PCCW-HKT TELEPHONE LTD v. THE TELECOMMUNICATIONS AUTHORITY

cacv 60/2007

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 60 of 2007

(on appeal from HCAL NO. 112 of 2006)

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REASONS FOR JUDGMENT

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Hon Le Pichon JA:

1.  This is an appeal from the order dated the 13 February 2007 of Reyes J dismissing the application of PCCW-HKT Telephone Ltd (“PCCW”) for judicial review.  At the conclusion of the appeal hearing, the appeal was dismissed for reasons to be handed down, which we now do.

2.  The application for judicial review arose out of the consultation process following the publication by the Telecommunications Authority (“the Authority”) of a (second) Consultation Paper entitled ‘Deregulation of Fixed-Mobile Convergence’ on 14 July 2006 (“the Second Consultation Paper”) seeking views on whether to withdraw existing regulatory guidance governing the payment of interconnection charges by mobile network operators to fixed network operators.  PCCW accused the Authority of apparent bias and by letter dated 31 August 2006 PCCW requested the Authority to discontinue the consultation and to reconstitute it.  On 11 October 2006, the Authority rejected the allegation of apparent bias and, instead, announced a two-week extension of the consultation period, in effect, rejecting PCCW’s request.  The judicial review application was made shortly thereafter.

Background

3.  The Authority is charged with regulating the telecommunications industry in Hong Kong.  PCCW is the largest fixed network operator in Hong Kong.

4.  The regulatory guidance in place in Hong Kong since the early 1980s is an arrangement known as ‘Mobile Party’s Network Pays’ (“MPNP”) under which the costs of connecting calls between a fixed network and a mobile network - known as “Fixed-Mobile Interconnection Charges” (“FMIC”) - should always be met by the mobile network operator and never by the fixed network operator.  The fixed network operators collectively receive approximately $600 million a year under that arrangement and PCCW, being the largest of them, receives a substantial portion of that sum annually.

5.  Technological advances in recent years have resulted in distinctions between fixed and mobile networks and services becoming increasingly blurred, giving rise to a phenomenon that is commonly described in the industry as “Fixed-Mobile Convergence” (“FMC”).   In April 2005 the Authority announced its intention to review FMC-related regulatory issues.  On 21 September 2005, the Authority issued a “Consultation Paper on Revision of Regulatory Regimes for Fixed-Mobile Convergence” (“the First Consultation Paper”) which indicated that the MPNP arrangement would be reviewed.  Since any change would involve “a redistribution of benefits between fixed and mobile network operators, and ultimately consumers”, it was made clear that a consultancy study would first be commissioned to assess “consumer benefit and economic efficiency associated with such a change”.  The Authority indicated that the public would be consulted on “whether and how the interconnection charging arrangement should be modified” following the assessment.

6.  The consultants Ovum Ltd were commissioned to undertake the study in December 2005 and produced their report on 28 April 2006.  The report was critical of the existing regime and recommended a number of ways in which it could be changed.

7.  On 14 July 2006, the Authority issued the Second Consultation Paper “to solicit views from the public and the industry on its proposal of updating the regulatory approach”.  Simultaneously, a press conference was held to introduce the Second Consultation Paper and a press release issued.

8.  In this court, PCCW’s case on apparent bias was based on (1) statements made by the Authority at the press conference and (2) an article, published in November 2006,entitled “Possibilities for deregulation: a case study of Hong Kong”.  The article was written by Mr M H Au who, at all relevant times until his retirement in mid-2007, was the Authority.  It was said that a fair-minded observer would conclude from those materials that it appears that there was a real possibility that the Authority had already made a decision to abolish MPNP and not merely a proposal which was subject to consultation.

The statutory framework

9.  Section 6C of the Telecommunications Ordinance, Cap. 106 (“the Ordinance”) gives the Authority a discretion to consult with (a) persons who may be directly affected or (b) the public before exercising any power under the Ordinance.  Under section 6D(1), the Authority may issue guidelines for the purpose of providing practical guidance in relation to the provisions of the Ordinance.  Section 36A enables the Authority to determine the terms and conditions of interconnection between telecommunications systems and services.

