In EE Limited & Hutchison 3G UK Limited v Duncan (“Duncan”), the Inner House of the Court of Session (the Scottish appeal court) has provided some much needed guidance on the renewal of existing agreements between mobile network operators and site providers under the Electronic Communications Code (“the Code”).
EE Limited and Hutchison 3G UK Limited (“EE and H3G”) appealed against a decision of the Lands Tribunal for Scotland dismissing an application they had made for an order to terminate an existing Code agreement and replace it with a new agreement under the Code. The existing Code agreement, which was a lease, had been entered into when the old Code was in force. Its original term had expired and it was continuing by operation of the Scottish legal principle of tacit relocation (which extends a lease on a year-to-year basis if neither party gives notice to quit).
Background and relevant Code provisions
The Code came into force in December 2017, replacing the old Code, which was originally enacted in 1984. The reforms that it made include the introduction of a “no network” assumption for determining rent payable under Code agreements, with the aim of reducing operators’ costs; and the introduction of automatic rights to upgrade and share apparatus subject to certain conditions, with the aim of facilitating quick and cost-effective deployment of new technology in the context of, as the Inner House noted, a “widespread acceptance of the importance of digital communications in respect of economic growth, productivity gains and social interaction”.
Those reforms do not apply retrospectively, though. In terms of the Code’s transitional provisions, “subsisting agreements” (agreements that were entered into for the purposes of the old Code and which were still in force when the new Code came into force in December 2017), have effect as agreements under the new Code, subject to the modifications made in the transitional provisions. In terms of those modifications, the new rights to upgrade and share apparatus do not apply to subsisting agreements. Subsisting agreements continue in accordance with their terms, including existing financial terms; but subject to certain parts of the Code, including the provisions relating to termination and modification of Code agreements.
Where the original term of a Code agreement has expired or is due to expire, either party may, in terms of paragraph 33 of the Code, give notice to the other party requesting a change to the agreement, or requesting that the existing agreement is terminated and replaced with a new agreement (a so called “paragraph 33 notice”). If the parties do not reach agreement on the proposals in the paragraph 33 notice within six months after the notice is given, an application may be made to the Tribunal for an order to change the agreement or terminate it and replace it with a new agreement.
The Tribunal’s decision
In their application to the Tribunal, EE and H3G sought an order to terminate the subsisting agreement between the parties and replace it with a new agreement. In determining such an application, the Tribunal must have regard to “all the circumstances of the case” and to certain particular circumstances specified in the Code, including “the operator’s business and technical needs”. The Tribunal considered that this set a “high bar” for the order sought by EE and H3G, which their application did not clear, and decided that the order was not justified.
In reaching that decision, the Tribunal commented that the application did not specify any particular need for a new agreement, for example that a third party wanted to install apparatus at the site and that EE and H3G were prevented from allowing that by the existing agreement. They also commented that there was no suggestion that any change was required to give the existing agreement business or technical efficacy, or to better serve consumers of telecommunications served by the site. The Tribunal considered that there required to be something unduly onerous or restrictive in the existing agreement to justify its termination and replacement with a new agreement.
The decision on appeal
On appeal, the judges accepted EE and H3G’s argument that the Tribunal had set the bar higher than the Code intended. They stated that “we part company with the tribunal in its assertion that the operators required to do more than point to the current arrangements as being out of step with the minimum rights available under the new code, for example in terms of assignation, upgrading, sharing and rent”. They added:
“…Parliament has identified certain minimum rights for operators, including sharing/upgrading abilities and reduced outlays resulting from valuation on a no scheme basis. The view was taken that these are required if network operators and infrastructure providers are to be in a position to deliver the modern low cost electronic communications system which Parliament wants and which business and the public at large expect.”
As regards the Tribunal’s approach to the requirement to have regard to “the operator’s business and technical needs”, the judges commented:
“Too much was imported into the term “needs”. It does not exclude the general business and technical opportunities afforded by, for example, agreements which reflect the new code’s approach to matters such as sharing and upgrading facilities, and “no scheme” valuations. The tribunal’s analysis would severely curtail the legislative intention to create the opportunity to bring old agreements into line with new code arrangements.”
They considered that “absent some particular contra-indicator, it is not easy to see how or why a tribunal could reasonably prefer to prolong an old code agreement rather than update it in accordance with the new code rights”.
The court allowed EE and H3G’s appeal, quashed the Tribunal’s decision to dismiss the application, and sent the application back to the Tribunal for further procedure in accordance with the guidance in its judgment.
What’s next?
The UK Government recently consulted on changes to the Code, recognising that the policy aims of the Code are not being fully realised. The consultation document noted that when the Code was enacted the government had “intended to create a ‘steady phasing in of new Code rights’ through transitional arrangements that would make clear ‘how and when new agreements transition to the new Code’”, but that “it is possible that the current position might benefit from some simplification in order to fully realise [the government’s] original policy intention”.
The government’s response to the consultation is currently awaited, but it has announced that proposed reforms to the Code will be included in a forthcoming Product Security and Telecommunications Infrastructure Bill. It is possible that changes will be made to the Code to emphasise that subsisting agreements may be terminated and replaced with new Code agreements after their contractual terms have expired.
In the meantime, the Inner House’s judgment, and its clear guidance on the approach to be taken in applications such as the one in Duncan, should go a long way to realising the aims of the Code regarding the transition of old Code agreements to new Code agreements.
Daniel Bain and Colin Archibald acted for EE and H3G in their application to the Lands Tribunal for Scotland and appeal to the Inner House of the Court of Session.