City of Westminster v Urban Wimax Ltd

This is an appeal with leave granted by Peter Smith J against the order of HH Judge Marshall QC in the Central London County Court giving summary judgment to the claimant on its claim for a declaration, injunction and damages. The judge delivered a judgment immediately following the conclusion of the hearing on 2 October 2009, with the detailed order issued subsequently following written submissions from the parties.

By a respondent’s notice, the claimant seeks permission to appeal against that part of the order which refused summary judgment against the defendant on the counterclaim. The respondent’s notice was served on 11 January 2010 and was thus a few days out of time as the claimant was notified on 23 December 2009 that permission to appeal had been granted, but in view of the Christmas period and the fact that a transcript of the judgment of the court below was received only on 5 January 2010, I grant an extension of time as requested.

The defendant (“Urban Wimax”) is a company engaged in providing broadband services using electronic communications apparatus and wireless technology called “WIMAX”. The present claim followed a request made by the claimant (“the Council”) that Urban Wimax remove its apparatus from the roof of the Council’s City Hall. The judge ordered Urban Wimax to remove that apparatus and to pay damages for trespass.

The claim and counterclaim arise from two written agreements. The first is called a “Legally Binding Memorandum of Terms” dated 20 October 2005, purportedly made by Urban Wimax with the Council. I say “purportedly” as Urban Wimax was incorporated only some time after that date, but no point is taken on that. I shall refer to this agreement as “the Memorandum” and as it is a document of only two and a half pages and lies at the heart of this dispute, a copy is included as an appendix to this judgment. The second agreement, also made between Urban Wimax and the Council, is called a “Memorandum of Understanding” and is dated 26 April 2006. I shall refer to it as “the MOU”. It contains a mediation clause, but no point is taken under that provision.

It is accepted that both documents are legally binding contracts. To say that they are poorly drafted is a considerable understatement. Indeed, it is a matter of some astonishment that a responsible local authority could enter into contracts concerning arrangements that were potentially of considerable financial significance on the basis of documents in this form. The lack of clarity in those documents has served as a recipe for dispute, resulting in this litigation.

In consequence, there has been discussion in argument about the principles to be applied in interpreting these agreements. Urban Wimax contends that the judge departed impermissibly from the express language of the Memorandum in order to make it commercially more reasonable, whereas the Council contends that Urban Wimax is seeking impermissibly to imply a term or terms into the contracts in order to make them more reasonable in a manner that is not necessary and which the judge should have summarily dismissed.

It is trite law that a contract is to be interpreted as a whole and as against the factual background at the time it was entered into. Here, it is clear from the Memorandum that it intends to set out the basis on which the Council and Urban Wimax would work together in what is called a “working partnership”. That is apparent both from the text in the box entitled “Agreement” and in the box entitled “Objectives”, and indeed from the very descriptions of the Council as the “Partner”. The “Objectives” are aspirational but it is notable that the specified aims include:

“Deliver economic benefits to businesses in the Westminster area by deploying a commercially fixed WIMAX network.

Deliver social and economic benefits to residents to compliment [sic] the partner’s E-government initiative objective.”

Paragraph 2 of what is referred to as the schedule in the Memorandum expressly envisages that Urban Wimax will carry out a “pilot stage” by delivering a pilot WIMAX network into Westminster in the last quarter of 2005 or first quarter of 2006. The pilot is envisaged to last for no longer than six months and the Council is obliged to provide up to eight rooftops free of charge to act as host sites for that period and to provide in an agreed area between five and ten residential buildings for connectivity trials. The financial arrangements for the pilot are specified as being that the Council will provide access to the host rooftops free of charge and cover the cost of connectivity to residents from the roofs of their buildings, whereas Urban Wimax will provide at its cost the equipment and connectivity for the buildings. Paragraph 2 concludes:

“If connectivity is required beyond the pilot stage a commercial agreement will be drawn up between the two parties.”

