Airtime reseller had no duty to sue O2, rules High Court

Opal is a subsidiary of telecoms operator and retail chain Carphone Warehouse. It re-sold airtime on O2's mobile phone network. So did Openair, until O2 refused to issue another licence to it for airtime reselling.

Openair's customers used O2 SIM cards as GSM gateways. This is when the SIM is put into a telephone system which calculates whether it is cheaper to make a phone call with a landline or by using the SIM to make it a mobile call.

When O2 did not renew Openair's right to sell O2 airtime it sold its customer base to Opal for £1 plus the right to be a reseller of Opal's services. Openair earned an equal commission on the contracts it had brought to Opal and new customers that it brought.

O2 later clarified its position on GSM gateways, saying that those which were open for third party use as commercial products were against its rules because O2 believed that such activity put it in breach of its telecoms licence. In September 2004 it disconnected 7,000 SIMs which formed part of the customer base sold by Openair to Opal.

Openair sued Opal because it believed that Opal had a duty to do more to prevent the disconnection. It sought damages for the lost profits it would have earned had the connections not been cancelled.

The High Court has given some other claims of Openair's permission to proceed to a full trial, but has struck out the claims of damages and breach of fiduciary duty.

Openair argued that one clause of the sale and purchase agreement (SPA) between the two companies obliged Opal to try harder than it did to preserve the customers' connections.

"[Opal] shall perform all obligations required to be performed after [1 May 2004] under those Subscriber Contracts of which complete and up-to-date copies have been provided to [Opal] at Completion," said that clause, 7.1.

Openair said that this put on Opal an obligation to keep the connections live, and that a breach of that obligation should trigger damages to it. Mr Justice Lewison in the High Court disagreed.

"I have no doubt that [the clause] was only an indemnity," he said in his ruling. "Clause 7.1, [Openair] said, imposed a positive obligation on Opal to preserve the subscribers' connection to the O2 network, if necessary by taking proceedings against O2 in the event of disconnection. But that, to my mind, is a detailed linguistic and semantic analysis which makes no business sense."

The Court found that the clause only applied to Openair's subscriber contracts, but that as soon as  those contracts were sold to Opal in effect a new contract was created, to which clause 7.1 no longer applied. The term for the handover of a contract and its obligations is 'novation'.

"It was common ground that the mechanism for inserting Opal into the shoes of Openair vis-à-vis subscribers was by way of novation, since that is the only way in which contractual burdens can be shifted from one person to another," said Mr Justice Lewison. "It was also common ground that a novation took effect as a new contract. So a novated contract would not fall within clause 7.1 if construed as Openair wish to construe it."

Openair claimed that Opal had a fiduciary duty to it. A fiduciary duty is the obligation of one party to act in the interests of another. Company directors, for example, have a fiduciary duty to act in the best interests of the company.

Openair said that the duty existed because it depended on the continuing servicing of the customers it had brought to Opal, or those on  'subscriber contracts', for its living.

"It is, in my judgment, plain that the allegation that Openair was dependent on the maintenance of the Subscriber Contracts to generate revenues under the dealer agreement is wrong," said the Court's ruling. "As I have said, Openair was entitled to revenues under the dealer agreement not only in respect of Subscriber Contracts but also in relation to Opal Contracts (i.e. customers who signed up on Opal's terms, where Openair had procured the contracts). Thus the underpinning of the allegation of fiduciary duty is hopeless."

"The allegation of fiduciary duty is dependent on establishing that, in some way, Openair had a continuing proprietary interest in the Subscriber Contracts," said the ruling. "But once it had sold its interest to Opal, it ceased to have any such interest."

Openair's case was further undermined by a recent Court of Appeal ruling on GSM gateways in which similar claims to its were rejected.

"In the light of the decision of the Court of Appeal in the 'Floe' case it is plain that any legal action brought against O2 would have failed. It cannot be either a breach of fiduciary duty or (in the absence of the clearest possible words) a breach of contract not to bring proceedings which are bound to fail. This provides another reason for dismissing the main claim," said Mr Justice Lewison.

The Court gave permission for some payment and commission-related issues to proceed to trial but said that Openair had no real prospect of success in relation to its claim for damages, so refused permission for it to go to a full trial on those issues.