HONG KONG TELECOMMUNICATIONS (HKT) LTD v. THE COMMUNICATIONS AUTHORITY

CACV 190/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 190 OF 2013

(ON APPEAL FROM TELECOMMUNICATIONS (COMPETITION PROVISIONS) APPEAL BOARD APPEAL NO 31)

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J U D G M E N T

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Hon Cheung CJHC:

The facts

1.  This is an appeal by way of case stated from the decision of the Chairman of the Telecommunications (Competition Provisions) Appeal Board dated 4 June 2013.  It raises a single question of jurisdiction of the Appeal Board.

2.  The facts can be very briefly stated.  Apple launched iPhone 5 on 21 September 2012.  iPhone 5 is installed with a SIM‑Lock device which does not allow access to the appellant’s PCCW 4G/LTE network.  When iPhone 5 was first launched, only SmarTone’s 4G/LTE network could be accessed.  Subsequently, the 4G/LTE networks of CSL and Hutchison were enabled, but access to PCCW’s 4G/LTE network remains denied.

3.  The appellant takes the view that this restriction on the functionality of iPhone 5 is in breach of a statement issued by the former Telecommunications Authority on 20 February 1997 entitled “Way Forward of ‘SIM Lock’” as well as the competition provisions in the Telecommunications Ordinance (Cap 106).

4.  On 28 September 2012, the appellant complained to the Office of the Communications Authority (“OFCA”), the executive arm of the respondent, which is the successor of the former Telecommunications Authority.  It alleged that the restriction breached section 7K of the Ordinance.  It asked the respondent to issue an immediate direction under section 36B of the Ordinance to Apple and SmarTone to require action to comply with the Ordinance.  In short, the appellant asked that the SIM-Lock device on iPhone 5 be unlocked to allow access to the appellant’s 4G/LTE network.  The letter stressed that due to the nature of the conduct and harm to both users and the competitive process, time was of the essence.

5.  Between September 2012 and January 2013, many letters were exchanged between the appellant (and its solicitors) and OFCA (and the respondent), and there were also meetings with representatives of OFCA, in which the appellant repeated its request to the respondent through OFCA to issue an immediate direction under section 36B;but all this was to no avail.  In their letter dated 16 January 2013, the appellant’s solicitors reiterated its request for the immediate issue of an interim direction and threatened proceedings against the respondent.

6.  On 28 January 2013 and 30 January 2013, OFCA wrote to the appellant and its solicitors setting out its position. Of particular significance is this passage in the letter of 28 January 2013 :

“ In accordance with the ‘A Guide on How Complaints Relating to Anti‑competitive Practices, Abuse of Dominant Position and Discriminatory Practices Prohibited under Sections 7K, 7L and 7N of the Telecommunications Ordinance are Handled by the Office of the Communications Authority’ issued on 1 April 2012 (the ‘Guide’), we have processed HKT’s [ie the appellant’s] above complaint and considered whether the matter may be dealt with under the competition provisions of the TO [ie the Ordinance] and whether the complaint submission contains the requisite information for us to proceed further. We have reviewed HKT’s submission in support of its Competition Complaint set out in those correspondence of HKT or on HKT’s behalf which are recited in the first paragraph of this letter, and consider that the information provided by HKT is inadequate to enable us to assess whether the complaint raises a genuine competition issue [within] the scope of the competition provisions of the TO such that the Office of the Communications Authority (‘OFCA’) may consider it justified to conduct an initial enquiry of the matter, let alone to enable the CA [ie the respondent] to consider any reasonable ground for suspecting a breach and any justification of enforcement action such as by way of issuing an immediate direction under section 36B of the TO that you have proposed.” (emphasis added)

The appeal below

7.  On 14 February 2013, the appellant filed a notice of appeal to the Appeal Board to appeal against the “decision” of the respondent and in particular its “refusal” to make an immediate direction under section 36B.

8.  After hearing arguments on whether any such decision or refusal had been made and therefore whether the appeal was competent, the Chairman of the Appeal Board delivered his decision on 4 June 2013.  In his decision, the Chairman observed that “on a true and contextual reading of the correspondence, it seems clear that a decision/opinion was made, namely, that as at 28 January 2013, OFCA was not prepared to make the order under section 36B as sought” (para 104).

