SECRETARY FOR JUSTICE v. HONG KONG CABLE TELEVISION LTD

HCA 2561/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 2561 OF 2009

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JUDGMENT
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1. The plaintiff sues on behalf of the Government for variable licence fees allegedly payable by the defendant (“HKCTV”) in respect of its Internet Protocol Television (“IPTV”) service. HKCTV disputes liability on the ground that the service falls with the statutory exception so that no variable licence fee is payable. It also disputes the calculation of the variable licence fees, if they are found to be payable.

BACKGROUND

2. HKCTV is a provider of domestic pay television service to customers in Hong Kong pursuant to a domestic pay television programme service licence.  The licence was granted in 1993 and last renewed on 1 June 2005 to remain valid until 31 May 2017 (“the Licence”).

3. Condition 14.1 of the Licence provides that HKCTV shall pay to the Government every year during the period of validity of the Licence such licence fee in advance as may be prescribed under section 42 of and section 13 of Schedule 4 to the Broadcasting Ordinance, Cap 562 (“the Ordinance”).

4. Pursuant to section 3 of and section 2 of Schedule 2 to the Broadcasting (Licence Fees) Regulation, Cap 562A (“the Regulation”), the prescribed annual licence fee consists of (i) a fixed fee of HK$1,533,000; and (ii) a variable fee calculated by multiplying HK$4 with the number of subscribers to the television programme service provided under the Licence as at each anniversary of the day on which the Licence came into force.  The fee shall be payable within 60 days after each anniversary of the day on which the Licence came into force.

5. Pursuant to condition 27.2 of the Licence, HKCTV shall submit to the Broadcasting Authority (“BA”) a certificate by its auditor on the number of subscribers to the service provided under the Licence as at each anniversary date of the commencement date of the Licence.  According to the certificates from HKCTV’s auditor, there were as at 1 June 2007, 2008 and 2009 total subscribers in the respective numbers of 634,193, 832,847 and 893,360.

6. According to HKCTV, the abovementioned numbers consisted of subscribers only of its IPTV service, which was provided on the channel known as “Cable Channel A”, and since 13 June 2007, as “Cable Channel No.1”(the so-called Bulk E subscribers).  HKCTV says its IPTV service is provided separately from its service under the Licence.  It is provided on the Internet and thus excepted from the application of the Ordinance pursuant to section 2 of the Ordinance and paragraph 5 of Schedule 3 to the Ordinance (“the Internet Exception”).  These Bulk E subscribers had to be deducted from the total number.

7. The Government disagrees.  It claims the variable licence fees in respect of the number of subscribers that HKCTV have excluded, namely:

(1) 140,404 x HK$4 = HK$561,616 (payable not later than 31 July 2007);

(2) 397,580 x HK$4 = HK$1,590,320 (payable not later than 31 July 2008); and

(3) 449,268 x HK$4 = HK$1,797,072 (payable not later than 31 July 2009).

8. Pursuant to section 14 of Schedule 4 and Schedule 5 to the Ordinance, the Secretary for Financial Services has made formal declarations that the licence fees payable by HKCTV mentioned above have been outstanding.  A licence fee so declared to be owing to the Government shall be recoverable as a civil debt; and the declaration shall be prima facie evidence of the debt.

9. On 30 December 2009, the Government commenced the present action, claiming the total sum of HK$3,949,008 with interest.

10. If HKCTV’s IPTV service falls within the Internet Exception, the Government accepts that the claim has to be dismissed.  But if it does not, and HKCTV is liable to pay variable licence fees, there will be the further question of the number of the subscribers and thus the fees payable.  In this respect, HKCTV now counts the number of contracting subscribers, namely, the management offices or the incorporated owners of the residential estates, whereas the Government counts the number of individual household served according to the certified numbers provided by HKCTV’s auditor mentioned above.  The contracting subscribers are said to be the much lesser number of 132, 294 and 335 as at 1 June 2007, 2008 and 2009 respectively.

THE STATUTORY FRAMEWORK

11. Section 5(1) of the Ordinance provides that a person shall not provide a broadcasting service except under and in accordance with a licence.  The following statutory definitions under section 2 of the Ordinance are relevant.

12. “Broadcasting service” includes a domestic pay television programme service.