Paragraph 3 of the schedule provides for what is to happen after the pilot stage. It states:

“Subject to the successful deployment and measuring (terms of which will be set out in the working plan) of the pilot WIMAX network in Westminster the parties agree that”

and there follow a series of six sub-paragraphs dealing with the roll-out of a fixed WIMAX network to the Westminster area and offers to SME’s in that area. Under the third sub-paragraph, Urban Wimax agrees to pay the council £10,000 per annum for each host site used for the network (subject to a proviso that the Council can opt for the provision of services in lieu of payment). Paragraph 4 deals with a further stage, namely what is to happen after successful deployment of the fixed WIMAX network as envisaged by paragraph 3.

The main battleground between the parties, however, is over paragraph 1. The material part of this provides as follows:

“On completion of this agreement the partner agrees to:

•

Provide un-limited access to all its rooftops (potential host-sites) for spectrum analysis.

•

Grant URBAN WIMAX exclusive use, of any and all, of its rooftop assets for WIMAX (802.16) network deployment in the 2-5Ghz ranges of spectrums. This will be for a minimum period of 15 years from the date of this agreement.”

There is a third sub-paragraph that is not directly material. Urban Wimax contends that independent of the pilot to be carried out pursuant to paragraph 2, and irrespective of whether that pilot is successful, paragraph 1 creates an obligation on the Council to provide unlimited access to all its rooftops and the exclusive right to use those rooftops for 15 years for its WIMAX network deployment in the specified spectrum ranges. It relies on the opening words of paragraph 1, “on completion of this agreement”, which it contends mean on the execution of this agreement. The judge rejected that construction. She held as follows:

“…it is quite plain that the words “on completion of this agreement” did not mean “on the execution of this agreement” but meant: on completion of the initial stages of the pilot and roll-out, and arrangements being made for a final commercial agreement, then that is what the basis of the grant to Urban Wimax would be. In other words, it was intended that the commercial contract that would be drawn up would be on the basis of the minimum of 15 years from the date of this agreement, and deploying equipment in the 2-5Ghz ranges of spectrums.”

The principles governing the construction of contracts were comprehensively set out by Lord Hoffmann in his seminal judgment in Investors Compensation Scheme v West Bromwich BS [1998] 1WLR 896 at 912-913. I shall refer only to the last two of Lord Hoffmann’s five principles:

“(4)

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. http://www.bailii.org/uk/cases/UKHL/1997/19.html [1997] AC 749

(5)

The ‘rule’ that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] 1 A.C. 191, 201:

 ‘. . . If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”

Urban Wimax in argument reminded me also of the statement of Neuberger LJ in Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006] EWCA Civ 1732 at [21] - [22]:

“…it seems to me right to emphasise that the surrounding circumstances and commercial commonsense do not represent a licence to the court to re-write a contract merely because its terms seem somewhat unexpected, a little unreasonable, or not commercially very wise. The contract will contain the words the parties have chosen to use in order to identify their contractual rights and obligations. At least between them, they have control over the words they use and what they agree, and in that respect the words of the written contract are different from the surrounding circumstances or commercial commonsense which the parties cannot control, at least to the same extent.

Particularly in these circumstances, it seems to me that the court must be careful before departing from the natural meaning of the provisions in the contract merely because it may conflict with its notions of commercial common sense of what the parties may have or should have thought or intended. Judges are not always the most commercially-minded, let alone the most commercially experienced, people, and should, I think, avoid arrogating to themselves over confidently the role of arbiter of commercial reasons or likelihood. Of course, in many cases, the commercial common sense of a particular interpretation, either because of peculiar circumstances of the case or because of more general considerations, is clear. Furthermore, sometimes it is plainly justified to depart from the primary meanings of words and give them what might, on the face of it, appear to be a strange meaning, for instance where the primary meaning of the words leads to a plainly ridiculous or unreasonable result.”

