In EE Ltd v Office of Communications  EWCA Civ 1873, the Court of Appeal quashed Ofcom's decision to increase licence fees, and found that the Secretary of State for Culture, Media and Sport (the "Secretary of State") could not issue directions that would have the effect of relieving Ofcom of its statutory duties and objectives under domestic and EU law.
Where specific duties are delegated to statutory bodies through primary legislation, that position cannot be changed by subordinate legislation in the absence of clear words to that effect.
To the extent possible, subordinate legislation must be interpreted in a manner that would not render it inconsistent with its parent statute.
Ofcom is the statutory body in charge of managing and licensing radio spectrum in the UK. Under EU law, Ofcom is also the designated National Regulatory Authority ("NRA") under the Framework Directive (2002/21/EC) and the Authorisation Directive (2002/20/EC), both of which deal with electronic communications. Domestic legislation such as the Communications Act 2003 ("CA 2003") and the Wireless Telegraphy Act 2006 ("WTA 2006") was introduced to transpose these two directives into domestic law.
Part of Ofcom's role is to set licence fees for the allocation of radio spectrum. This power is derived from Article 13 of the Authorisation Directive which provides that Member States may allow NRAs "to impose fees for the rights of use for radio frequencies…". Article 8 of the Framework Directive, on the other hand, sets out certain policy objectives and regulatory principles that NRAs should take into account when setting such licence fees. Under the EU directives, therefore, Ofcom is expected to take into account not only the market value of such licences, but also Article 8 policy objectives such as the promotion of competition, promotion of the interests of EU citizens, and investment in new technology. This duty is also expressly set out in domestic law under the CA 2003 (section 3(2)) and the WTA 2006 (section 4(2)), both of which require Ofcom to perform its functions in accordance with the Community objectives identified in Article 8.
Separately, the WTA 2006 gives the Secretary of State the power to give directions to Ofcom about the carrying out of its radio spectrum functions. In the exercise of this power, the Secretary of State issued directions to Ofcom in 2010 by way of a statutory instrument (the "2010 Direction"). In relation to the licence fees, Article 6(3) of the 2010 Direction specified that after the auction, Ofcom was to revise the sums so that they "reflect the full market value of the frequencies in that band".
Following a consultation process between 2013 and 2015, Ofcom issued regulations setting out the relevant licence charges based on market value. The decision resulted in increases in the licence fees charged to EE from about £25m to £75m per annum.
Proceedings before the High Court
EE commenced proceedings for judicial review against Ofcom's decision to set the licence fees, arguing that by reason of its interpretation of the meaning and effect of the 2010 Direction, Ofcom did not consider any factors other than the market value of the spectrum. This, EE contended, ignored the Article 8 policy objectives that Ofcom was required to factor in while setting the licence fees.
Ofcom contended that it acted entirely in accordance with the 2010 Direction issued by the Secretary of State, and that its procedure was EU law compliant because the UK had acted in accordance with the directives during the consultation exercise leading up to the 2010 Direction. Further, Ofcom suggested that the legality of what had been done should have been tested, if at all, back in 2010 when the Direction was made by the Secretary of State.
The High Court dismissed EE's application for judicial review in the first instance. Cranston J held that Ofcom was correct to interpret Article 6 of the 2010 Direction as requiring it to set licence fees at full market value. He found that the use of the word "reflect" in Article 6 required Ofcom to produce a result which reflected the prices that would have been realised in the market, and that "there was no scope for it to take into account considerations which might have resulted in its setting licence fees either below or above full market value."
Cranston J also rejected EE's arguments that giving Article 6 of the 2010 Direction such a narrow interpretation would result in Ofcom being in breach of its obligation - under both domestic and EU law - to have regard to Article 8 considerations.
Court of Appeal
EE appealed the decision. The two key issues before the Court of Appeal were whether Ofcom correctly interpreted and applied the 2010 Direction, and if they did, whether the 2010 Direction itself failed to comply with the relevant obligations imposed on Ofcom under both domestic and EU law.
The Court of Appeal allowed EE's appeal, and overturned the decision of the Administrative Court. It found that Parliament had imposed clear duties on Ofcom under the CA 2003 and the WTA 2006, requiring it to have regard to Article 8 of the Framework Directive in carrying out its functions as the NRA. While the Secretary of State had the power to make directions to Ofcom, that power did not extend to directing Ofcom to ignore non-delegable duties expressly imposed by Parliament.
The Court of Appeal also closely considered the wording of the 2010 Direction, and reiterated the principle that delegated legislation should, if possible, be interpreted in a way that avoided a conclusion that it was ultra vires the parent statute. In this case, the Court found that the 2010 Direction was capable of being read in a manner that was consistent with EU law. The phrase "reflect the full market value" used in the 2010 Direction should have been read by Ofcom as meaning "by reference to" or "based on" the full market value of the frequencies rather than "represent" or "constitute". If so interpreted, the wording of the 2010 Direction did not preclude Ofcom from having regard to its wider objectives as it was required to do. Patten LJ concluded that Ofcom had therefore failed to give effect to the 2010 Direction as properly construed.
Consequently, Ofcom's 2015 decision to increase the licence fees based on market value alone was quashed. However, Ofcom has been granted permission to appeal the decision in the Supreme Court.