Cayman’s telecoms regulator may have been erroneously charging taxes that have no basis in law, according to a lawsuit filed by internet provider C3.
The Court of Appeal ruled that C3 has raised “powerful arguments” and that the case should go to trial.
The company disputes OfReg’s right to levy a 6% ‘royalty fee’, which it has described as a “tax on turnover”. Court documents indicate that Cabinet did approve those fees, which are included in the company’s licence requirements, when the industry was liberalised in the early 2000s.
However, neither this nor a separate regulatory fee were set down in law or in the regulations, meaning they have no “legal effect”, according to C3’s claim.
The company initially paid both fees but stopped paying the royalty fee in 2019 and the regulatory fee in 2022.
When OfReg issued an enforcement notice to collect unpaid fees, C3 filed for leave to apply for judicial review. That application was initially denied but the Court of Appeal has now decided there is an arguable case.
At stake is around $1.4 million in unpaid fees from C3, according to the regulator. However, C3 is also seeking an order that the taxes collected since 2015 – almost certainly a six-figure sum – are repaid to the company by OfReg.
The case has implications beyond the two parties, as it would likely set a precedent that could enable other telecoms companies that are also charged the two fees as part of their licensing requirements to make similar claims for compensation.
Following the appeals court decision, C3 issued a notice to customers indicating it would use any compensation won at trial to benefit them.
“For many years, OfReg has charged ICT providers a 6% tax, which has been passed on to customers.
“C3 do not think that this tax is fair or lawful. We therefore issued a legal challenge against OfReg hoping to secure a reimbursement of these fees for our customers,” the statement said.
“We pledge to our customers that if we win at trial we will offer to reimburse the 6% tax to all our customers through an account credit.”
In response, OfReg issued a press release on Wednesday, criticising C3 and accusing it of misleading statements.
It stated, “C3 collects fees from its customers attributing them to requirements of the Office. However, C3’s notice to its customers omits to mention that C3 has failed to pay those collected fees over to OfReg.
“C3’s legal challenge only arose after and as a result of OfReg commencing enforcement proceedings under its legislation against C3 for its failure to pay its licence fees. Prior to action by the Office, C3 simply was just not paying its fees.”
The regulator also questioned how the company would respond if it loses the case and is forced to pay the outstanding amount to the regulator, and if the cost of doing so would be passed on to their customers.
Responding to questions from the Compass on Thursday, C3 issued a further statement, defending its notice to customers and how they might stand to benefit, which it said was “wholly accurate”.
It added,“C3 does not consider it appropriate to litigate this claim in the press. C3 considers it unfortunate that, having lost in the Court of Appeal, the Utility Regulation and Competition Office [OfReg] now seeks to argue its case outside court.”
The Court of Appeal judgment, dated 29 Nov., states that C3’s case meets the bar to be argued at trial. The case will now go before a Grand Court judge with a “fresh slate”.
The judgment indicates, “It is not for this court to determine whether the above arguments are correct. However, on the face of it, they are powerful arguments.”
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