9.  The Chairman went on to consider whether OFCA’s request for more information to clarify and substantiate a complaint “truly engaged” the competition provisions in the Ordinance and rendered that request appealable.  The Chairman was daunted by the suggestion that if jurisdiction was found, the appellant would be seeking at the substantive hearing of the appeal an order from the Appeal Board under section 36B, the very order that OFCA had declined to make.  He considered it was not the legislative intent that the Appeal Board set up to hear appeals by aggrieved persons against decisions of the respondent should itself have the power de novo to grant that which OFCA was not itself ready at that time to consider granting.  In such a scenario, the Appeal Board would be asked to trespass on the respondent’s jurisdiction and itself make a decision without making any investigation at all.  He observed that the Appeal Board has no resources whatever to conduct this sort of investigation and nor does it have the skills to do so.  The Chairman reasoned that this could not have been intended by the legislature when laying down the appeal mechanism.  See paras 105 to 112 of the decision.  The Chairman concluded that the Appeal Board had no jurisdiction to hear the appeal.

This appeal

10.  Dissatisfied with the decision, the appellant appealed to this court pursuant to section 32R of the Ordinance.  In the case dated 30 August 2013 signed by the Chairman, he posed the following question for the determination of this court:

“Whether the letters issued by the Office of the Communications Authority dated 28 January 2013 and 30 January 2013, which include the statement that there is insufficient information to assess whether the appellant’s complaint raises a genuine issue of breach of the competition provisions, involve any decision or opinion on the part of the Communications Authority relating to (i.e. which ‘truly engages’) section 7K for the purposes and within the meaning of section 32N(1)(a)(i) of the Telecommunications Ordinance so as to engage the jurisdiction of the Appeal Board.”

The law on jurisdiction

11.  Section 32N(1) reads:

“(1) Any person aggrieved by-

(a) an opinion, determination, direction or decision of the Authority relating to-

(i) section 7K, 7L or 7N; or

(ii) any licence condition relating to any such section; or

(b) any sanction or remedy imposed or to be imposed under this Ordinance by the Authority in consequence of a breach of any such section or any such licence condition,

may appeal to the Appeal Board against the opinion, determination, direction, decision, sanction or remedy, as the case may be, to the extent to which it relates to any such section or any such licence condition, as the case may be.”

12.  Sections 7K, 7L, 7M and 7N are competition provisions.  The appellant relies on the following provisions in section 7K :

“(1) A licensee shall not engage in conduct which, in the opinion of the Authority, has the purpose or effect of preventing or substantially restricting competition in a telecommunications market.

….

(3) Without limiting the general nature of subsection (1), a licensee engages in conduct prescribed under that subsection if he–

(a) enters into an agreement, arrangement or understanding that has the purpose or effect prescribed by that subsection;

(b) without the prior written authorization of the Authority, makes the provision of or connection to a telecommunications network, system, installation, customer equipment or service conditional upon the person acquiring it also acquiring or not acquiring a specified telecommunications network, system, installation, customer equipment or service, either from the licensee or from another person;

(c)      gives an undue preference to, or receives an unfair advantage from, an associated person if, in the opinion of the Authority, a competitor could be placed at a significant disadvantage, or competition would be prevented or substantially restricted.”

13.  In PCCW‑HKT Telephone Limited v Telecommunications Authority, CACV 274/2003, 8 July 2004, para 37(2), the Court of Appeal explained the circumstances in which the appeal procedure in section 32N(1)(a)(i) is engaged.  Relevantly, the intended appellant must establish that one or more of sections 7K to 7N have been “truly engaged”.  In that case, at issue was whether the interim direction requiring the supply of unbundled local loops by PCCW to Wharf T & T was a direction relating to sections 7K and 7L of the Ordinance.  On those facts, the court elaborated, “truly engaged” meant that the Telecommunications Authority, in issuing the direction, must, expressly or by implication, have arrived at an opinion that the licensee concerned has engaged, or will (if the relevant direction is not complied with) engage or continue to engage in conduct that contravenes one or more of sections 7K to 7N.

14.  The “truly engaged” test was applied in a subsequent decision of this court, that is, PCCW‑HKT Telephone Limited v The Telecommunications Authority, CACV 300/2008, 2 April 2009, which concerned a policy formulation.  In para 43(3), Cheung JA explained :

“ … the previous decision of this Court [ie CACV 274/2003] which is binding on us and of which I respectfully agree clearly requires a specific anti-competition conduct rather than a general anti-competition consideration canvassed in a policy formulation. The wording of section 7K excludes the adoption of a general approach : a licensee shall not engage in (anti-competition) conduct. The previous judgment is in line with the wording of the section. Its tenor is not to allow general issues which may arise in policy consideration, as illustrated in the present case by the Statement, to be the subject matter of an appeal by the Appeal Board. Hence a specific anti-competition conduct based on, for example, refusal to interconnect or interconnection at an exorbitant charge is required.”

