Summary

The claimant was not entitled to a declaration that the effect of a letter sent by it to the third defendant constituted an event of termination or gave rise to an event of termination under a joint venture agreement between the parties.

Facts

Claim by a partnership ('TM'), licensed to provide mobile telecommunications services, for declarations in relation to disputes arising by reference to a 1999 telecommunications supply agreement between TM and a joint venture company ('VM') owned by TM and Virgin and operated under the 1999 joint venture agreement ('JVA') between the parties. Under the supply agreement TM agreed to supply VM with airtime services. VM paid a capacity utilisation fee to TM in respect of outbound calls by VM's customers and TM paid to VM a marketing support contribution ('MSC') made up by multiplying the customer contribution ('CC') by the customer base. The MSC was a payment mechanism intended to produce a figure equivalent to the revenue generated from third party network operators when calls originating from their networks were connected to VM customers. Appendix F contained a formula for calculating the minimum customer contribution ('MCC') which it was expected would diminish at the rate of seven per cent per annum. The customer contribution was set at £4.56 for the initial period and was to be reviewed every three months based on VM's performance. TM undertook that the CC would not, unless the parties agreed alternative bonus arrangements, be less than the MCC. Under the JVA there would be an event of default if the CC proposed by TM for any period until the end of March 2002 was less than the MCC for the relevant period. After April 2002 there would be an event of no fault termination if the proposed CC was less than the MCC. The £4.56 figure was not reviewed in the early part of 2000 and VM and TM agreed in a letter of 12 September 2000 that the customer contribution should be £4.56 until the end of March 2001 and was thereafter to be calculated in accordance with the formula set out in the supply agreement From April 2001 onwards TM produced a calculation of MSC on that basis. In May 2002 the figures up to the first quarter of 2002 were agreed. By letter of 30 September 2002 TM unilaterally altered the CC to £1.71 on the basis that that would trigger an event of no fault termination under the JVA. The figure of £1.71 was said to have been calculated by reference to VM's performance in terms of generation of inbound interconnect revenue. VM acknowledged receipt of the letter. TM issued proceedings claiming that the 30 September 2002 letter constituted an event of termination or gave rise to an event of termination under the JVA. The issues were whether: (i) the letter of agreement of September 2000 which varied the terms of the supply agreement permitted TM to propose a CC less than the MCC; (ii) TM was estopped from making such a proposal or from relying on the 30 September 2002 letter as an event of no fault termination; (iii) the calculation of the CC in the 30 September 2002 letter was a valid and proper calculation in accordance with the supply agreement; (iv) VM was entitled to sums of money in respect of MSC; and (v) acknowledgement of the letter was a notice by VM of an event of no fault termination.

Held

(1) The meaning of the 12 September 2000 letter was that the CC from April 2001 onwards was to be assessed by taking the formula for MCC and applying it to the CC of £4.56 operating in the previous period of three months. The effect was thus to replace the uncertain CC calculation based on VM's performance and to make future CCs calculable solely by reference to the CC for the previous period, beginning with £4.56, and the application of the relevant formula in the supply agreement for assessing MCC. That conclusion on construction was reinforced by the commercial background, business common sense, the matrix of the transaction and the way in which any objective observer in the position of the parties at the time with their knowledge would have approached the matter. The effect of the letter agreement of 12 September 2000 was therefore that the parties had agreed that there was no room for any future assessment of CC on the basis of performance at all. Unless and until the parties agreed alternative bonus arrangements the CC commenced with the figure of £4.56 and declined from that figure in accordance with the MCC formula (as long as any upward movement in the retail price index was less than nine per cent). In those circumstances no CC could ever be assessed that was less than the MCC for the relevant period and there was no possibility of any deemed event of no-fault termination on that basis under the supply agreement or JVA. Therefore any assessment made by TM in the 30 September 2002 letter of a CC based on performance was non-contractual and any proposal of a CC that was less than that calculated by application of the MCC formula was a nullity. The letter of 30 September was to that extent of no legal effect. (2) Although TM actually calculated and notified the CC to VM using the MCC formula until September 2002 it did not in that way unequivocally represent for the purposes of an estoppel that there was only one method of calculating the MSC. However there was an estoppel by convention based on the agreed convention as to the method of calculating the MSC under the letter of 12 September 2000. TM and VM acted on that conventional basis in dealing with each other and their bankers in relation to bank funding and VM relied on TM's acts in that regard. It would clearly be unjust to allow TM to depart from that convention. (3) Since calculation and notification by TM of the CC after the end of March 2002 could amount to an event of no fault termination it could not be enough for such a vital calculation to be solely in good faith. There was an implied term that it would be a calculation properly based on performance, meaning bearing a relationship to the generation of inbound income for TM in the relevant period, and also be a reasonable assessment of that. The figures put forward by TM were not objectively justifiable. Not only was the basis of the calculation of £1.71 flawed but deliberately skewed to achieve the lowest possible result in order to put forward a no fault termination case. (4) For the purposes of calculating the customer base as a component of the MSC calculation there would be nothing unreasonable about the imposition of a rule excluding dormant customers who had not made an outbound call or received an inbound call for 180 days. (5) VM's acknowledgement of the 30 September 2002 letter was not a notice of an event of no fault termination under the JVA.

Declarations refused.