PCCW-HKT INTERNATIONAL LTD. v. NEW WORLD TELEPHONE LTD.

CACV 150/2000 & CACV 243/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEALS NOS. 150 & 243 OF 2000

(ON APPEAL FROM HCCL 229/1999)

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J U D G M E N T

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Hon Mayo VP (giving the judgment of the Court):

1. Two interlocutory appeals lie before us for determination. They are both appeals lodged by the defendant from decisions made by Stone J. In the first the Judge dismissed an application made by the defendant for him to determine questions of law or construction of the Determinations by the Telecommunications Authority ("TA") dated 29 September 1995 and 7 October 1998 pursuant to s. 36A of the Telecommunication Ordinance, Cap. 106.

2. By the Agreement of the parties the Judge did not consider the questions which were originally posed before him. Instead the question he considered was: "Are each of the propositions of law pleaded in paragraphs 17 & 26 of the Statement of Claim correct? If incorrect in what respect or respects?"

3. Paras 17 and 26 of the Statement of Claim read:

"17. On the true construction of the 1995 Determination, in respect of incoming external calls, the 'local network operator' to whom delivery fees were payable was the local network operator which provided its subscribers access to the Plaintiff's international network and on whose network the incoming call initiated by the person or device outside Hong Kong was to terminate."

"26. The delivery fees in respect of the delivery fee diversion calls were, pursuant to the Agreement, the 1995 Determination and the 1998 Determination, not payable to the Defendant, but to the Local Operator on whose network the delivery fee diversion calls terminated including HKTC."

4. For the reasons he gave in his judgment the Judge declined to answer these questions.

5. The second appeal relates to the plaintiff's application for leave to effect amendments to its Statement of Claim as specified. The Judge granted the leave sought and the defendant appeals against this decision.

6. In the action the plaintiff is claiming the repayment of $280 million it paid to the defendant in respect of delivery fees payable for calls delivered from one network to another. The defendant counterclaims for $94 million being the amount of delivery fees the plaintiff has withheld from the defendant.

7. In 1992 the Government opened up telecommunications services to competition. Hitherto the plaintiff and Cable & Wireless Hong Kong Telephone Company ("CWHKTC") enjoyed a monopoly. Under this monopoly the plaintiff paid to CWHKTC a percentage of its international call revenue. The consideration for this was the use of CWHKTC's local network.

8. Under the new dispensation non-exclusive licenses were granted to the defendant, New T&T and Hutchison Telecom to operate Local Fixed Telecommunication Networks. From 1 July 1995 the networks which had been constructed by the licencees became interconnected with the plaintiff's international gateway thus giving rise to the payment of delivery fees such as had been payable to CWHKTC.

9. The 1995 Determination governed the principles relating to the payment of delivery fees. Some time after the 1995 Determination came into effect the plaintiff discovered that the defendant had caused a large number of incoming calls destined for the network of the called party to be diverted onto its network and then to be re-routed back onto the network of the called party. The plaintiff referred to this as "delivery fee diversion calls" and the defendant to "refile" and "call back calls". The defendant did this pursuant to an Agreement they concluded with the operator carrying the outward call from the country of origin. It is this diversion that lies at the heart of this litigation.

10. An investigation was undertaken by the Office of the Telecommunications Authority which led to the 1998 Determination which effectively caused the practice of diversion of calls to be discontinued.

11. However it is the defendant's case that upon a true construction of the 1995 Determination which could be considered in a similar manner to a statutory instrument it was entitled to receive the delivery fees as it had taken delivery of the calls on its network and passed them on. It rejected the plaintiff's contention that this was not the basis upon which payment should be effected as the calls had not terminated with the defendant's network. The plaintiff had claimed that the delivery fees should have been payable to its subsidiary company HK Telecom.

12. Mr Henderson QC for the defendant submitted that this was a straightforward question of construction which was admirably suited for determination under Order 14A of the Rules of the High Court. He helpfully set out the defendant's position on construction in a note he prepared for us.

"NWT's case on construction

1. Upon the true construction of the contract between HKTI and NWT and in particular of the 1995 Determination, delivery fees were payable by HKTI to NWT in respect of completed incoming international calls when NWT took delivery of those calls from HKTI on to its own fixed network at its interconnection with HKTI's international gateway.