The arguments

15.  In this appeal, there is no dispute that the “truly engaged” test represents the true test of jurisdiction under section 32N(1)(a)(i).  The only question is whether, in the two letters in question, there was any opinion, determination, direction or decision of the Authority which “truly engaged” one or more of sections 7K to 7N.

16.  Mr Benjamin Yu SC, Mr Roger Beresford with him, for the appellant, made a number of submissions against the Appeal Board’s determination that it had no jurisdiction to entertain the appeal.  In essence, Mr Yu contended that the two letters, particularly the passage cited above, constituted or evidenced a decision on the part of the respondent not to issue an interim direction under section 36B on the ground that the information provided by the appellant was “inadequate” to enable the respondent to assess whether the complaint raised a genuine competition issue within sections 7K to 7N such that OFCA might consider it justified to conduct an initial inquiry of the matter, let alone to enable the respondent to consider any reasonable ground for suspecting a breach and any justification of enforcement action such as by way of issuing an immediate direction under section 36B.  Mr Yu submitted that that clearly was a decision which “truly engaged” section 7K, the section relied on by the appellant.  The respondent was saying, Mr Yu argued, that the material presented by the appellant was not sufficient and adequate to make out a case of breach of section 7K so as to justify the granting of an immediate direction.

17.  For the respondent, Mr Abraham Chan argued that read in context, OFCA’s two letters were doing no more than asking for further information and details from the appellant.  It was an administrative decision which did not truly engage section 7K.  The whole point of asking for further information was that on the existing material, OFCA was unable to assess whether there was any genuine breach of the competition provisions and, by definition, therefore, no substantive decision on whether there was a breach (thus justifying an immediate direction) of section 7K had been made by either OFCA or the respondent.

18.  Mr Chan made the further point that in any event, whatever decision that had been made in the two letters, it was only made by OFCA, but not the respondent.  Mr Chan drew the court’s attention to the fact that the respondent had never delegated, pursuant to section 18(1)(b) of the Communications Authority Ordinance (Cap 616), its power under section 36B to make a direction to the Director‑General who heads OFCA.  The power to make such a direction remains with the respondent.  This being the case, counsel argued that section 32N of the Ordinance does not give the appellant a right of appeal to the Appeal Board from a decision of OFCA (as opposed to that of the respondent).

The issues

19.  Section 32N of the Ordinance is very clear in its wording.  Any person aggrieved by an opinion, determination, direction or decision of the respondent relating to section 7K, 7L, 7M or 7N may appeal to the Appeal Board against the opinion, determination, direction or decision, as the case may be, to the extent to which it relates to any such section.

20.  In the present case, there is no doubt, and the Chairman of the Appeal Board rightly recognised, that the two letters in question contained or evidenced a decision (leaving aside whose decision it was for the time being) not to grant the interim direction asked for as at 28 or 30 January 2013.  The fact or possibility that the respondent might be prepared to do so at some future time does not affect this understanding of the two letters (in the context of the entire correspondence).  Nor does the fact that in the two letters OFCA asked for further information and details from the appellant change the fact that as at the time of the two letters, there was or had been made a conscious and deliberate decision not to accede to the repeated requests for a direction to be made, on the material and information then before OFCA.

21.  In CACV 274/2003, the facts were that an interim direction had been issued.  Therefore, in explaining what “truly engaged” meant, the court spoke in terms of a past, present or future breach of a competition provision.  In the present context, where the decision is said to be one of refusal of an interim direction, a mechanical application of that explanation of “truly engaged” to the facts here would obviously lead to an absurd result, that is, that there was no decision on the part of the respondent that there had been or was or would be a breach. I am happy to note that neither counsel has advanced such an argument, and in particular, the respondent has not argued that a refusal of a direction on the ground that there was no breach of any of the competition provisions means that there was no decision which truly engaged the competition provisions, a position which in my view would be wholly untenable.

22.  That, therefore, leaves only two substantive questions.  First, whose decision was it?  Second, was it a decision relating to section 7K in the sense that it “truly engaged” the section?

23.  I would put aside the first question for the time being but go straight to the second question, which is the nub of this appeal.

“Truly engaged”?