13. “Domestic pay television programme service” means a television programme service which:

(1) is intended or available for reception by the public, on payment, whether periodically or otherwise, of a subscription in Hong Kong;

(2) is intended or available for reception by an audience of more than 5,000 specified premises; and

(3) primarily targets Hong Kong.

14. “Subscription” means a fee payable by or on behalf of any person for the right to view a television programme service in Hong Kong.

15. “Specified premises” means any domestic premises, or hotel room in Hong Kong.

16. “Television programme service”:

(1) means the provision of a service that includes television programmes for transmission by telecommunications:

(a) that are readily accessible to, or made available to, the general public in or outside Hong Kong; or

(b) to persons, in 2 or more specified premises, simultaneously or on demand, whether on a point to point or point to multipoint basis, or any combination thereof, having equipment appropriate for receiving that service;

(2) but does not include the provision of a service that:

(a) consists only of a television programme that is made solely for performance or display in a public place;

(b) consists only of a television programme that is intended wholly or mainly for the purposes of the trade, business, employment or profession of the recipient (but excluding a television programme delivered to hotel rooms);

(c) consists only of a service that is specified in Schedule 3;

(d) is a service, or a service belonging to a class of services, which is not a television programme service in accordance with a notice under subsection (5)(b)[1].

17. Schedule 3 to the Ordinance specifies the various services not to be regarded as television programme services.  One of them is “any service provided on the service commonly known as the INTERNET”: paragraph 5.  Hence the Internet Exception.

HKCTV’s IPTV CONFIGURATION

18. HKCTV entered into installation and subscription agreements (“Subscription Agreements”) with either the management offices or the incorporated owners of the residential housing estates for the provision of the IPTV service.  Invariably set-top boxes would be provided and installed at designated locations of the housing estate normally in the common areas.  Television signals were transmitted in 2 stages, first from the HKCTV’s source to the set-top box; and second from the set top-box to the individual units of the estate or building, where the television programmes could be viewed on television sets.

19. As to the mode of transmission, the television programme data would be delivered digitally in Transmission Control Protocol/Internet Protocol (“TCP/IP”) packets from the source to the set-top box.  The set-top box would decode and convert the IP packets into analogue audio-visual signals for onward distribution via the system of wires and cables of the building, the In-Building Coaxial Cable Distribution System (“IBCCDS”), both vertically to all floors and horizontally to the cable television wall plates of the individual units of each floor.  A television set connected to the wall plate with a coaxial cable (as in the normal cable television service) will receive the analogue signals, enabling the viewing of the television programmes.

20. In other words, the first stage of transmission of the television signals was IP-based whereas the second stage of transmission was not.  This is common ground[2].

THE ISSUES

21. HKCTV contends that as it contracted with the management offices and the incorporated owners instead of the individual household units of the building or estate, the contracted service covered the transmission of the television signals up to the set-top box only.  This stage of transmission was entirely IP-based and thus on the Internet.  The Internet Exception therefore applies.

22. Alternatively, even if the relevant service covers the transmission to the individual household units, HKCTV contends that the fact that the second stage of the transmission was not IP-based does not take its IPTV service out of the Internet Exception.  In this respect, HKCTV quotes in support a previous ruling of the BA in 2006 in respect of the IPTV service of another service provider, Hong Kong Broadband Network Limited (“HKBN”), whereby the BA ruled that HKBN’s IPTV service fell within the Internet Exception.  HKCTV says that its IPTV service is not different in any material way.

23. Besides the fact that the second stage of the transmission of HKCTV’s IPTV was not IP-based, the Government contends that even the first stage of HKCTV’s transmission did not fall within the Internet Exception because it did not involve the use of globally unique IP addresses, which allegedly is a necessary ingredient of the Internet.  Hence the dispute in respect of the definition of the Internet for the purpose of the Internet Exception.

24. In this respect, there is no dispute that HKCTV did not begin to use globally unique IP addresses in its transmission of the IPTV signals until mid-July 2008.  HKCTV confirms that in the event that its argument is not accepted, and variable licence fees are payable, it will not take issue as to the pro-rating of the licence fees payable (in advance) as at 1 June 2008 by reference to the change.  The change only, if at all, affects the claim in respect of the 2009 variable licence fees.

25. As mentioned, there is the dispute as to who the subscribers of the IPTV service were for the purpose of calculating the payable variable licence fees.

