Ipsofactoj.com: International Cases [2001] Part 1 Case 14 [CAEW]


COURT OF APPEAL, ENGLAND & WALES

Coram

Fashion Gossip Ltd

- vs -

Esprit Telecoms UK Ltd[a]

LORD JUSTICE WARD

LORD JUSTICE JUDGE

MR JUSTICE BELL

27 JULY 2000


Judgment

Lord Justice Judge

  1. This is an appeal by the defendant from the judgment of Goldring J dated 6th March 2000 granting summary judgment under the Civil Procedure Rules (CPR) Pt 24. The consequent damages would be in excess of £1 million.

  2. Leave to appeal was granted by the judge on the basis that

    This one of a series of similar cases involving substantial sums .... raises issues concerning the law of restitution and conspiracy which are not straight forward.

  3. In essence the case for the defendant, argued by Mr. John Randall QC, is that the reason rightly given by the judge when granting permission to appeal simultaneously confirms that this was not an appropriate case in which to enter summary judgment.

  4. After reflection, I agree. Liability in this case should not be decided on a summary basis. I shall, as briefly as possible, explain the significant features of the litigation and the reasons for my conclusion. But, having reached it after forming a series of preliminary decisions of my own about the issues raised in argument, I shall endeavour not to say anything which would lead the trial judge to feel constrained or bound to take any particular view either of the facts or of the extent to which, if any, the relevant legal principles have been developed or should develop.

  5. Part 24 of the CPR sets out the procedure by which the court "may decide a claim or a particular issue without a trial". Summary judgment may be granted against a defendant on the whole of a claim if the court

    (a)

    considers that

    ....

    (ii)

    that defendant has no real prospect of successfully defending the claim ....; and

    (b)

    there is no other reason why the case .... should be disposed of at a trial.

  6. Stripped to essentials the claim against the defendant was that it misused and organised the misuse of the premium rate telephone system, causing the claimants very substantial losses. Liability was established both for "unjust" enrichment and for conspiracy to deceive.

  7. Although many of the facts were not in dispute the case for the defendant was that the claimantís losses, if any, did not result from deceitful, dishonest, or unlawful conduct, but rather from the defendantís lawful exploitation of its full contractual entitlement. If the claimants lost a great deal of money, that was a consequence of the contractual arrangements and, although not foreseen or anticipated by them, the financial advantage gained by the defendant was the result neither of unjust enrichment nor actionable conspiracy.

  8. Mr. Randall further suggested that summary judgment on the basis of findings of fraudulent or deceitful misconduct against his client, when words like "sham" and "fraud" and, less familiar in the legal lexicon, "scam", were used regularly throughout both hearings to describe what it did, should not have been entered when the allegations were neither admitted nor capable of being substantiated by inference from the documentary and affidavit evidence, and when the defendant had been given no opportunity to put its witnesses, particularly its managing director, Mr. Sander, who was personally responsible for the activities which attract such serious criticism, before the court, to explain his actions and the reasons why he acted as he did, in the belief that everything done was legitimate. Moreover Mr. Randall pointed out that this litigation was one of a number of actions where similar undecided points of principle arising from arrangements for the use of premier rate telephone lines were in issue and currently under consideration.

  9. Despite detailed skeleton arguments, the submissions of counsel on each side before us lasted for well in excess of two days. In that time it was not possible for all the issues set out in the skeleton arguments to be canvassed. When the difficulties of continuing the constitution of the court into another week was explained, Mr. Randall invited us to use the available time to reflect on each of his major arguments, first in relation to restitution, and second, conspiracy. This was acceptable to Mr. McGregor QC on behalf of the claimants. If Mr. Randall were successful on both points then the appeal would succeed: if not, his position in relation to the remaining submissions is fully preserved.

  10. During the course of the hearing our attention was necessarily drawn to a substantial number of authorities and academic writings, particularly in relation to the current state of development of the principles of unjust enrichment. If this judgment in relation to unjust enrichment were to stand, it would represent a further extension, entirely logical and perfectly apt, suggested Mr. McGregor. To the contrary, contended Mr. Randall, it was a quite unsuitable basis on which to enter summary judgment.

    PROCEDURAL COMPLAINTS

  11. Mr. Randall made a number of complaints about the procedure adopted by the judge. In his skeleton argument he set out a detailed chronology of the way in which the proceedings against his client developed, together with an analysis of the orders made by Goldring J once he was seized of the case. Mr. Randall suggested that the claimants conducted the application in an "oppressive and unfair" way. In view of my clear conclusion I do not propose to recite all the details, but there were late applications to amend, late service of substantial additional evidence, all of which were said to have deprived the defendant of a reasonable opportunity to meet the application under CPR Pt 24. Such conduct required to be discouraged.