24.  In my view, the answer to that question is “yes”.  I accept Mr Chan’s argument that not every decision is appealable to the Appeal Board.  A similar point has been made by the UK Competition Appeal Tribunal in Cityhook Limited v Office of Fair Trading [2007] CAT 18, under comparable but different statutory provisions in the Competition Act 1998 :

“225. As to whether any decision is ‘appealable’ within the meaning of sections 46 and 47 of the 1998 Act, the relevant legal principles are summarised at paragraph 122 of the Tribunal’s judgment in Claymore[1], cited above, as follows:

‘In our view the main principles to be derived from Bettercare[2] and Freeserve[3] are:

(i) The question whether the Director has ‘made a decision as to whether the Chapter II prohibition is infringed’ is primarily a question of fact to be decided in accordance with the particular circumstances of each case (Bettercare, [24]).

(ii) Whether such a decision has been taken is a question of substance, not form, to be determined objectively, taking into account all the circumstances (Bettercare, [62], [84] to [87], and [93]). The issue is: has the Director made a decision as to whether the Chapter II prohibition has been infringed, either expressly or by necessary implication, on the material before him? (Freeserve, [96]).

(iii) There is a distinction between a situation where the Director has merely exercised an administrative discretion without proceeding to a decision on the question of infringement (for example, where the Director decides not to investigate a complaint pending the conclusion of a parallel investigation by the European Commission), and a situation where the Director has, in fact, reached a decision on the question of infringement (Bettercare, [80], [87], [88], [93]; Freeserve, [101] to [105]). The test, as formulated by the Tribunal in Freeserve, is whether the Director has genuinely abstained from expressing a view, one way or the other, even by implication, on the question whether there has been an infringement of the Chapter II prohibition (Freeserve, [101] and [102]).

                        …

232.     In paragraph 83 of Bettercare the Tribunal was addressing the question whether the decision there in issue was to be analysed as the exercise of an administrative discretion not to conduct an investigation under section 25 of the 1998 Act, or as a decision that the Chapter II prohibition was not infringed.  The Tribunal said:

‘In addressing this central issue, it is not in our view helpful to use the concept of a ‘decision to reject a complaint’ because such a term is ambiguous. The Director may decide to ‘reject a complaint’ for many reasons. For example, he may have other cases that he wishes to pursue in priority (compare Case T‑24 and 28/90 Automec v Commission [1992] ECR II‑2223); he may have insufficient information to decide whether there is an infringement or not; he may suspect that there may be an infringement, but the case does not appear sufficiently promising, or the economic activity concerned sufficiently important, to warrant the commitment of further resources. None of these cases necessarily give rise to a decision by the Director as to whether a relevant prohibition is infringed.”

25.  I am prepared to accept that depending on the facts, some of these so called discretionary administrative decisions may not be appealable to the Appeal Board under our Ordinance in that they may not be able to satisfy the “truly engaged” test.  A simple request for further information is, for instance, unlikely to be appealable because, first, it may not contain or evidence any decision at all not to grant an interim direction and, secondly, even if such a decision was made, it may not be one which “truly engaged” any of the competition provisions.

26.  But not so in the present case.  In the present case, the two letters are very clear on the reason why OFCA asked for further information and details.  The reason specifically given was that the information already supplied was “inadequate” to enable OFCA to assess whether the complaint raised a genuine competition issue within the scope of the competition provisions such that OFCA might consider it justified to conduct an initial inquiry, let alone to enable the respondent to consider any reasonable ground for suspecting a breach and any justification of enforcement action such as by way of issuing an immediate direction.  That, in my view, was simply a long way of saying that the appellant had, on the material it had presented thus far, failed to establish a case of breach or a prima facie case of breach justifying the grant of an interim direction – and thus no interim direction was granted.

27.  I reject the argument that no decision on the merits, based on the material already presented, had been made by that stage.  Quite to the contrary, I accept Mr Yu’s argument that OFCA was saying that the appellant had failed even to make it to the first base.  Indeed the material presented was so poor and inadequate that they failed even to raise “a genuine competition issue”.

28.  As I said, the fact that OFCA’s letters effectively asked the appellant to try again and come back with further material and details, is really neither here nor there and does not affect the above analysis.

29.  In my view, the decision not to issue an immediate direction was a decision relating to, in the sense that it truly engaged, section 7K.

