Meridian Communications Ltd v Eircell Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice O'Higgins
• Judgment Date: 05 April 2001
• Neutral Citation: [2001] IEHC 195
• Court: High Court
• Docket Number: No 5306p/1999,[1999 No. 5306P]
• Date: 05 April 2001

MERIDIAN COMMUNICATIONS LTD & CELLULAR THREE LTD v. EIRCELL LTD

BETWEEN

MERIDIAN COMMUNICATIONS LIMITED AND CELLULAR THREE LIMITED

PLAINTIFFS

AND

EIRCELL LIMITED

DEFENDANT

[2001] IEHC 195

No 5306p/1999

THE HIGH COURT

Abstract:

Competition law - Contract -Telecommunications - Tort of injurious falsehood - Mobile telephony services - Volume discount agreement - Whether abuse of dominant position had occurred - Whether defendant had induced breach of contract - Competition Act, 1991.

Facts: The proceedings concerned the termination of an agreement whereby the defendant supplied the plaintiff with mobile telephony services. In particular the defendant supplied the plaintiff with a volume discount arrangement ('VDA'). This enabled the plaintiff to rent out lines to customers and it started to acquire its own customer base. The defendant became unhappy with the use the plaintiff was putting the VDA to and eventually terminated its agreement with the plaintiff. In a separate judgment the High Court had upheld the right of the defendant to terminate its agreement with the plaintiff. This judgment dealt with the claims of the plaintiff that the actions of the defendant were anti-competitive and that they had abused their dominant position. The plaintiff also made a number of other allegations alleging that the defendant had committed a number of breaches of contract and tort in their dealings with the plaintiff.

Held by Mr. Justice O'Higgins in dismissing the majority of the claims against the defendant. The implied terms that the plaintiff contended should be incorporated into their contractual agreement with the defendant had not been made out. Certain breaches of contract had however been found in the manner that the defendant had dealt with the plaintiff in relation to the provision of certain transfer forms and the delay in attending to certain matters. However these breaches did not prove that the defendant had operated to frustrate the operation of the VDA. In addition the plaintiff had failed to demonstrate that the defendant acted independently of its competitors or consumers. The defendant was not in a dominant position in the market and any claims based on an abuse of dominance or a breach of section 5 of the Competition Act, 1991 must fail.

1 JUDGMENT of Mr. Justice O'Higgins delivered the 5th day of April 2001.

2 The first named plaintiff Meridian was incorporated in October 1990, began trading in March 1992 and changed its name to Meridian in 1993. The second named plaintiff Cellular 3 Communications is a wholly owned subsidiary of the first named plaintiff and was incorporated on the 4th of March, 1999. The defendant/Eircell is a wholly owned subsidiary of the Eircom group. It began trading in 1985 as a division of Telecom Eireann and it was the first mobile phone operator within the State. It had a monopoly on the mobile telephony market from that time until the arrival of Esat Digifone who commenced operations in March of 1997. At the time of the hearing Eircell was one of two network operators providing mobile telephony services on the market, the other being Esat Digifone. Although a third licence has been granted to Meteor, its arrival in the market place was delayed following legal challenges. Meteor commenced operations in the market place between the end of the hearing and the date of judgment.

Background to the dispute.

3 In 1985 when Telecom Eireann introduced mobile telephony to Ireland the service provided was through an analogue system and the cost of a handset was very expensive. There were moreover, technical difficulties with covering certain areas of the country. Furthermore, the system could not be used outside the country.

4 In July 1993 Telecom Eireann launched a global system for mobile communications (GSM). That system had a number of advantages over the analogue system. They included technical advantages in the quality of the service, the ability to use phones internationally, the ability to separate the given line from the given handset by the provision of a Sim Card. There are also certain security advantages in the new system because of encryption in GSM services which ensures privacy in the carriage of calls. The number of users increased and the price of handsets was dramatically reduced. For example, in 1986 a Motorola handset 8000x cost £4230 inclusive of VAT where as in 1996 the GSM Erikson 198 handset was £49.99. In certain circumstances handsets were free of charge for the customer. The price of GSM handsets in recent years has been heavily subsidised. In October 1997, Eircell launched its Ready to Go service, which enabled a purchaser to buy a telephone and card giving a certain amount of air time without having to subscribe for a fixed period. This was the start of prepaid mobile telephony in Ireland which now accounts for almost half of Eircells" new business.