  12. This was not Mr. Randallís best point. There were indeed late amendments, and late service of important documents, but Goldring J was well able to assess the consequences of allowing the case to proceed without delay, and simultaneously to ensure that there was no risk that summary judgment would be unfairly entered against the defendant because of lack of sufficient time or preparation. In accordance with current principles the litigation was firmly managed by the judge, and although his orders undoubtedly meant that the defendant had to act at considerable speed, when seeking to examine, even with the benefit of hindsight, precisely what, if any, prejudice the defendant suffered, I could detect none. In short, no basis for interfering with the judgeís management of the case has been established.

    THE FACTS

  13. In his judgment Goldring J wrote a short summary, carefully encapsulating the crucial facts, from which I gratefully propose to quote substantial passages which were not the subject of any criticism.

    The Second Claimant is the parent of a group of telecommunication companies. The First Claimant is a wholly owned subsidiary. Esprit Netherlands BV is another subsidiary in Holland. It also operates in Belgium. It is not a party to the action.

    Esprit provides telephone services to users in a number of countries throughout the world. It provides a network of switches and telephone lines through which users may make national or international calls. In order to do that, it has to gain access to the general telephone network within each of the countries to which calls can be made. One of those networks is the United Kingdom. The First Claimant, by agreements (called interconnect agreements) with British Telecom Plc ("BT") and Cable & Wireless Communications Plc ("CW") on 28th April 1995 and 18th October 1995 was given access to the telephone network. The agreements are in standard form. All calls made by Esprit users world-wide terminating in the United Kingdom are routed through the BT or CW networks.

    Among other things, Esprit sold pre paid telephone cards to members of the public. This case concerns cards sold in Holland for use in Holland and Belgium. The company which sold those cards was Esprit Telecom Benelux BV. The cards are called "Budget Calling Cards". Each card is for a specific amount in currency (for example, Belgian francs). It permits calls to that amount. It does not specify the rate at which the credit will be used up. Neither does it specify any limitation on the sort of calls which might be made. The attraction to the purchaser of such cards, as I understand it, is that Esprit will route any call as cheaply as possible. The rates should be less than those of the major suppliers.

    To make a call, the user dials Espritís freephone number in Belgium. That connects him to a switch in Amsterdam. Connected to the switch is a computer, known as the "Budget Calling Card Platform". The platform is programmed to hold information on each card sold. The computer recognises the card by the account and card PIN number given by the user to the computerised answering service. It debits from its records the value of each call made on a particular card, until its financial value is exhausted. The card then stops working.

    Users may telephone anywhere in the world. Because that involves billions of individual numbers, the computer is programmed to recognise only the country code: the first four digits. Once it has identified that code, it rates the call and routes it through the switch in Amsterdam as cheaply as possible. If the call is to the United Kingdom, it will go through the First Claimantís switch in London and on to the BT or CW networks. BT or CW charge Esprit less than Esprit charges its user. Esprit pays BT or CW. Espritís profit is the additional amount it has charged its customer.

    PREMIUM RATE CALLS

  14. Premium Rate Services ("PRS") are telephone services which can be accessed by dialling certain designated telephone numbers in the United Kingdom. As the name implies, when the user dials such a service, in addition to being connected, he is provided with information (for example a recorded message such as the cricket score) or even a live chat service.

  15. The main network providers (BT and CW) have interconnect agreements with other companies, called Premium Rate Service Providers, permitting them to provide such services. The system (as far as relevant to this case) is self-regulating. The Regulator is the Independent Committee for the Supervision of Standards of Telephone Information Services ("ICTIS"). There is a code of practice. The PRS companies are allocated specific numbers at specific rates.

  16. So far as the PRS numbers in this case are concerned, there was a series of service providers. BT or CW had interconnect agreements with Norweb Communications Ltd ("Norweb") and Torch Ltd ("Torch"). Pursuant to (the agreements) BT or CW conveyed calls on those numbers to Norweb or Torch. Norweb and Torch did not themselves provide the service. Each had an agreement with another service provider, Salco Communications Ltd ("Salco"). Finally Salco had an agreement with the defendant as the sub service provider. In short, each PRS call made on the given numbers was conveyed through to the defendant to provide the service.

  17. If such a call came from Belgium or Holland via Esprit, it was conveyed from Esprit Amsterdam to Esprit London, to BT or CW and eventually down to the defendant. In such a case, payment was invoiced in reverse. The defendant invoiced Salco. Salco invoiced Torch or Norweb on a self billing basis. They invoiced BT or CW not on the basis of their own invoice from Salco, but on the basis of their own records. Finally BT or CW invoiced the First Claimant. Each party would take a profit. Esprit would pay BT or CW. If it was to make a profit in such a case, the amount Esprit had to pay to BT or CW would, of course, have to be less than its charge to the user: the person who used the prepaid card to make the call in the first place."

