SMARTONE MOBILE COMMUNICATIONS LTD v. TELECOMMUNICATIONS (COMPETITION PROVISIONS) APPEAL BOARD

HCAL 22/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 22 OF 2014

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J U D G M E N T

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INTRODUCTION

1.  By its draft amended Form 86, the Applicant (“Smartone”) seeks leave to apply for judicial review against three decisions of the Telecommunications (Competition Provisions) Appeal Board (“Appeal Board”) ie:

(1) Refusal of the Appeal Board to give leave to Smartone to intervene in appeal case no 31 (“the Appeal”) on 19 February 2014 (“First Refusal”);

(2) Decision of the Appeal Board on 19 February 2014 to permit five senior management members of Hong Kong Telecommunications (HKT) Limited (“HKT”) (appellant in the Appeal) to inspect the iPhone agreement amended and restated effective from 1 January 2013 (“IPhone Agreement”) between Smartone and Apple Asia Limited (“Apple Asia”) for the purpose of giving instructions to HKT’s legal representatives in the Appeal (“Disclosure Decision”);

(3) Refusal of the Appeal Board to give leave to Smartone to intervene in the Appeal on 25 February 2014 (“Second Refusal”).

2.  On 21 February 2014, Smartone applied ex parte on notice before Au J for interim relief the effect of which is to suspend the coming into effect of the Disclosure Decision until the leave application of this judicial review. Au J adjourned the matter to this court and gave directions for the filing of evidence and skeleton submissions.

3.  At the beginning of the adjourned hearing, this court indicated to Mr Sussex SC for Smartone that it was not prepared to grant leave to apply for judicial review on paper and suggested that the hearing be treated also as his client’s leave application, given HKT’s first ground in opposition to the interim relief sought was that none of the grounds for judicial review put forward by Smartone were reasonably arguable. Mr Sussex SC properly acceded to the suggestion.

4.  There is urgency in the matter. This is because the Appeal is due to be heard on 10 March 2014 before the Appeal Board, with one day reserved. For reasons which will become apparent, this court’s decision on the interim relief application impacts upon HKT’s conduct of the Appeal.

BACKGROUND

5.  All the parties to this action are well-known. There is no need for introduction.

6.  In September 2012, Apple Asia launched iPhone 5 in Hong Kong. HKT alleged that shortly afterwards it discovered iPhone 5 was installed with a SIM-lock which prevented subscribers of HKT’s network from having access to its 4G/LTE network. At first, only Smartone’s 4G/LTE network could be accessed. Subsequently, other networks were enabled, but HKT's subscribers remained denied.

7.  HKT immediately complained to the Office of the Communications Authority ("OFCA"), the executive arm of the Communications Authority (“Authority”). The complaint was that the SIM‑lock breached section 7K of the Telecommunications Ordinance, Cap 106, (“TO”) as well as a statement issued by the Authority on 20 February 1997 entitled “Way Forward of ‘SIM-Lock’ ”. In November 2012, HKT extended its complaint to the iPad.

8.  HKT asked the Authority to issue an immediate direction under section 36B TO to Apple Asia and Smartone, requiring inter alia the SIM‑lock be removed.

9.  The Authority issued its decision in January 2013. It considered the information provided by HKT was inadequate to enable OFCA to assess whether the complaint raised a genuine competition issue within the scope of the competition provisions of the TO such that OFCA might consider it justified to conduct an initial inquiry of the matter. It also refused to grant an immediate direction under section 36B TO.

10.  Also in January 2013, Smartone was informed by OFCA of HKT’s complaint. It then provided to OFCA a copy of the IPhone Agreement with certain redactions to it. The redacted parts contained commercially sensitive information which Smartone said should not be relevant to the complaint. At that time, it only sought to redact the commercial and financial figures in the IPhone Agreement: see e‑mail from Miss Lau of the Legal Regulatory & Company Secretary Office of Smartone to Apple Asia dated 3 January 2013.

11.  In February 2013, HKT filed an appeal against the Authority’s decision to the Appeal Board by lodging a Notice of Appeal dated 1 February 2013. That is the Appeal. The relief sought by HKT is that the Authority should issue a direction under section 36B TO directing Apple Asia to remove the SIM-lock. The Notice of Appeal was announced on the website of the Commerce and Economic Development Bureau in March 2013.

