Hutchinson 3G UK Ltd v O2 (UK) Ltd & Ors

The Applicant (“H3G”) seeks an order for pre-action disclosure pursuant to Section 33 of the Supreme Court Act 1981 and CPR Rule 31.16 against its four principal competitors as Mobile Network Operators (“MNOs”). In doing so H3G is largely repeating its request for documentation contained in a letter before action dated 12 June 2007 made pursuant to the relevant pre-action protocol.

The basis of the application is a contention that the Respondents (“O2”, “Orange”, “T-Mobile” and “Vodafone”) appear to have been engaged in activities which amount to a breach of Article 81(1) EC and Section 2 of the Competition Act and Article 82 EC and Section 18 of the Competition Act.

Put in brief, HG3 asserts that it has legitimate reason to believe that:

Much of the vast bulk of material before the court was relevant to the correctness or otherwise of the Applicant’s belief. H3G contended that it had a good arguable, or at the least a pleadable, case with a realistic prospect of success in the context of the witness evidence and documentation presently available. The Respondents contended that the proposed claim was hopeless or at the least highly speculative.

The focus of the dispute between the parties in the present application was not so much directed at the merits of the proposed claim but on the terms of CPR Part 31.16(3) as applied to H3G’s request for pre-action disclosure. It was common ground that both the Applicant and the Respondents were likely to be parties to subsequent proceedings (see (3)(a) and (3)(b)). The issues arose from the remainder of the rule:

“(3)

The court may make an order under this rule only where-

…….

(c)

if the proceedings had started, the respondent’s duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and

(d)

disclosure before proceedings have started is desirable to order to-

(i)

dispose fairly of the anticipated proceedings

(ii)

assist the dispute to be resolved without proceedings; or

(iii)

save costs.”

It was the Respondents’ submission that the Applicant had not made out a case that the court had any jurisdiction to order disclosure under these sub-rules, or alternatively, that the Applicant had not made out an adequate basis for the court to exercise its discretion to make the order sought.

It is inappropriate for the court to embark on any detailed analysis of the issues that potentially could emerge in any proceedings:-

“Generally when considering an application under CPR 31.16 the Court does not need to and therefore should not embark on a consideration of arguments of this kind. Such applications are in the nature of case management decisions requiring the judge to take a “big picture” view of the application in question. This obviously involves the judge in taking a broad view of the merits of the potential claim that should not necessitate an investigation of legally complex and debateable potential defences or grounds for stay”: Total E & P Soudan v. Edmonds [2007] EWCA Civ. 50 per Tuckey L.J. at para.29.

Nonetheless it is necessary to consider the nature and shape of the case that may be advanced by H3G and to identify the likely defence of the Respondents. In particular, this will identify the issues in respect of which standard disclosure may in due course be required. It also will inform the question whether disclosure at this stage is desirable rather than, in the usual course, when the case has been pleaded out.

The essential features of the Applicant’s position can be summarised as follows:

The fact that the donor-led system does not represent best practice has recently been confirmed by Ofcom’s November 2007 statement on telephone number portability:

“1.3

Ofcom has decided that it is time to make changes to the porting process in order to protect consumers from deficiencies in the way calls are routed and to ensure that the process of porting mobile numbers is as convenient as possible for consumers which may promote competition in the sector.”

Whilst the proposal to introduce an ACQ/CDB system has been seen for some time as the preferred system, the industry was unable to reach agreement on its implementation. In the result Ofcom concluded, in the absence of a “collective decision by the industry”, that the industry should establish a CDB to deliver direct routing of calls to ported numbers by December 2009 with a lead time of no more than 2 hours.

It is at the heart of the Applicant’s case that resistance to such a changeover during the last 4 or 5 years has been by way of concerted opposition between the Respondents, particularly within the industry forum known as the Operator Steering Group (“OSG”).