10.  Whilst in general whether or not a consultation should be conducted is discretionary, where guidelines are to be issued setting out principles governing the criteria for any determination under section 36A, section 6D(4)(b) requires the Authority to “carry out such consultation with the telecommunications industry as is reasonable”.  So where section 6D(4) applies, consultation is not a matter of discretion.

11.  The consultation generated by the Second Consultation Paper raised 24 questions to which interested parties were invited to respond.  16 of these related to FMIC.  They included (1) whether MPNP should be withdrawn by being phased out over a transitional period, (2) the length of the transitional period, (3) failing any agreement reached by the parties concerned prior to the expiration of the transitional period, whether new guidelines should be introduced on the “last-resort” charging arrangement that may be adopted in the event of the Authority having to make a section 36A determination, and (4) if new guidelines were to be adopted, the principles by reference to which such new guidelines should be formulated.

12.  Although the Authority has, as yet, taken no decision on the question whether there should be new guidelines to replace the MPNP guidance, as recorded in paragraph 42 of the judgment, the judge proceeded on the basis that the consultation undertaken was mandatory.  Pausing here, I would observe that once the Authority embarks on a consultation exercise, it must be carried out properly.  Whether or not the Authority was compelled by law to undertake the consultation would not affect his duty to ensure that there is procedural fairness in the conduct of the consultation.  Although Mr Barlow SC who appeared for the Interested Parties submitted that in the absence of any statutory obligation to consult, procedural fairness would not attach to the consultation exercise, he cited no authority in support.  In fact there is authority to the contrary: see Regina v North and East Devon Health Authority, Ex parte Coughlan [2001] QB 213 at §108.

This appeal

13.  Three issues are said to arise on this appeal.  They are stated in the skeleton submissions of Mr Green QC, who appeared for the Authority, as follows:

(1)	whether the judge erred in his analysis of perceived bias;
(2)	whether the judge should also have found in the Authority’s favour upon the basis that the principle of perceived bias only applies to decisions of an “adjudicative” or “justiciable” nature which determine civil rights as obligations and there was no such decision in the present case; and
(3)	whether the judge erred in his conclusion that the application was, in any event, premature.

The first issue raises a question of law.  The question for this court is whether on all the relevant materials, there was or was not a real likelihood of apparent predetermination on the part of the Authority.  If this court were to conclude (which it has) that there was not, that would be dispositive of this appeal and it would not be necessary to consider the other two questions said to arise.

Apparent bias

14.  As noted above, in this court, PCCW’s case on apparent bias was confined only to (1) statements made by the Authority at the press conference and (2) the article written by Mr Au.  Other matters had been relied on below but they are no longer being pursued.  Specifically, it is no longer said that the content of the Second Consultation Paper itself showed a real risk of apparent predetermination.

15.  It is common ground that the applicable test is that laid down by Lord Hope in Porter v Magill [2002] 2 AC 357 at paragraph 103:

“	The question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the [decision-maker] was biased.”

The crux of the appeal is whether or not the Porter test had been correctly applied to the facts.  PCCW contends that the fair-minded and informed observer would conclude that there was a real possibility that the Authority had predetermined the matter.

16.  The attributes of the fair-minded observer have been considered in cases such as Johnson v Johnson (2000) 201 CLR 448 at §53.  A fair summary appears in paragraph 46 of the judgment below:

“

46.

The observer is taken to be a reasonable person, who adopts a balanced approach and is neither complacent nor unduly sensitive or suspicious.  In arriving at any conclusion of bias or the absence of it, the observer is assumed to be fully informed of all facts capable of being known to the general public in relation to the relevant decision-making process.”

17.  Mr Pannick QC relied on three matters in support of his case on apparent bias.  The first is that the natural meaning of the language used by the Authority appears to express a concluded view that the current regime “distorts” the market and needs to be “dismantled”.  The second is said to be the absence of any prefatory remarks similar to those to be found in paragraph 8 of the Second Consultation Paper.  The third is said to be a ‘stark contrast’ between the Authority’s statements on the substantive question of whether the current MPNP regime distorts the market and needs to be dismantled in the interest of the consumer, and the distinct question of whether fresh guidelines should be issued to address the problem.