  18. Further issues of some significance, so far been omitted from this analysis, must now be addressed.

  19. The user was charged a premium rate when calling such services. There were two elements to the charge rate, first the standard charge for using the network, the second an additional rate for the service. The possible importance of what may not at first sight appear to be a dispute of great significance is Espritís contention that it is designed to help distract attention from the fact that the overwhelming majority of calls during the period with which this litigation was concerned were made by or on behalf of FGL. Mr. McGregor focused attention on the definition of premium rate numbers in the licence granted by the Secretary of State to Torch and the ICSTIS definition.

    The licence term provided

    Part of the overall charge paid by the user .... being payment for the content of the call passed by the network operator to the organisation or company providing the service.

    The ICSTIS definition read

    Part of the overall charge .... being payment for the content of the call or other service delivered in the course of or as a direct consequence of the call .... passed on by the network operator, directly or indirectly to the service provider.

  20. Mr. McGregor drew attention to the Telecommunications Act 1984. A licence was an essential statutory pre-requisite of the services provided by Torch and Norweb, and by means of a sub-licence from Torch, Salco was linked into Torchís network. He submitted that FGLís activities fell outside the terms of this licence, and were unlawful for the purpose of and constituted an offence under s5(2) of 1984 Act. Mr. Sander, as I shall shortly summarise, was not providing a genuine PRS service at all. He was calling his own service, in reality a PRS fraud, as he must have known. Mr. Randall suggested that the reference to the licence conditions was, so far as the action against his client was concerned, "legally meaningless". He was not a party to the terms of the licence and the use of the word "genuine" in this context begged the very question which required decision. For present purposes the 1984 Act was concerned with the equipment used for the purposes of conveying sounds and signals, not with the intentions of the parties using them on the basis of the contractual arrangements between them. If the contractual arrangements were legitimate, then arguably at any rate, no question of an offence under the 1984 Act arose.

  21. The Monkey Club was a PRS recording, used by a number of lines and providing betting tips. The line is owned by a company known as Kedstar Communications Ltd ("Kedstar") and many PRS numbers that linked up to the Monkey Club were lines operated by the defendant. Kedstar was agent for Salco and they provided the PRS service to the defendant via Kedstar, who for this purpose were Salcoís sales agent.

  22. According to the affidavit of Mr. Sander, the genesis of this litigation is found in a conversation between him and Mr. Metcalf of Kedstar. Mr. Metcalf told Mr. Sander that in about October 1998 he had bought a telephone card to hear the tips on the Monkey Club line. Credit was debited from the card at about 9 pence per minute, whereas Kedstar were earning about 65 pence per minute. When he heard this Mr. Sander saw the opportunity to make money, an enterprise, which when implemented, met with considerable success.

  23. FGL obtained a number of PRS numbers from Salco and reached an agreement with Kedstar for the use of the Monkey Club. The calls to the line began on 1st February 1999. Shortly afterwards a large number of budget telephone cards were purchased from BvBA Suzanna International ("Suzanna"). Suzanna acted as a card distributor, having bought telephone cards from Esprit Telecom Benelux BV, part of the Esprit group.

  24. Mr. Sander denies any relevant knowledge of the activities of Mr. Virdee of Suzanna. As far as he was concerned he was involved in a straightforward purchase and he asserts that any statements Mr. Virdee may have made in order to obtain cards from the vendor were made without FGLís instructions or knowledge. Indeed he contends that Mr. Virdee lacked any appropriate authority to make any statements of any kind about the use FGL intended to make of the cards. If that factual issue requires to be resolved, then it cannot be resolved without a hearing.

  25. The face value of the cards paid for by FGL amounted, in round figures, to £80,000. The cards and relevant PIN numbers were distributed to a large number of individuals to make telephone calls on FGLís behalf to FGLís PRS numbers. They went on doing so until the credit shown on the card was exhausted or access to the number was stopped.

  26. In its defence FGL admits that its intention "was to take advantage of the difference between the amount per minute that the telephone system Budget Cards decreased the credit on the cards and the amount FGL earned when one of FGLís PRS numbers was called using the cards and thereby to make itself a profit." It was further admitted that the vast majority (99%) of the telephone calls were made not for the purpose of listening to any message on the PRS number but to profit from the price differences caused when these calls were debited at a cheap rate. It is obvious that Esprit had no idea that the scheme (a word used deliberately to avoid "sham" or "scam") was afoot, and that FGL had not the slightest intention of enlightening them.

  27. The operation of the scheme can be simply described. Between 1st February and 8th April 1999 just under 95,000 calls were made. Many of the calls were made on the same day when the same message, and information, would have been received. The total time taken by these calls was 890,576 minutes. They were debited at 7.8 pence per minute. Their cost was passed up the line by BT or CW to Esprit. Inclusive of VAT the total value was £1,190,008.