26. The pleadings give rise to the question of whether HKCTV’s liability for the 2009 licence fee should be reduced pro rata because of the alleged transfer of its business to i-Cable Entertainment Limited.  HKCTV confirms that it no longer takes issue in this respect.

27. The pleadings also give rise to the issue of the Government’s waiver of interest on the licence fees accrued prior to 14 May 2008.  The Government confirms that it is prepared to forego all claims for interest accruing prior to 14 May 2008, and pursue the claim for the statutory interest only since that date.

THE WITNESSES

28. The Government called Mr Leung, senior broadcasting affairs officer of TELA then.  On HKCTV’s side, Mr Chan, senior manager of HKCTV then and Mr Wong, senior business development manager of HKCTV then, gave evidence.  The then in-house legal counsel of HKCTV has made a statement but was not called.  His evidence in respect of the background of the dispute, according to his statement, would not have added much to what are known from the contemporaneous documents and what are undisputed between the parties.

29. As directed by the court, the parties have adduced expert evidence in respect of (i) the mode of transmission of the signals of HKCTV’s IPTV service; (ii) the comparison between the configurations used by HKCTV and HKBN in transmitting signals in their respective IPTV services; and (iii) the definition of Internet, in particular, the relevance of the use of globally unique IP addresses.  Besides their respective reports, the experts have filed their joint memorandum dated 17 August 2012.

THE INTERNET EXCEPTION

Whether IPTV service involves the transmission of signals up to the set-top boxes or beyond

30. HKCTV says that only the first stage of the transmission of IPTV signals up to the set-top box is relevant because this was what it contracted to provide.  HKCTV refers to the evidence, documentary and oral, in respect of the following circumstances:

(1) HKCTV approached the management offices or the incorporated owners of the housing estates but not the individual household units to market the IPTV service.  Likewise, quotations were made to and negotiated was conducted with the management offices or the incorporated owners.

(2) HKCTV entered into Subscription Agreements with and collected subscription fees from the management offices or incorporated owners, not the individual household units or residents.

(3) Subscription fees for the IPTV service were decided on a case by case basis with reference to the technical cost associated with providing the service to the housing estate and various other commercial considerations.  The fees were not necessarily correlated to the number of household units.

(4) The set-top boxes were provided to the contracting management office or incorporated owners and installed at designated locations, normally the common areas of the housing estates.

(5) The IBCCDS for the onward transmission of the analogue audio-visual signals from the set-top boxes to the household units within the housing estates does not belong to HKCTV.  Nor are the wall plates through which the IBCCDS cable enters the individual household units, except for those installed for the purpose of connection to receive the normal HKCTV pay television programme service.

(6) The Subscription Agreements invariably provided that HKCTV would provide signal injection to the premises’ system.  Any upgrade required for the premises’ existing system to carry the signal would be subject to separate quotation.  Signal connection fee would be the responsibility of the subscriber (invariably defined as the management office or the incorporated owners for and on behalf of the owners).

(7) HKCTV provides maintenance service of the IPTV equipment in the form of a service hotline open to the management offices or incorporated owners but not to individual household units.

(8) HKCTV has no concern about whether any individual household units of the estate could and would actually view the IPTV service.

31. So HKCTV argues that in terms of contract and configuration, its IPTV service was provided to the management offices or incorporated owners, which stopped at the set-top box provided and installed for such purpose.

32. In the Ordinance, “domestic pay television programme service” and “television programme service” are defined with reference to the receiving end of the service being the audience or persons in specified premises, who are enabled to, if they choose, to view the television programmes.

33. Under the Licence, “Service” is defined as the domestic pay television programme service which HKCTV is authorised and required to provide in accordance with the Licence and any law or Ordinance[3]. The auditor of HKCTV needs to certify annually the exact number of premises passed by the Service that HKCTV attained and maintained[4].  “Premises passed by the Service” is defined to mean the specified premises to which the “Service” is capable of being provided or a resident in the specified premises to that “Service”[5].

34. In my view, the exceptions under the statutory definition of “television programme service” should be construed according to similar understanding. So should the Internet Exception, which is one of those exceptions.

35. By pleading[6], HKCTV admits that its IPTV service provides television programmes by telecommunications which primarily targets Hong Kong and is intended or available for reception by the public in Hong Kong on payment of a subscription and by an audience of more than 5,000 specified premises.  But for the Internet Exception, the IPTV service of HKCTV would have been a broadcasting service subject to regulation by the Ordinance.