18.  I now turn to consider the materials on which PCCW relies.

Statements made at the press conference

19.  The press conference which was conducted in Cantonese was recorded.  There is an agreed 14-page English transcript of the recording. The Authority’s introductory remarks took up a little over a third of transcript.

20.  Mr Pannick identified six passages in the transcript in support of his first point:

(1)	“I think, if the fixed operators actually lose the $600 million under the new arrangement after the transitional period, they can adjust their business plan to explore new sources of income.  That is the objective of our proposed transitional period…thus, we think the impact of this change to Hong Kong generally, the industry and the consumers will be positive.” (Transcript p. 4)
(2)	“I hope we do not need to intervene because today we are dismantling regulation…” (Transcript p. 9)
(3)	“There is 2 year transitional period.  The two-year means basically no change to the status quo.  Within 2 years if there is a determination request, it is possible that we follow the existing one way payment of MPNP… After two years when the regulation is dismantled, we hope that we can reach a commercial settlement.  Otherwise, depending on the circumstances, we will make a determination in accordance with the most appropriate settlement mechanism…” (Transcript p. 10)
(4)	“…I think a regulation which was not designed on a technology neutral basis has in today’s environment started to distort market competition…” (Transcript p. 3)
(5)	“The distortion is that the current regime dictates one network technology pay in one direction to the other network technology and this is not consistent with our technology neutral regulation.  You asked whether we have decided already or not.  Of course there is no decision otherwise we don’t need to consult here!  I hope that via the consultation we pointed out the reasons for dismantling the existing regulation and welcomed the views from the industry and will decide after considering the industry’s submission…” (Transcript p. 11)
(6)	“…a message today is.  I mean to the citizens is that this change in interconnection charge arrangement is not related to usage based charge…” (Transcript pp. 13-14)

It is to be noted that the passages set out at (1) and (4) formed part of the introductory remarks.  The remaining passages were from answers given in response to questions posed by reporters at the press conference.

21.  Mr Pannick accepted that what was said at the press conference has to be seen in context.  The immediate context necessarily included the Second Consultation Paper which was being introduced.  As a preliminary matter, I would observe that to the extent that the responses in passages (2) (3) (5) and (6) reflected the actual language used in the questions posed, they must be read in the context of the questions themselves.  In the case of the statement made in passage (2), the recording did not even capture the relevant question.  Absent the immediate context, one should be slow to infer simply from the language of the response that the Authority was expressing any concluded view.

22.  As already stated, it is no longer suggested that the Second Consultation Paper itself showed apparent bias.  The purpose of the conference was for the Authority to brief the press on the content of the Second Consultation Paper and the transcript shows that those present at the press conference were so informed.

23.  It is clear from Mr Au’s introductory remarks that he was proceeding on the basis that the audience had the requisite background knowledge of FMC, a topic that had been the subject of discussion since September 2005 when the First Consultation Paper was published.  Reference was then made to the consultant’s report (which was published on OFTA’s website the same day) regarding the regulatory measures that would need to be revised in a convergence environment.  Mr Au singled out the FMIC arrangement between fixed and mobile operators as the focus of his briefing since he considered that to be an issue that affected the industry and the customers most.

24.  Having made those preliminary observations, Mr Au began his detailed introduction to the FMIC issue.  Right at the outset he said this:

“	The proposal in our consultation paper is to remove current FMIC regulation.  We propose to remove this regulation.” (Transcript p. 2) (italics added)

The reasons for the proposal followed.  Mr Au explained that the FMIC regulation had been introduced 20 years ago at a time when mobile network technology was nascent and the market for mobile telephony (which was then regarded as a luxury) undeveloped.  He further explained that the regulatory principle for imposing regulation in an undeveloped market was to assist market development while protecting consumer interest.  As the survival of mobile telephony was then dependent on the fixed network service, the FMIC regulation required operators of mobile network technology to pay the operators of the fixed network technology.

25.  A quarter of a century later, in the environment of a developed market for mobile network technology, Mr Au considered that

“

We should review whether the regulation is worth maintaining.  We have to ask one question: today, if there is no such regulation, can the market still operate as normal?  If the answer is yes, i.e. the removal of regulation will not be to market failure, then this means the regulation does not need to exist.  According to the information that we collected from the market, we have no evidence to show that there will be market failure if we now remove the FMIC regulation.” (Transcript p. 3)

The statements PCCW relies on were made against that backdrop.