To those observations, I would add reference to the statement by Lord Bridge, giving the opinion of the Privy Council with reference to a building contract in Mitsui Construction Co Ltd v Att-Gen of Hong Kong (1986) 33 B.L.R.1 at 14:

“…The poorer the quality of the drafting, the less willing any court should be to be driven by semantic niceties to attribute to the parties an improbable and un-businesslike intention, if the language used, whatever it may lack in precision, is reasonably capable of an interpretation which attributes to the parties an intention to make provision for contingencies inherent in the work contract the work contracted for on a sensible and businesslike basis.”

Given the poor drafting of the two contractual documents in the present case, that observation is particularly pertinent here.

In my view, it is clear that “on completion of this agreement” cannot sensibly mean on execution or signing of this agreement but rather must mean on completing what is envisaged to be done in accordance with the agreement. I reach that conclusion on the language of the Memorandum considered as a whole, for three reasons:

Urban Wimax sought to argue that its construction of paragraph 1 is explicable as the consideration for its taking the risk of running a pilot at its own cost. However, it is not appropriate in interpreting the contract to conduct a commercial evaluation of the risk or benefit that this may provide for either party. That is precisely the kind of evaluation against which Neuberger LJ cautioned. Rather, it is a question of interpreting the wording used in the Memorandum in its context, reading the document as a whole and having regard to the expressly stated objectives. There would be grounds to question the resulting interpretation if it produced commercially absurd results. But, as the judge held, there is nothing commercially absurd in an arrangement whereby Urban Wimax had to conduct a pilot at its own expense in the hope of securing a commercially lucrative arrangement if the pilot proved successful and at the risk of achieving nothing should the pilot be unsuccessful. Indeed, the court cannot be blind to the fact that such arrangements are not uncommon. By contrast, I consider that it would be contrary to good sense to suppose that the Council granted unlimited access to all of its rooftop sites for the exclusive use of Urban Wimax free of charge for 15 years irrespective of the outcome of the pilot stage.

Accordingly, I entirely agree with the judge that “completion” in paragraph 1 here does not mean execution but completion of what has to be done under this agreement. If the parties go beyond the pilot stage and enter into a commercial agreement as set out at the end of paragraph 2, then although various details would have to be settled, the Memorandum provides that that agreement will provide unlimited access for Urban Wimax to all the Council’s rooftops for a period of 15 years as from 20 October 2005.

It follows that the principal point raised in this appeal fails. The subsidiary point raised by Urban Wimax is therefore academic, but I shall briefly address it since it was argued before me. This concerns the second sub-paragraph under paragraph 1. The actual equipment set up by Urban Wimax on the roof of City Hall was transmitting at 5.4-5.8 GHz and giving out a steady signal in the range 5.7-5.8 GHz. The Council says that is outside the permitted bandwidth. Urban Wimax contends that the wording “the 2-5Ghz ranges of spectrums” has a meaning in the industry such that it embraces the whole of the 5 GHz bandwidth: ie up to but not including 6.0 GHz.

Accordingly, this is a question of interpretation of these words in the contract. In ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725, concerning an application for summary judgment, Moore-Bick LJ (with whose judgment Ward and Buxton LJJ agreed) said:

“13.

In cases where the issue is one of construction the respondent often seeks to persuade the court that the case should go to trial by arguing that in due course evidence may be called that will shed a different light on the document in question. In my view, however, any such submission should be approached with a degree of caution. It is the responsibility of the respondent to an application of this kind to place before the court, in the form of a witness statement, whatever evidence he thinks necessary to support his case. Where it is said that the circumstances in which a document came to be written are relevant to its construction, particularly if they are said to point to a construction which is not that which the document would naturally bear, the respondent must provide sufficient evidence of those circumstances to enable the court to see that if the relevant facts are established at trial they may have a bearing on the outcome.

14.

Sometimes it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial. In such a case it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction.”