So far as developments within OSG are concerned, the Applicant suggests that the chronology is broadly as follows:

The critical stage in this change of tack was said to emerge from the meetings of the OSG in April and October 2005. At the April meeting of the Direct Routing Commercial Group (a sub-group of the OSG) it was said that T-Mobile and Orange made it plain that they were no longer interested in direct routing. The result was a minute to the following effect:

“It was agreed that there existed a number of logistical and practical hurdles that would need to be overcome before DR became a reality. The timeframe and cost of overcoming these hurdles may influence whether an operator wishes to work towards implementing [sic] these hurdles. It was also agreed that the decision to implement DR would be effected [sic] by the decision made by other operators.”

The minutes of the October meeting are said to be even more revealing:

“A.P. 6.1 AD to distribute the study findings in relation to the porting of the MSISDN.

A.P. 6.2 New. Following a review of the survey findings there was a 4 to 1 view not to reduce the port lead times from the current 5 working days.

A.P. 6.3 New. All to check Network retention process on port out following a 10 day call to a customer who had ported from Orange to T-Mobile.”

The minority vote in A. P. 6.2 was that of H3G. Given that research had concluded that the majority of the people interviewed thought that the existing porting time was too long, the Applicant asserted that it was a ready inference that, in opposing any reduction (which was entirely technically feasible), the Respondents were acting in concert.

The Applicant sought to support this inference by reference to the expressed rationale for the vote:

Thus it is the Applicant’s case that the majority decision reflected an agreed (or at least concerted) move by the Respondents to embark on a common strategy to hold their existing market shares at the expense of the Applicant by opposing direct routing.

Shortly thereafter, in March 2006, Ofcom produced a statement on “Number portability and technology neutrality”. It contained the following observation:

“1.12

Ofcom appreciates that some providers may not face the same incentive as others to improve the effectiveness of portability arrangements. If this creates a barrier to progress then Ofcom would consider it ought to intervene…”

The Applicant appealed to the Competition Appeal Tribunal (“CAT”) against this report. At a case management conference on 30 June 2006 the President of the Tribunal (Sir Christopher Bellamy) expressed concern as to “whether the way the OSG has been operating in relation to the number portability issues raises difficulties under the Competition Act 1998.” In the wake of these concerns, the Applicant withdrew from OSG.

I should add this. Whether or not the individual commercial interests of the Respondents might in any event coincide in opposing direct routing, it was submitted by the Applicant that concerted opposition nonetheless has its strong attractions. Not least, it was contended that for one or more of the large operators to break ranks would hasten the intervention of the regulator and the imposition of direct routing.

Against this background, it is the Applicant’s case that, if it was to make good its case on concerted practice amongst the Respondents, it would have a good arguable case of breach of Article 81(1):

The Applicant also contemplates pursuing a claim under Article 82 on the basis that each Respondent abused its dominant position in the market for the provision of services with mobile number porting. That dominance was allegedly abused by both price discrimination on customer retention activities and obstruction to the introduction of “recipient-led” MNP. It is not necessary to develop this aspect of the Applicant’s case at this stage because it is accepted that only one category of the documents sought by way of pre-action disclosure could have any pertinence to the Article 82 claim.

So far as damages are concerned the Applicant puts forward a potential claim under two heads:

In contrast, the Respondents contend that the Article 81 claim is doomed to failure. It is not suggested that I should go so far as to conclude that the case is not pleadable, merely that it must be doubtful whether it has a realistic prospect of success: see Rose v Lynx Express [2004] EWCA Civ. 447 at para. 4. What is said is that the claim is so vulnerable to a strike out that the Respondents should not be exposed to the cost and inconvenience of pre-action disclosure. Put another way it is said that the process of disclosure should not be allowed to leapfrog the pleading process where, albeit the claim is pleadable, a strike out application is almost inevitable and will be potentially successful. In any event it is submitted that, if as is suggested the merit of the claim is questionable or highly speculative, this will bear on the desirability of the disclosure and to the court’s discretion

In support of this proposition reference was made to Black v Sumitomo Corp. [2001] EWCA Civ. 1819:

“76 In general, however, it should in my judgment be remembered that the extent of standard disclosure cannot easily be discerned without clarity as to the issues which would arise once pleadings in the prospective litigation had been formulated. This court touched on the question in Bermuda International Securities Ltd v KPMG [2001] Lloyd's Rep PN 392, 397, para 26 when Waller LJ there said that: "The circumstances spelt out by the rule show that it will 'only' be ordered where the court can say that the documents asked for will be documents that will have to be produced at the standard disclosure stage. It follows from that, that the court must be clear what the issues in the litigation are likely to be i.e. what case the claimant is likely to be making and what defence is likely to be being run so as to make sure the documents being asked for are ones which will adversely affect the case of one side or the other, or support the case of one side or the other.

It also seems to me to follow that if there would be considerable doubt as to whether the disclosure stage would ever be reached, that is a matter which the court can and should take into account as a matter of its discretion.”

In response to the complaint of concerted action, the Respondents say that the common position was not as a consequence of any collusion but simply the joint outcome reflecting each Respondent’s distinct commercial interests. Some or all of the Respondents may have had a powerful incentive to keep direct routing at bay either for the very reasons that H3G identifies or otherwise. This was significant because in reality each Respondent had an effective veto on any proposal to introduce direct routing. Put another way the direct routing system could only be introduced by collective action of all the operators unless the regulator stepped in.

This, it was said, put the Applicant in the difficulty that, even assuming concerted opposition, no infringement of Article 81 could be made out unless the circumstances in the market that would have prevailed in the absence of that agreement would have been different: O2 Germany v European Commission [2006] ECR-II-1231. The reverse side of the coin is the submission that the Respondents would have no motive to enter into illegal concerted action because any one of them could achieve the same objective alone.

In the further alternative it is submitted that the Applicant would have great difficulty in establishing a loss. Whilst it is arguable that but for the agreement, the Applicant would have acquired more customers, the reality is that each Respondent would still have acted in its own best interests and thus the rate of desertion would have been the same. In this connection I ought to add that the Respondents’ case will also be that any losses sustained as a alleged result of a competitive disadvantage were in reality attributable to the Applicant’s own commercial misjudgements.

By way of summary on the merits, the Respondents say that the claim not only lacks clarity but is susceptible to a strike out. Thus, so the argument runs, it may be that the disclosure stage will never be reached. There will be an argument as to whether there is a pleadable case on Article 81 with the Respondents contending that there is a “black hole” in the claim. It is accordingly not an example of a case when a few specific documents will enable a clear picture to emerge. Further, given the scale and cost of the pre-action disclosure sought in the present application, this vulnerability of the claim, it is submitted, also goes to the question of discretion.

As already noted, it is one of the threshold requirements to the exercise of discretion under CPR 31.16(c) that the documents (or classes of documents) of which the Applicant seeks disclosure would be encompassed in due course within the obligation on the Respondents to effect standard disclosure under CPR 31.6 if proceedings were started.

CPR 31.6 reads:

“Standard disclosure requires a party to disclose only-
(a) the documents on which he relies; and
(b) the documents which-
(i) adversely affect his own case;
(ii) adversely affect another party's case; or
(iii) support another party's case; and
(c) the documents which he is required to disclose by a relevant practice direction.”

The only pertinent practice direction as referred to in sub-rule (c) is that which relates to pre-action protocols. The Applicant’s pre-action letter to the Respondents dated 12 June 2007 was indeed purportedly written pursuant to the relevant protocol and attached to it were what were categorised as a bundle of “key” documents.

The prescribed form of pre-action behaviour is set out in paragraph 4 of the relevant practice direction:

“4.3

The Claimant’s letter should

(a)

give sufficient concise details to enable the recipient to understand and investigate the claim without extensive further information;

(b)

enclose copies of essential documents which the Claimant relies on;

(e)

identify and ask for copies of any essential documents not in his possession, which the Claimant wishes to see….

