PCCW-HKT TELEPHONE LTD v. THE TELECOMMUNICATIONS AUTHORITY

HCAL 152/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO.152 OF 2002

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RULING IN RESPECT OF
REMEDY AND COSTS

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Introduction

1. This ruling follows upon my judgment which was handed down on 30 June 2004 (‘the main judgment’).  The abbreviated names employed in the main judgment are also used in this ruling.

2. In the main judgment, I came to the finding that a direction issued by the Authority on 15 May 2002 requiring the applicant to implement broadband type II interconnection with Wharf was unlawful.

3. The lawfulness of the direction had been challenged by the applicant on two grounds.  First, it had been challenged on the ground that the section of the Ordinance in terms of which the direction was made — s.36B(1)(a)(iii) — did not extend to broadband type II interconnection and that accordingly the direction was ultra vires.  Second, it had been challenged on the basis that the failure by the Authority to set down terms and conditions (interim or otherwise) governing the interconnection was itself ultra vires or irrational or constituted an abuse of power.

4. In the main judgment, I rejected the contention that s.36B(1)(a)(iii) of the Ordinance did not extend to broadband type II interconnection.  However, in respect of the second ground of challenge, I concluded that the failure by the Authority to lay down terms and conditions governing the interconnection was irrational, arbitrary and constituted a failure to exercise statutory powers given to the Authority which demanded on this occasion to be exercised.

5. Although I found the direction to be unlawful, in considering what, if any, remedy should be granted, I was concerned that any order made by me may have the effect of prejudicing third parties, especially members of the public who had contracted to use Wharf’s broadband services.  In light of this, I sought the benefit of submissions from the parties.

6. In addition, I sought the benefit of submissions on the issue of costs.

Representations by Wharf

7. Although Wharf had not chosen to be represented at the judicial review hearing, it was an affected third party and I therefore agreed that, if it wished, it should be entitled to make representations as to appropriate remedies.

8. In the result, Wharf filed a lengthy written submission.  Mr Beresford, junior counsel for the applicant, objected to the fact that Wharf had not chosen to file evidence by way of affidavit and had not chosen to be represented by counsel.  Mr Beresford complained that Wharf’s submissions contained a number of contentious allegations but were bereft of any evidential basis.  In the circumstances, he submitted that no weight should be attached to Wharf’s submissions.

9. I believe, however, that Wharf’s submissions were entitled to be given due consideration.  But, as to the weight to be given to them, I was obliged to take into account that, in respect of contentious issues such as the likelihood of prejudice to Wharf and/or its customers if the direction was quashed, Wharf’s submissions were not supported by evidence nor had Wharf chosen to be represented at the hearing so that its submissions could be subjected to closer scrutiny.

Remedies

10. In considering appropriate remedies, my fundamental concern at all times had been to avoid prejudice to members of the public who had subscribed to broadband services with Wharf and who may, if the direction was set aside, find themselves either without access to the service or having to pay substantially more for it.

11. Mr Beresford, however, said that there would be no prejudice caused to existing customers of Wharf by reason of the direction being set aside.  On behalf of the applicant, he gave an undertaking that existing customers of Wharf would continue to receive broadband type II interconnection on existing terms; that is, the terms contained in an agreed revised tariff, until mandatory broadband type II interconnection fell away in terms of the new policy announced by the Government on 6 July 2004.  That would protect the position of existing end-users until about 2007 or 2008.  In light of the undertaking, said Mr Beresford, there was therefore no risk of end-users being denied broadband services.  Nor, by reason of the binding nature of the revised tariff, was there any risk of costs being varied without the approval of the Authority, the Authority as a statutory body having as one of its responsibilities the protection of the public interest.

12. While Wharf appeared to accept that existing end-users were now protected, in its written submission it was said that the applicant should in addition undertake to provide the same protection to future end-users.  In response, Mr Beresford said that future end-users could have no legitimate expectation of being able to interconnect through Wharf on the basis of the unlawful direction made in May 2002.  Future end-users; that is, persons who had not yet entered the market, would have to secure the best terms available to them at the time that they chose to enter the market.  Mr Beresford submitted that, in attempting to seek protection for all future end-users who would subscribe to Wharf’s services, Wharf was looking entirely to its own commercial self-interest.

13. While I reject the contention that Wharf was looking only to its own interests and accept that it had in mind the benefit that the public would obtain from a competitive market, as I have said, my principal concern has at all times been focused on existing end-users; those who risk actual prejudice, not those who may at some time in the future face some possible restriction of choice.

14. This left what was described as ‘an intermediate group’ of Wharf customers who had apparently subscribed to Wharf’s broadband services prior to 30 June 2004, when the main judgment was handed down, but who at that time had not yet been physically connected.  In respect of this group, however, Mr Beresford said that the applicant was prepared to extend its undertaking so that both ‘existing’ users and ‘intermediate group’ users would be protected.

15. As for its own position, Wharf submitted that, if the direction was quashed, it would be left ‘in a situation of great uncertainty’.  For example, Wharf appeared to be concerned that, without the direction, the revised tariff, which had been put together by the applicant and Wharf with the Authority’s approval, could be varied, perhaps to its detriment, without its knowledge.  But, of course, leaving aside the issue of the Authority being obliged to consult with Wharf in respect of any tariff change that affected it, the Authority is under an obligation to look to protecting the public interest, that of end-users and of Wharf itself.

16. Having considered Wharf’s written submissions, I regret I am not convinced that it will be left as vulnerable as it has protested.  The protections now afforded to end-users will act to protect Wharf too.

17. In respect of possible prejudice to end-users, the Authority adopted the submissions of Wharf but, in my view, was unable to advance them.

18. In the result, if the direction is to be quashed, it does not seem to me that existing end-users (including the intermediate group) will be denied continued access to Wharf’s broadband services nor will they be subject to any arbitrary increase in charges.

19. On behalf of the Authority, Ms Teresa Cheng SC, among her several submissions, contended that the quashing of the direction, when it had been acted on by third parties, may be detrimental to good administration.  The detriment, she argued, would be manifested by continuing and further uncertainty as to the position of the parties.

20. But what is the nature of this suggested uncertainty and to what is it anchored?  While I cannot say that there is no risk of uncertainty, I confess that, having considered the submissions of both Wharf and the Authority, I was left with the impression that both were speaking not of a clearly defined likelihood of ambiguity but of something that really escaped definition, little more than a general apprehension that there may be problems.

21. But is that enough?  I think not.  In the present case, the applicant has demonstrated that the direction served upon it by the Authority was unlawful.  That being the case, there is substance, I believe, in Mr Beresford’s contention that there should be pressing reasons of public policy in order to deny the applicant its remedy, certainly something more pressing than an ill-defined apprehension that to set aside the direction may result in some form of uncertainty that may be used by the applicant to its advantage but to the expense of Wharf and/or the Authority.  In Berkeley v. Secretary of State for the Environment and Another [2001] 2 AC 603, at 616, Lord Hoffman said that it would be exceptional for a court to exercise its discretion not to quash a decision which has been found to be ultra vires.  In Chief Constable of the North Wales Police v. Evans [1982] 1 WLR 1155, at 1172, Lord Brightman underlined the fundamental principle that a successful litigant should be entitled to a remedy :

“ My Lords, I must address myself later to the question of remedy.  All that I would say at this moment is that it would, to my mind, be regrettable if a litigant who establishes that he has been legally wronged, and particularly in so important a matter as the pursuit of his chosen profession, has to be sent away from a court of justice empty-handed save for an order for the recoupment of the expense to which he has been put in establishing a barren victory.”

22. I have found the direction to be unlawful because the failure to set terms was, in my view, irrational and, while done with the best of intentions and in good faith, nevertheless constituted an abuse of power.  To that extent, the Authority was acting outside of or beyond his powers.  His direction was therefore, in that sense, ultra vires.  In the course of her submissions, Ms Cheng, for the Authority, admitted that, if the direction had been found to be ultra vires s.36B(1)(a)(iii) of the Ordinance, then ‘it would have been difficult, if not possible’ for the Authority to persuade this court nevertheless to refuse to order it quashed.  But, as I have observed, the failure to include terms and conditions in the direction had the same essential effect, it put the issue of the direction outside of or beyond the powers of the Authority.

23. On behalf of the applicant, Mr Beresford argued that it should be entitled to the two remedies it had sought : an order quashing the direction and a declaration as to its unlawfulness.

24. It was Mr Beresford’s argument that, having been found to be unlawful, the direction, as an invalid instrument, should be ruled to be just that.  If it was not set aside, he said, then it would continue to have effect and that could act to the detriment of the applicant.

25. Mr Beresford said that a licensee made the subject of a direction must obey that direction.  A failure to do so renders a licensee liable in terms of s.36C of the Ordinance to heavy financial penalties.  Accordingly, if the direction was to remain of force and effect, it would expose the applicant to a continuing risk of penalty under s.36C.

26. Ms Cheng, however, said that any fear of financial penalty was no longer valid.  She referred to a letter dated 26 July 2004 written by the Authority to the applicant in which the Authority stated that he would not seek to impose s.36C penalties on the applicant for the period from 15 May 2002 to 19 August 2002 when broadband type II interconnection with Wharf was implemented.  Ms Cheng also pointed to the fact that any unreasonable penalty imposed by the Authority could be challenged in separate judicial review proceedings.

27. But an undertaking given for a specific period of time in 2002, said Mr Beresford, did not remove any possible exposure to penalty in the future.  It therefore left open the risk that the Authority may seek to rely on the direction in future and, if the applicant opposed such reliance, it may then be open to penalty in terms of s.36C.  It was no answer to say that the applicant could challenge any future imposition of penalty by way of separate judicial review proceedings.  Having been successful in the present judicial review proceedings, it should not be left open to future risk, even if small, in respect of the direction.

28. Mr Beresford also pointed to what he termed the ‘real possibility’ that, if the direction remained of force and effect, it would no doubt, to some degree, be taken into account by the Authority when he came eventually to determine final terms and conditions to impose upon the parties, those terms and conditions having retrospective effect.  That again would leave the applicant open to risk of prejudice, said Mr Beresford.  It had been recognised in the main judgment, said Mr Beresford, that the direction had placed the applicant in a position of unequal bargaining power when it was forced to agree interim terms and conditions, those terms and conditions still to be finally determined.  When the Authority comes to settle final terms and conditions, said Mr Beresford, he must recognise that the starting point should not be the interim terms and conditions that were forced upon the applicant by the unlawful direction.  But if the court allowed the direction to stand it is doubtful whether that would occur.

29. In respect of the remedy of declaration, Mr Beresford said that the declaration sought had raised a real question; it was far from being hypothetical or academic because of its continuing effect in terms of possible future exposure to financial penalties and a final determination of terms and conditions under s.36A of the Ordinance.  The applicant, said Mr Beresford, had a proper interest in the outcome.  It was seeking relief which it would not be unlawful or unconstitutional or inequitable for the court to grant or contrary to the accepted principles upon which the court exercises its jurisdiction.  The matter had been fully argued in court and the declaration, if granted, would relate to the position as matters stand at present.

30. In opposing any remedy, one of the principle arguments of the Authority was that the granting of any relief at this stage would be academic and futile.  In this regard, Ms Cheng made reference to the fact that, when the applicant’s application for judicial review was adjourned, it had sought to appeal the direction to the Appeal Board, a body constituted in terms of the Ordinance.  The complaints made to the Appeal Board in respect of the direction, said Ms Cheng, were analogous to those in its application for leave to apply for judicial review.  However, when interim terms and conditions were agreed, said Ms Cheng, the applicant then withdrew its appeal.  It did so on the implicit acceptance that its complaints had been superseded by events following the agreement of interim arrangements.  In this regard, said Ms Cheng, in an affidavit dated 22 October 2002, a representative of the applicant said the following :

“… it is necessary to explain how it is that PCCW-HKT [the applicant] no longer wishes to pursue [the] appeal …

The challenge made to the Direction in the appeal was … not on the basis that there should be no interconnection at all but on the much narrower basis that the Direction was seriously flawed in that it required PCCW-HKT to provide interconnection without specifying the terms and conditions on which that should take place.  The Direction should therefore be set aside or alternatively varied, pursuant to the power of the Appeal Board under section 32O(4) of the Ordinance, either to incorporate reference to the Tariff or to postpone interconnection until fair terms and conditions had been settled in the Determination.

In consequence, it was the absence of what PCCW-HKT described as ‘essential terms and conditions’ for interconnection that became the principal thrust of [the Applicant’s] case in the appeal.”

After confirming that the applicant and Wharf had agreed interim terms, said Ms Cheng, the applicant’s representative in the affidavit went on to say the following :

“PCCW-HKT considers that the objections to the Direction that it raised in the appeal, namely that the Direction was seriously flawed in that it required PCCW-HKT to provide interconnection without specifying the terms and conditions on which that should take place, remain valid and in its correspondence with the [Authority] since 31 July PCCW-HKT has consistently maintained this position.  However, in practical terms, this is no longer of significance …

… PCCW-HKT can see no practical purpose in pursuing this appeal to establish the principle that the Direction without any terms was seriously flawed, when the appeal proceedings to date have achieved the purpose of, in effect, substituting a requirement that interconnection should be given on the basis of the draft direction (which included Interim Terms) but which the [Authority] had subsequently decided not to adopt …

I should mention that PCCW-HKT does have one lingering concern which caused it to hesitate before applying to withdraw the appeal.  So long as the Direction remains in force in its present form, PCCW-HKT is potentially exposed to the [Authority] taking a decision to impose a penalty for the failure to provide interconnection prior to August 2002.  However, after some hesitation, we decided that this risk was limited …

Instead, PCCW-HKT has sought to protect its position in that regard by filing an application for leave to seek judicial review in the High Court and asked the Court to adjourn the application pending the outcome of these proceedings and obtaining confirmation from the [Authority] that it would not impose a penalty.  In any event, PCCW-HKT has been advised and verily believe that if the [Authority] should seek to impose a penalty, that would constitute a fresh decision which would in itself be amendable to judicial review.

PCCW-HKT has taken this decision on the basis that the appeal proceedings have achieved what was necessary to escape the burden of an oppressive direction that distorted our competitive position and to save time and costs which would be involved in pursuing proceedings which are now entirely academic in nature.”

31. Ms Cheng said that the Appeal Board, for various procedural reasons, had not yet sat to determine the withdrawal application made by the applicant.  However, it was her submission that, in seeking to withdraw its appeal, the applicant had manifestly accepted that, with interim terms and conditions now set, the fact that the direction had failed to lay them down had become an entirely academic matter.  If the issue had been rendered academic in the appeal process, said Ms Cheng, surely it had been rendered equally academic in the proceedings for judicial review.

32. Mr Beresford rejected this submission.  He pointed to the fact that the applicant had never abandoned the complaint in terms of its judicial review application.  It did not follow, he said, that a concession made in the course of an appeal to a specialist body constituted under the Ordinance must necessarily constitute the same concession in an application to this court which is tasked with considering the lawfulness of administrative decisions.

33. In my view, whatever decision the applicant may have made concerning the fruitfulness of its appeal, it has been demonstrated that its challenge by way of judicial review has not been purely academic.  To put it plainly, the applicant has been entitled to know where it stands in respect of the direction, whether it is lawfully bound by it or not.  The determination of that issue — an issue of law, suited to the jurisdiction of this court — will, in my opinion, undoubtedly colour matters flowing from the making of the direction.  Indeed, even if only implicitly, the Authority appears to have accepted this.  I am not therefore sympathetic to the submission that the granting of relief would have no practical significance to the applicant.

34. In the course of her submissions, Ms Cheng suggested that the granting of relief to the applicant would, in the circumstances of this case, create an unfortunate precedent.  Her submissions, as I understood them, were essentially the same as those employed in part in the substantive hearing to oppose the applicant’s application to amend its grounds of challenge; namely, that public authorities may in future be wary of agreeing any stay or adjournment sine die for fear that the pause may be used by an applicant to create new grounds of challenge.  In para.28 of the main judgment, I considered this issue.  I believe my observations in the main judgment apply here too.  Of course the courts will be wary of ‘phoney adjournments’ and will, if necessary, penalise such tactical manouvres in costs.  But each case must be determined on its own facts.

35. In all the circumstances, having considered all the submissions put before me, I can find no reason to deny the applicant the relief that it has sought.  There will therefore be an order of certiorari to bring up and quash the direction and a declaration confirming its unlawfulness.

Costs

36. To my understanding, in respect of costs, the relevant founding principles in the present case may be summarised as follows :

(i)	Costs are in the discretion of the court.
(ii)	Costs should follow the event exept when it appears to the court that in the circumstances of the case some other order should be made.
(iii)	The general rule that costs follow the event does not cease to apply simply because the successful party raises issues or makes allegations on which it fails.  But where that has caused a significant increase in the length or costs of the proceedings the successful party may be deprived of the whole or a part of its costs.
(iv)	Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive it of its costs but may order it to pay the whole or a part of the unsuccessful party’s costs.

37. Having regard to these principles, I am satisfied that the applicant should be entitled to its costs.  I will make an order to that effect.

38. It is true that the applicant did not pursue all of its grounds of challenge, resting its case on two grounds only.  It is further true that it was only successful in respect of one ground, failing on the other.  But what cannot be ignored is that the ground upon which the applicant was successful had always been fundamental to its complaint.

39. I have also taken note of the fact that the applicant sought to amend its grounds of judicial review fairly late in the history of the proceedings.  But the Authority was made aware of the intention to amend some four months before the hearing itself.  It was not therefore taken by surprise or left with insufficient time to prepare its answer.  Indeed, the Authority chose to oppose the application to amend, doing so essentially on grounds of principle rather than practical disadvantage.  The Authority failed in its opposition.  I granted leave to amend.  One of the reasons I did so was because I was of the view that the issue raised was one of public importance.

40. In my view, it cannot be said that either the applicant or the Authority conducted this litigation in an improper or unreasonable manner.  There was a delay in bringing the judicial review proceedings to determination but that delay was occasioned by an agreed adjournment : see para.15 of the main judgment.  Once the proceedings were re-commenced, they were brought to determination with expedition.  Indeed, both parties then proceeded with commendable co-operation in order to minimise costs and argued matters at trial with an economy and lucidity that constituted an object lesson.

Conclusion

41. For the reasons given in the body of this ruling, there will be an order of certiorari to bring up and quash the direction of the Authority made on 15 May 2002.  There will also be a declaration that a failure in the direction to state interim terms and conditions rendered the direction unlawful.

42. As to costs, there will be an order that costs follow the event, being awarded to the applicant.