5 When Mr. Brendan Dowling acquired Meridian in 1996 the company had approximately 40 lines. In early 1997 it entered into an agency agreement with Eircell. It enlisted customers for Eircell in return for which it received a commission. The company was also involved in a small way in the sale of handsets. Initially the Meridian's business was as a subscriber to Eircell for a number of mobile phone lines at a fixed cost. Meridian would then rent out these lines to its customer for a price in excess of that which it paid to Eircell, enabling it to make a profit. When he acquired the company Mr. Dowling realised that there was little future for this premium rental market partly, because of the decrease in cost of handsets and also because he anticipated changes in the market whereby people could buy handsets and air time on a prepaid basis without having to subscribe for a fixed period. For these reasons he realised that he would have to look elsewhere for opportunities to expand the company. As an agent of Eircell, Meridian undertook a number of initiatives with a view to showing Eircell that it was an innovative and dynamic company with whom Eircell could do business. The response to these initiatives by Eircell was only lukewarm. In July 1998 Eircell terminated its agency agreement with Meridian and instead Meridian became a sub agent. This sub agency arrangement is still in existence. A Volume Discount Agreement (VDA) is an agreement between Eircell and certain customers whereby Eircell provides discount to such customers based on the volume of Eirtime used. Such a discount could be up to 40% off the standard price. Such agreements are common in the mobile telephony industry and indeed in many other industries. The introduction of the VDA was against the background of the arrival in the market of Digiphone, and was seen as a pre-emptive strike by Eircell against any attack Digiphone might make on Eircell's share of corporate market for mobile telephony services. In 1997 following negotiations between Mr. D'Arcy on behalf of the plaintiffs and Mr. Hennessy on behalf of the defendant during which Meridian specifically outlined to Eircell that it wished to expand its rental fleet, Eircell agreed to provide Meridian with a VDA. In the standard form of the agreement however clauses 4. 1 and 4. 2 read as follows:

6 4(i) The subscriber Dialled Calls must be made by the subscriber or employees of the subscriber from Nominated Eircell Numbers.

7 (ii) The user(s) of Nominated Eircell Numbers must be the subscriber or employees of the subscriber.

8 The restriction imposed by these provisions as to who could use the numbers the subject of discount rendered it unsuitable for the use to which the plaintiffs intended to use the discount. Meridian wanted the clauses deleted. This was clearly set out in the letter from Mr. D'Arcy to Mr. Hennessy dated 25th July, 1997 in which he specifically drew Eircell's attention to the fact that Meridian provide a mobile phone rental service and had done so for many years. He pointed out that the condition which required that all phones operating under the scheme be used only by employees of the company was not appropriate, and in the letter requestion an agreement without the restricted clauses he stated,

"...it is important that this point is clarified as we intend to continue expanding our rental fleet and our pricing is dependant on this discount to remain competitive."

9 Mr. Hennessy had to obtain approval for the deletion of such clause. However, on the 1st September, 1997, a letter was received from Eircell acknowledging that the Meridian mobile fleet was predominantly used for rental and used by people not employed in the company. The letter confirmed that the discount might proceed as normal and that clause 4. 1 and 4.2 which restricted on the use that could be made of the discount did not apply. It was only after, that Mr. D'Arcy was shown this letter that Meridian signed the VDA.

10 The initial VDA ran from August 1997 to August 1998. Thereafter, between August 1998 and November 1998 the parties continued with the agreement as it had operated without the agreement being formally renewed. Following the renewal of the VDA contract with Eircell in November 1998, Meridian began to expand its operations significantly. Over the next number of months a considerable injection of money and expertise was provided by Mr. Sean Bolger and his associates. Mr. Bolger is a person of considerable business acumen and specialised knowledge of the national and international mobile telephony market.

11 When Eircell realised that it was the intention of Meridian to expand in the market place, and when they saw that the business was beginning to expand, it became apparent that it was unhappy with the use to which Meridian/Cellular 3 were putting the VDA. In January, 1999 Mr. Kinsella ordered that transfers to Meridian/Cellular 3 be stopped. Initially the defendant thought that the plaintiffs were in...