R (Ordanduu & Optimus Mobile) v PhonepayPlus [2015] EWHC 50 (Admin): successful judicial review and award of Francovich damages against the UK premium rate services regulator

16 Jan 2015 | by Caroline Sweeney

The High Court today handed down judgment in a case brought by two German companies, Ordanduu and Optimus Mobile, against PhonepayPlus, the UK regulator for premium rate telephone services. Mr Justice Supperstone allowed the claim for judicial review and found that PhonepayPlus’ actions amounted to a sufficiently serious breach of EU law to justify an award of Francovich damages, transferring the claim to the Queen’s Bench Division for issues of causation and quantification to be determined.

The claim arose out of a series of “Emergency Procedure” investigations instigated by PhonepayPlus in July 2013 under paragraph 4.5 of its Code of Practice. The investigations followed identification by PhonepayPlus of a website using a form of malware to lock consumers’ internet browsers in an attempt to generate affiliate advertising revenue. The investigations resulted in financial and other sanctions being imposed on a number of companies, including the Claimants and several others located in other EU Member States. The Claimants challenged PhonepayPlus’ actions as being contrary to EU law and procedurally unfair.

The Judgment contains a number of findings of significance to PhonepayPlus’ procedures and its jurisdiction to regulate providers in other EU Member States.

On procedural fairness the Court found that there was no good reason for PhonepayPlus failing to offer the Claimants an opportunity to make representations before it implemented the Emergency Procedure and suspended the Claimants’ services. The Judge held that the PhonepayPlus Executive was subject to an obligation to give full and frank disclosure when seeking authorisation for the Emergency Procedure from its Code Compliance Panel, which it did not satisfy in this case. He also found that throughout the subsequent review process the PhonepayPlus Tribunal had wrongly placed the burden of proof on the Claimants to establish that there was no risk of harm to consumers, had applied the wrong standard of proof under EU law, and had failed to discharge the burden of showing that there was a risk of potential harm to consumers from the Claimants’ services.

On proportionality, the Judge concluded that the measures taken were disproportionate, in particular because a less restrictive method could have been adopted and the measures did not attain a fair balance of means and ends, including because the Claimants were not given an opportunity to make representations and because it was inappropriate to suspend the whole of the Claimants’ UK business and freeze their revenues in circumstances where there was no evidence of actual harm to any consumer and the malware did not affect the Claimants’ existing customers.

Of potentially wider significance is the Judge’s conclusion that it was not appropriate to accord a wide margin of discretion to the regulator’s judgment given: (i) the strict terms of the E-Commerce Directive; (ii) the fact that the Code Compliance Panel did not direct their mind to the correct legal test or proper basis on which their judgment should be exercised; and (iii) because the Panel were not experts with expertise in relation to premium rate services or affiliate marketing and its perils.

On EU law the Court found that PhonepayPlus’ actions were unlawful under Article 3 of the E-Commerce Directive, in particular because the measures were disproportionate. This was, in the Judge’s view, a sufficiently serious breach of EU law to satisfy the Francovich test for the award of damages. This was the case, in particular, because: (i) the PhonepayPlus Executive was aware of the Directive but did not inform the Panel or the Tribunal of its existence and relevance, as a result of which the Claimants were treated as if they were UK businesses; (ii) disproportionate restrictions were imposed, and (iii) PhonepayPlus’ communication with the European Commission contained material inaccuracies and omissions.

The Judge therefore allowed the claim, quashing the decisions, ordering repayment of penalties and charges with interest, awarding the Claimants’ their costs of the proceedings, and transferring the claim to the Queen’s Bench Division for issues of causation and quantification of damages to be determined. The Judge refused PhonepayPlus permission to appeal to the Court of Appeal.

A copy of the judgment is here. A more detailed case note will be prepared and uploaded here in due course.

Gerry Facenna acted for the Claimants, Ordanduu GmbH and Optimus Mobile GmbH. Tim Ward QC acted for the Defendant, PhonepayPlus.