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England and Wales High Court (Administrative Court) Decisions


You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Royal Mail Group Plc v The Postal Services Commission [2007] EWHC 1205 (Admin) (25 May 2007)
URL: http://www.bailii.org/ew/cases/EWHC/Admin/2007/1205.html
Cite as: [2007] EWHC 1205 (Admin)

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Neutral Citation Number: [2007] EWHC 1205 (Admin)
Case No: CO/8408/2006

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

Royal Courts of Justice
Strand, London, WC2A 2LL
25 May 2007

B e f o r e :

Mr Justice Collins
____________________

Between:
Royal Mail Group Plc
Appellants
- and -

The Postal Services Commission
Respondent

____________________

(Transcript of the Handed Down Judgment of
WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7421 4040 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

The Hon Michael Beloff, Q.C. & Mr Pushpinder Saini (instructed by Slaughter & May) for the Appellant
Mr Stephen Morris, Q.C. & Ms Susannah Jones (instructed by Denton Wilde Sapte) for the Respondent

Hearing dates: 3 & 4 May 2007

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Mr Justice COLLINS :

  1. This is an application (albeit, in my view properly, lodged as an appeal) seeking to quash a financial penalty of £1 million imposed by the Respondent (which I shall refer to in this judgment as Postcomm) upon the appellants for breaches of the licence granted by Postcomm to the appellants. Postcomm is the body constituted under the Postal Services Act 2000 (the 2000 Act) which is responsible for granting licences to enable persons to "convey a letter from one place to another" (2000 Act s.6), to impose appropriate conditions on any such licence and generally to "exercise its functions in the manner which it considers is best calculated to further the interests of users of postal services, wherever appropriate by promoting effective competition between postal operators." Powers, which I shall have to consider in greater detail in this judgment, are conferred on Postcomm to make enforcement orders and to impose financial penalties where there are established to have been breaches or the likelihood of breaches of any condition of a licence.
  2. Section 36 of the 2000 Act is headed "Appeals". The relevant provisions are as follows:-
  3. "(1) This section applies if a licence holder on whom a penalty is imposed under section 30 is aggrieved by –
    (a) the imposition of the penalty,
    (b) the amount of the penalty …
    (2) The licence holder may apply to the court.
    (5) On an application under this section, the court may –
    (a) quash the penalty,
    (b) substitute a penalty of such lesser amount as the court considers appropriate …
    if it considers it appropriate to do so and is satisfied of one or more of the grounds mentioned in subsection (6).
    (6) The grounds are –
    (a) that the imposition of the penalty was not within the powers of the Commission under section 30,
    (b) [that the various procedural requirements set out in the Act have not been complied with]
    (c) that it was unreasonable of the Commission to require the penalty to be paid by the date concerned or … to require portions of it to be paid by the dates concerned."
    I have not set out s.36(1)(c) or (5)(c) since, as s.36(6)(c) indicates, they are concerned with times imposed for payment of the whole penalty or of instalments. S.36(2) and (5) refer to an application albeit the section is headed 'Appeals'. The only material matter arising from this is whether an appeal to the Court of Appeal must be regarded as a second appeal so that leave must be sought from the Court of Appeal. I am satisfied that this should be regarded as an appeal and so an appeal to the Court of Appeal must be regarded as a second appeal. I did not understand counsel for either party to dispute this.
  4. The section is not very happily drafted since s.36(6)(a) seems to limit the grounds so that they do not cover the alleged unlawfulness of the amount as opposed to the imposition of the penalty. The appeal in this case is brought, according to the grounds, under s.36(1)(b) against the amount rather than the imposition of the penalty. Counsel for each party have submitted that in principle there must be a right to challenge the lawfulness of the amount as well as the imposition. Thus in s.36(6)(a) the words 'imposition of the penalty' must be construed to embrace an appeal against the penalty actually imposed and so bear a wider meaning than in s.36(1)(a). This is somewhat artificial, but any other construction would produce an absurd result and it is difficult to follow why Parliament could reasonably have wanted to prohibit an appeal if the amount imposed was unlawful (for example, because it exceeded the maximum allowed by the Act). It is, however, to be noted that an appeal can only be brought on the ground that the 'imposition of the penalty was not within the powers of the Commission under section 30'. That means that an appeal is limited to errors of law.
