Restitution for Unlawful Regulatory Charges

A recent decision of the English Courts in Vodafone Ltd v Office of Communications [2019] EWHC 1234 concerned what approach a court should take to calculating restitution for a wrongly imposed regulatory levy.

The case was brought by a group of mobile network operators against Ofcom, the statutory body responsible for the management and licensing of radio spectrum in the United Kingdom. The mobile network operators were required to pay a licence fee for spectrum which was prescribed by Ofcom in 2011 regulations. In 2015 Ofcom announced a revision of the 2011 regulations and these changes were implemented by the 2015 regulations. The 2015 regulations were subsequently found to be unlawful and were set aside.

It was common ground that the mobile network operators were in principle entitled to restitution to the extent that the licence fees they had paid were exacted from them by a public body acting without lawful authority. The question was what was the appropriate measure of restitution.

The mobile network operators claimed that the amount of restitution to which they were entitled was the difference between the sums they had paid under the unlawful 2015 regulations and the sums properly due under the lawful 2011 regulations (which the Court referred to as the ‘net sum’ calculation). Ofcom argued that the appropriate measure was the amount which the claimants would have been required to pay if Ofcom had acted in accordance with law (which the Court referred to as the ‘counterfactual sum’ calculation).

The Court rejected the counterfactual measure of damages. It said that this was tantamount to a “but for” analysis which might be appropriate in a private law context, but was not of uniform and compulsory application in every case. In this particular case, it required an assumption that the regulator had in fact acted lawfully. This assumption was inconsistent with the fundamental principle of legality, namely that a public authority cannot retain a tax or duty or levy which it has collected unlawfully.

A counterfactual measure of damages also raised immediate practical questions as to the legitimate parameters of hypothesising what the regulator would or would not have done. Ofcom’s case required the court to hypothesise not just the filling of the gap, but the replacement of the existing law with something different.

In determining whether a lawful fee could and would have been charged and, if so, the amount of that fee (in this case, the amount likely to be charged under the 2011 regulations), it was permissible to hypothesise the taking of necessary administrative steps which may have been omitted for the purpose of fixing the proper amount. But it was not permissible to hypothesise a new legal entitlement or one involving a change in the law.

Accordingly, the mobile network operators were entitled to succeed in their claims for the net sum.