4.6

If the Defendant does not accept the claim or part of it, the response should-

(a)

give detailed reasons why the claim is not accepted…;

(b)

enclose copies of the essential documents which the Defendant relies on;

(c)

enclose copies of documents asked by the Claimant or explain why they are not enclosed;

(d)

identify and ask for copies of any further essential documents, not in his possession, which the Defendant wishes to see…”

Annexed to the Applicant’s letter was a schedule of documents requested from the Respondents either collectively or individually. This request was to a very large extent co-extensive with the schedule of documents sought in the present application. The latter schedule runs to eight pages for each of the Respondents with very few specific documents identified: the vast bulk are groups or classes of documents.

The phrase vast bulk is appropriate. The scope of the application, even from the Applicant’s perception, is something equivalent to the entirety of the potential scale of overall disclosure in respect of the anticipated issues. It covers the period from 1999 to 2006. It encompasses both electronic and hard copy documents. It is not challenged that the cost to each Respondent would be in the order of £200,000.

Indeed the application is put forward on the basis that in order to assess the existence or otherwise of concerted action it is necessary to have regard to the entire history of each Respondent’s attitude to a recipient-led system. This explains both the scale of the exercise and the Applicant’s desire for the entirety of the documentation sought.

Although CPR 31.16 extends to both documents and classes of documents, it is well established that it is inappropriate for any applicant to obtain pre-action disclosure of documents which would not in due course be subject to standard disclosure by simply calling for classes or categories of documents in which some documents would be disclosable. By the same token it is inappropriate to require a respondent to identify which documents are within the scope of standard disclosure: see Wakefield v. Outhwaite [1996] 2 Lloyds Rep. 157. In short all the documents within a class or category must be subject to standard disclosure.

Given that by definition the claim has not been pleaded, this on the face of it requires the Applicant to identify correctly what documents in due course will be relied upon by the Respondents (or will adversely affect the Respondents’ case) on the basis of the allegations that may well be made when the case is pleaded. The Applicant submitted that the rule needs to be applied with a “measure of common sense” since otherwise the court would be requiring the Applicant to show that, when examined, the documents will indeed prove to be amongst those relied on (or will in fact be adverse to the Respondents’ case).

Whilst I have some sympathy with the Applicant’s contention that the rule must be applied with a measure of flexibility, the difficulty is that to pray in aid “common sense” inevitably risks importing with it a significant degree of judgment on the part of the Respondents. This emphasises in my judgement the need for a highly focussed application which clearly does not encompass categories of documents which will simply prove to be relevant (if at all) as part of the background (let alone of course documents which might merely lead to a train of inquiry).

It was submitted on behalf of the Respondents that assistance in this regard could be derived from CPR 31.17 relating to orders for disclosure against a person who is not a party. The relevant part of the rule reads:

“(3)

The court may make an order under this rule only when-

(a)

the documents of which disclosure is sought are likely to support the case of the applicant…”

In Three Rivers DC v. Bank of England (No. 4) [2002] EWCA Civ. 1182 it was held that there was a close parallel between CPR 31.16 and 31.17 and that accordingly the word “likely” should be construed consistently. But, accepting that, it is to be noted that the word “likely” is only used in CPR 31.16 in regard to the question whether the respondent or applicant will be a party to subsequent proceedings. Although “likely” in this specific context means “may well” (see Black para. 72), no equivalent flexibility is expressly afforded in regard to standard disclosure.

Thus, where, as in both Three Rivers supra (and in American Home Products v. Novartis Pharmaceutical VK (No. 2) [2001] EWCA Civ. 165), the application is under CPR 31.17, the problem of documents which at the trial prove to be irrelevant, in the sense that they did not support the case for the applicant or adversely affect the case of the respondent, may be allowed for by the “safety valve” in the form of use of the word “likely”:

“38.