2. Upon the true construction of the contract between HKTI and NWT in particular of the 1998 Determination, the position remained unaltered as respects call-back calls of which NWT took delivery from HKTI on to its own fixed network at its interconnection with HKTI's international gateway but refiled calls were prohibited under paragraph 6(b)."

13. The main criticism which Mr Henderson levelled towards the Judge was that as this was a simple question of construction he should have been prepared to make an adjudication upon it. This would have been of great assistance to the parties because it might easily have obviated the necessity for an expensive and protracted trial. He placed considerable reliance upon Korso Finance v Wedge & Others unreported 15 February 1994 English Court of Appeal transcript 94/387 and Mercury Communications Ltd. v. Director General of Telecommunications [1996] 1 WLR 48. He went on to submit that if we did consider that this was an appropriate case for the operation of Order 14A we should ourselves undertake the construction of the relevant parts of the 1995 Determination rather than referring the matter back to Stone J.

14. What emerges from all of this is that the main issue which has to be determined by us is whether the defendant is able to demonstrate that Stone J was plainly wrong in the exercise of the discretion reposed in him in declining to construe the relevant parts of the 1995 Determination. Put another way was the question of construction posed by Mr Henderson one which would finally dispose of the issues between the parties or at least be a dominant feature of the case?

15. In order to make out his case Mr Henderson very understandably made full submissions to us on the construction of the relevant parts of the 1995 Determination. He did this to demonstrate his contention that if he was correct in his construction the defendant would have been entitled to re-route the calls in the manner it had and to receive the delivery fees from the plaintiff. It was necessary for him to establish this if he was to make out a case that it was appropriate to invoke the provisions contained in Order 14A.

16. His starting point was to refer to what was common ground between the parties.

17. First all calls in this case were completed calls. Secondly the defendant created its fixed network which was interconnected with the plaintiff's international gateway. Thirdly the relevant calls were delivered by the plaintiff onto the defendant's network at the point of interconnection for onward transmission. To that extent one network was used. The fact that the defendant had taken delivery at the interconnection of calls onto its network was sufficient consideration to entitle it to payment of the delivery fees. There was nothing in the 1995 Determination which stipulated that calls in question would have to terminate on the defendant's network.

18. Mr Henderson then referred us to well established principles of construction. His main reason for doing so was to demonstrate that the scope for introducing implied terms into the 1995 Determination was severely circumscribed. He referred to the well known passage from the judgment of Lord Atkin at p. 226 of Bell v. Lever Brothers [1932] AC 161:

"... Nothing is more dangerous than to allow oneself liberty to construct for the parties contracts which they have not in terms made by importing implications which would appear to make the contract more businesslike or more just. The implications to be made are to be no more than are 'necessary' for giving business efficacy to the transaction, and it appears to me that, both as to existing facts and future facts, a condition would not be implied unless the new state of facts makes the contract something different in kind from the contract in the original state of facts."

19. This supported his contention that in construing the words in question it was not permissible to have regard to any attempt to add meaning to the Determination.

20. He also called in aid the principles laid down by the House of Lords in Prenn v. Simmonds [1971] 1 WLR 1381 that in construing a written agreement evidence of negotiations or the parties intentions ought not to be received in evidence. He argued that this was particularly germane in the instant case as it was apparent that in the period prior to the finalisation of the 1995 Determination there had been an evolving situation as the TA had been receiving representations from the industry. This situation is slightly different from the usual one as neither the plaintiff nor the defendant had been parties to the publication of the Determination.

21. The relevant parts of the 1995 Determination are in this form.

"'delivery fee' means the payment to the local network operator for the delivery of the relevant traffic to and from the network of Hong Kong Telecom International Limited (HKTI). The delivery fee is expressed in gross terms before any deduction for Universal Service Contribution."

