Blog: First Scottish Electronic Communications Code decision highlights telecommunications operators’ advantage
The first Scottish court decision on the Electronic Communications Code, which was introduced to the UK under the Digital Economy Act 2017, has been issued. It highlights the increase in power that telecommunications operators are now enjoying, write Gareth Hale and Sarah Peock.
The case of Cornerstone Telecommunications Infrastructure Limited v Fothringham was brought by Cornerstone Telecommunications Infrastructure Limited, a joint venture between the Telefonica group of companies and Vodafone Limited. The joint venture is an operator within the meaning of paragraph 2 of the code (operator).
Since 2000, Vodafone Limited had mobile phone service apparatus on land belonging to Mr Fothringham (landowner) at Gelly Wood, Murthly Estate. The apparatus site was compulsorily acquired by the Scottish ministers in connection with the dualling of the A9 Perth to Inverness Road, meaning that the apparatus needed to be relocated. The operator identified an alternative site on the landowner’s land, 20 metres to the east of the existing site.
Negotiations were ongoing for the new site until the code came into force in December 2017 and significantly changed the negotiating position of the parties. Until that point, the parties had been discussing a rent of £5,000 per annum for the new site. After the code came into force, the operator backed away from that position, instead favouring its new rights under the code.
The operator made two applications under the code. The subject of this case is an application for interim rights under paragraph 26 of the code. The operator has also made a separate application for long-term rights under paragraph 20 of the code. Due to successful negotiations between the parties prior to the hearing, only three issues ended up coming before the Lands Tribunal for Scotland (tribunal) in this case: consideration, indemnity and tree lopping.
The operator proposed a rent of £252.70 per annum and the landowner proposed £4,200 per annum. The tribunal noted that the most fundamental change which the code introduced is that, when determining the market value, there is to be an assumption that the transaction does not relate to provision or use of an electronic communications network. The effect of this assumption will almost always result in a reduction of rent from previous levels.
However the tribunal also acknowledged that a lack of demand for a site other than from telecommunications operators did not mean that the consideration should be nominal. The tribunal referred in particular to the recent English case of EE Limited v Islington, which held that the assumption that an operator is also a willing buyer mitigates against a nominal value being attributed to a site.
Ultimately, the tribunal simply agreed to split the difference and set the interim consideration at £2,500 per annum. This was because the related application for long-term rights under paragraph 20 of the code will consider the point of consideration and correctively backdate it.
There was a clause in the draft agreement being negotiated between the landowner and operator which obliged the operator to: “indemnify the [landowner] in respect of all claims and proceedings brought against the [landowner]… arising directly from any unlawful act or omission by the Operator”. The landowner wished to change this clause to make it clear that it was without prejudice to the landowner’s rights to compensation under the code. The Operator noted that the code imposed no obligation on operators to agree to such an indemnity clause at all, and that it had only been offered as a gesture of goodwill.
The tribunal held that the change requested by the landowner, whilst “fairly innocuous”, was not necessary. The code provided for compensation for lawful things done by the operator, whereas this clause was dealing with compensation for unlawful acts or omissions. The change was therefore deleted.
Operators have a right to lop any tree or other vegetation that interferes with electronic communications apparatus, under paragraph 3(i) of the code. The draft agreement contained a clause giving the operator such a right over all of the landowner’s land.
The landowner objected to this as being too wide in application. As the new mast was to be five metres taller than the existing mast, the landowner also argued that trees would not affect the signals on the new mast, meaning that the right was unnecessary. The operator argued that, until the new apparatus was operational, it was not known what effect surrounding trees would have on the apparatus. The operator needed the tree lopping right at the outset, to avoid any delay in having to go to court to obtain the right, and any resultant interruption to service.
The tribunal agreed and granted the right over the whole of the landowner’s land, without requiring the operator to give a specific period of notice or even to employ tree surgeons.
The substantive decision on the issue of consideration has, in effect, been held over until the application for long-term rights under paragraph 20 of the code is heard. However, it is notable that the tribunal found in favour of the operator on both other issues, notwithstanding the relatively benign effect of the landowner’s requested changes to the draft agreement. This is not surprising given the statutory backdrop of the code which, in the words of the tribunal, has “radically changed the balance of power between the parties”.
Consideration will be the strongest indicator of the negotiating power of parties in any future telecommunications agreements under the code. The result of the related paragraph 20 code application will therefore be eagerly awaited by landowners and telecommunications operators alike.
It is also significant that the tribunal has demonstrated a readiness to refer to English case law on the code. Given the comparative lack of cases north of the border, this will be crucial in allowing operators and landowners to understand how the code is likely to be applied in Scotland.