  28. Notwithstanding that BT are parties to the relevant "interconnect" agreements, and the Secretary of Stateís licence, BT and CW take the view that in accordance with the interconnect agreements Esprit is liable to them. Their stance is that as between themselves and Esprit, at any rate, Esprit was at fault for failing to ensure that the "rate allocator" was properly organised and correctly set up and maintained, and not open to or available for exploitation.

  29. Properly working, the rate allocator should have detected any PRS numbers and "charged the appropriate rate for calls made to them". What happened was that owing to an internal computer error some of the PRS numbers were not detected by the rate allocator. Calls to those numbers were connected at the international rate for calls from Belgium / Holland into the United Kingdom (7.8 pence per minute) rather than the appropriate PRS rate. Crucially, by February 1999 the existence of this error in the rate allocator was appreciated by some, at least, of Espritís employees but, according to the evidence filed on behalf of Esprit, they failed sufficiently to recognise the risk that it might be exploited. In summary, they believed that the possibility of any worthwhile demand from Belgium / Holland for the tips provided by the Monkey Club was negligible and could safely be ignored. So nothing was done to correct the error.

  30. It was not until 22nd March 1999 that CW informed Esprit that there was an unusually large amount of traffic via Esprit to the relevant PRS numbers. This led to enquiries, and a temporary bar on 22nd March 1999 to all "non-geographic numbers in the UK including PRS numbers (with a few known exceptions)". The first relevant invoice from FGL to Salco was not sent until 26th March 1999, that is after the vast increase in traffic and consequent losses were discovered. Arguably, at any rate, this invoice, and those sent subsequently, cannot have had any effect on Esprit, and therefore did not constitute a material representation, let alone an effective deception at all.

  31. In summary therefore, the error in the rate allocator was discovered by Esprit and a deliberate decision taken not to correct it on the basis that there was no real likelihood of any adverse consequences. FGL learned about the error and decided to exploit it. Goldring J summarised how the scheme worked. "The defendant was effectively telephoning itself for a service which it did not want or need. It was not telephoning to listen to any message..... The calls were made with such intensity to try and use up the cards before Esprit realised what was happening and closed access to the numbers".

  32. Mr. Randall points out that the rate at which credit would be debited from the phone cards was never fixed. Esprit retained for themselves the right to alter the rate allocator at any time without notice, either upwards or downwards, at their discretion. The contracts of sale of their cards did not restrict their use or preclude any type of call, or lay down any conditions to prevent the use of which complaint is now made. There were no pay when charged provisions. FGL was entitled to use the cards as it did, and was doing no more than exploiting a legitimate contractual opportunity (Clarion Ltd v National Provident Institution [2000] 2 AER 265). The purchasers of the cards were entitled to use the cards as they wished, subject to the speed at which the credit was used up, and until the credit was exhausted. If purchasers wanted to dial and redial the same number, whether to listen to the same message repeating itself, or to use up credit, this did not represent a breach of any contractual term, but rather one way of implementing the contract. FGLís behaviour represented the exploitation of a contractual arrangement, and the essential fallacy in Espritís case was that they proceeded from the basis that the operation of their contract had cost them a great deal of money to the unjustified conclusion that some remedy must be available.

  33. Mr. McGregorís response can be summarised in the single word, "nonsense". His submission was more elegant. In his skeleton argument he contended that FGLís case was that "it is to be implied from the absence of the contract of a term fixing the rates at which the cards were to be debited and from (Espritís) conduct in mispredicting the calls from Holland to UK PRS, that (Esprit) assumed the risk that users would make calls to UK PRS costing more than the rates at which the cards were being debited. This flawed analysis ignores the crucial distinction between a judgment made about the number of genuine Dutch calls to UK PRS numbers to listen to a service and an unknown risk of sham Dutch calls by a PRS operator itself to its own UK PRS numbers not to listen to any service but to exploit rate difference." To this Mr. Randall responded that, apart from not fairly summarising FGLís case, Mr. McGregorís submissions failed to answer his basic contention that FGLís activities represented a legitimate entitlement available to a purchaser and user of a budget phone card who was, repeated Mr. Randall, entitled to make calls to the value of the card as calculated by the rate set by Esprit at the time when the calls were made.

  34. At one stage in his submission, as far as I understood it, Mr. Randall seemed to suggest that it would not be right to assume, simply on the basis of Espritís assertions, that an internal error had been made by Esprit. However, without deciding the matter finally, it seems highly improbable that the opportunity exploited by FGL was not the consequence of some error by staff or malfunction of equipment. For present purposes I shall assume that something did indeed go wrong, and that an "internal" error was made. The more important issue for analysis however flows from the fact that Esprit discovered the existence of this error and appreciated the risk that it might be open to exploitation and elected to take no precautions. So nothing was done to remedy the error, until too late, by which I mean that losses exceeding £1 million had been sustained. In fairness to Mr. Randall it seems more likely that his queries about the nature of the error related not so much to the possible problems arising from malfunction, but to the need closely to examine the precise circumstances in which, and by whom, Esprit decided that nothing should be done to rectify the known problem.