  5. Although this is presented as an appeal under s.36(1)(b) against the amount of the penalty, I do not think that is a correct analysis. The appellants' contention is that there is no power to fix any sum as a penalty. It must be reduced to zero. But zero is not on any sensible use of language a financial penalty: there must be some amount, however small. The appellants do not dispute on this appeal (although they do not concede) that Postcomm was entitled to conclude that a financial penalty was warranted by the breach of condition which it decided had been established. However, what the appellants are in reality not disputing is that it would be appropriate to impose a financial penalty if one could lawfully be imposed. In addition, they do not suggest that, if it was lawful to impose a penalty, one of £1 million could be considered to be appealable. In those circumstances, it seems to me that they are appealing against the imposition of the penalty within the meaning of s.36(1)(a) and not against the amount alone. Thus any strained construction of s.36 is unnecessary for the purposes of this appeal.
  6. One of the purposes of the 2000 Act was to open the provision of a postal services to competition. The appellants (or, as they were for a time perversely labelled, Consignia) had previously held a monopoly. A universal postal service involves at least one delivery and one collection of postal packets (that is to say, packets not exceeding 20 kilograms in weight) each working day, conveyance of such packets in accordance with a uniform public tariff which must produce affordable prices and the provision of a registered postal service: 2000 Act s.4. Since the appellants had a monopoly and have in place the necessary means to provide the relevant services, there is obvious concern by Postcomm and by potential competitors that they do not make any wrongful use of their monopolistic past and not only do not act in an anti-competitive way but have in place safeguards to ensure that they cannot so act.
  7. Any licence granted by Postcomm may include such conditions as Postcomm considers appropriate: s.13(1) and (3). Section 22(1) enables Postcomm by order to "make such provision as is needed for the purpose of securing compliance with the condition" if satisfied that there has been or is likely to be a contravention of any condition. Such an order is labelled an enforcement order. Any breach of such an order is actionable at the suit of any third party who suffers loss or damage (s.29(3)) and Postcomm can obtain an injunction to ensure compliance (s.29(5)). If Postcomm is satisfied that a licence holder "has agreed to take and is taking all the steps that the Commission considers appropriate to secure or facilitate compliance with the condition concerned" it cannot make an enforcement order: s.25. Somewhat curiously, the Act contains no sanction if such an agreement is broken, although no doubt Postcomm would, if it appeared that a breach has occurred, be able to use the powers under s.23 to make a provisional enforcement order and to deal speedily with the matter.
  8. In addition to the powers available to Postcomm to ensure compliance with the conditions of a licence, sections 30 to 37 deal with financial penalties. The two most important sections for the purposes of this appeal are ss.30 and 31. So far as material, they provide as follows:-
  9. "30(1) If the Commission is satisfied that a licence holder –
    (a) has contravened any condition of his licence, or
    (b) is contravening any such condition,
    The Commission may impose on the licence holder a penalty of such amount as is reasonable.
    (2) No such penalty shall exceed 10 per cent of the turnover of the licence holder …
    (3) The Commission may impose a penalty … irrespective of whether it has made or may make [an enforcement order].
    31(1) the Commission shall prepare and publish a statement of policy in relation to the imposition of penalties and the determination of their amount
    (2) In deciding whether to impose a penalty, and in determining the amount of any penalty, the Commission shall have regard to the statement of policy which was most recently published at the time when the contravention concerned occurred.
    (3) The Commission may revise its statement of policy and, where it does so, it shall publish the revised statement …
    (5) The Commission shall consult [the Consumer Council for Postal Services] and such other persons as it considers appropriate when preparing or revising its statement of policy."