26.  On the question of whether they show perceived bias, it cannot be gainsaid but that the FMIC regulation was introduced at a time when the market for fixed network technology was a developed market but that the same could not be said of the market for mobile network technology.  As already noted, the survival of the latter was then dependant on the former.  In the current environment, that clearly is no longer the case.  Available data showed that mobile network customers outnumbered fixed network customers by more than two to one.

27.  The FMIC regulation thus was formulated at a stage when the two technologies and their respective markets were at significantly different stages of development.  It required mobile networks operators to pay interconnection charges to fixed network operators.  The statement that the FMIC regulation was not designed on a technology neutral basis is therefore unexceptionable and cannot convey to the fair-minded observer any likelihood of perceived bias.  The same can be said of the statement that in the current environment a regulation not designed on a technology neutral basis would distort market competition.  If the reason for market intervention in favour of fixed network operators no longer exists, the logical consequence of continued intervention would be market distortion.

28.  Mr Pannick QC candidly acknowledged that had the words ‘dismantling’, ‘dismantled’ and ‘change’ in the passages to which exception had been taken been prefaced by word “proposed”, there would be no complaint.  In this connection, I would observe, first, that throughout the transcript, one finds the Authority’s statements qualified by “if” and “whether” the FMIC regulation were to be withdrawn.  Second, the introductory remarks set out in paragraphs 24 and 25 above make it clear beyond peradventure that what was being put forward by the Authority (i.e. the withdrawal of the FMIC regulation) was merely a proposal and the point of the consultation was to solicit views regarding, inter alia, that proposal.  That is reinforced by the 16 questions posed in the Second Consultation Paper relating to the FMIC issue which included the following:

“	Question (3): What is the effect of the existing regulatory guidance in favour of the MPNP arrangement on competition, including competition between fixed and mobile network operators?
	Question (4): Should the current intervention on FMIC, based on a regulatory guidance in favour of the MPNP arrangement, be phased out in view of Hong Kong’s market conditions, fair competition principles and the prospect of FMC?  Please elaborate.
	Question (5): Would the absence of regulatory intervention lead to market failure, to the detriment of competition and consumer interest?  If yes, please substantiate your claim with credible evidence.”

29.  Those questions plainly provided those espousing views different from those articulated by the Authority an opportunity to state them and, where appropriate, to provide the supporting evidence.  It has to be borne in mind that the purpose of the press conference was to introduce the Second Consultation Paper.  To ignore what is in that Paper itself would not be a proper approach.  It is very much part of the context.  In any event, given the introductory remarks mentioned, the absence of prefatory remarks in the terms of paragraph 8 of the Second Consultation Paper is neither here nor there.  There is thus nothing of substance in Mr Pannick’s second point about the absence of prefatory remarks. 

30.  I agree with Mr Green QC who appeared for the Authority that the Authority as regulator should candidly articulate his thinking and provisional views: it is not only unobjectionable, it is good administrative practice.  If the Authority holds strong views regarding a proposal, I see nothing wrong in his making that fact transparent; indeed, the forcefulness of his views may well serve to elicit responses from persons holding different views who might otherwise not be inclined to contribute to the debate.  In this connection, I do not consider that the decision of the High Court of Australia in Antoun V. R (2006) 224 ALR 51 relied on by PCCW precludes the expression of forthright views.  In that case the trial judge said that a submission of no case to answer would be rejected without knowing what form that submission would take and without knowing in even the broadest outline what was said to be its basis.  And having said that the submission would be rejected, the trial judge, after the case had been adjourned overnight, went out of his way when the case resumed to emphasise to counsel that he meant what he had said.  (See per Hayne J at § 56.)  But whether a forceful expression of views by a decision maker whose statutory obligations also require him to propose policy for consultation is an expression of a concluded view must depend on the particular facts.  As Kirby J stated at § 29:

“	A line is drawn between forthright and robust indications of a trial judge’s tentative views on the point of importance in the trial and an impermissible indication of prejudgement that has the effect of disqualifying the judge from further conduct of the proceedings.”