  35. Mr. McGregorís response, briefly summarised, is that Esprit was not obliged to conduct its business on the basis that it would be the victim of the abuse to which FGL subjected it, and even if with hindsight, Esprit could be criticised, it could only be on the basis that it was less cautious than it might have been. That could not possibly justify FGLís conduct, nor provide any defence to a claim for unjust enrichment or conspiracy. For FGL Mr. Randall submitted that the assertion on which the claim against it is based, namely that FGL acted unlawfully or improperly and so abused the system of self-generated calls to PRS begs the question. Esprit failed to recognise that by deciding not to correct the internal error it left open a commercial opportunity, capable of legitimate exploitation to its advantage by an energetic and imaginative organisation. That was neither abuse, nor unlawful, nor susceptible to the remedy sought by Esprit.

  36. We have had the advantage of learned and interesting arguments by both leading counsel on the current state of the law of restitution and unjust enrichment in the particular context of restitution for mistake.

  37. Mr. Randall suggested that for the purposes of the law of restitution the relevant mistake was the failure by Esprit to appreciate the possible adverse consequences of doing nothing when they discovered their internal error, and he categorised that decision not as a mistake but as a misprediction or commercial misjudgement about the risk of exploitation. This was not therefore a mistake of present or past fact.

  38. Mr. Randall submitted that none of the authorities provide an example of a case where a claim in restitution has succeeded on the basis that one party to a contractual arrangement had exploited his contractual entitlement to the full. Mr. McGregor accepted that if Esprit voluntarily accepted the risk of exploitation of the cards then if such exploitation was unanticipated but permissible within the contractual arrangements to which FGL were parties, there could be no complaint of unjust enrichment. However he insisted that a remedy for unjust enrichment was not precluded merely because the party seeking to establish the claim had made a mistaken assumption about possible future events. For this purpose he submitted that FLGís enrichment as a result of Espritís mistaken belief that the error would not be exploited by thousands of calls by individuals who were not using the PRS at all, was unjust and in any event, even if Mr. Randallís argument about misprediction were right, the claim in restitution should succeed on the basis that the secretive exploitation of the internal error was, to use the words in his skeleton argument, "tantamount to dishonesty" which made it unconscionable for FGL to profit from premium rate services offered by Esprit.

  39. The unusual feature of these arguments, but perhaps indicative of the continuing development of the relevant legal principles, is that both counsel relied on the decision of the House of Lords in Kleinwort Benson Ltd v Lincoln City Council [1998] 3 WLR 1095, and that both indeed referred to the speech of Lord Hope of Craighead as providing support for their contentions.

  40. The essence of Mr. Randallís submission is summarised in Lord Hoffmannís observation at p1137 that

    the law requires that a mistake should have been made as to some existing fact .... It is prima facie unjust for the recipient to obtain the money when, if the payer had known the true state of affairs, he would not have paid.

  41. Lord Hope of Craighead, at p1147, commented

    The state of mind of the payer must be related to the time when the payment was made. So also must the state of the facts or the law .... The point of the enquiry is to show that, had the payer known the true state of the facts or the law at that time, he would not have made the payment .... Proof that the alleged state of the facts at the time did not emerge until afterwards will usually be sufficient to show that there was, at the time of payment, no mistake.

  42. Mr. McGregor on the other hand focused on the passage in the speech of Lord Hope, at p1146, that

    The essence of this principle is that it is unjust for a person to retain a benefit which he has received at the expense of another, without any legal ground to justify its retention, which that other person did not intend him to receive .... What, then, is the function of mistake in the field of restitution on the ground of unjust enrichment? .... A declaration of intention to confer the benefit, even if unenforceable, will be enough to justify the retention of the enrichment. A mistake, on the other hand, will be enough to justify the restitutionary remedy, on the ground that a benefit which cannot be legally justified should not be retained where it was a mistaken and thus unintended benefit.

  43. Mr. Randall fortified his submission by passages from the text of "An Introduction to the Law of Restitution" by Professor Birk, underlining that

    the first thing is to make a distinction between mistakes and mispredictions .... A mistake as to the future, a misprediction does not show that the plaintiffís judgment was visciated, only that as things turned out it was incorrectly exercised. A prediction is an exercise of judgment .... If you then .... complain of having been mistaken you are merely asking to be relieved of the risk knowingly run .... The safe course for one who does not want to bear the risk of disappointment which is inherent in predictions is to communicate with the recipient of the benefit in advance of finally committing it to him.

