SECRETARY FOR JUSTICE v. HONG KONG CABLE TELEVISION LTD

CACV 130/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 130 OF 2015

(ON APPEAL FROM HCA NO. 2561 OF 2009)

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J U D G M E N T

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Hon Cheung JA :

I. Background

1.1 The defendant HKCTV is a provider of domestic pay television service to customers in Hong Kong.  This appeal is concerned with the service provided by the defendant on the channel known as ‘Cable Channel No. 1’ (former known as ‘Cable Channel A’).  The service was provided to residents of multi-storey residential buildings managed by companies associated with the group to whom the defendant belongs.

1.2   The way the defendant provided the service was to transmit the programme digitally by way of Internet packets (known as Transmission Control Protocol/Internet Protocol (‘TCP/IP’) packets) from the defendant to a set-top box installed in the common areas of the residential buildings.  The IP packets will then be decoded in the set-top box into analogue audio-visuals signals for transmission to the individual flats of the buildings by way of cables known as the In-Building Coaxial Cable Distribution System (‘IBCCDS’).  A television set in the flat connected to the wall plate with a coaxial cable will receive the analogue signals, enabling the viewing of the television programme.

1.3   The defendant entered into subscription agreements for the supply of the service not with the viewers in the individual flats, but with the management company of the buildings or with the Incorporated Owners of the buildings.

1.4  The defendant provided its service under a domestic pay television programme service licence.  It was required to pay to the Government fees prescribed under the Broadcasting Ordinance (Cap. 562) (‘the Ordinance’) unless the service fell within the exception under Schedule 3, namely, a service provided on the Internet (‘the Internet Exemption’ or ‘Internet Exception’).

1.5   The plaintiff sought to recover licence fees from the defendant for three years, namely, 2007, 2008 and 2009.  The defendant argued that its service was covered by the Internet Exception and therefore not liable to pay the licence fees (known as variable licence fees).  The parties also disagreed on how the fees should be calculated.  The plaintiff argued that it should be calculated on the number of flats which received this service, while the defendant argued that the calculation should be based on the number of buildings or estates which received the service. 

1.6   Deputy High Court Judge Simon Leung held the defendant’s service falls within the Internet Exception.  But he also found the Internet Exception requires the defendant to transmit the programme by the use of a ‘globally unique IP address’ (‘the unique IP address’).  Since the defendant only began to use a unique IP address on 11 July 2008, its service only fell into the Internet Exception from that date.  The defendant was ordered to pay variable licence fees for 2007 and 2008.  The relevant date is 1^st June of each year which is the anniversary date of the licence.  The Judge also held that the fees should be calculated on the basis of the individual flats of an estate and not on the basis of the number of buildings which received the service.

1.7   The plaintiff appeals against the decision that the defendant’s service falls within the Internet Exception while the defendant cross-appeals on the issue of calculation of fees.

II.  The statutory scheme

The Ordinance

2.1  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 are the relevant statutory definitions under section 2 of the Ordinance.

2.2   ‘Broadcasting service’ includes a domestic pay television programme service.

2.3   ‘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.

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

2.5  ‘Specified premises’ means any domestic premises, or hotel room, in Hong Kong.

2.6  ‘Television programme service’ :

(a)  Subject to paragraph (b)–

(i) 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; and

(ii)  ―

(b)  does not include the provision of a service that ―

(i) ―

(ii) ―

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

(iv) ―.

2.7   The Internet Exception is found in paragraph 5 of Schedule 3 to the Ordinance which 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).

2.8   Broadcasting (Licence Fees) Regulation (Cap. 562 sub. leg. A) (‘the Regulation’) is subsidiary legislation made under the Ordinance.  Schedule 2 provides for the payment of annual licence fee which consists of a fixed fee and a variable fee :

‘2. Annual licence fee

(1) Subject to subsection (2), the annual licence fee payable for a licence consists of the following―

(a) a fixed fee of $1,533,000; and

(b) a variable fee calculated by multiplying $4 with the number of subscribers (if any) to the television programme service provided under the licence―

(i) for the first annual licence fee, on the specified day; and

(ii) for any subsequent annual licence fee, on each anniversary of the specified day.’

2.9   Subscriber is defined in section 2 of the Regulation as ‘a person to whom a licensed service is provided by a licensee on a subscription basis.’

III.  The appeal

1)   Meaning of Internet

3.1  There is no universal definition of the Internet but in the Court below, the parties had referred to a ruling by the Broadcasting Authority (‘the BA’) dated 28 April 2006 concerning the service provided by Hong Kong Broadband Network Limited (‘HKBN’) in which the BAreferred to the definition of Internet adopted by the US Federal Networking Council (‘FNC’) in 1995 as follows.  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 accessable, either publicly or privately, high level services layers on the communications and related infrastructure described herein.

3.2   This definition is accepted by the Judge.  Since the defendant no longer challenges the requirement of a unique IP address, I will, likewise, adopt this formulation of the meaning of Internet.

2)  The HKBN case

(1)  Nature of the case

3.3  The nature of the HKBN case can be found in the Press Release of the BA on 28 April 2006.  Mr Beresford for the plaintiff informed the Court that he is unable to find any ruling apart from the Annex of the Press Release.  The details of the case are found in the Annex of the Press Release.  Page 2 states that the BA received a complaint that HKBN was operating a domestic pay television programme service (‘HKBN’s service’) without an appropriate broadcasting licence, in contravention of section 5(1) of the Ordinance. The complainant alleged that HKBN’s service did not fall within the exemption stipulated under section 5 of Schedule 3 to the Ordinance because HKBN’s service was provided on a private, closed, proprietary network rather than on the open, public and global Internet.

(2)  Interpretation of ‘the Internet’

3.4  After accepting the US Federal Networking Council definition (‘FNC definition’) as authoritative and influential, the paper continues:

‘ 7. The BA notes that, inherent in the FNC definition, any computer (including set-top box)/network can become part of the Internet, provided that the computer/network in substance satisfies three conditions (‘Internet Requirements’) -

i) It can communicate with other computers on the g14

based on the globally unique IP address;

ii) it supports the TCP/IP; and

iii) it provides high level services layered on its underlying infrastructure.’

(3)  Interpretation of ‘a service provided on the Internet’

3.5   The paper states that :

‘ 8.   The BA considers that ‘a service provided on the Internet’ should be taken to mean a service provided on the underlying communications and related infrastructure of the Internet.  Taking into account the features of the Internet as characterized in the FNC definition, the BA is of the view that the following should serve as an appropriate set of criteria for determining whether a service is ‘a service provided on the Internet’ (‘Internet Service Requirements’) -

i) the service is targeted at the general public and made available to them based on the globally unique IP address;

ii) the service uses the TCP/IP protocols; and

iii) the service is layered on the underlying infrastructure of the Internet.’

(4)  HKBN’s service

3.6  The paper states that:

‘ 9. The BA considers that HKBN’s Metro Ethernet Network has in substance complied with the Internet Requirements and is part of the Internet given that -

a) There is no evidence in all the documents available suggesting that computers on HKBN’s Metro Ethernet Network are prohibited from communicating with computers outside.  From a technical point of view, computers on HKBN’s Metro Ethernet Network can generally communicate with other computers on the Internet based on the globally unique IP address.  This is consistent with the test reports of Office of Telecommunications Authority (‘OFTA’) and HKBN’s confirmation that it tends “not to impose any firewall to block the access from other subscribers of other providers or Internet Service Providers”.

b) HKBN’s Metro Ethernet Network uses the TCP/IP protocols.

c) HKBN’s Metro Ethernet Network provides high level services (including broadband Internet access, local telephony and TV services).

10. The BA notes that HKBN’s Service consists only of a service which is characterised as follows -

a) The service is targeted at the general public.  The service is made available to both customers directly connected to HKBN’s Metro Ethernet Network and customers subscribing to broadband Internet access services of other Internet Service Providers.  In both cases, the service is provided to the customers based on the globally unique IP address.

b) The service uses the TCP/IP protocols.

c) The service is layered on the underlying infrastructure of the Internet.

11.  The service as characterized above has complied with the Internet Service Requirements and is therefore a service provided on the Internet.  As such, the BA considers that HKBN’s Service consists only of a service provided on the Internet.’

(5)  Decision

3.7  The paper states that:

‘ 12. By reason of the foregoing, the BA considers that HKBN’s Service falls within the Internet Exemption.’

3)  The experts’ view

3.8   The defendant relied on the BA ruling in support of its case that its service falls within the Internet Exception. Both parties have retained experts who agreed on the following:

‘ 5. Both experts agree that there are similarities shared by the HKCTV and the HKBN configurations as described by Prof Li. This description is quoted from Paragraph 8 of Prof. Li’s Expert Report as follows:

“In both the HKCTV and the HKBN configurations, the TV signal is transmitted in two stages. In the first stage, it is in the form of IP packets, and in the second stage, as an analog signal. …”

6.  Mr Yung also remarks that both configurations involve data transmission to an IPTV set-top box and that the signal as transmitted from an IPTV set-top box to a TV set via the RCA cable in the case of HKBN and via the IBCCDS in the case of HKCTV are both in analogue format.’

3.9   They, however, disagreed whether there is a difference between the HKBN case and this case.  The defendant’s expert said no, while the plaintiff’s expert said yes, namely, in this case, 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 flats whereas in the HKBN case, the transmission of the analogue signals took place inside the flat where the set-top box is located.

3.10  The Judge recognized that the HKBN case is not binding on him, but he held in essence that there is no difference between the two cases and the service provided by the defendant falls within the Internet Exception.

4. My view

  (1)  Purposive approach

3.11   At first blush, it is easy to be attracted to the defendant’s submission that the location of the set-top box makes no difference to whether the defendant’s service comes within the Internet Exception.  In both the HKBN case and this case, the television signals are transmitted in two stages, namely, first, by way of IP packets and, second, by analogue signals.  However, it is clear that the location of the set-top box is of vital importance in determining whether or not the defendant has provided the service on the Internet.  This is despite the similarity of the mode of transmission of these two cases and the fact that the transmission does not have to be exclusively through the Internet before viewing.  The matter cannot be determined in a vacuum but rather in the context of the statutory framework.

3.12  A television programme is clearly intended for viewing by an audience.  Hence under the definition section of the Ordinance,a television programme service refers to transmission of programmes to persons.  Domestic pay television programme service means a television programme service which, among other things, is intended or available for reception by an audience.  In respect of the definition of subscription, the right to view a television programme service on payment of fees must be a reference to viewing by a person.  Likewise, under the Regulation, a subscriber is identified as a person to whom the service is provided.  Although there is no similar provision under the provision for Internet Exception under Schedule 3, clearly the programmes transmitted by the Internet must be intended to be viewed by a person.  Hence the location of the set-top box becomes of vital importance because it points to the place where the programme is enabled to be viewed by a person.  A flat inside the building is the place where the viewing of the programmes transmitted by Internet takes place for the person or persons in the flat.  By contrast, as in this case, where the set-top box is located in the common part of the building (even if the area is common property), one cannot seriously say that the person is able to view the programmes there.  In other words the Internet transmission must go all the way to the place where the programmes can be viewed, namely, in the flat.  The fact that the transmission from the set-top box to the television set is by way of analogue signal transmission in both cases is not determinative of the issue.  In my view, this is the only purposive interpretation of the Internet Exception which is a short point and is not capable of further elaboration. Accordingly the defendant’s service does not fall within the Internet Exception.

(2)  Flexible approach for innovative technology?

3.13   Mr Shieh SC and Ms Janet Ho for the defendant have urged us to take a less restrictive approach in construing the developing field of Internet service particularly in the context of the enactment of the Ordinance in 2000.  Mr Shieh referred to the policy objectives of the Broadcasting Bill set out in the Legislative Council Brief. 

‘ 3. The Bill seeks to further advance our broadcasting policy objectives, which are to :

(a)  widen programming choice to cater for the diversified tastes and interests of the community;

(b)  encourage investment, innovation and technology transfer in the broadcasting industry;

(c)  ensure fair and effective competition in the provision of broadcasting services;

……’  (emphasis added)

3.14   He also referred to the debate on the second reading of the Broadcasting Bill on 16 February 2000 where the Secretary for Information Technology and Broadcasting (‘the Secretary’) dealt with the Internet Exception :

‘ Apart from the above clarifications, we propose that certain services which may involve the transmission of audio-visual services by telecommunications should be exempted from the application of the Bill. To allow flexibility in the regulatory framework to cater for the fast-changing broadcasting and multimedia environment, these exemptions are specified in a schedule of the Bill so that it can be amended by subsidiary legislation where necessary. The exemptions include:

(a)  ―

(b)  services provided on the Internet.  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 pervasiveness 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 pervasiveness and mode of operation draw much closer to broadcasting and the question of effective enforcement can be resolved; and

(c)  ―’ (emphasis added)

3.15   In the 22 June 2000 debate, the Secretary further elaborated on this exemption :

‘ Insofar as the scope is concerned, the Bill proposes that the transmission of certain audio and visual services by means of telecommunications facilities, such as Internet services, should be excluded from the scope of the Bill. To enable the regulatory framework to cope with the ever-changing broadcasting and multimedia market flexibly, the relevant exemptions are now listed in Schedule 3 so that it can be amended by legislation when necessary. In our opinion, the existing mode of Internet services is still different from broadcasting and their popularity is not yet comparable to those television services currently operating in Hong Kong, though the trend of watching television programmes on the Internet has started to develop. According to our policy, such services shall be excluded from the scope of the Bill at this stage. Of course, the protection of freedom to information as suggested by Mrs Selina CHOW and technology development as mentioned earlier by Mr SIN Chung-kai are among issues of our major consideration.’

3.16  In my view while recognizing the need for flexibility in respect of this innovative technology, a line has to be drawn by reference to the statutory context and in this case, the line is to be drawn where the Internet transmission ends and viewing begins, namely, inside the flats and not at the common part of the building.

(3)  Exclusivity argument

3.17   Mr Beresford for the plaintiff has also relied on the exclusivity argument in support of his appeal.  He refers to the definition of ‘television programme service’ which

‘ (b) does not include the provision of a service that-

   ―

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

―’

3.18   He argued that in order to be within the Internet Exception, the defendant’s service must be provided on the Internet exclusively but in this case, in order to receive the defendant’s IPTV service, the persons in the specified premises were not required to have equipment appropriate for receiving signals over the Internet (see definition of ‘television programme service’ paragraph (a)(i)(B)).  He argued that the equipment required in this case only needed to receive analogue signals over the IBCCDS.  Each specified premises received the IPTV signal as an analogue signal from the common parts and none required access to the Internet themselves.

3.19   Mr Shieh’s response is that, among other things, in the context of the definition of ‘television programme service’ under section 2 of the Ordinance, the word ‘only’ was not used to qualify the use of the Internet in providing the service.  In other words, paragraph 5 of Schedule 3 to the Ordinance does not refer to ‘any service provided only on the Internet’.  Therefore there is no suggestion from the text of the Ordinance itself that the entire transmission pathway of a service must be on the Internet before the service would fall within paragraph 5 of Schedule 3.

3.20   In view of my earlier decision it is not necessary for me to decide on this point.

IV.  Cross-appeal

1)   The Judge’s view

4.1  The Judge held that :

‘ 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.’ (emphasis added)

4.2   The Judge referred 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 and held that :

‘ 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.’

4.3  On that basis he held that :

‘ 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.’

2)  The numbers

4.4  The difference between the number of management company/incorporated owners subscribers to the defendant’s service and the individual units covered by the service were as follows :

	MC/IO subscribers	Individual residential units
1 June 2007	132	140,404
1 June 2008	294	397,580
1 June 2009	335	449,268

3)  The defendant’s case

4.5   The defendant’s case is that a ‘subscriber’ is a natural or legal person who contractually subscribes to the licensed service in question (even if such service is intended to be watched or made available for reception by other people).

4.6   Mr Shieh argued that to interpret ‘subscriber’ as meaning a viewer of the television programme service (i.e. a person actually watching television inside a residential unit) is not only incompatible with the ordinary meaning of the word ‘subscriber’, it is also wholly unworkable – people watching television within a residential unit may vary from time to time, and are not confined to people living there.  Likewise, ‘subscriber’ cannot be interpreted to mean a registered owner (or registered owners) of a residential unit covered by the licensed service.  In fact, the Government did not plead or argue for such interpretation in the court below and the relevant evidence as to quantum has not been explored in evidence.

4)  My view

4.7   In my view, the determination on the plaintiff’s appeal in fact has a decisive bearing on the defendant’s cross-appeal. In any event, the Judge is correct in his decision.

4.8   Mr Shieh criticized the Judge using the words ‘household user’ when such words do not appear in the Gazette.  However, ‘subscriber’ in the Regulation is not simply ‘a party to a subscription agreement’.  On the contrary, it is tied to ‘the right to view’ (see definition of ‘subscription’).  In my view, the language used in the Regulation on the meaning of ‘subscriber’ does not preclude an interpretation that it means a householder to whose specified premises a right to view a licensed service is provided on a subscription basis, whether via management company or incorporated owners.  Even if these persons had not entered into any subscription agreement, they are nonetheless ‘person(s)’ to whom a licensed service is provided by a licensee on a subscription basis when the subscription contract was signed and fee paid by the management company or incorporated owners.  The fact that the plaintiff had not pleaded agency is irrelevant.  The question of agency is not determinative of the issue which is simply a matter of construing the term ‘subscriber’ in the context of the statutory language.  The defendant’s case that its interpretation is a disciplined approach is not borne out by the fact that a management company may sign only one subscription contract but nonetheless the defendant actually uses the number of residential estates which are provided with the defendant’s service for the calculation of fees. 

4.9   In my view, the defendant has over played the problem of determining how many viewers there may be in a household or that there may be more than one registered owner in a household.  The defendant itself was able to identify the number of ‘subscribers’ of the Internet service whom it said should be excluded from the calculation of fees.  The letter from the defendant’s auditor KPMG to the defendant dated 4 July 2007 is telling.  It stated that :

‘ For the purpose of determining the variable fee element of the licence fee as at 1 June each year in accordance with Schedule 2 of the Regulation, the Company is required to submit information relating to the number of subscribers as at 1 June each year to the Television and Entertainment Licensing Authority (“TELA”) in accordance with TELA’s instructions.

For the purpose of determining the number of subscribers, management has defined one subscriber as representing one billing account/residential unit to which the pay television programme service is provided by the Company under the Licence, regardless of the number of television outlets under a particular billing account/residential unit.’  (emphasis added)

4.10   The letter further stated that the defendant had excluded 140,404 Bulk E subscribers who satisfied the ‘Internet Exemption’ from the total number of subscribers :

‘ b. With respect to item 2, we found the adjustments to be in agreement with the billing account records as set out in the Company’s Institutional Sales Account List and the Company has excluded 140,404 Bulk E subscribers using IPTV connection from the total number of subscribers as management considered such Bulk E subscribers satisfied the “Internet Exemption” criteria under Section 5 of Schedule 3 in Broadcasting Ordinance.’

4.11.  If the defendant was able to calculate the number of subscribers who are within the Internet Exception then its argument that the plaintiff’s approach being undisciplined or uncertain really falls by the way side.

V.  Conclusion

1)  Appeal

5.1  The plaintiff succeeds in its appeal.  As the whole of the defendant’s service does not fall within the Internet Exception, it must pay the variable licence fees for 2009 as well in the sum of $1,797,072.  There will be interest on this sum at the same rate as ordered by the Judge from 1 August 2009 until judgment and thereafter at judgment rate until payment.

2)  Cross-appeal

5.2 The defendant’s cross-appeal is dismissed.

VI.  Costs

6. There will be an order nisi that the plaintiff is entitled to the costs of the appeal and cross-appeal.

Hon Yuen JA :

7. I agree.

Hon G Lam J :

8. I also agree.