The judgments of this Court in the Novartis case may be taken as authority for the following propositions. First, as we have said, (i) CPR 31.17 gives no power to order a non-party to disclose documents which do not meet the threshold condition in paragraph (a) of sub-rule (3); and (ii) that cannot be circumvented by including documents which do not meet that threshold condition in a class which also includes documents which do meet that condition. Second, the test under the threshold condition is whether the document is likely to support the case for the applicant or adversely affect the case of one of the other parties. Third, when applying that test it has to be accepted (and is not material) that some documents which may then appear likely to support the case of the applicant or adversely affect the case of one of the other parties will turn out, in the event, not do so. Fourth, in applying the test to individual documents, it is necessary to have in mind that each document has to be read in context; so that a document which, considered in isolation, might appear not to satisfy the test, may do so if viewed as one of a class. Fifth, there is no objection to an order for disclosure of a class of documents provided that the court is satisfied that all the documents in the class do meet the threshold condition. In particular, if the court is satisfied that all the documents in the class (viewed individually and as members of the class) do meet that condition -- in the sense that there are no documents within the class which cannot be said to be "likely to support ... or adversely affect" -- then it is immaterial that some of the documents in the class will turn out, in the event, not to support the case of the applicant or adversely affect the case of one of the other parties:” Three Rivers per Chadwick LJ.

But CPR 31.16 is not on the face of it provided with the same flexibility: it would appear that it has to be established that the scope of standard disclosure would actually extend to the documents. In my judgment the test is indeed more stringent. The applicants have to show that it is more probable than not that the documents are within the scope of standard disclosure in regard to the issues that are likely to arise. This requirement is perhaps the more justifiable as the Applicant is in a better position to identify disclosable documents in the possession of a potential party to the proceedings as opposed to a third party.

It follows that, although the line will always be difficult to draw, the scope of the request needs to be carefully refined to ensure compliance with the test of standard disclosure: “Clearly the narrower the disclosure requested and the more determinative it may be of the dispute in issue between the parties to the application, the easier it is for the court to find the request well founded and vice versa”: Black para 72. (In Black the point did not arise or perhaps more accurately was “obliterated”).

Nonetheless, if I am right as regards my analysis, I find that the Applicant has fallen well short of the jurisdictional threshold on standard disclosure. There may be some exceptions (e.g. Request 2(a)) but in general the scale of the disclosure sought is well beyond any probable scope of standard disclosure.

But this conclusion is academic. The request is so lacking in specificity, that it is not possible to accept that the entirety of the classes of documents are “likely” or “may well” fall within standard disclosure. As already noted, the request runs to 8 pages covering an overall period of 7 years. It contains numerous categories within which something like 80 classes of documents are identified without any limitation whatsoever on the documents, correspondence, reports, notes or communications referred to and without any regard to the potential limitations in the search as provided in CPR 31.7.

It is possible to take examples almost at random:

“4.

Relating to the consideration of an improved MNP system between 2000 and 2002

(a)

Documents evidencing your company’s consideration of the roadmap for MNP3 to “move mobile porting forward” (as referred to in the Dec 2000 OPF minutes (page 1, at page 18) and steps taken by your company internally and at the OPF/its subgroups;

(b)

Documents evidencing your company’s consideration of an IN (Intelligent Networks) solution for mobile porting in or around December 2001 to September 2002, in particular:

1.

Any draft papers prepared by John Blakemore (then at O2) or supporting documents for such drafts; your company’s comments on such drafts;

2.

Any communications or documents internally within your company relating to the subgroup formed in late 2001 to be formed to investigate MNP and in particular any discussion of its remit and aims;

3.

Any communications or documents relating to the closing of the group action of the OPF MNP FG to consider improvements to MNP2 in September 2002 including any conclusions drawn and any consideration of timescales for further progress;

(c)

Any documents or correspondence relating to the need that MNP cater for 3G networks discussed at the OPF MNP FG on 9 January 2002, including internal analysis of the current system (page 36);”

To this is to be added item 14:

“14.

Insofar as not specifically requested by the requests in Section A above, documents evidencing communications between your company and the other incumbent MNO’s in relation to the specific documents or issues as defined and listed in this request at sections A1 and A3 to A13 above.”