12.  The significance of the date of the announcement is this. Under paragraph 12(1) of the Appeal Board’s Guidelines on Practice and Procedure (“Guidelines”), any person wishing to intervene in the Appeal shall seek the leave of the Chairman or the Appeal Board at the earliest opportunity and in any event no later than 28 days of publication of the announcement of the Notice of Appeal on the website of the Commerce and Economic Development Bureau.  The Chairman and Appeal Board may grant leave to intervene later in the appeal proceedings if the intended intervener can demonstrate that it is not feasible for it to have sought leave within the time limit.

13.  Skipping the irrelevant events in between, in January 2014, Apple Asia applied for leave to intervene in the Appeal. It should be immediately pointed out that Apple Asia’s application, albeit late, was to intervene in the Appeal generally. This is in contrast to Smartone’s subsequent applications to intervene in the Appeal which were for the limited purpose of making representations to protect the confidentiality of its IPhone Agreement with Apple Asia. Under paragraph 12(2) of the Guidelines, the intended intervener should make its request for leave in writing explaining why it has sufficient interest which is directly related to or connected with the matters in the appeal. Apple Asia is the direct target of the relief sought by HKT in the Notice of Appeal. Smartone is not.

14.  I mentioned this because in the course of the hearing, Mr Sussex SC complained inter alia that the Appeal Board had acted inconsistently in allowing Apple Asia’s late application to intervene but refusing Smartone’s equally late applications. In the view of this court, there was no inconsistency given the fact that the purposes of the intended intervention by Apple Asia and Smartone were different.

15.  On 24 January 2014, the Appeal Board decided to grant leave to Apple Asia and set down the appeal for a one-day substantive hearing on 10 March 2014.  Pursuant to paragraph 21(2) of the Guidelines, the  Appeal Board informed Apple Asia that it would like to have information or evidence as to what, if any, agreements or arrangements Apple Inc and Apple Asia had entered into with other telecommunications licensees in Hong Kong.

16.  On 7 February 2014, Apple Asia provided redacted copies of IPhone Agreements it had entered into with various mobile network operators to the Appeal Board. For the purpose of this decision, I shall only concentrate on its IPhone Agreement with Smartone. The redactions related to what Apple Asia considered to be commercially sensitive figures such as minimum order commitments, quantum of advertising and merchandising funds as well as subsidy amounts committed by the mobile network operator. Suffice it to say that the redactions were not identical to, and fewer than, those in the version provided by Smartone to OFCA in January 2013. Apple Asia also applied for a direction from the Appeal Board, pursuant to paragraph 16(4) of the Guidelines and section 32O(1)(vii) TO, that the IPhone Agreement not be disclosed to the public or HKT.

17.  On 12 February 2014, the Appeal Board made a ruling on Apple Asia’s request for confidentiality. The Appeal Board considered that “The IPhone Agreements … in the form presented to the Appeal Board have already been redacted to conceal the minimum order requirements, quantum of advertising and merchandising funds and the level of subsidy paid to the MNOs. The Appeal Board considers this adequate to protect [Apple Asia’s] legitimate concern.” The Appeal Board directed at that stage the redacted IPhone Agreement be disclosed only to the solicitors and counsel for HKT on the condition that they did not show or otherwise communicate the contents thereof to HKT without leave of the Appeal Board. The Appeal Board also invited the parties to agree a workable protocol to permit HKT’s legal team to obtain their client’s instructions on the redacted IPhone Agreement in such a way as would not harm the commercial interest of HKT or Apple Asia.

18.  On 16 February 2014, HKT’s solicitors proposed to Apple Asia’s solicitors that in order to enable them to obtain instructions necessary to prepare for their response to Apple Asia’s submissions, they should be allowed to disclose the redacted IPhone Agreement to five senior members of HKT’s management ie its Group Managing Director, Group General Counsel & Company Secretary, Group Head of Regulatory, Senior Group Legal Adviser and Managing Director, Wireless Business. HKT’s solicitors indicated that in the absence of agreement, they would seek an urgent direction from the Chairman of the Appeal Board to that effect.

19.  On 17 February 2014, Apple Asia’s solicitors informed Smartone’s solicitors the proposal of HKT’s solicitors as aforesaid. Indeed, on the evidence, Smartone had all along been kept informed of the Appeal proceedings by Apple Asia.

20.  By letter dated 18 February 2014, Smartone’s solicitors applied to the Appeal Board for leave to intervene in the Appeal for the limited purpose of making representations to protect the confidentiality of the IPhone Agreement, the terms of which, it suggested, were commercially sensitive. In the letter, Smartone’s solicitors pointed out inter alia that HKT was a direct competitor of Smartone, the IPhone Agreement was expressly stated to be confidential between the parties, and, having seen a copy of the redacted IPhone Agreement disclosed by Apple Asia, it would have gone further and redacted further parts of the agreement which it considered to be commercially sensitive. 