30.  I am not troubled by the possible difficulties described by the Chairman in his decision following the entertaining of the present appeal if he were to find jurisdiction to hear it, which were given as a main reason for finding against jurisdiction in terms of legislative intent.  I am not sure if, assuming that there is jurisdiction to hear the appeal as I think there is, the substantive appeal before the Appeal Board would be as daunting as the Chairman has portrayed.  After all, the issue raised in the appeal is a relatively limited one, that is, whether the material already presented was adequate or inadequate to enable the respondent to decide whether to make an interim direction.  At the substantive hearing, I would imagine, OFCA’s representative would explain to the Appeal Board why it was considered that the material presented was inadequate, what further information and details would be required, and why.  It would be up to the Appeal Board to make up its mind as regards the adequacy of the material presented.  Assuming that the Appeal Board was with the appellant, it would then be up to the Appeal Board to decide what to do next, including whether to remit the matter to the respondent to decide how it should exercise its undoubted discretion under section 36B regarding the issue of an interim direction.

31.  In any event, I accept Mr Yu’s submission that an appeal before the Appeal Board is a de novo hearing.  In my view, the very extensive powers given to the Appeal Board under section 32O of the Ordinance regarding the hearing of an appeal would certainly suggest a legislative intention that is much wider in scope, in terms of the role and function of the Appeal Board, than that envisaged below.

Whose decision?

32.  That leaves the first question, that is whether the decision not to grant an interim direction was one made by OFCA or the respondent.  Stated that way, the answer is plain.  It is common ground that OFCA or the Director‑General who heads OFCA does not have the delegated power to make, or, therefore, refuse, any direction under section 36B.  As Mr Yu rightly submitted, it must therefore follow that the decision not to grant an interim direction as contained in or evidenced by the two letters must have been a decision of the respondent.  After all, it has to be remembered that OFCA is the executive arm of the respondent. In the present context, it assists the respondent and acts on its behalf of to handle complaints.  Its action (or inaction), on the facts of the present case, is attributable to the respondent.  And in fact, Mr Chan, for the respondent, accepted below and repeated at the hearing before this court, that the letter of 28 January “does state the position of OFCA and the CA [ie the respondent] for the purposes of this litigation” and the letter was “written for itself and on behalf of the CA”.

33.  On the facts (and reading the correspondence as a whole), the only fair conclusion is that OFCA had been handling the complaint on behalf of the respondent and the decision not to make an interim direction on the stated ground of inadequacy of information regarding the alleged breach of section 7K was a decision made by the respondent through OFCA as its executive arm.

34.  I also note Mr Yu’s point that in relation to this first question, there has not even been a respondent’s notice seeking to support the Chairman’s decision on jurisdiction on this alternative basis.

35.  For all these reasons, I have come to the conclusion that there is indeed jurisdiction on the part of the Appeal Board to hear the appellant’s appeal.

Relief

36.  That leaves me with the appellant’s further contention that this court, instead of the Appeal Board, should actually deal with the substantive appeal; but not only that, it should also grant the interim direction sought.

37.  It should, however, be noted that Mr Yu did not vigorously pursue this item of relief as he did in relation to the jurisdiction point.  Further, it has to be appreciated that at least from the appellant’s point of view, the matter has dragged on for a rather long time – particularly given the type of product and service one is concerned with here.

38.  Nonetheless, I am firmly of the view that the only right course for this court to take is to remit the case to the Appeal Board for reconsideration in the light of this court’s determination on the question of jurisdiction: section 32R(2)(b). In other words, it will be for the Appeal Board to hold a substantive hearing and decide the question of interim direction where appropriate.  Given that the present appeal is one on a question of law arising from the decision of the Chairman of the Appeal Board sitting alone pursuant to section 32O(1)(b) – his jurisdiction, sitting alone, is limited to questions of law, it would be a very strange outcome if this court, sitting on appeal from the Chairman’s decision, were to deal with the substantive merits of the appeal, something which even the Chairman when sitting alone cannot do.

Disposition

39.  For all these reasons, I would answer the question of law posed in the affirmative, allow the appeal, and remit the case to the Appeal Board for reconsideration in the light of the court’s determination of the question of law.

40.  As regards costs, both parties are agreed that they should follow the event.  I would, therefore, set aside the costs order made below and award those costs to the appellant instead.  I would also award the costs of this appeal to the appellant, with a certificate for two counsel.

Hon Kwan JA:

41.  I agree with the judgment of the Chief Judge.

Hon Barma JA:

42.  I agree.

Hon Cheung CJHC:

43.  Accordingly, the court answers the question of law and makes the orders as indicated in paragraphs 39 and 40 above.