36. The fact that it was the management offices or the incorporated owners which entered into the Subscription Agreements with HKCTV, in my view, does not alter the understanding.  As stated in the Subscription Agreements, the management office or the incorporated owners did so for and on behalf of the owners of the housing estate.

37. Pursuant to section 16 of the Building Management Ordinance, Cap 344, the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by, and the liabilities of the owners in relation to the common parts of the building shall, subject to the Ordinance, be enforceable against, the incorporated owners to the exclusion of the owners.

38. Likewise in the case of the management offices or companies contracting with HKCTV, it is unlikely that they contracted with HKCTV for the IP-based transmission with a view to making it their own business undertaking to provide the television programme service, in the form of analogue signals to the household units/owners.

39. In view of the HKCTV’s configuration of its IPTV service, which involved the provision and installation of the set-top box at the common areas of the housing estate, it was only to be expected that the management office or the incorporated owners would be contracting for the service as a matter of building management for all the household units/owners.

40. This is also in line with the reality that the Subscription Agreements were entered into with the view to making the IPTV available to the individual units of the housing estate, not the management office or the incorporated owners.  The number of units was indeed stated in the agreement.  The subscription fee was stated to be the monthly amount for such number of residential units.  The rates of the subscription fee might well be fixed upon the consideration of a combination of factors.  The number of household units in the estate was but one of the factors.

41. HKCTV might not care whether any unit of the estate was occupied or whether the IPTV channel was viewed.  But this is beside the point, so long as the IPTV service was intended and made available to the units.  Likewise, for the purpose of the contracting parties to the Subscription Agreements, it is incredible that the IPTV service negotiated and eventually contracted for was understood to consist of mere transmission of the digital signals up to the set-top boxes without regard to the existence or state of the IBCCDS of the estate.  I find it hard to believe that there was ever any contract between HKCTV and the management office or incorporated owners of a housing estate that was not or would not be equipped with the necessary IBCCDS in order to enable the individual units to view the television programmes.

42. The arguments in respect of whether the owners were legally the principals behind the manager or incorporating owners and thus becoming privy to the contracts with HKCTV are also beside the point.

43. In my view, the Ordinance and the Internet Exception contemplates and regulate the delivery of television programme service to the units in the housing estate, whom were intended to be able to view the IPTV programmes, if they so choose.

Whether the IPTV service falls within the Internet Exception, despite the fact that the transmission of signals from the set-top boxes to the household units was not IP-based

44. Excepted from the definition of “television programme service” is the service consisting only of one of 4 types of television programmes or services that are specifically spelt out.  Amongst them is the service that consists only of a service specified in Schedule 3 to the Ordinance.  The Internet Exception is one of the 7 types of services so specified in the Schedule.

45. The text of the Internet Exception literally says nothing about the transmission pathway.  But “television programme service” under section 2 of the Ordinance and the services not regarded as “television programme service” set out in Schedule 3, as mentioned, are defined in the context of regulation of the delivery of television programme service to the audience or persons in specified premises. In the case of HKCTV’s IPTV service, the part of this pathway between the set-top box and the television sets was admittedly not on the Internet.

46. This is why HKCTV brings in the reference to the IPTV service of HKBN and the BA’s ruling dated 28 April 2006.  The BA ruled that the IPTV service provided by HKBN fell within the exception.  HKCTV says that the IPTV transmission it provides is no different.

47. This is primarily the judicial resolution of the dispute as to the statutory interpretation of the Internet Exception.  Whilst for that matter, the court is asked to consider the expert evidence in respect of the comparison between the configurations of the IPTV service provided by HKBN and HKCTV, the conclusion in this respect is not to be reached by finding whether the BA’s ruling in respect of HKBN’s IPTV service is right or wrong.

48. The experts agree that in the configurations of HKBN and HKCTV, the television signal was transmitted in 2 stages: first in the form of IP packets, and second in the form of analogue signals.  The experts disagree as to whether there is any material difference between the 2 configurations.  Professor Li instructed by HKCTV considers that there is none.  Mr Yung of the Office of the Communications Authority for the Government points out that in the case of HKBN, the transmission was on the Internet all the way to the set-top box, which was installed inside the viewer’s premises.  Upon conversion, the signals, which became analogue audio-visual, are transmitted to the television set via RCA cable (cable used for normal audio-visual interconnections).  In the case of HKCTV, the second stage of transmission took place upon the conversion of the IP packets in the set-top box, which was installed in the common area of the housing estate, and the onward transmission of the analogue audio-visual signals via the IBCCDS to various floors and units.