    I should note that the power to impose an enforcement order depends upon an existing or likely future contravention whereas a financial penalty may be imposed in relation to a past or existing contravention of a condition. Thus an enforcement order relates to present or future whereas a financial penalty relates to past or present. There are time limits applicable to the power to impose a financial penalty in relation to contraventions which it is not necessary to detail. They are contained in s.34 of the 2000 Act.

  10. Postcomm published its statement of policy pursuant to s.31(1) in February 2002. I should set out the relevant paragraphs, which are 11 to 18. they read:-
  11. "Postcomm's duties
    11. The imposition of financial penalties is a function that Postcomm is required to exercise in accordance with its statutory duties. These duties may be summarised as: to exercise its functions –
    The imposition of a penalty
    12. In order to decide whether it should impose a penalty Postcomm first will satisfy itself either –
    13. Postcomm then will consider whether it is appropriate to make a penalty, having regard to –
    The amount of a penalty
    14. In deciding the amount of a financial penalty, Postcomm will first consider the financial benefit obtained by the licence holder and the burden imposed on others as a result of the contravention of the licence condition. A consideration of these estimates will be Postcomm's starting point for deciding the amount of any penalty with a view to ensuring that –
    15. Postcomm will increase its starting figure for aggravating factors such as –
    16. Postcomm would decrease the starting figure for mitigating factors such as –
    17. Postcomm may have regard to the need to deter similar breaches of licence by other postal operators.
    18. Postcomm then will –
  12. As is apparent from Paragraph 14, the amount of any financial penalty is to be based on the financial benefit obtained by the licence holder and the burden imposed on others. Prima facie, this indicates that financial penalties must take as their starting point the benefit to the licence holder and the losses or costs incurred by any third party. Various aggravating or mitigating factors may lead to an increase or decrease of the amount estimated as the starting point. And the need to deter others is a relevant consideration. In this case, no financial benefit or burden could properly be estimated – the evidence made that impossible – and the basic submission made by the appellants is that no amount could be produced and so no penalty could result.
  13. The introduction to the statement records representations made by consultees and Postcomm's reaction. It is noted that the appellants were concerned that any penalty should not be equated with the legal issue of economic loss and that it would be difficult to estimate the amount of any burden imposed on others as a result of any contravention. In Paragraph 2.57 this is said:-
  14. "… Postcomm's approach is to use turnover as a check on penalties, with the starting point being an assessment of the financial benefits obtained by the licence holder and the burden imposed on others as a result of the contravention of the licence condition. Postcomm does not see insuperable practical difficulties in assessing the extent of the burden imposed on others."
  15. This has led Mr Beloff to submit that Postcomm was at least warned of the difficulties in using burden on others as a starting point and it should have recognised that, while benefit and burden were undoubtedly relevant and would in many cases produce a sensible starting point, it might in other cases be desirable to impose a penalty even if no benefit or burden could be established. It would not have been difficult for the statement of policy to have provided that a proportional financial penalty could be imposed for contraventions even if they had produced no advantage to the licence holder or disadvantage to third parties.
  16. Before considering the submissions in any more detail, I should set out the factual background. I start with the relevant conditions of the appellants' licence. Condition 9 contains detailed provisions whereby the appellants are obliged to promote effective competition by giving access to their postal facilities. This results from the appellants' position as the previous sole provider of such facilities. Since 2001, a number of operators have been granted licences to provide postal services in respect of particular categories of mail. A relatively recent development has involved what is known as Downstream Access (DSA) to the appellants' network. Competitors or customers who wish to deliver large amounts of mail can deliver their mail to what are known as Inward Mail Centres for the appellants to deliver. They enter the appellants' network at a later stage than those who use it for the whole end to end service provided by the appellants. DSA is cheaper for those who wish to use it than the appellants' full service and it is therefore in the appellants' interest that its customers use their full service rather than go to DSA. It follows that the appellants are at the same time suppliers of DSA to their customers and other operators and in competition with those other operators.