    Later, at p278, Professor Birk identified the "kind of mistake" which was no more than

    .... a mere misprediction as to the future, exactly the kind of Ďmistakeí which you make when you clean my car believing, wrongly, that I will pay. A misprediction is nothing but the taking of a risk, an exercise of judgment which turns out badly rather than a judgment visciated. That is why the law requires mistakes to be both present or past fact.

  44. However Mr. McGregor in his turn drew attention to the passages which immediately follow, in which Professor Birk acknowledged that

    both mispredictions and mistakes of present fact do serve to demonstrate a non gratuitous intent .... A trader who sends me goods which I have not asked for also has nothing to offer by way of negativing voluntariness; yet if I freely accept them I shall have to pay.

  45. The author then analysed the decision in the House of Lords in Ramsden v Dyson [1866] LR 1HL 83, and continued

    The mistake which the tenants at will made, and which the House of Lords regarded as sufficient if the land owners had had knowledge of it, was no more than a misprediction: they believed that if they built they would be granted long leases; they knew they were all tenants at will for the present. This point was expressly considered by the Privy Council in Plimmer v Wellington Corporation. The opinion there expressed is that the House of Lords had not intended to limit the doctrine to mistakes of present fact as opposed to mistaken expectations. That must be right, for .... it would be obvious that, if you stand by and watch me building on your land and say nothing, my claim is just as good when the explanation of my conduct is that I believe that you will pay me or will grant me an interest in the land as it is when I believe I already have an interest. The reason is, that the ground for restitution here lies in your conduct, your standing by and letting me get into trouble. Inwards v Baker provides a modern example of a case in which equity responded even though the plaintiff merely mispredicted the future.

  46. Our attention was drawn to the recent article by Professor Birks published in (1999) 28 Western Australia Law Review 13, entitled Law of Restitution of the End of an Epoc, Virgo, Principles of the Law of Restitution, and Goff and Jones, The Law of Restitution, 5th Edition as well as Strang Patrick Stevedoring v the "Sletter" [1992] 38 FCR 501).

  47. The crucial question appears to be whether Esprit voluntarily assumed the risk that the internal error might be exploited or, whether the true interpretation is that FGL freely accepted the PR services, fully appreciating that they were being provided by mistake. Generally, and as I have emphasised at the outset, without in any way seeking to bind the trial judge, it seems doubtful whether it would be right to compartmentalise mistakes made by Esprit and segregate them into the mistake arising from the internal error and the subsequent mistaken decision not to correct it. What is more I doubt (but again do not finally decide) whether the mistaken decision should properly be regarded as a mistaken prediction of future events. Arguably, at least, it was a continuing mistake caused by a misapprehension of possible consequences rather than a mere misprediction. Finally I should say that even if this can properly be described as a misprediction, the legal principles in Kleinwort Benson, as they are likely to develop, may one day result in the conclusion that Mr. Randallís submissions should be regarded, in the words of Lord Hoffmann, as too "abstract" an approach to practical realities. That was certainly Goldring Jís view and during my pre-reading for the hearing, I found myself in considerable sympathy with it.

  48. Nevertheless, the longer the hearing itself went on, and the more clearly the issues were refined during the argument, I was inexorably driven to the conclusion that these issues needed to be considered and decided in the light of the facts found at a trial, after discovery of both Espritís and FGLís relevant documents, particularly those relating to the "internal error" by Esprit, as well as the decision making process after it was discovered. Again, on the whole the development of legal principles is best left to analysis after the facts have been established, rather than dependent on assumptions or summary conclusions about them. Finally, and without suggesting that it may never be appropriate, I am troubled about entering summary judgment in a case in which the success of the claimantís case involves, as this one does, establishing allegations of dishonesty and fraud, which are strongly denied, and which cannot be conclusively proved by, for example, a conviction before a criminal court. Indeed, it is a feature of Espritís argument that FGL have contravened and are guilty of an offence contrary to the Telecommunications Act 1984. I am not satisfied that it would be right to make such a finding against FGL on the documents alone, without an oral hearing.

  49. I can therefore deal very briefly with the allegation based on conspiracy. There was no doubt that the operation of FGLís scheme involved the direct participation of a number of individuals. The inference that at least some of them appreciated that they were involved in an enterprise with others was a reasonable conclusion to be drawn from the papers before us. Whether this case involved an overall conspiracy, or a series of conspiracies within the major conspiracy, is academic.

  50. It was agreed before Goldring J that for summary judgment purposes Esprit must show a conspiracy by FGL using unlawful means which were directly actionable by Esprit. Although pleaded in different ways, this meant conspiracy by deceit based on the invoices sent by FGL to Salco. These invoices, it will be remembered, were not submitted until 26th March. The timetable suggests that by then they would have had not the slightest effect on Espritís conduct in relation to events which occurred before that date. So, Mr. Randall argued, even if the invoices included any misrepresentation (which he asserted they did not) they could have had no possible relevant impact because, Esprit had been alerted to the fact that the scheme was on foot before Salco received the invoices.