21.  On 19 February 2014, the Appeal Board gave its reply to Smartone’s solicitors. The letter said the Chairman had considered the representations made in the 18 February 2014 letter and refused leave to intervene on the basis that the grounds relied on by Smartone (namely the protection of confidentiality of documents) were insufficient to support an application to intervene in the substantive appeal. This is the First Refusal.

22.  Also by letter dated 19 February 2014 to the solicitors for HKT, the Authority, Apple Asia and Smartone, the Appeal Board gave its ruling on HKT’s application for disclosure of the redacted IPhone Agreement to management members of HKT. The letter said the Chairman directed that that the five specified representatives of HKT only be permitted to read and consider the IPhone Agreement for the purpose only of giving instruction to HKT’s lawyers in the Appeal. This is the Disclosure Decision.

23.  On 20 February 2014, Smartone’s solicitors made a second application to the Appeal Board for leave to intervene and sought to vary the Disclosure Decision to the effect that the five HKT representatives only be permitted to read and consider a further redacted version of the IPhone Agreement for the purpose only of giving instruction to HKT’s lawyers in the Appeal. This further redacted version of the IPhone Agreement is the version previously supplied by Smartone to OFCA in January 2013.

24.  In this letter, Smartone’s solicitors made extensive representations to the Appeal Board on why the issue of confidentiality afforded Smartone sufficient interest to intervene, why it considered the protection built into the Disclosure Decision was inadequate in a case involving a trade rival, and why the further redacted version of the IPhone Agreement struck the correct balance between ensuring the issues in the Appeal be determined fairly and protecting Smartone’s “confidentiality interests”: see in particular paragraphs 18 to 22 of the letter. The letter also drew the Appeal Board’s attention to Mobil Oil Australia v Guina Development Pty [1996] 2 VR 34 for the proposition that special considerations should be taken into account when ordering discovery of confidential documents to a trade rival. At the hearing before this court, Mr Sussex SC also referred this court to the same passages.

25.  On 21 February 2014, the Chairman invited all parties to submit memorial submissions on the subject. Smartone’s solicitors duly made submissions in a letter dated 24 February 2014.

26.  On 25 February 2014, the Appeal Board refused Smartone’s renewed application to intervene. The Appeal Board gave 3 reasons. First, the application was grossly late. Second, the protection of confidentiality of documents was an insufficient ground upon which to intervene in the substantive appeal. Third, the Chairman, having examined the redacted IPhone Agreement, could discern no quality of confidentiality to justify further redaction or exclusion. This is the Second Refusal.

BASIC LEGAL PRINCIPLES

27.  I should first remind myself briefly of the principles on which a court should act in judicial review proceedings. I need only mention four.

28.  First, the court in judicial review proceedings is not a court of appeal: the court is exercising its supervisory, rather than appellate, jurisdiction over the body entrusted by statute with the decision‑making power.

29.  Second, “Arguability” is the appropriate test for leave applications for judicial review - only a reasonably arguable claim which enjoys realistic prospects of success should be given leave to proceed.

30.  Third, when a decision is being challenged as Wednesbury unreasonable or irrational, it means a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who has applied his mind to the question to be decided could have arrived at it.

31.  Fourth, judicial review is not meant for micro-managing the activities of subordinate tribunals or administrative decision-makers; save for wholly exceptional cases, it should hardly ever be exercised to review decisions that go only to procedure, rather than the end result.

32.  With regard to the fourth proposition, it is pertinent to note that under section 32O (7) TO, the Chairman may determine any matter of practice or procedure relating to the hearing of appeals where no provision governing such matter is made in the Ordinance or in the regulations.

GROUNDS OF JR

33.  In the draft amended Form 86, Smartone has put forward six grounds of review. In HKT’s written submissions, it is suggested that none of them are reasonably arguable.

1^st and 2^nd Grounds

34.  The first and second grounds relate to the First Refusal and the Second Refusal and can be considered together.

35.  The first ground complains that the Appeal Board has placed manifestly insufficient weight on the correct factual background. The complaint appears to be that the Appeal Board has failed to appreciate or sufficiently appreciate the fact that the positions of Smartone and Apple Asia vis-à-vis HKT are fundamentally different, Apple Asia being only a supplier of mobile phones, whereas Smartone and HKT are direct competitors in the market.