In the present case, I accordingly consider what evidence is relied upon. The Council put in a report dated 16 December 2008 by Matta Consulting Limited who carried out a radio frequency analysis of the Urban Wimax apparatus installed at City Hall and found that “the only steady RF signal is within the 5.700-5.820 GHz range which is outside the 2.0-5.0 GHz spectrum”. The Council also exhibits an exchange of e-mails with Ofcom, who responded to the Council’s queries by stating that the interpretation which Ofcom would give to a frequency range or band defined as “the 2-5Ghz ranges of spectrum” could be that this frequency range would extend up to and include but being no more than 5GHz. Ofcom states that to interpret the phrase as being “around those values but not necessarily limited to within them” would be “an unlikely interpretation”.

There is no explanation in the evidence as to who Matta Consulting Limited are or their relevant expertise; and Urban Wimax criticises the Ofcom response on the basis that its comments refer to the phrase “2-5Ghz ranges of spectrum” whereas the contractual wording is “2-5Ghz ranges of spectrums” which may not have precisely the same meaning. But as affirmative evidence in support of its own interpretation, Urban Wimax has served a witness statement from Mr William Lawrence, a partner in its solicitors, who states:

“The 5GHz band, throughout the industry, relates to the whole of that band.”

However, that is not the point. The 5 GHz band is clearly in itself a reference to the whole of that bandwidth and not simply to 5.0 GHz. The question of interpretation raised by the contractual wording is the meaning of “the 2-5Ghz ranges of spectrums”. That is obviously different and clearly would be capable of ceasing at 5.0 GHz, as suggested in the response from Ofcom.

Urban Wimax has relevant expertise in this field and it presumably has access to electronic engineers who would be well able to consider the proper meaning of this expression. If any such evidence had been furnished, which disagreed with the evidence from the Council, I would readily have concluded that this is a dispute that could only be resolved at trial. But it is striking that Urban Wimax has failed to put in any relevant evidence going to this matter. It is not enough for Urban Wimax simply to say, as Mr Lawrence does in his witness statement, that:

“The trial judge will need to hear evidence as to what the phrase ‘2-5Ghz ranges of spectrums’ means …by reference to how that phrase (or similar phrase) are used throughout the telecoms/radio communications industries.”

Therefore, in my judgement, this is a case where the judge was right to hold that Urban Wimax has failed to show any realistic prospect of success on this point, applying the well-known test for summary judgment set out in Swain v Hillman [2001] 1 All ER 91.

The counterclaim (as amended) is for damages in the sum that is in excess of £3.4 million or, in the alternative, £7.1 million. It is said to arise in this way. It is alleged that there was an implied term in the MOU that:

“If the pilot was successful, the parties would implement and comply with their obligations under Part Three of the Memorandum and Part Four of the Memorandum.”

The references to Part Three and Part Four are to what I have described as paragraphs 3 and 4. Further, it is alleged that the pilot was indeed successful but the Council refused to comply with those obligations.

The judge did not accept that any such term was to be implied. She found that on the true interpretation of the Memorandum itself, if the Council wished to go ahead and move to a full-scale deployment of such a system, there would be a commercial agreement, but that “it is entirely within Westminster’s right and discretion whether to go ahead or not” (para 35). However, she held that it was arguable that there was an alternative implied term, which Urban Wimax had not advanced in its pleadings, to the effect that the Council “was obliged to give a proper consideration to the results of the pilot scheme so as to be able to take them into account when making that decision” (para 60). As regards the contention by the Council that it was never supplied with any pilot scheme results at all, she held that this was an area of factual dispute that could only be resolved at trial.

Before me, Urban Wimax seeks both to support the judge’s finding of an implied term of lesser obligation, and in the alternative its pleaded implied term as set out above. The Council refutes any implication of either term and, in any event, contends that no pilot as required by the contracts was ever conducted, no test results were produced and thus there are no possible grounds for contending that there was a breach of either term even if it were to be implied.