49. The bottom-line is that the IP packets from the source had to be converted into analogue audio-visual signals in order that the television programmes could be viewed on the television sets.  The Government apparently accepts that[7].  The conversion took place in the set-top box.  As far as the case of HKBN is concerned, neither party nor their respective experts seek to suggest that this does not fall within the Internet Exception.  The precise question is whether the case of HKCTV, where the conversion took place in the common areas outside the household units, makes a material difference for the purpose of the Internet Exception.

50. In distinguishing the configurations of HKBN and HKCTV, Mr Yung in his report made the point that the viewers of HKCTV’s IPTV programmes on the television do not even need access to the Internet in order to be able to do so.  Again, he could only be understood to be saying that the viewers do not need Internet access within the household units.  The fact was that the viewers in the household units did have the necessary Internet access through the set-top box, albeit in the common areas, which was installed for them.

51. An analogy is drawn between the receipt by and transmission from the set-top box in the case of HKBN’s case and the use of an ordinary personal computer on the Internet inside the household unit.  Both involve the receipt of the IP packets, which would be re-assembled and transmitted to be viewable on the computer monitor by cable.  In the case of the IPTV service of HKBN, the converted signals were transmitted to the television set by a RCA cable inside the unit.

52. Professor Li apparently does not dispute such analogy; but disagrees that there is material difference between the transmission of analogue signals by a RCA cable inside the unit in the case of HKBN’s case and that by a coaxial cable in the IBCCDS outside the unit in the case of HKCTV.  Professor Li illustrates the possibility in the case of HKBN that the RCA cables could be branched out so that the analogue signals could be delivered to more than one viewing device inside the household unit.  Again by analogy, it would effectively be distribution as what the IBCCDS served to do.  Mr Yung does not dispute that possibility in court.

53. This is at the end a matter of statutory construction.  HKCTV argues that there is no reasoning for reading that the conversion of signals must take place within the units or “specified premises”.  When the owners also co-own the common areas of a multi-storey building and housing estate, where the set-top box is installed for their benefit, reading that the conversion must take place within the household units is said to be artificial and have no substance.

54. Further it is not that the conversion of the IP packets became a matter of choice of the viewer, if the set-top box was inside as opposed to being outside the household unit.  In both cases of HKBN and HKCTV, the conversion took place in the set-top box in any event.

55. I find the arguments on behalf of HKCTV to be convincing.  For the purpose of the Internet Exception, as it is worded, that the transmission of the analogue signals from the set-top box to the individual household units in the housing estate was not IP-based per se did not take it outside the Internet Exception.

Whether the use of globally unique IP addresses is required

56. In view of the above finding, the Internet Exception applies to the IPTV service of HKCTV, subject to the issue of the definition of the Internet or, more precisely, whether the use of globally unique IP address is an essential ingredient of the definition.

57. In British Telecommunications plc v One In A Million Ltd [1999] 1 WLR 903 (at 907G-908F), the following lively example of the use of IP addresses in the Internet was given:

“…… If I wanted to contact Marks & Spencer plc, I can use the domain name server marks-and-spencer.co.uk. The domain name server will recognise the domain name and provide the appropriate sequence of numbers, called the IP address. It is that address which identifies the computer owned by Marks & Spencer plc, thereby enabling my computer to contact that owned by Marks & Spencer plc.”

58. HKCTV argues that the highly technical question of whether the use of globally unique IP address is an essential ingredient of the Internet could not have been contemplated by the legislature at the time when the Internet Exception was introduced.  It refers to the Legislative Council Brief in respect of the Broadcasting Bill dated 28 January 2000, which explained the introduction of the Internet Exception:

“……While video and audio services are now available on the Internet, we consider that their existing mode of operation is different from broadcasting and their persuasiveness is not yet comparable to television programme services currently operating in Hong Kong. Our policy intent is that this type of service should be exempted from the application of the Bill for the time being unless and until its persuasiveness and mode of operation draw much closer to broadcasting and the question of effective enforcement can be resolved;”

59. The above was literally repeated in the speech of the then Secretary for Information Technology and Broadcasting upon the second reading of the Bill on 16 February 2000.