36.  To start with, this court is unable to accept the suggestion that the Appeal Board has failed to appreciate the difference between Smartone and Apple Asia vis-à-vis HKT. Any man in the street knows Smartone and HKT are direct competitors. Equally, any man in the street knows Apple Asia is a supplier of mobile phones and not a mobile network operator. It is unrealistic to suggest the Appeal Board, being a specialist panel appointed under the TO, would be ignorant of the difference between the two. In this regard, I should point out that under section 32M(2) and (3) TO, in order to be appointed Chairman of the Appeal Board, he has to be eligible to be appointed a judge of the High Court.

37.  Second, the weight to be attached to a particular consideration is a matter for the decision-maker: R (Sainsbury's Supermarket Ltd) v Wolverhampton CC[2011] 1 AC 437 at [70]. In the present case, the Chairman / Appeal Board. Apart from the fact that leave to intervene has been refused twice, there is no basis for suggesting that the Appeal Board has failed to accord proper weight, whatever that may mean, to the distinction between Smartone and Apple Asia. None has been shown in either the draft amended Form 86 or the skeleton submissions.

38.  Lastly, it must be remembered that the decisions under challenge are the Appeal Board’s refusal to allow Smartone to intervene. This is a matter of practice and procedure on which the Chairman is conferred sole discretionary power under section 32O (7) TO. The court’s jurisdiction of judicial review is not meant for micro-managing procedural decisions of statutory tribunals save for wholly exceptional cases. Nothing exceptional has been shown on the face of the draft amended Form 86.

39.  The second ground complains that the Appeal Board has erred in law in not applying the rule of disclosure where trade rivals and trade secrets are involved. It would appear from paragraph 62 of the draft amended Form 86 that Smartone is again relying on the case of Mobil Oil Australia v Guina Development Pty [1996] 2 VR 34.

40.  This court is unable to accept the second ground as reasonably arguable.

41.  First, apart from a bare assertion, there is no explanation in the draft amended Form 86, the contemporaneous correspondence or the skeleton submissions as to why the few additional terms in the IPhone Agreement which Smartone seeks to redact constitute trade secret or are commercially sensitive. This is in sharp contrast to Smartone’s original stance back in January 2013 when it provided OFCA with a copy of its IPhone Agreement with Apple Asia. At that time, it only sought to redact the commercial and financial figures in the agreement: see e-mail from Miss Lau of the Legal Regulatory & Company Secretary Office of Smartone to Apple Asia dated 3 January 2013.

42.  Second, at the time of the First and Second Refusal, the Appeal Board had the advantage of all the IPhone Agreements entered into by Apple Asia with not just Smartone, but also other mobile network operators.  The Appeal Board would be in the best position to judge whether the few additional terms in the IPhone Agreement which Smartone seeks to redact constitutes trade secrets or has any quality of confidentiality requiring additional protection. 

43.  Third, as I said earlier, in the letter dated 20 February 2014, Smartone’s solicitors have referred to the case of Mobil Oil Australia v Guina Developments Pty Ltd [1996] 2 VR 34 to the Appeal Board. They have also repeatedly asserted that in order to preserve commercially sensitive information, HKT should only be provided with the further redacted version of the IPhone Agreement.  Hence, the Appeal Board, or rather the Chairman, must have the point in mind. What happened was just that he took a different view. In the ruling dated 25 February 2014, one of the grounds stated for the Second Refusal was that the Chairman could discern no quality of confidentiality to justify further redaction or exclusion.

3^rd Ground

44.  Under this ground, Smartone complains that fairness call for reasons for the First Refusal, and a fortiori the Second Refusal – the Appeal Board has failed to give adequate reasons for either.

45.  This court finds it difficult to comprehend this ground. The Appeal Board has given reasons for both the First Refusal and the Second Refusal. Altogether, three reasons have been given.

46.  First, the application was grossly late. This should be self‑explanatory in light of paragraph 12(1) of the Guidelines.

47.  Second, the protection of confidentiality of documents was an insufficient ground upon which to intervene in the substantive appeal. This is a matter of interpretation of paragraph 12(2) of the Guidelines and a matter of discretion for the Chairman. Smartone’s legal team may disagree with the Chairman but they cannot complain that this is not a reason.

48.  Third, the Chairman could discern no quality of confidentiality to justify further redaction or exclusion. This again should be self-explanatory even though Smartone’s legal team may disagree.

49.  In the view of this court, the Appeal Board has given reasons for the two refusals. The reasons are intelligible and in the circumstances adequate.