  51. Mr. McGregor suggested that to fix on this admitted sequence of events overlooked the fact that the sending of invoices represented the culmination of a scheme which had depended on the continuing representations made by the users of the PR services as part of an overall course of conduct, and that the allegations were indeed allegations of conspiracy. In short, this dishonest agreement was in existence and operation well before the submission of the invoices to Salco, and caused everyone in the chain up the line to act in such a way that Esprit sustained the loss which is now claimed.

  52. While acknowledging the force of these arguments, the difficulty with them is that they ultimately involved analysis of much the same question that arises in relation to unjust enrichment. In short, was the use of these PRS services bone fide or genuine? The answer depends on whether the scheme represented legitimate exploitation of FGLís contractual entitlement. If it was, then at least arguably, there was no actionable conspiracy, and the important question whether FGL committed an offence under the Telecommunications Act 1984, or acted fraudulently or dishonestly, and if so, its impact in relation to the conspiracy issues as well as to unjust enrichment, should not be decided adversely to FGL, until Mr. Sander has had a proper opportunity to explain his actions at a hearing.

  53. I am fortified in my conclusion that summary judgment should not be given in this case by FGLís legitimate contention that, by contrast with Goldring Jís summary of Espritís position, that it proceeded as it did because it "did not believe that anyone would act in a way which many would consider dishonest", in another case, where the essential facts were very closely parallel to those which arise in this litigation, another High Court Judge took an equally robust but entirely contradictory view. When a service provider exploited lines in a way similar to that used by FGL, (Wootton v Telecommunications UK Ltd, unreported, 7 October 1998) Morland J rejected the suggestion that the lines had been used improperly, describing the arrangement as "ingenious commercial profit taking in a free market economy".

  54. One basis on which permission to appeal his decision was granted by the Court of Appeal was that, arguably, the use of the premier rate telephone lines was indeed "improper". Agreeing that permission should be given Schiemann LJ described himself as more sympathetic to the claimantís case than the other members of the court. (See transcript, 4th May 2000).

  55. In passing I note that both Waller LJ and Arden J took the view that attention should be focused on the contractual arrangements between Mr. Wootton and Telecommunications rather than others further up the line, like BT. Waller LJ believed that it was "quite illegitimate to look at the terms of the contract between BT and Telecommunications for assistance as to the meaning of the word Ďimproperí unless both parties to the Wootton / Telecommunications contract were aware of those terms when signing their contract."

  56. At an earlier stage Schiemann LJ himself had given permission to appeal in Global Numbers Ltd v Keyline Associates Ltd where, like Goldring J in the present case, Ian Kennedy J had plainly taken a very adverse view of the behaviour of defendants who had acted in a way which was very similar to the way in which FGL acted here. Given that this is an application under part 24 of CPR it is worth noting the terms in which Schiemann LJ expressed himself when granting permission to appeal.

    The claimant alleges that the defendant discovered the error in 1998 and that thereafter they combined with others to buy up large numbers of pre-paid phone cards and made huge numbers of calls, which has resulted in an enormous amount of income to them, .... and a substantial debit to the claimant .... The claimants allege a conspiracy. The defendants admit that neither statute nor common law provides a remedy for a claimant against defendants in such circumstances, even if proved. As at present I see respectable argument in favour of such a submission, but I am not persuaded that it is bound to succeed.

  57. So the case was put in conspiracy, but Schiemann LJ went on to consider the more general point.

    This type of problem is no doubt on the increase with the advance of computers. It has given rise to a fair amount of consideration in the Law Commission. Taking away the element of conspiracy, one considers the situation of an individual who goes to a cash dispensing machine and asks for £50 and is given £500. Four days later he asks his bank for his statement and he sees that he has only been debited with £50. Thereafter he returns to the cash dispensing machine, makes ten separate requests for £50 and receives ten times £500. Those are the sorts of cases where the law, which was developed in the last century and the early part of this century, was not really designed to deal with because it was not a problem which commerce had to cope with at that time.

  58. In the course of his judgment Schiemann LJ highlighted one important factual difference between the present case and Global Numbers. This was that the claimants in Global Numbers had no idea of the malfunction of their machinery, and "so it is alleged, the defendants knew it and took advantage of it".

  59. Mr. McGregor submitted that, whatever the difficulties which might arise in relation to the law of contract, the concept of "unjust enrichment" has developed very rapidly indeed in the last decade, and that the present case, and that Schiemann LJ might very well have expressed himself differently if he had enjoyed the advantage of the speeches of the House of Lords in Kleinwort Benson Ltd v Lincoln City Council [1998] 3 WLR 1095 (which was not available to him when he granted permission to appeal in Global Numbers). Nevertheless, Mr. McGregor was unable to provide any authority directly in point. The effect of his submission was that a remedy in unjust enrichment for Esprit represented the logical application of the principles of "unjust enrichment" as recently and authoritatively developed.