"The Determination

2. The Telecommunications Authority, in exercise of his power under section 36A of the Telecommunication Ordinance,

having been satisfied that the parties have been afforded reasonable opportunity in accordance with section 36A(4) to make representations to him as to why a determination should not be made;

having considered the views expressed by the parties concerning the delivery fee arrangement;

having considered the matters stated in the annexed paper OFTA P006 (95) entitled 'Review of Delivery Fees';

hereby determines that the following terms and conditions concerning delivery fees shall form part of the terms and conditions of an agreement between HKTI and each local network operator respectively for the interconnection between the network of HKTI and each local network:

1. The delivery fee per minute of the relevant traffic shall be fixed in nominal terms throughout the effective period and be as given in the following table:

Traffic	The Mainland Short Haul	China Long Haul	Rest of World
Outgoing	$0.63	$1.60	2.23
Incoming	$0.63	$1.60	2.23

2. The delivery fee in each column of the table in paragraph (1) shall apply to any relevant traffic destined for, or originating from, any place within the area specified for that column.

3. For outgoing relevant traffic, the local network operator shall pay HKTI the applicable HKTI tariff less the amount of the delivery fee. In this paragraph, the 'applicable HKTI tariff' means the maximum charge for the external public telephone service approved by the TA under HKTI's licence less any discount or any other reduction notified by HKTI to be applicable to all local networks.

4. For incoming relevant traffic, HKTI shall pay the local network operator the amount of the delivery fee.

5. The effective period for the delivery fee in paragraph (1) shall initially be five years commencing from 1 October 1995 and may be extended by the TA for another five years commencing from 1 October 2000."

22. Mr Henderson submitted that the natural meaning of the words was sufficiently clear and unambiguous that no extrinsic aid to construction was necessary and that no such aid displaced the natural meaning of the words particularly bearing in mind the legal principles earlier referred to.

23. This being the case this was a classic case for the operation of Order 14A.

24. The reply of Mr Field QC for the plaintiff to this was that it was clearly open to Stone J to consider the whole matter at large rather than confining himself simply to construing the Determinations.

25. The fact of the matter was that in the opinion of the plaintiff the defendant had definitely been guilty of at least sharp practice.

26. Nowhere in all the voluminous documentation was there any suggestion that anyone other than the defendant had benefited in any way from what it had done. Its interventions had added nothing to the well being of the operation of the traffic.

27. It was plain and obvious from reading the 1995 Determination that it contemplated that there should be some consideration for justifying the receipt of delivery fees.

28. What was also highly relevant had been the conduct of the defendant.

29. Mr Field took us through the affidavit evidence which had been before Stone J in support of the application. It certainly appeared from this that the defendant had been much less than frank and had actively attempted to conceal what it had done from the plaintiff. It was also evident that the information had been forthcoming in "dribs and drabs" and Mr Field informed us that even at the present time the plaintiff was not entirely confident that it was fully conversant with all of the implications of what the defendant had done. This being the case it was his contention that it was undoubtedly premature to attempt to construe the Determinations.

30. Mr Field also submitted that it was apparent from the expert testimony of Dr Ure that "delivery fees" were a term of art and that it was understood in the telecommunication industry that the concept of delivery fees also embraced as part of the conception that the call in question would terminate after it had been received.

31. He also called in question whether there had been delivery as defined in the Determination.

32. Mr Field drew our attention to the surrounding documentation from which it was manifest that the re-routing of calls in the manner undertaken by the defendant was not within the contemplation of the TA. It was also apparent that if delivery fees were payable as claimed by the defendant it would inevitably lead to chaotic market conditions as each of the Local Fixed Operators would vie between themselves to enter into contracts with overseas parties to obtain totally unmeritorious delivery fees. This could not be a beneficial outcome to the matter.

33. The consequence of all of this was that if the Determinations were construed prior to all of these matters being resolved there was a distinct probability that the court would find itself undertaking what he described as being an abstract and hypothetical exercise.

34. Over and above this he did not accept the validity of the contentions being advanced by Mr Henderson that once the Determinations had been construed for all practical purposes the litigation would be at an end.

35. Stone J weighed all of these considerations carefully and gave detailed reasons for the conclusion he reached. At p. 25 of the core bundle he says

"In my judgment the natural caution felt by any court when faced with an Order 14A application in what is evidently a complex case is more than justified in this instance, since it is not until the trial takes place that the court will have the whole picture available for its consideration. To jump the gun at this early stage, on the basis of assumed facts and absent discovery is, in my view, a signally unwise course to adopt.