  17. Condition 10 of the licence was imposed because of the problem potentially created by this dual role of the appellants as providers of a service to and competitors of other operators. It reads:-
  18. "Prohibition of obtaining unfair commercial advantage
    1. This condition shall apply if the Licensee is required pursuant to a condition of this Licence to provide access to its postal facilities to other persons.
    2. The Licensee shall conduct its business as a postal operator in the manner best calculated to secure that neither –
    (a) the Licensee, nor
    (b) any related person of the Licensee, nor
    (c) any other person,
    obtains any unfair commercial advantage in connection with the provision by the Licensee of access to its postal facilities as described in Paragraph 1.
    3. Subject to Paragraph 4, the Licensee shall use all reasonable endeavours to secure that no information in the possession of the Licensee as a result of giving access to its postal facilities to other persons –
    (a) is disclosed for the benefit of or used for the purpose of any trading business conducted by the Licensee, or
    (b) is disclosed for the benefit of or used for the purpose of any trading business conducted by any related person of the Licensee.
    4. Paragraph 3 shall not apply in so far as –
    (a) Postcomm may consent in writing,
    (b) every person to whom the information relates has consented in writing to its disclosure or use as mentioned in Paragraph 3 ,
    (c) the disclosure is to, or the use by, a person who -
    (i) is acting as an agent of the Licensee for the provision of postal services,
    (ii) is engaged by the Licensee for the purpose of the Licensee's business as a postal operator and has access to the information only for that purpose, and
    (iii) is restricted by contract with the Licensee from making any further disclosure or use of the information, or
    (d) the information has been published or is required to be disclosed as mentioned in Paragraph 3 in pursuance of any other condition of this Licence, or
    (e) the information is in the public domain otherwise than in consequence of a contravention of any condition of this Licence.
    5. The terms on which the Licensee and any related person of the Licensee have access to the Licensee's postal facilities shall be no more and no less favourable than the terms on which those facilities may be made available to other persons in accordance with Condition 9 of this Licence. "
  19. Condition 13 requires the appointment of a Compliance Officer as part of the appellants' obligations to 'take all reasonable precautions against the risk of failure to comply with the conditions of this Part of this Licence' (which include Condition 10). The Compliance Officer must be provided with all necessary staff and facilities to enable him to establish procedures, after consulting Postcomm, to ensure that the conditions are complied with, that any representations are properly investigated and that advice is given to directors and employees for facilitating compliance.
  20. In November 2004 Postcomm received complaints from various competitors alleging that the appellants' actions and strategies in offering DSA services appeared to be anti-competitive. The appellants had divided delivery points around the country into four zones, each zone having a different price which, according to the appellants, reflected the cost differences of delivery in each zone. It was said that the zonal DSA structure was discriminating, enabled the appellants to obtain an unfair commercial advantage in providing DSA services to its customers and that its details had not been properly notified or published. Postcomm decided that a full investigation was needed and that there was a risk that the appellants could obtain an unfair commercial advantage by using information obtained as a result of negotiations with its competitors to enable it to target potential customers of its competitors who might switch to them. Postcomm decided to concentrate on the possible breaches of Condition 10 and the corresponding obligations under Condition 13 to try to avoid any commercial advantage accruing to the appellants.