60. What HKCTV argues above may well be right.  However, one nevertheless needs to ascertain what the Internet as “commonly known” is, for the purpose of applying the Internet Exception to any given case since its introduction.

61. As mentioned, the parties’ experts agree that transmission on the Internet must be TCP/IP-based.  They differ in respect of whether the use of globally unique IP addresses is an essential ingredient of the Internet.  They turn to the definition of the Internet from different sources.

62. The Government relies on the definition put forward by the US Federal Networking Council (“FNC”) in 1995, namely, that Internet refers to the global information system that:

(1) is logically linked together by a globally unique address space based on the IP or its subsequent extensions/follow-ons;

(2) is able to support communications using the TCP/IP suite or its subsequent extensions/follow-ons, and/or other IP-compatible protocols;

(3) provides, uses or makes assessable, either publicly or privately, high level services layers on the communications and related infrastructure described herein.

63. It is this definition that the Government relies on for the contention that globally unique IP address is a necessary ingredient of the Internet.  In arriving at its ruling in 2006 in respect of HKBN’s IPTV service, the BA also endorsed this definition of the Internet.

64. Professor Li disagrees.  He refers to various other sources of definitions, of which the Internet Engineering Task Force (“IETF”) is an international organisation which develops and promotes Internet standards worldwide.  In his opinion, IETF is more authoritative than FNC, which is but a national organisation.  IETF defines the Internet as:

“the single, interconnected worldwide system of commercial, government, educational and other computer networks that share the set of protocols specified by the IAB[R2026] and the name and address space managed by the ICANN.”

ICANN, or Internet Corporation for Assigned Names and Numbers, manages both globally unique and non-globally unique IP addresses.

65. The experts agree that there is no universally accepted definition of the Internet.

66. In explaining that globally unique IP address is not an essential ingredient of the Internet, Professor Li uses the illustration of a personal computer in a home connected to the Internet via a wireless router.  The personal computer may have non-unique or even the same private IP address as the personal computer in another home connected to the Internet via another wireless router.  Mr Yung agrees.

67. Professor Li further explains that the Internet nevertheless manages to deliver the IP packets from the source to the destined personal computer but not the other one, because each wireless router will have a globally routable IP address, which is globally unique.  Mr Yung responds that even in that example, association with a globally unique IP address, albeit in an intermediary gateway and not in the device (the personal computer), would be necessary in order that a data packet could reach the destination.  Otherwise, Mr Yung explains, the network could not function.

68. The Government submits that the Internet is a network of IP address.  The range of that is prima facie limited by and equates to the range of the destination IP address in the header of the data packet.  The data packet cannot go further by itself without some other assistance.  It cannot go further than the destination address in that header.  It is the IP address that defines a network; and it is the globally unique IP address assigned by ICANN that is the essential and differentiating characteristic of the global network commonly known as the Internet.

69. Whilst there is no universally accepted definition of the Internet, which refers in words to the element of globally unique IP address, on the evidence, including those mentioned above, I accept the Government’s submission.

70. I should mention that HKCTV refers to the evidence that there are no multicast interconnection arrangements among internet service providers in Hong Kong, and unless the IPTV service is further modified to utilise unicast, instead of multicast, technology[8], the use of globally unique IP address per se would not render the IPTV programmes viewable by persons using other internet service providers.  The short answer to this query is that whether this was indeed the practical side of the matter is not material, insofar as what the Internet is commonly known as a matter of fact for the purpose of the Internet Exception is concerned.

71. As mentioned, there is no real dispute that HKCTV started to use globally unique IP addresses in its transmission to the set-top boxes on 11 July 2008.  As the Government does not take issue that the variable licence fees payable as at 1 June 2008 was affected by such change, I find that variable licence fees were payable in respect of the IPTV subscribers as at 1 June 2007 and 1 June 2008.

THE VARIABLE LICENCE FEES PAYABLE

72. As mentioned, HKCTV’s auditor has certified the number of subscribers of its IPTV service excluded from the calculation of the variable licence fees, which form the basis of the Government’s claim.  However, HKCTV now argues that in the event that variable licence fees are payable in respect of its IPTV service, the subscribers should be those contracting with HKCTV, namely, the management offices/companies and the incorporated owners of the residential estates.