Which brings me to the second significant consideration which has weighed in the decision to refuse this application; indeed, arguably it is the other side of the same coin. Despite Mr Henderson's efforts to argue the contrary, I remain unconvinced that it is possible adequately to factually 'desensitize' this case so as to circumvent the dangers of 'deciding questions of legal principle without knowing the full facts', to use the well-known words of Sir Thomas Bingham M.R. In this case I do not believe that it is possible to reach the position wherein it can safely be said that there are no issues of fact necessarily interwoven with the legal issues raised, notwithstanding Mr Henderson's willingness presently to accept the adverse matters alleged against his client in the evidence."

36. The main complaint which is made by Mr Henderson in relation to the judgment is encapsulated in ground 4 of this appeal. It is that the Judge was requested to construe the relevant parts of the Determinations and declined to do so. He said he was clearly in error in refusing to do this. We pressed Mr Henderson on this and inquired whether it was his submission that in every application made under Order 14A seeking the construction of any instrument it was mandatory for the judge to undertake the exercise. He said that in almost every case this would be so.

37. We disagree. There can be no doubt that a discretion is reposed in the judge hearing such an application. It is also very clear that it is incumbent upon a judge to take all relevant matters into account in deciding whether or not it is appropriate to undertake the construction of documents at any particular phase of the litigation.

38. We are satisfied that the Court of Appeal was right in Richard Lau v Villette Wong [1996] 1 HKC 165 to hold that the correct test to adopt in deciding whether to interfere with the exercise of a discretion by a judge is the test laid down by Lord Diplock in Hadmor Productions Ltd. v Hamilton [1983] 1 AC 191 at p.220:

"Before adverting to the evidence that was before the learned judge and the additional evidence that was before the Court of Appeal, it is I think appropriate to remind your Lordships of the limited function of an appellate court in an appeal of this kind. An interlocutory injunction is a discretionary relief and the discretion whether or not to grant it is vested in the High Court judge by whom the application for it is heard. Upon an appeal from the judge's grant or refusal of an interlocutory injunction the function of an appellate court, whether it be the Court of Appeal or your Lordships' House, is not to exercise an independent discretion of its own. It must defer to the judge's exercise of his discretion and must not interfere with it merely upon the ground that the members of the appellate court would have exercised the discretion differently. The function of the appellate court is initially one of review only. It may set aside the judge's exercise of his discretion on the ground that it was based upon a misunderstanding of the law or of the evidence before him or upon an inference that particular facts existed or did not exist, which, although it was one that might legitimately have been drawn upon the evidence that was before the judge, can be demonstrated to be wrong by further evidence that has become available by the time of the appeal; or upon the ground that there has been a change of circumstances after the judge made his order that would have justified his acceding to an application to vary it. Since reasons given by judges for granting or refusing interlocutory injunctions may sometimes be sketchy, there may also be occasional cases where even though no erroneous assumption of law or fact can be identified the judge's decision to grant or refuse the injunction is so aberrant that it must be set aside upon the ground that no reasonable judge regardful of his duty to act judicially could have reached it. It is only if and after the appellate court has reached the conclusion that the judge's exercise of his discretion must be set aside for one or other of these reasons, that it becomes entitled to exercise an original discretion of its own."

39. In our view adopting this test the dependant falls far short of satisfying us that it would be appropriate to interfere with the Stone J's judgment. Indeed it is clear that he came to the right decision in this matter. In this connection it is perhaps helpful to bear in mind that when the Judge in charge of the commercial list of cases hears an application of this nature he will inevitably be concerned with overall matters of case management. It is clear from a perusal of Stone J's judgment that he carefully bore in mind all relevant factors and we do not think that he can validly be criticised for the way in which he dealt with this application.

40. That then leaves the second appeal relating to the leave he granted to the plaintiff to amend its Statement of Claim

41. We can deal with this very briefly. Adopting the Hadmor test we can only interfere with the Judge's discretion if it can be demonstrated that the amendments sought are clearly unsustainable.

42. All of the issues which the plaintiff seeks to ventilate by its amendments are arguable. This would even include the claim that the defendant did owe a duty to the plaintiff to act in good faith in the particular circumstances of this case. We accept however that the prospects of success on this issue may not be very propitious. We do not consider however that we would be justified in interfering with Stone J's decision.

43. This being the case both these appeals are dismissed. We make an order nisi that the plaintiff is to have its costs of these appeals.