4^th and 5^th Grounds

50.  These two grounds relate solely to the Disclosure Decision.

51.  Smartone complains that the Appeal Board has been denied a meaningful opportunity to make informed representations before making the Disclosure Decision. Also, the Appeal Board has failed to take into account of the views of Smartone before making the Disclosure Decision.

52.  It would appear from paragraph 96 of the draft amended Form 86 that these two grounds amount to two sides of the same coin ‑ because Smartone has been denied an opportunity to make informed representations in relation to HKT’s application for disclosure of the IPhone Agreement to five members of its management, the Appeal Board has not taken in account of Smartone’s view before coming to the Disclosure Decision.

53.  In the view of this court, these grounds lack factual foundation and are therefore flawed.

54.  On 17 February 2014, Smartone’s solicitors were apprised of the fact that HKT’s solicitors intended to seek permission to disclose the IPhone Agreement to five senior members of HKT’s management. That was what prompted them to send their letter of 18 February 2014 to the Appeal Board expressing their concern that the redacted IPhone Agreement, still containing commercially sensitive information, might be disclosed to Smartone’s direct competitor. It was entirely up to them to put forward Smartone’s case to the Appeal Board regarding the confidentiality of the redacted IPhone Agreement and why the Appeal Board should not allow HKT’s management to have sight of it. Extensive representations to that effect, informed or otherwise, were in fact made by Smartone’s solicitors in the 18 February 2014 letter. The Appeal Board has not denied them an opportunity to make representations.

55.  In fact, it is not clear to this court what “informed” representations are supposed to mean. There is no elaboration in the draft amended Form 86 or the skeleton submissions which would shed light on it. The IPhone Agreement is between Smartone and Apple Asia. Whether any of the additional terms which Smartone seeks to redact are commercially sensitive is something which Smartone and its legal team would know. It is unclear why they need to be informed of anything more before they put forward their case to the Appeal Board.

6^th Ground

56.  Under this ground, Smartone complains that the Second Refusal is unreasonable and irrational.

57.  From paragraphs 102 and 106 of the draft amended Form 86, it seems to this court that this ground adds very little to what is already covered by the 1^st, 2^nd and 3^rd Grounds.

58.  For reasons already explained above, in the view of this court, there is nothing in the Second Refusal which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who has applied his mind to the question to be decided could have arrived at it.

59.  This court will give two additional reasons why it takes the view that the Second Refusal is neither Wednesbury unreasonable nor irrational.

60.  First, under paragraph 12(2) of the Guidelines, an applicant for leave to intervene must show it has sufficient interest which is directly related to or connected with the matters in the Appeal. There is nothing outrageous for the Chairman to take the view that the protection of confidentiality of documents was an insufficient ground upon which to intervene in the Appeal. While the matter is for the Chairman and not for this court, this court would express the view that it would not be unreasonable to interpret “directly related to or connected with the matters in the Appeal” to mean directly related to or connected with the substantive matters in the Appeal. In the present case, Smartone did not claim to have any interest in the substantive matters of the Appeal – it sought to intervene only for the purpose of protecting the confidentiality of the redacted IPhone Agreement.

61.  Second, there is nothing in the Guidelines or TO which suggests one can only seek confidential treatment of documents by being an intervener.

62.  On Smartone’s own case, in paragraph 21 of its Decision dated 24 January 2014 (in relation to Apple Asia’s application to intervene), the Appeal Board has decided that if Apple Asia or anybody else sought to assert confidentiality in any documents, they should observe the procedure in paragraph 16(4) of the Guidelines. The procedure under paragraph 16(4) provides for the making of a written request to the Chairman giving detailed reasons for the request for confidential treatment of documents and identifying the material which he wishes to keep confidential. The Chairman shall then decide whether such request should be acceded to.

63.  In the present case, Smartone has made three representations to the Appeal Board ie on 18, 20 and 24 February 2014 and the Chairman has decided accordingly in the Second Refusal. This is already in compliance with the procedure in paragraph 16(4) of the Guidelines.

CONCLUSION

64.  For the above reasons, this court finds none of the grounds set out in the draft amended Form 86 reasonably arguable. It follows that this court is unable to allow Smartone’s application for leave to apply for judicial review in this case. It also logically follows that this court must refuse Smartone’s application for interim relief.

DISPOSITION

65.  This court hereby dismiss Smartone’s application for leave to apply for judicial review and application for interim relief.

66.  Lastly, this court would like to thank counsel for all parties for their helpful submissions.