  21. The complaints had alleged that members of the appellants' senior management and wholesale teams (which dealt with competitors) were equally engaged in selling DSA services to customers. There was, it was said, a coincidence of timing in as much as a customer received an oral quotation for zonal DSA very soon after one of the complainants had informed the appellants of its plans to offer DSA services to that customer. The absence of proper Chinese Walls meant that the business was not conducted "in the manner best calculated to secure that the licensee … [did not obtain] … any unfair commercial advantage …" and so there was a breach of Condition 10(2). Postcomm limited its investigations in the interests of speedy determination and the need to take action, if the breaches were established, to ensure that safeguards were put in place so that a commercial advantage was so far as possible avoided. Thus it did not investigate whether there had in fact been a commercial advantage or whether the specific allegations were true. It concentrated on whether the appellants had in place sufficient safeguards to ensure that no commercial advantage could result.
  22. Postcomm's initial draft report was produced in October 2005. It decided that there were shortcomings, in particular in a failure to ensure that those negotiating with competitors in the wholesale team and those negotiating with users in the retail team were separated. The report made the points that Condition 10(2) would be contravened even if no actual unfair commercial advantage had been obtained. It decided that the measures in place were insufficient in that they did not achieve what Condition 10(2) required and, in addition, the compliance officer had not been given the necessary powers so that he could ensure that proper measures were in place. It concluded that an enforcement order containing a number of requirements should be made. It then considered the assessment of a penalty although it did not give reasons why such a penalty was in its view needed.
  23. Postcomm approached the assessment of the amount of the penalty by trying to apply Paragraph 14 of the Statement of Policy. It assumed that there was a benefit gained by damage caused to market confidence which might arise from competing operators or potential operators not making the necessary investment to remain in or enter the postal market. They might believe that the appellants could obtain an unfair advantage. A further benefit would be the retention by the appellants of customers. It recognised that there was no value put on any losses by the complainants. Thus it noted that, while Postcomm had to try to assess the value of those gains and losses, it was not easy to quantify them.
  24. Postcomm stated that it regarded the loss of market confidence as the most important of the gains to the appellants. It sought to use the guidelines produced by the OFT to focus on turnover in the relevant market and take a proportionate percentage. This led, after some calculations and assumptions, and consideration of aggravating and mitigating factors, to a figure of £4.2 million.
  25. The appellants made detailed representations. In relation to the financial penalty, they made the point that Postcomm had failed to consider, as a preliminary question, whether or not there was a case for the imposition of a financial penalty and submitted that there was not. They asserted that no gains or losses could be established and that in any event reliance on the OFT guidelines was inappropriate and they had been incorrectly applied.
  26. In February 2006 Postcomm produced a second report. It accepted the criticism of use of the OFT guidelines, recognising that the OFT uses a starting point for its assessment of penalty based on the seriousness of the contravention whereas Postcomm had to consider whether the contravention was serious enough to warrant a financial penalty which then had to be based on a benefit and burden approach. It stated that the contraventions were serious and it was satisfied that the imposition of a financial penalty would further the interests of postal users by demonstrating intolerance of anti-competitive behaviour on the part of the appellants and commitment to effective competition between postal operators.
  27. In assessing the amount of the penalty, Postcomm recorded its view that:-
  28. "the ability of operators and potential new entrants to gain market share is likely to have been hampered; fewer bulk mailers will have switched … [to DSA]. Therefore, operators are likely to have carried lower volumes of mail than they would have if the contravention had not occurred and Royal Mail is likely to have retained more customers on a Mailsort tariff rather than on an access tariff. (Paragraph 6.33)"

