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Electronic Communications Code – Indemnities in Code Agreements

01 July 2021

The Upper Tribunal of the Lands Chamber decides in favour of operators where a site provider sought to extend the form of indemnity in a Code agreement conferring interim rights to cover first-party claims.

In the decision of (1) EE Limited and (2) Hutchison 3G UK Limited v The Mayor and Burgesses of the London Borough of Hackney [2021] UKUT 142 (LC), the site provider was seeking to extend the form of indemnity that the operators were providing in a Code agreement, to be a comprehensive first-party indemnity. The agreement being sought was for interim Code rights for access to survey a property in London, however the operators argued that the contractual indemnity should extend to third-party claims only.  The Upper Tribunal of the Lands Chamber decided in favour of the operators that a third-party indemnity would provide adequate protection to the site provider, in the circumstances.  The decision rejects the argument that limiting an indemnity to third-party claims infringes the requirement in paragraph 23(5) of the Code to ensure that the least possible loss and damage is caused to a site provider in the exercise of Code rights;

Background

This hearing related to an application made by EE Limited and Hutchison 3G UK Limited (the "Operators"), brought under paragraph 26 of the Electronic Communications Code (the "Code"), seeking the imposition of an interim rights agreement to confer Code rights permitting access to survey (the "Interim Rights Agreement").  The interim Code rights sought by the Operators were to access the rooftop of Shoreditch House, 239 Old Street, London EC1 (the "Building") to carry out a multi-skilled visit ("MSV").  An MSV involves a survey or surveys of different types by appropriately qualified professionals and contractors to determine the suitability of a property to host the installation of electronic communications apparatus.  The Operators were seeking this right to determine if the Building is suitable as a replacement for an existing mast site close by, which they are required to vacate because of redevelopment.  

In this case, the registered proprietor of the Building was the London Borough of Hackney (the "Site Provider").  All terms of the Interim Rights Agreement were agreed, save for the provisions relating to the Operators' proposed third-party indemnity.  There was no dispute that the Upper Tribunal of the Lands Chamber (the "Tribunal") should impose the Interim Rights Agreement on the parties; the only issue was in relation to the scope of the indemnity being offered to the Site Provider by the Operators.  The Site Provider wanted a very widely drafted first-party indemnity and, whilst it was prepared to accept a cap on this indemnity, it was not prepared to accept the Operators' offer of a third-party indemnity only.  

In this hearing, Martin Rodger QC of the Tribunal considered the purpose of an indemnity provision in a Code agreement seeking interim rights. He gave careful consideration to the level of protection (assessed on a case-by-case basis) already afforded to site providers under the terms of the relevant contractual agreement, together with paragraph 25 of the Code which grants site providers a right to seek statutory compensation for any loss or damage that has been or will be sustained as a result of the exercise of Code rights pursuant to paragraph 20 of the Code. 

The form of indemnity in dispute

The Operators were proposing to modify the Site Provider's broad, unlimited indemnity (notwithstanding that the Site Provider had accepted a cap on the indemnity) so as to limit its effect, by inserting the words "third-party" into the first line.  This would mean that the indemnity would extend only to "…third-party liabilities, costs, expenses, damages and losses" and the indemnity would not therefore cover any liabilities, costs, expenses, damages or losses incurred by the Site Provider itself.  This was the key point of contention for the parties.

The basis upon which the Tribunal determines the terms of Code agreements 

The Tribunal re-iterated that the basis on which it determines the terms of any Code agreement which it imposes are provided by paragraph 23 of the Code.  Pursuant to paragraph 23(1) of the Code, the Tribunal is required to impose an agreement which gives effect to the Code rights sought by the operator with such modification as it thinks appropriate.  The Tribunal stated that the Code right in this case is simply the right to undertake the MSV and any terms imposed should be appropriate to that.

The Tribunal further stated that it is required to include in the agreement such terms as it thinks appropriate (paragraph 23(2)) "for ensuring that the least possible loss and damage is caused by the exercise of the Code rights" (paragraph 23(5)) to those who occupy the land or who own interests in it or are from time to time on the land.  The Tribunal was seeking to avoid a duplication or overlap between the contractual terms of a Code agreement and the more limited terms of the Code itself, specifically in relation to compensation under paragraph 25.