I deal first with the second point regarding breach. The question of the pilot stage is addressed in paragraph 2 of the schedule to the Memorandum. Since Urban Wimax’s case is that the pilot stage was completed only in November 2006, it is relevant also to look at the MOU which provides, at clause 5.1:

“The Parties acknowledge that this MOU is intended only to summarise the current understanding as to the Pilot WIMAX Network.”

It is accepted by both parties that as regards the counterclaim it is accordingly appropriate to construe the two contractual documents together.

In my judgment, it is quite clear that the purpose of the pilot stage is to determine the effectiveness of connectivity to the Council’s buildings. Paragraph 2 in the schedule to the Memorandum requires the Council to supply up to eight rooftops as host sites and between five and ten residential buildings for connectivity trials. That is amended by the MOU to between ten and twenty of its buildings: clause 3.1.4. Mr Seitler QC contended that the obligation regarding the conduct of connectivity trials did not require those trials to test connectivity to the Council’s residential buildings and that the only obligation under the agreements was for the Council to make available connectivity to residents should Urban Wimax wish to conduct the trials as regards those buildings. If the Council did not provide such buildings, then Urban Wimax was free to conduct the trials on other buildings, choosing as few or as many as it considered appropriate in its absolute discretion. I reject that interpretation. In my view, the only sensible interpretation of paragraph 2 is that the connectivity trials were to be conducted by Urban Wimax as regards the buildings which the Council was to provide for that purpose. If there was doubt about this, I consider that it is made clear by the definition of “Connectivity Trials” in the MOU as:

“Testing of the performance of radio connections between the network and other properties and facilities as nominated by Westminster City Council.”

The document relied on by Urban Wimax as the result of the trials does not report results of the connectivity tests to the Council’s buildings and it is indeed accepted by Urban Wimax that it never conducted tests as regards such buildings. On that basis, no pilot was ever conducted in accordance with the requirements of the Memorandum or MOU, as I have interpreted them, and therefore there was no breach of any implied term. Since this conclusion flows from the proper construction of the contracts, there is no obstacle to reaching it summarily.

That is effectively the end of the matter as regards the counterclaim. But if necessary, I consider also the document relied on as being the result of the pilot which Urban Wimax claims to have conducted. It is called “Working Plan Prepared for Westminster City Council”, dated 15 February 2007. That document does not set out the results of a test or tests of connectivity to any particular buildings as one would expect in the report of a pilot study to be used for evaluation or whether to proceed to network rollout. Indeed, it appears to be a working plan prepared on the basis that Urban Wimax is proceeding to introduce a commercial network, making proposals to the Council as to various ways in which they could work together, some of which are as envisaged in what is referred to as “the original agreement” and some of which are very different: see page 16. I do not see how it can be said with any prospect of success that this document sets out the results of the pilot stage in terms of the Memorandum as amplified by the MOU.

I should add that this objection is clearly set out in the witness statement served on behalf of the Council made by Mr Kemal dated 18 July 2009, who makes clear the respects in which it is alleged that the document of 15 February 2007 does not meet the requirements of the Memorandum. The response in the witness statement from the solicitor to Urban Wimax simply disputes Mr Kemal’s assertion that a working plan has not been provided and states:

“…This is something on which disclosure and witness evidence will be needed in due course.” (para 14).

Mr Lawrence then proceeds to take some linguistic points on the Council’s pleading and gives no explanation whatsoever as to how it is said that the working plan exhibited to Mr Kemal’s statement can possibly satisfy the contractual requirements. I do not regard that as either a proper or adequate response from a defendant facing an application for summary judgment and seeking to show a realistic chance of success on a very substantial financial claim. While the court must of course be careful not to conduct a mini-trial on an application under CPR Part 24, as the Court of Appeal made clear in ED&F Man Liquid Products v Patel [2003] EWCA Civ 472 at [10]:

“…that does not mean that the court has to accept without analysis everything said by a party in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporary documents. If so, issues which are dependent upon those factual assertions may be susceptible of disposal at an early stage so as to save the cost and delay of trying an issue the outcome of which is inevitable.”