    It sought to calculate the benefit to the appellants by assuming that there would have been an additional 10% take up of DSA services over that which had actually occurred, that that would have meant some 82.5 million items each of which would have produced a net benefit to the appellants of 2.9 pence. After taking account of aggravating and mitigating factors, the proposed financial penalty was £2.16 million.

  29. The appellants again made detailed representations. In particular, they stated that not only was there no evidence that there had been any damage to market confidence or that there had been any reluctance to take up DSA services but that, on the contrary, there had been a rapid growth in DSA which had far exceeded what had been forecast by Postcomm.
  30. In July 2006 Postcomm produced a further report. It maintained its view that there must have been damage to market confidence and that the seriousness of the contraventions justified the imposition of a financial penalty. However, it recognised the force of the appellants' representations and that it was not possible to use the benefit and burden approach required by Paragraph 14 of the Statement of Policy. It stated:-
  31. "The starting point element of Postcomm's policy on financial penalties is so difficult to apply in a rational and consistent manner in this case that, having had very serious regard to it, Postcomm thinks that this aspect of the penalty policy should not be applied. However, Postcomm does not accept that, having concluded that it is appropriate to impose a financial penalty, it must abandon this decision because of the difficulties in applying the starting point element of this policy." (Paragraph 6.42).
  32. It therefore decided that, having regard to the key aim of the Act to promote effective competition, it was necessary to administer penalties to "publicly and critically mark the occurrence of a serious contravention of a regulation intended to further the aim and to penalise, and thereby deter, behaviour which is contrary to the aim". Its view was that a penalty of £1 million was conservative and proportionate when viewed against the appellants' overall turnover of £4,642 million in 2004/5.
  33. On 14 September 2006, Postcomm issued its final report and decision. The Press Release was headed "Postcomm imposes penalty on Royal Mail for securing unfair commercial advantage". I have considerable doubt whether that was an appropriate headline since no unfair commercial advantage had actually been established: the contravention in question had given rise to the possibility of such an advantage. However, no point is taken on it. Since the appellants had agreed to take the measures which Postcomm considered were needed, no enforcement order was made, applying s.25 of the 2000 Act. Otherwise, there were, so far as this appeal is concerned, no material changes to the report of July 2006.
  34. In Paragraph 5.15, it underlined the importance of the development of DSA services for producing competition and stated that potential competitors must be confident that the appellants would not obtain an unfair commercial advantage from their position as supplier to them of vital final distribution services. After setting out the history of its attempts to apply paragraph 14, it concluded as follows in Paragraphs 5.24 and 5.25:-
  35. "5.24 However, Postcomm now accepts, in light of Royal Mail's representations, that the method used by Postcomm in February 2006 to put a value on the benefit obtained by Royal Mail and to use that value as the starting point for a financial penalty is insufficiently consistent with the observed facts and insufficiently robust to be relied upon. Royal Mail's representations added weight to the argument that even rough values of the benefit and burden resulting from Royal Mail's contraventions are difficult to quantify and attempts to calculate their values are problematic. Paragraph 14 of the penalties policy is so difficult to apply in a rational and consistent manner in this case that, having had very serious regard to it, Postcomm thinks that it should not be applied. However, Postcomm does not accept that, having concluded that it is appropriate to impose a financial penalty, it must abandon this decision because of the difficulties in applying paragraph 14 of its policy.
    5.25 In Postcomm's judgment, a better approach in this case is to return to the fundamental purposes of the Act and to seek to give effect to them, and to depart from paragraph 14 of the penalties policy because to follow it would frustrate those aims. The key purpose of the Act that is relevant to this matter appears to Postcomm to be the purpose of "furthering the interests of users wherever appropriate by the promotion of effective competition". Postcomm believes that to achieve that purpose (and other purposes), there must be the administration of a system of regulation which involves penalties, where necessary, to publicly and critically mark the occurrence of a serious contravention of a regulation intended to further such purpose and to penalise, and thereby deter, behaviour which is contrary to the purpose. The question Postcomm has to address is what level of penalty is necessary and proportionate to publicly and critically mark the occurrence of the contraventions that have occurred and to penalise Royal Mail for these contraventions and thereby deter other contraventions."

