had not in fact sought to engage in communications with the home country but relied upon a further derogation: the urgency provision:


In the case of urgency, Member States may derogate from that prior notification obligation.  Where this is the case, the measures have to be notified in the shortest possible time to the Commission and to the Member State indicating the reasons for which the Member State considers that there is urgency.”


PhonepayPlus subsequently made the requisite notifications but not, Ordanduu argued, in the shortest possible time.  Rather, they were made “in due course”.  Further, nothing had been heard in response from the Commission and since a response had been received in another of the 6 cases pursued by PhonepayPlus, nothing could be inferred from the lack of response in this case (e.g. that the measures were considered lawful).  Ordanduu had asked for disclosure of the correspondence with the Commission but this had been refused.


The Court agreed that the issues were arguable, noting both the delay of 9 days, during which PhonepayPlus “did very little”, and the fact that during the intervening period Ordanduu had actually remedied the relevant problem for consumers.  Summarising Ordanduu’s case, the Court observed that PhonepayPlus then “kept their eyes tight shut to that and proceeded their own happy way”.  The Court further observed that PhonepayPlus had left out half the dates from their grounds.


Finally, the Court asked the following question: “Is it inarguable that this was not urgent” and concluded that it was arguable.  In other words, the Court was not persuaded that the urgency principle had been satisfied by PhonepayPlus.


2. Conduct of PhonepayPlus


The case also purports to challenge PhonepayPlus’ strong-arm tactics in ‘shutting off’ services, with Mr Justice Charles in his Judgement appearing to question the regulator’s taking “what could be described as a very serious step of interfering with their day to day business activities”.    In this instance the Executive at least used the Emergency Procedure in light of a perceived sense of urgency.   Whilst the hearing did not go into the merits of the decision – that being reserved for the full hearing now that permission for judicial review has been granted – as discussed above, certainly Mr Justice Charles did not seem overly impressed by the 9 day suspension of services in this case. 


However, we have seen clients’ services shut off by more clandestine and insidious means: the dreaded ‘informal recommendation’ to Level 1 providers...  We cannot help but ask ourselves what would Mr Justice Charles think of the Executive securing a total suspension of services by the back door, without even a Code Compliance Decision by way of ratification (as would be required for the imposition of an Emergency Procedure)?  Or what might he think – as we saw in one case – of the Executive’s decision to issue a security for costs application as against a client who had applied for an Oral Hearing, the effect of which was to push our client out of business and mean that its case could not be heard?  Or of the Executive’s decision to force a client out of business, in imposing a Withhold of a sum so great that the client’s cashflow was cut short such that it, again, could not afford to defend its case before the Tribunal?       


3. The Regulatory Process


Mr Justice Charles also professed a healthy scepticism of the PhonepayPlus legal process.  In his Judgment he said the following:


What is said on behalf of Phonepayplus is that there is a code.  It provides for an alternative remedy.  It seems to me a fairly lengthy and Byzantine alternative remedy, because what is being said is that the hearing … is not in fact an oral hearing but it is an adjudication so that now, after the event, to follow the process in the code the claimants have to embark upon an oral hearing process to trigger the right of appeal to an Independent Panel at significant cost to all involved, going over issues of fact and the application of what is good or not good regulatory practice.


It is gratifying to read that a Judge has voiced doubts about the Code ‘process’ which have been long held by both this firm and by the industry at large:  the current Code offers a lengthy and expensive form of justice which is uniquely slanted in favour of the Executive.  The combination of the one-sided position in respect of costs, and the requirement to pass through both the Oral Hearing and the Independent Appeal Board means that there is scant prospect of remedy for service providers.  Even in cases where there are good arguments to be heard, the better commercial decision is often to swallow a settlement since the alternative – submitting to the ‘fairly length and Byzantine alternative remedy’ – is less palatable, for a variety of reasons.  We have been in cases where we have worked out that a settlement, involving the payment of a substantial fine, is a better option commercially – that is to say on a pure costs/benefit analysis - than taking a case to the Oral Hearing Tribunal (let alone all the way to the IAB) and ‘winning’.  With this in mind, more often than not, for a case to be fought all the way either to Judicial Review or to the IAB, it will be being fought on points of principle.  Access to justice from an impartial industry regulator should not depend on there being strong principles at stake and vested emotional interest.  This is not a satisfactory state of affairs, and there is a deep-seated dissatisfaction amongst stakeholders. 


It is only when one reaches the Independent Appeal Board that the requisite combination of total independence and commensurate legal qualification (since issues such as whether there has been a breach of a European Directive are decidedly complex legal points) can be found.  However, the costs of getting to that stage are prohibitive – and this is not even to mention the time periods involved.


It appears that in the Ordanduu case the Executive had refused a request to skip the Oral Hearing Tribunal stage and pass straight to the Independent Appeal Board.  Mr Justice Charles said of this: 


“I asked during the course of the hearing whether or not the claimants could move straight to the appeal before the Independent Panel.  The indication was that that had been asked for and it had been refused.  The argument is firmly that there is a two stage process and that Phonepayplus require these claimants to go through what would be an expensive process with no prospect of recovering their costs before the Independent Panel was engaged.   How is that just and fair?  To my mind it is not.”


The option to skip the Oral Hearing Tribunal would appear prudent, and we cannot think of a logical reason why this option should not be available, given that the Oral Hearing is supposed to be a right rather than a hurdle.   


Not every decision made by the CCP or by an Oral Hearing Tribunal will lend itself to Judicial Review, but if it does, this would appear a sensible route.  Not only can one side-step the strictures of the Code, but also one’s costs are not restricted to the level of £30k (as with the IAB), and one has the possibility of a claim for damages.  The fight is fought on an even ground - which is not to underestimate the difficulty in succeeding in Judicial Review cases.   





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