73. Section 2 of the Regulation defines “subscriber” to mean a person to whom a licensed service is provided by a licensee on a subscription basis.  Section 2 of the Ordinance defines “subscription” to mean a fee payable by or on behalf of any person for the right to view a television programme service in Hong Kong.

74. Neither “subscriber” under the Regulation nor “subscription” under the Ordinance, by definition, is confined to the person contractually liable to pay or in fact paying the subscription.  He or she is a person to whom the licensed television programme service is provided or who has the enjoyment of the right to view the licensed television programme service.

75. Reference is made to the Legislative Council Brief in respect of the Broadcasting (Revision of Licence Fees) Regulation 2006 dated 12 May 2006, in which the fee structure was explained:

“……Most of the fees comprise a fixed fee and a variable fee calculated on a per subscriber/channel/hotel basis. The fixed fee reflects the costs incurred by general licence administration including the preparation and regular revision of codes of practice issued by the BA. The variable fee primarily reflects the costs of handling complaints, which is assumed to relate proportionally to the number of viewers served or the number of programme channels provided by a licence, as the case may be.”

76. §8 of the Brief relates to the fee revision proposal in respect of domestic pay television programme service licence.  That the variable fee relates to the administrative cost of handling complaints is repeated.

77. The variable licence fee is apparently imposed to reflect the costs of handling complaints about the licensed service, which is assumed to relate proportionally to the number of viewers or the number of channels.  According to HKCTV, it deals with the contracting subscribers, namely the management companies or the incorporated owners, and not individual residents of the housing estates.  But as the service is contracted with the management companies or incorporated owners to be provided to the units within the housing estates (as set out in the Subscription Agreement), the management companies and the incorporated owners would be dealing with HKCTV on behalf of the household units.  The same is true in case of complaint about the service.  In the context of regulation of the service as a public matter, whether the viewers of the units are contractual subscribers or have personal contractual right against HKCTV, in my view, is immaterial to their right to complain about the service.

78. HKCTV argues that it is wrong to assume that the viewers are necessarily tied in with a residential unit.  Examples of viewers in public area without linkage to any particular premises are given.  However, the context in question is licence fees payable under a domestic pay television service licence, whereby the linkage with residence does exist.  Hence the need to read that together with the definitions of “domestic pay television programme service” and “television programme service” under the Ordinance as mentioned above.

79. The service is either provided to the domestic premises upon a subscription contract between the householder (as neutrally called by the Government for the present purpose) and the service provider or made available to the units of the housing estate upon a subscription agreement between the service provider and management office/incorporated owners for and on their behalf.

80. HKCTV emphasizes that this is a question of construction of the statutory definition of who a subscriber is, which does not depend on whether the IPTV service is found to be provided to the contracting subscribers or beyond.  In principle, I agree.  The Government argues that there are overlapping considerations between the 2 questions.  I simply find the above statutory construction aligns with such fact as found above.

INTEREST

81. HKCTV takes issue as to the interest on the variable licence fees that are found to be payable.  It is accepted that this is a matter of discretion of the court. It is also accepted that the authorities have established the practice of awarding interest at 1% above the best lending rate to compensate the cost of the money having been out of pocket until its recovery.

82. However it is argued that the consideration may be different in the case of the Government’s recovery action.  It is said to be a matter of fiction that the Government may have to consider borrowing the amount out of pocket during the interim.  HKCTV suggests interest according to the deposit rate instead.

83. In the absence of evidence and authorities in this respect, I have no factual basis for accepting the argument.  In the circumstances, I also make no assumption that the Government stands to be treated differently from any other plaintiff in recovering a civil debt, insofar as interest is concerned.

CONCLUSION

84. The Government is entitled to judgment against HKCTV in the sum of HK$561,616 + 1,590,320 = HK$2,151,936 being the variable licence fees payable as at 1 June 2007 and 2008.

85. Interest should run at 1% above best lending rate on the sum of HK$561,616 from 14 May 2008 and on the sum of HK$1,590,320 from 1 August 2008 until judgment. Interest thereafter runs at the judgment rate until full payment.

ORDER

86. There be judgment with interest against HKCTV as concluded above.

87. As to costs, I make a nisi order that HKCTV shall pay the Government’s costs of this action, including any costs reserved, to be taxed, if not agreed.  In the absence of application in 14 days to vary, the costs order shall become absolute.

88. I thank counsel for their assistance.