The Judgment

The Tribunal decided that limiting the indemnity to third-party claims does not infringe the requirement in paragraph 23(5) of the Code to fashion terms appropriate for ensuring that the least possible loss and damage is caused to a site provider by the exercise of the Code rights.  The Tribunal stated that a third-party indemnity in this case appears to be consistent with the basic structure and expectations of the Code.  The Tribunal noted that a contractual agreement has to be seen in the context of the other protections offered by the Code, in particular the paragraph 25 right to compensation and any further indemnity in this case would essentially "step-over-statute".

Counsel for the Site Provider had argued that it is not yet known how operators will defend applications for compensation, or what any litigation claim would look like, as we are still in the early days of the Code and so a site provider should not be put at risk, or be out-of-pocket, as inevitably there would be irrecoverable costs to them.  The Tribunal however argued that there would still be irrecoverable costs in an indemnity in any event, but that the Site Provider in this case wanted to have the best of both; a compensation right and an indemnity right with the free choice to pursue whichever it prefers.  

Counsel for the Operators had submitted that the terms of the Interim Rights Agreement provided adequate protection to the Site Provider and already met the requirement of paragraph 23(5) of the Code, as they comprised detailed and quite elaborate protections for the Site Provider, such as, for example, requiring those permitted to go onto the land to possess appropriate qualifications, requiring notice to be given to the site provider, the provision of method statements and all necessary consents and requiring the Operators to make good any damage caused to the Building, to the reasonable satisfaction of the Site Provider.  

The Tribunal noted that any statutory right of compensation is controlled or restricted by the overarching legal principles of causation, remoteness of damage and the requirement of mitigation of loss, (1) rather than seeking to bypass the statutory tests for remoteness and causation to put site providers in a better position than what Parliament intended, and have operators provide a blank cheque.  In this case, it was decided that the proposed indemnity, if applied to the Site Provider’s own losses, would side-step those legal limitations.  The Tribunal believed that when Parliament designed the Code, it couldn't have been of the view that statutory compensation provided inadequate protection to site providers or have intended that paragraph 23(5) of the Code should oblige the Tribunal to impose an even more comprehensive contractual indemnity; Parliament did not see fit to confer on site providers a statutory indemnity against all losses and so were clearly satisfied that compensation for loss and damage was a sufficient remedy for site providers.  

The Tribunal was also influenced by the fact that the OFCOM model form of Code agreement includes an indemnity clause limited to third-party claims.  It was noted that Parliament intended OFCOM to influence the terms of Code agreements by example, so whilst the Tribunal is not bound by its model form of agreement, they should have regard to it, particularly in the context of the Code which offers a statutory right of compensation that specifically includes a right to legal or other professional expenses, and an inability to recover costs which have not been reasonably incurred.  

The Tribunal accepted that as the rights to be conferred were for the Operators to simply survey the Site, the risk of any damage was minimal; the usual purpose of an indemnity is to provide an advantage that there is a claim in debt and not in damages.  The Tribunal commented that the Site Provider was trying to doubly-protect itself, which was not the intention of Parliament when it introduced the Code.  The Tribunal therefore imposed the words "third-party" into the first line of the indemnity to make clear that it covers only third-party claims and, in the view of the Tribunal and having regard to paragraph 23(2) and 23(5) of the Code, this is what is appropriate in the context of a Code agreement.

Comment

The decision in this case is a welcome clarification as to the level of indemnity that is considered appropriate for operators to provide to site providers in agreements conferring interim rights under the Code.  Operators will be pleased with the decision which acknowledges that whilst the provision of an indemnity is important, due regard must be given to the backdrop of statutory protection available and the extent of the Code rights being sought.
This case is one of the first in which there has been proper argument about how broad an indemnity is appropriate in an interim rights Code agreement, as very little has been said to date by the Tribunal on the subject of indemnities.

Authors: Catherine Haslam and Felicity Cinnamon

References:

(1) Authority for that statement is in Lord Nicholls' discussion of the three conditions or perquisites of fair compensation in Director of Buildings and Lands v. Shung Fung Ironworks Ltd and Cross-Appeal Co (Hong Kong) [1995] UKPC 7.

For more information on the topic please contact Catherine Haslam or a member of our Telecoms team.

Further Reading