That renders academic the question of the implication of terms and I can therefore deal with that very briefly. The test for an implied term is set out comprehensively in the opinion of the Privy Council in Att-Gen of Belize v Belize Telecom Ltd [2009] UKPC 11, [2009] 1 WLR 1988, delivered by Lord Hoffmann. He said that the central test for implication of a term is the question:

“Is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?” (para 21).

Analysing Lord Hoffmann’s reasoning in Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc [2009] EWCA Civ 531, (2009) 2 Lloyd’s Rep 39 at [15], Lord Clarke MR stated:

“Moreover, as I read Lord Hoffmann's analysis, although he is emphasising that the process of implication is part of the process of construction of the contract, he is not in any way resiling from the often stated proposition that it must be necessary to imply the proposed term. It is never sufficient that it should be reasonable.”

And after referring to the judgements of, respectively, Lord Wilberforce in Liverpool City Council v Irwin [1977] AC 239 and Sir Thomas Bingham MR in Phelps Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472, Lord Clarke concluded at [18] by summarising the test as follows:

“Is the proposed implied term necessary to make the contract work?”

Mr Stephen Smith QC for the Council contended that the implied term found by the judge could not be necessary because it did no more than replicate what was already the Council’s obligation as a matter of public law, namely to take properly into account all relevant considerations. However, I do not accept that it was wrong of the judge to find that it is arguable that such a term is to be implied. To import into the contract as between the parties the Council’s obligation in public law may well be necessary so as to incorporate this as a contractual obligation for the breach of which damages would be more readily recoverable and, indeed, the other party might be able to discharge the contract. Neither of those consequences is readily achievable by proceedings for judicial review, which in any event can be brought only with the court’s permission. Mr Smith also contended that the term was too vague to be enforceable. However, if such an obligation equates to that which lies upon the Council in public law, then as it can be enforced in judicial review it is at least well arguable that it is similarly susceptible to enforcement as a matter of contract. I accordingly reject this challenge to the judge’s conclusions.

As regards the alternative implied term on which Urban Wimax relies in its pleadings, it is by no means clear that the implicit rejection of that implied term by the judge forms part of Urban Wimax’s grounds of appeal to this court. But in any event, I do not accept the argument by Urban Wimax that there is any realistic prospect of implying such a term. I see no basis in the language of the Memorandum and the MOU to conclude that the parties would reasonably be understood to mean that if the pilot stage was successful then the Council was obliged to enter into a commercial agreement for the deployment of the WIMAX network. I can see no reason to suppose that the parties must have had that intention, as opposed to this being a matter for the Council’s discretion, as the judge found. The protection for Urban Wimax lies in the alternative implied term to which I have referred and which is of course inconsistent with the higher obligation alleged by Urban Wimax. Moreover, it cannot possibly be said that such an obligation on the Council was “necessary” to make the contract work.

I should add that Urban Wimax strongly relies in support of its argument on clause 3.3 of the MOU which provides:

“At the end of the Pilot Stage, the Parties will determine the successful deployment of the Pilot WIMAX Network in Westminster.”

However, far from supporting Urban Wimax’s argument, I think that this provision refers to the pilot network that is the subject of the trial and not to the full network that might be rolled out should the pilot be successful. In other words, this clause simply commits the Council and Urban Wimax, once the pilot stage has concluded, to determine whether the deployment of the pilot was successful. The position thereafter is addressed by the second sentence of clause 3.2:

“If Connectivity is required beyond the Pilot Stages a commercial agreement will be drawn up between the Parties.”

The judge did not set out her reasoning on the factual aspect of the counterclaim in detail, I suspect because she delivered an unreserved judgment at the end of a full day of argument. But on interpretation of the contractual provision and the facts as set out above, I find that the counterclaim is bound to fail.

For the reasons set out above, I therefore: