PCCW-HKT TELEPHONE LTD v. TELECOMMUNICATIONS AUTHORITY

HCAL 63/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO.63 OF 2004

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REASONS FOR JUDGMENT

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Introduction

1. On 27 May 2004, I granted leave to the applicant to apply for judicial review of decisions made by the respondent concerning what are called local access charges.  At the time of granting leave, I granted an interim stay, prohibiting the respondent from imposing those charges until the applicant’s challenge to the lawfulness of his decision had been determined.  The interim stay was granted subject to the condition that the respondent be entitled to apply to set aside the stay.  The respondent made that application, the matter being heard before me on 25 June 2004.  At the end of that hearing, I directed that the stay should remain in place until trial.  I said that I would give my reasons later.  I now do so.

Background

2. The supply to the Hong Kong market of international calling services by way of voice or facsimile — formally described as external telecommunications services (‘ETS’) — are made by various private enterprises acting in competition with each other.  Few ETS providers, however, have their own telecommunications networks within Hong Kong and, in order to reach their customers, must therefore interconnect with those domestic networks that are in place.  Such networks are operated under fixed telecommunications network service (‘FTNS’) licences issued pursuant to the Telecommunications Ordinance, Cap.106.  The applicant, owning and operating its own network, is (in addition to being an ETS provider) an FTNS licensee.

3. In November 1998, the respondent, who is the statutory authority (‘the Authority’) tasked, in the public interest, with regulating matters concerning the commercial relationships between telecommunications enterprises and with issuing licences pursuant to the Ordinance, laid down the manner in which ETS providers must compensate FTNS licensees, such as the applicant, for the use of their networks.  That compensation was to be on the basis of what are called local access charges.

4. In June 2001, the Authority reduced the level of local access charges, reducing the income due to FTNS licensees.  On 4 May 2004, having published his findings as to what he considered to be the appropriate principles to be applied in assessing local access charges, the Authority determined that such charges should be further revised downwards.

5. It speaks for itself that these decisions made by the Authority stood to benefit ETS providers who did not have their own domestic network — they being the majority of such providers — and stood to financially prejudice FTNS licensees such as the applicant.  It appears to be common cause that the Authority made his decisions on the basis that it would further open the industry to competition and thereby benefit the Hong Kong public.

6. On 18 May 2004, the applicant filed a notice of application for leave to apply for judicial review seeking to set aside the respondent’s decision as to what he considered to be the appropriate principles to be adopted in determining local access charges and also the 4 May determination to reduce those charges.

7. In seeking leave, the applicant also sought an interim stay of the 4 May determination pending the outcome of its application for judicial review.  It did so in terms of O.53, r.3(10)(a) which reads :

“(10)	Where leave to apply for judicial review is granted, then—
	(a)	if the relief sought is an order of prohibition or certiorari and the Court so directs, the grant shall operate as a stay of the proceedings to which the application relates until the determination of the application or until the Court otherwise orders.”

8. It is not disputed that the Court of First Instance, in granting leave to an applicant, has the jurisdiction to order a stay of an executive decision of the kind now challenged.  In this regard, see Anglo Starlite Insurance Co. Ltd v. The Insurance Authority [1992] 2 HKLR 31.

9. On 27 May 2004, I granted leave.  In addition, as I have said earlier, I granted the interim stay.  It was however granted subject, first, to the applicant filing an undertaking as to damages and, second, to the condition that the respondent be entitled (upon 48 hours notice) to apply to set aside the stay.

10. Leave having been granted and the notice of motion having been served pursuant to O.53, r.5, I was informed that the matter was set down for hearing sometime in November 2004.  On that basis, the stay, if unchallenged, would have remained in place for five months or more.

11. By summons issued on 7 June 2004, the Authority applied to set aside the stay.

12. When the matter came before me for argument, I was able to bring the trial date forward from November to 13 September 2004, thereby reducing the waiting time from over five months to less than three.  In the result, in my opinion, prejudice that might accrue to any interested party by reason of the stay remaining in place or being removed was substantially reduced.

13. Despite this reduction in the waiting time for trial, the Authority pressed its submission that the stay should nevertheless be set aside.

Applicable principles

14. In considering whether to grant interim relief in judicial review proceedings, American Cyanamid principles apply, modified to take into account the public law underpinning of these proceedings.  In this regard, the House of Lords in R v. Secretary of State for Transport, ex parte Factortame Ltd and Others (No.2) [1991] 1 AC 603 set out the applicable principles, the headnote reading :

“ that in considering whether interim relief should be granted the court had to consider first, the availability to either plaintiff or defendant of an adequate remedy in damages and secondly, if no such adequate remedy existed, the balance of convenience, taking all the circumstances of the case into consideration; that where a public authority seeking to enforce the law was involved, an adequate remedy in damages would not normally be available to either party, and in considering the balance of convenience the court had to take into account the interests of the public in general to whom the authority owed duties; that there was no rule that the party challenging the validity of the law sought to be enforced had to show a strong prima facie case that it was invalid, and the matter was one for the discretion of the court; but that the court should nevertheless not restrain the public authority from enforcing the law unless it was satisfied that the challenge to its validity was sufficiently firmly based to justify that exceptional course being taken …”

The alternative remedy issue

15. The applicant, at the time of the hearing before me was proceeding not only by way of judicial review in this court but also by way of appeal.  It was accepted that, as the law appeared to stand, that appeal process did not allow for a stay.  In light of this, Mr Smith SC, leading counsel for the Authority, submitted that this court should be slow to allow the interim stay to continue.

16. In response, Mr Dykes contested the assertion that, if a statutory appeal procedure exists which does not contain a stay, it must follow that this court on a judicial review application will also decline a stay.  Judicial review, he said, is a remedial procedure, its remedies being based on the common law.  If this court, exercising its supervisory jurisdiction, is able to provide a remedial measure such as a stay that is a jurisdiction which the court must exercise in appropriate circumstances.

17. This court, in granting leave to apply for judicial review, was aware of the fact that the applicant was proceeding by way of appeal.  In the result, in determining whether leave should be granted, questions of convenience, expedition and effectiveness were accessed; in short, all the relevant circumstances, including the desirability of an authoritative ruling on points of law, were taken into account.

18. Having granted leave, in my judgment, this court is entitled, if it sees fit, to provide interim remedial measures.  One of the factors to be taken into account, of course, is the existence of a collateral appeal; when it is likely to take place, what remedies are sought through it and the like.

Is there a serious question to be tried?

19. The fact that I granted leave is evidence, although not conclusively so, that, in my view, there is a serious issue to be tried.

20. The authorities indicate that this first question may not be appropriate when the challenge that is being made concerns primary or secondary legislation.  In such a case, the presumption in favour of legislative validity will usually, but not invariably, require a challenger to show a strong prima facie case.

21. In the present instance, however, the Authority, while acting under statutory authority, had laid down what are essentially commercial terms and conditions.  In the circumstances, as the issue did not go to the interpretation of primary or secondary legislation but rather to the exercise of administrative discretion, a discretion exercised in respect of trade competition, I did not regard it as appropriate to ask more than whether there was a serious question to be tried.

22. On my study of the papers, while I could not of course anticipate the outcome of the substantive challenges made by the applicant, I was satisfied that there was a serious issue to be tried.

Adequacy of damages

23. Mr Dykes SC, leading counsel for the applicant, submitted that the new local access charges would, in round terms, constitute an approximate 25% decrease from the previous charges.  This would have a material effect on the applicant.  The effect would be immediate although, of course, it would be cumulative.  Mr Dykes spoke of a loss of revenue by reason of the decrease in local access revenue in a sum of between fifty and one hundred million dollars in the first year.  If there was no stay, said Mr Dykes, the applicant would not be compensated by the Authority.  It would have to look to the ETS providers who had benefited from the reduced charges.

24. The applicant made the uncontested assertion that it was good for any damages that it may be required to pay.  Those damages, of course, would not be payable to the Authority but would be payable by the applicant to the ETS providers who would have had to pay local access charges to the applicant at the old, higher rate and would seek a refund from the applicant in accordance with the lower rates set by the Authority in his 4 May determination.  It was the applicant’s assertion, however, that, while it was good for any damages, which it would be able to pay promptly and in full, if it had to seek payment from the ETS providers, it could well face material difficulties.

25. Mr Smith SC, leading counsel for the Authority, accepted as much although it was his submission that any losses to the applicant would be minimal having regard to the size of its turnover.  That may perhaps be the case but, in my view, it still amounted to an admission that, for the applicant, damages, while going much of the way, could not be an entirely adequate remedy.  In this regard, Mr Smith accepted that many ETS providers were operating on limited margins of profit and that indeed some were so constrained that effectively they were able to make no profit at all.  Mr Smith painted a bleak picture (prospectively) of a material number of ETS providers going out of business if local access charges were not reduced in the reasonably near future and certainly of other licensees, who have not yet made use of their licences, declining to enter the market.  All of this indicated, even if only indirectly, that the applicant could expect to encounter difficulties in seeking full monetary compensation from ETS providers.

The balance of convenience

26. The approach to be adopted when considering the balance of convenience has been enunciated by Hoffman J (as he then was) in Films Rover International Limited v. Cannon Film Sales Limited [1987] 1 WLR 670, [1986] 3 All ER 772, where at page 680 he said this :

“ The principle dilemma about the grant of interlocutory injunctions, whether prohibitory or mandatory, is that there is by definition a risk that the Court may make the wrong decision in the sense of granting an injunction to a party to fails to establish his right at the trial, or would fail if there was a trial or, alternatively, in failing to grant an injunction to a party who succeeds or would succeed at trial.  A fundamental principle is therefore that the Court should take whatever course appears to carry the lower risk of injustice if it should turn out to have been wrong in the sense I have described.  The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle.”

27. The question to be asked, therefore, was where, in the circumstances of the case, the lower risk of injustice lay.

28. Mr Smith, for the Authority, submitted that, bearing the public interest in mind, the greater risk of injustice lay in refusing to set aside the stay so that ETS providers would remain subject to the higher rates of local access charges, those rates having become so uncompetitive, that many ETS providers were simply unable to operate profitably.  In this regard, a letter dated 25 May 2004 from the Society of Hong Kong External Telecommunications Service Providers was put before me.  The following was said in that letter :

“ However, the heart of the issue is that LAC [local access charges] represents the balance point of the market.  When LAC is incorrectly positioned, such as at the present time, the market simply is not operating fairly.  This is increasingly putting people out of work across the ETS industry.  It deleteriously affects ETS businesses; and ultimately the public due to loss of competition.”

29. As to the positive consequence of setting aside the stay, Mr Smith spoke of ETS providers, no longer burdened by uncompetitive charges, being able to operate more profitably and — of central importance — being able to pass on some of those profits in the form of savings to the general public.  Mr Smith also spoke of ETS licencees, who have not yet entered the market, being encouraged to do so.  This, he said, would encourage more competition and the setting of yet leaner rates for the public.

30. While I was prepared to accept, at least in broad terms, much of what Mr Smith advocated, in my judgment, it was optimistic in the extreme, indeed artificial, to suggest that such a radical change to the industry would take place within a span of just three or four months, the three months being the time remaining until trial.

31. I did not think it could be said with any certainty that ETS providers, apparently labouring under tight margins, would pass on any savings to the public over the next three months, especially as they would be aware that, if the applicant was successful in its judicial review challenge, the old, higher rates would be reinstated.  In my judgment, it was equally likely that the ETS providers would take the benefit of the reduced rates and keep them, at least in the short term, the longer term remaining so uncertain.  In effect that would constitute a material financial advantage to one set of trade competitors over another without any guarantee that the public would benefit.

32. Even if certain ETS providers were prepared immediately to pass on any benefits to their customers, there was a real risk that, if the applicant was successful in its judicial review challenge, those benefits would have to be removed from the customers within a month or two of being granted.  That itself could be cause for dissatisfaction in the public sphere.

33. In all the circumstances, I was of the view that, when put into the balance, the public interest considerations were essentially neutral.

34. While there was correspondence before me from a representative of the ETS providers, as I have earlier indicated, and while that correspondence spoke of the difficulties being faced by the industry, the ETS providers, as interested parties, did not choose to be represented at the hearing so that their assertions could be tested.

35. As to the possible entry of new ETS providers into the market if I set aside the stay, that too struck me as being an over optimistic projection.  In my judgment, in light of the applicant’s substantive judicial review challenge coming to trial in mid-September, and the uncertainty that would bring, it was as likely as not that new providers would remain on the sidelines until the matter had been determined by the courts, at least at first instance.

36. I bore in mind that the existing local access charges were not the charges which had been originally set by the Authority and which had remained unchanged.  The existing charges were themselves amended charges : in this regard, see paras.3 and 4 supra.

37. In the final analysis, bearing in mind the relatively short period leading to trial, and having doubts about the matter, I was of the view that the status quo should be preserved and that the application for a removal of the stay should be dismissed.