  60. I understand that following the grant of permission to appeal this litigation settled.

  61. Goldring J took the view that Global Numbers was not argued before Schiemann LJ as the present case was argued before him. Similarly with the argument before Morland J in Wootton, he noted that the decision appeared to have "revolved around interpretation of section 43 of the Telecommunications Act 1984". Nevertheless there are significant factual similarities between all three cases, and certainly in the Global Numbers Ltd litigation, the issue of conspiracy was directly before Schiemann LJ and in the course of his judgment, without using the words, "unjust enrichment", Schiemann LJ identified facts on which such a claim might arise.

  62. I find the demonstrable difference in the judicial reaction to very similar factual situations persuasive to the conclusion that the issues raised by FGL are not frivolous or fanciful. I am also troubled about possible extensions of the principles relating to unjust enrichment without all the relevant facts having been considered and found.

  63. I should add that since the close of argument Mr. Wilson, junior counsel for Esprit, has kindly provided a complete list of all the other actions of this kind of which he or his instructing solicitors are aware. Ignoring Global Networks and Wootton, there is only one further piece of litigation in which FGL or Mr. Sander are not involved, which Mr. Wilsonís instructing solicitors believe is "substantially settled". For present purposes therefore there are four separate defendants, or groups of defendants, involved in litigation connected with their alleged misuse of premium rate services using pre-paid cards. None has been finally, or authoritatively decided.

  64. In addition to these cases, five actions involving similar issues have been taken against Mr. Sander or organisations for which he has responsibility. The litigation needs to be approached with care: a number of serious allegations have been made against Mr. Sanderís integrity but, as I understand it, whatever else may have been said in the course of the judgments which have been given thus far, there has been no express finding of dishonesty against Mr. Sander in any action in which he has enjoyed the opportunity to give his evidence orally.

  65. For these reasons, given as briefly as I have felt able in the light of the arguments advanced before us, I do not think that it is necessary for Mr. Randall to argue any of the remaining points referred to in his grounds of appeal and skeleton argument. The order for summary judgment should be set aside, and the appeal allowed.

  66. I hope that this judgment will be available to the parties in sufficient time to enable them to discuss, and if possible agree, a timetable for the future conduct of the case. Otherwise they must be prepared for a case management hearing to be conducted immediately after it has been handed down.

    Mr. Justice Bell

  67. I agree

    Lord Justice Ward

  68. I have had the benefit of reading in draft the judgment of Judge L.J. and I agree with it. I add these few words because this was, on one view, a laudable attempt by the learned judge robustly to apply the sentiments of the C.P.R. and sort wheat from chaff. The summary procedures are, however, meant to deal with the plain and obvious cases and this, I fear, was never one of them. Whilst, therefore, I applaud his boldness, I fear he was wrong to engage this process when, in summary:-

    1. the case "raises issues concerning the law of restitution and conspiracy which are not straightforward", to quote the judgeís reason for granting permission to appeal;

    2. before the law can be applied and especially where

      1. new areas of law are being developed and

      2. there are allegations of fraud, there must be a firm foundation of fact and all the facts, every nuance, needs exploration and needs to be firmly established.

    The beguiling cry of "scam" may be a siren call, and in these uncharted waters, one must steer carefully.

  69. This, therefore, is a case where a trial is necessary to establish the facts and then, but only then, can the interesting submissions of law be advanced and answered. I would wish to keep a very open mind about those answers which, like the judge, I do not at the moment find straightforward. Consequently I agree that the appeal should be allowed.


Cases

Clarion Ltd v National Provident Institution [2000] 2 AER 265; Kleinwort Benson Ltd v Lincoln City Council [1998] 3 WLR 1095; Ramsden v Dyson [1866] LR 1HL 83; Strang Patrick Stevedoring v the "Sletter" [1992] 38 FCR 501; Wootton v Telecommunications UK Ltd, unreported, 7 October 1998

Legislations

Civil Procedure Rules (CPR) Pt 24

Telecommunications Act 1984, s.5(2)

Authors and other references

Professor Birk, An Introduction to the Law of Restitution

Professor Birks, " Law of Restitution of the End of an Epoc": (1999) 28 Western Australia Law Rev 13

Viirgo, Principles of the Law of Restitution

Goff and Jones, The Law of Restitution, 5th Edition

Representations

John Randall QC & Alistair Wyvill (for the Appellant)

Alistair McGregor QC & Julian Wilson (for theRespondents)

Notes:-

[a] Esprit Telecom Group Plc and Esprit Telecom Benelux BV


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