Scottish courts move Code balance in favour of telecoms operators

Operators EE Ltd and Hutchison 3G UK Ltd successfully appealed against a Lands Tribunal for Scotland decision that they were not entitled to terminate an agreement with landowner John Stewart Duncan which had been entered into under a previous version of the Code. The operators sought to replace that agreement with a new agreement with Duncan on the basis of the terms of the new Code, which came into force in December 2017.

The tribunal’s decision was the first by a UK court which looked specifically at the relevance of an “operator’s business and technical needs” within the meaning of paragraph 34(13) of the new Code when considering an application to replace an existing agreement. Although it is only binding on Scottish courts, the provision applies across the UK and Pinsent Masons experts said it was likely to be influential in future decisions on the point by courts outside of Scotland.

In Scotland, appeals on the same point concerning another eight sites were paused to allow for conclusion of the Duncan case.

Edinburgh-based property disputes expert Brian Grierson of Pinsent Masons said: “This decision demonstrates that the courts are ready and willing to give effect to parliament’s intention to create a legislative framework which paves the way for Code operators to deliver expedient and cost effective rollout of new technology, including 5G and beyond.”

“Lord Malcolm’s opinion confirms that it is possible for operators to secure the replacement of existing agreements, such as a lease with a term which has ended as in this case, with new agreements granting them the rights available under the new Code. This means operators can seek an extended suite of rights, including sharing rights, and with a rent calculated on a ‘no scheme’ basis, which will have the effect of lowering rents for telecommunications infrastructure providers,” he said.

In 2003, Duncan entered into an agreement with EE Ltd under the previous version of the Code, granting the operator certain rights to keep, operate and inspect telecoms equipment on his land at Wester Dullatur Farm, North Lanarkshire. EE later assigned the agreement to both itself and Hutchison 3G Ltd. The agreement expired in 2012 but has rolled over annually since then under the Scots law concept of ‘tacit relocation’.

In 2018, the operators sought to agree a new lease with Duncan containing terms consistent with the new Code, which had since entered into force. Duncan preferred to continue with the old agreement, described as a ‘subsisting agreement’ under the transitional provisions in the new Code, due to its more generous financial terms. The operators then sought to terminate the old agreement and enter into the new one, seeking an order from the tribunal to this effect in the event that the parties could not agree a way forward.

The tribunal refused the operators’ application. In doing so, it relied on the reference in the new Code to the operators’ “business and technical needs” as a factor to be taken into account when considering whether to impose a replacement agreement. The tribunal said that this reference to “need” created a “high bar”, which the operators in this case had not been able to overcome. However, Lord Malcolm, giving the judgment of the Inner House, ruled that the tribunal’s interpretation of this point was incorrect.

“There is no sound basis for the view that the reference to ‘business and technical needs’ … creates a bar or hurdle which has to be cleared, let alone a high one,” he said.

“Parliament has identified certain minimum code rights for operators, including sharing/upgrading abilities and reduced outlays resulting from valuation on a no scheme basis. The view was taken that these are required if network operators and infrastructure providers are to be in a position to deliver the modern low cost electronic communications system which parliament wants and which business and the public at large expect. Given the underlying aims and purposes of the new code, which include that over time old agreements will be brought into line with new ones, we understand the phrase ‘business and technical needs’ … to be a generic term,” he said.

The judge added: “The tribunal’s analysis would severely curtail the legislative intention to create the opportunity to bring old agreements into line with new code arrangements.”

The judge also took the opportunity to deal with other knotty issues raised by the landowner such as the termination date for notices served under the Code and whether agreements rolled over under ‘tacit relocation’ meant they were not written agreements, which would deprive operators access to the new Code for a new agreement. The landowner’s arguments were rejected by the court.

Birmingham-based Code expert Pierre Smith said that landowners in England had been raising similar points to Duncan in their cases before the Upper Tribunal (Lands Chamber) of England and Wales. The judgment would therefore be viewed with interest across the UK, he said.

“Landowners both north and south of the border are acutely aware that new Code agreements will likely come with reduced incomes and that, in some cases, has prompted legal challenges to an operator’s ability to move away from now-outdated agreements,” he said. “This judgment has rejected one of the technical arguments raised which operators will say had the potential to cause further delay to the transition into the new Code world.”

Smith added that further reform of the Code was on its way, as signalled in the Queen’s speech at this week’s state opening of parliament.

“The UK government, in the Queen’s speech, placed the Product Security and Telecommunications Infrastructure Bill on the agenda, a main element of which is reforms to the Code to deliver support for faster and more collaborative negotiations for telecommunications deployment, and to put the right framework in place for the use of installed apparatus. The responses to the recent consultation are now being considered,” he said.