Giving the widest possible allowance for legitimately seeking documents as a class rather than separately, it is impossible to conclude that all these documents or classes of document “may well” be relied on by the Respondents or “may well” adversely affect their case. The request, in short, suffers from all the difficulties exemplified by category 11 as discussed in Total supra at para 38.

The reality is that much of the material may be relevant, if at all, only in the sense of being part of the “story” but that is insufficient. In fact much of it would appear to fall more naturally into “line of inquiry” documentation. It is certainly not focused on supporting or undermining any specific issue which would be likely to be pleaded.

I conclude that the Applicant has not made good the existence of any jurisdiction to make the order sought under sub-rule (c).

I turn now to the second (and cumulative) threshold requirement as to jurisdiction under 31.16(3)(d). In this connection the Applicant must make good the proposition that the pre-action disclosure is “desirable” in one or more of the specified respects. By “desirable” I apprehend is meant “to be wished for as reasonably necessary or at least useful.”

In one sense this jurisdictional hurdle is a low one:

“Of course, since the questions of principle and of detail can merge into one another, it is not easy to keep the two stages of the process separate. Nor is it perhaps vital to do so, provided however that the court is aware of the need for both stages to be carried out. The danger, however, is that a court may be misled by the ease with which the jurisdictional threshold can be passed into thinking that it has thereby decided the question of discretion, when in truth it has not. This is a real danger because first, in very many if not most cases it will be possible to make a case for achieving one or other of the three purposes, and secondly, each of the three possibilities is in itself inherently desirable”: see Black para 82

It must be that, in almost every dispute, a case could be made out that pre- action disclosure would be useful in achieving a settlement or otherwise saving costs. It follows, in my judgment, that, in order to obtain pre-action disclosure, the circumstances must be outside “the usual run” to allow the hurdle to be surmounted: Trouw UK Ltd v Mitsui & Co (UK) Plc [2006] EWHC 863 (Comm) at para 43. The point is a somewhat barren one. The absence of any convincing grounds for distinguishing the case from the normal run would be telling grounds for not exercising the court’s discretion. But for the moment I will consider the topic in the context of jurisdiction.

The major planks of the Applicant’s argument on the jurisdictional issues were (a) the possibility that the proceeding would be abandoned and (b), if not, the achievement of a “focused” pleading setting out the Applicant’s case. In either case it was submitted that, in the context of a competition case, the costs implications were likely to be very significant indeed.

For the purposes of the argument, I will take it as read that the Applicant has no “settled intention” of proceeding with the claim. But the fact remains that:

It was not seriously suggested that the proceedings were likely to settle in the light of the disclosure. The mere speculative hope of production of a “smoking gun” cannot be sufficient to trigger the desirability of the exercise. In any event, the applicant’s ambition appears to be more directed at unearthing material which convincingly demonstrates that the applicant’s suspicions are ill-founded rather than well-founded. The existence of such material is somewhat improbable.

Is there any realistic prospect of the proceedings not being progressed because of the proposed disclosure? The difficulty here, it seems to me, is that even in the absence of any documentary material identifying (or even hinting at) concerted action by the Respondents, the documents would not be likely to undermine the inference drawn by the Applicant from the Respondents’ common stance in say October 2005 as compared with their earlier openly expressed position. It follows in turn that the disclosure will achieve little in resolving the difficult legal issues on both liability and quantum that are likely to arise.

As far as costs are concerned, the attractions of focused particulars of claim and the consequent avoidance of expensive amendments is, in my judgment, wholly outweighed by the countervailing costs implications:

Put another way the potential costs for amendment and supplementary disclosure are likely to pale into insignificance compared with the cost of the exercise being proposed by the Applicant. The cost-benefit analysis favours the Respondents.

For all those reasons, I am not persuaded that this jurisdictional requirement of “desirability” has been surmounted either.

I turn to the issue of discretion. Almost all the matters discussed above in the context of jurisdiction are also relevant to the exercise of discretion. Most weigh heavily in support of refusing to make the order sought:

It would accordingly not be appropriate for the court to exercise its discretion (if any) in the Applicant’s favour.

For all these reasons I dismiss the applications.