    In Paragraph 5.29, Postcomm says :-

    "Whatever calculation methodology that it adopts, Postcomm must ultimately assess the penalty figure for its reasonableness and proportionality as set out in the provisions of its policy."
  36. The fundamental point made by the appellants is that, in disapplying Paragraph 14, Postcomm has not had regard to its policy but has applied a new policy because it could not apply the existing one. To consider a policy but, because it cannot achieve a result which on the facts of a given case is considered desirable, to disregard it is not permitted by the statutory provisions. Postcomm's answer is that it is only required to have regard to the policy, not to apply it come what may, and if it has good reason not to apply a particular part of it, it may do so. It has good reason in this case to conclude that a financial penalty was necessary and the appellants do not submit that that conclusion was wrong in law. Thus the imposition of the penalty was in furtherance of the purpose of the statutory provisions and so there was good reason not to follow Paragraph 14 of the policy.
  37. I was referred to a number of authorities concerned with an obligation to 'have regard to guidance'. Many are concerned with guidance issued by a third party, often a minister. In such a context, it suffices to cite observations of Laws LJ in R(Khatun) v Newham LBC [2004] 3 WLR 417 at p.437D (Paragraph 47) in which he identifies the conventional law:-
  38. "namely that [Respondents to a government circular giving guidance in accordance with a statutory provision] must (a) take it into account and (b) if they decide to depart from it, give clear reasons for doing so. If [the decision of Dyson J in R v North Derbyshire Health Authority ex p Fisher (1997) 10 Admin LR 27] is thought to support a proposition which would bind public authorities more tightly to a duty of obedience to guidance to which by statute they are obliged (no more, no less) to have regard, then I would respectfully question its correctness."
  39. In R(Munjaz) v Mersey care NHS Trust [2006] 2 AC 148, the House of Lords was concerned with guidance issued by the Secretary of State for Health in accordance with a statutory requirement (s.118(1) of the Mental Health Act 1983 as amended) which dealt inter alia with the frequency of medical reviews needed where patients were placed in seclusion. Ashworth Hospital, where the claimant was detained because of his dangerous, violent or criminal propensities did not (as their Lordships decided, for good reason) require that medical reviews should be carried out as frequently as the guidance indicated. In paragraph 21 on p.189A, Lord Bingham of Cornhill said this:-
  40. "It is in my view plain that the Code does not have the binding effect which a statutory provision or a statutory instrument would have. It is what it purports to be, guidance and not instruction. But the matters relied on by Mr Munjaz show that the guidance should be given great weight. It is not instruction, but it is much more than mere advice which an addressee is free to follow or not as it chooses. It is guidance which any hospital should consider with great care, and from which it should depart only if it has cogent reasons for doing so. Where, which is not this case, the guidance addressee a matter covered by section 118(2), any departure would call for even stronger reasons. In reviewing any challenge to a departure from the Code, the court should scrutinise the reasons given by the hospital for departure with the intensity which the importance and sensitivity of the subject matter requires."

    The final sentence is of considerable importance since it recognises that the context of and circumstances in which the guidance is applied are highly material. Since in Munjaz's case, the liberty of the individual was in issue, it was the more necessary to have and to give cogent reasons for not following guidance designed to give protection to the detainee. The statute did not use the words 'have regard to' and so it may also have been easier to conclude that Parliament had intended that the Code should be followed unless cogent reasons for not doing so could be established: see per Lord Hope of Craighead at p.204 in paragraphs 68 and 69.

  41. In Gransden & Co v Secretary of State for the Environment (1985) 54 P & CR 86, Woolf J was concerned with a planning circular (a precursor of what is now a PPG). He stated that any policy for planning purposes must envisage that in exceptional circumstances the Minister has the right to depart from it. Otherwise, there would be an improper fettering of his discretion, having regard to the statutory obligation in determining a planning application to have regard to the provisions of any development plan and any other material consideration.
  42. Perhaps the nearest to the statutory provisions applicable in this case is a recent decision of the Court of Appeal, Argos Ltd and Others v OFT [2006] EWCA Civ 1318. Section 38(1) of the Competition Act 1998 required the OFT to "prepare and publish guidance as to the appropriate amount of any penalty under this Part" and s.38(8) required it to have regard to that guidance in setting the amount of any penalty. The court did not have to decide whether the guidance had in fact been departed from, partly because an appellate Tribunal or court did not in terms even have to have regard to it. But in paragraph 161, Lloyd LJ (giving the judgment of the court) observed:-
  43. "The language of section 38(8) is general in nature. It does not bind the OFT to follow the Guidance in all respects in every case. However, in accordance with general principle, the OFT must give reasons for any significant departure from the Guidance: compare the judgment of the CFI in Tokai Carbon v Commission, Case T-236/01, decided on 29 April 2004, at paragraph 231:
    As the Commission decided to apply in this particular case the differentiation method laid down in the Guidelines, it was required to adhere to them, and, where it departs from them it must set out expressly the reasons for justifying such a departure."
  44. Guidance cannot bind a public authority to act in accordance with it whatever the circumstances. To suggest otherwise would be to distort the concept of guidance. Equally, an obligation to have regard to a policy is not the same as an obligation to follow it. However, the context and statutory provisions in question are vitally important. A policy cannot normally be applied without the possibility of departure because it would mean that the body in question had fettered its discretion to act as the justice of a particular case demanded. But in this case s.31(1) of the Act requires Postcomm to "Prepare and publish a statement of policy in relation to the imposition of penalties and the determination of their amount". It must consult and may revise its statement from time to time. The policy will explain to those affected what they are to expect if they are guilty of any anti-competitive behaviour. Thus Parliament has expressly required Postcomm to approach the task of deciding whether to impose a financial penalty and, if so, what the amount should be in accordance with a published policy. To a very large extent Parliament has indicated how Postcomm's discretion should be exercised. The obligation to have regard to the policy recognises that there may be circumstances when it does not have to be applied to the letter but in my view there must be very good reasons indeed for not applying it.
  45. It is a reasonable approach to consider that a financial penalty is unnecessary where no loss or benefit has resulted. It is impossible to divorce consideration of imposition and of amount since, if it is impossible to identify any amount, it would be perverse to impose a penalty. A nil amount is not a financial penalty. It should surely have been obvious that contraventions of licences, particularly when Condition 10 was considered important, might occur but no loss or benefit could be identified. Postcomm is in fact now consulting with a view to revising its statement of policy to cover the sort of circumstances which have arisen in this case. That submits Mr Beloff is the correct way to deal with the matter, not to disregard or fail to have proper regard to the policy because there is a lacuna. Mr Beloff submits that only exceptional circumstances would justify a departure and that such circumstances cannot be said to exist in this case. Postcomm apparently considered that the burden and benefit approach enabled it to carry out its statutory functions properly. It cannot now go back on that.
  46. Mr Morris contends that Postcomm clearly did have regard to the policy. It decided entirely reasonably that a penalty was required but could not apply Paragraph 14. The obligation to have regard to the policy was not the same as an obligation to apply it. Since there were good reasons – he would say cogent reasons – not to follow it, Postcomm's approach was lawful. Postcomm was following the objectives of the legislation of which the policy must be a servant.
  47. Mr Morris relied on Paragraphs 17 and 18 of the Statement of Policy. He submitted that they, and in particular the fourth bullet point in 18, indicated that Postcomm must have a wider discretion to assess the amount of a penalty than that dictated by Paragraph 14. I do not think those paragraphs can fill the gap. The assessment of the amount is dependent on there being a starting point determined in accordance with Paragraph 14. Paragraph 17 may justify a higher figure than might otherwise be thought right and the requirements of Paragraph 18 are directed to ensuring that the end figure and the methods of payment are indeed appropriate.
  48. It did occur to me in the course of argument to consider whether Paragraph 13 could be considered to be freestanding. If Postcomm decided (as it has properly and reasonably decided in this case) that a financial penalty should be ordered, it would be wrong to construe the policy in such a way as prevented that possibility. Paragraph 14 would then be considered to be an example, no doubt the usual example, of how such a penalty would be calculated, but was not to be regarded as restrictive. The fourth bullet point in Paragraph 18 could then be applied to have a general effect. Mr Morris did not in his skeleton argument suggest this construction and did not adopt it with any enthusiasm. It certainly was not relied on by Postcomm in its decisions. It does violence to the language of the Statement of Policy and I am persuaded that it cannot help Postcomm in the circumstances.
  49. Having regard to the statutory provisions, I am persuaded that Mr Beloff's submissions are correct. There is a need for something exceptional to justify a failure to follow the policy in the circumstances of this case. Since the limitation to benefit or burden was itself decided after consultation and was on its face reasonable, discovery that it does not achieve in what Postcomm ought to have realised were not likely to be unusual circumstances the desired result is not a good reason to fail to follow it. The remedy is to revise it.
  50. Mr Morris submitted as a last resort that, even if I were against him on the lawfulness of Postcomm's decision, I should not allow the appeal in the exercise of my discretion. Since there was in my judgment no route whereby any amount could have been assessed in accordance with the policy, there is no basis for refusing relief.
  51. It follows that I allow this appeal and quash the penalty of £1 million.


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