In Antoun it was held that that line had been crossed.  But in the present case whether that line had been crossed is precisely the issue that falls for determination.  I do not read Antoun as authority for precluding a decision maker from expressing forthright views so long as those views remain tentative.

31.  The ‘stark contrast’ point Mr Pannick sought to make is in essence the Antoun point.  If the Authority held no strong views about issuing fresh guidelines, it is hardly surprising that his treatment of that issue is different.  But as I have said the use of forthright language in itself is unobjectionable provided it is clear from the context that the views expressed are provisional.

32.  In my view, fairly read in their proper context, the passages identified do not go anywhere near establishing an appearance of predetermination.

The article

33.  The passage to which exception was taken read as follows:

“

The current asymmetric arrangement is obsolete and would not be sustainable in the environment of ‘fixed mobile convergence’ (FMC), as user terminals served by the same network operator may be fixed at some times and moving at others.  Interconnection rules based on the distinction on whether the user is fixed or mobile would become unenforceable.  OFTA has therefore initiated the review on the appropriate interconnection charging arrangement in the FMC environment.”

Mr Pannick QC relied on this passage as ‘confirming’ that the language used, i.e. “obsolete”, “would not be sustainable” and “would become unenforceable” was such that a fair-minded observer would conclude that there was a real risk that Mr Au had already made up his mind on changing the current asymmetric arrangement.

34.  But the fair-minded observer would note that OFTA had initiated a review on the appropriate interconnection charging arrangement.  Details of the review followed immediately after the passage quoted above:

“	The first question to be addressed in the review is whether any market failure is expected when the existing regulation imposing the asymmetric arrangement is withdrawn.  If not, it should indeed be withdrawn.”

Implicit in those remarks is that if the converse were shown to be the likelihood i.e. that if, contrary to the view of Mr Au, there was evidence to show the likelihood of market failure, the existing regulation would not be withdrawn.  Such evidence might well have emerged in the course of the consultation.  That would inevitably cause a rethink.  So how can it be said that there was a real likelihood that the Authority had predetermined the issue?  Indeed, the article (at p. 317) referred to the proposed withdrawal of the existing regulation as a “potential” change.  For my part, there is nothing in the article that assists PCCW’s submission of apparent bias.

35.  I should mention that Mr Pannick QC and Mr Green QC disagreed on whether Lord Hope did decide in Porter that the absence of an improper motive is a highly relevant and even a decisive consideration.  I do not propose to resolve that conflict as I have come to the firm view that no case has been made out of apparent bias on the materials on which PCCW relies and the appeal falls to be dismissed for that reason.  It also becomes unnecessary for me to address the other two issues, and I do not propose to do so.

Costs

36.  So far as the costs of the Authority are concerned, PCCW accepted that these must follow the event.  As the Authority wished to reserve its position as to the basis upon which costs should be awarded, at the conclusion of the hearing, an order nisi was made of costs in favour of the Authority.

37.  So far as the costs of the Interested Parties are concerned, directions were given for the filing of written submissions.  The issue is whether PCCW should be made to bear two sets of costs.

38.  In Bolton MDC v Secretary of State for the Environment [1995] 1 WLR 1176 at 1178F-1179A, the House of Lords set out the proper approach to be adopted.  In summary, whilst the court has discretion to award costs, an interested party has to demonstrate that there is a separate issue on which he was entitled to be heard or that he had an interest which required separate representation before he is entitled to his costs.  This approach was approved by this court (differently constituted) in Shiu Wing Steel Ltd v Director of Environmental Protection & Airport Authority of Hong Kong (Interested Party), unreported, CACV 350 of 2003, 18 March 2005, at §§ 156-159 (reversed [2006] 3 HKLRD 487 not affecting this point).

39.  It is clear from Bolton (at 1178H) that by the time a case reaches the Court of Appeal the issues should have crystallised and the extent to which there are indeed separate interests should have been clarified.  A second set of costs is thus more likely to be awarded at first instance than in the Court of Appeal.  Moreover, even where there is a separate interest, that does not of itself warrant the grant of a second set of costs unless that separate interest requires separate representation, for example, because it is a conflicting interest.  See R (Bedford) v London Borough of Islington [2002] EWHC 2044 (Admin) at § 296.  The question for determination on appeal was whether there was an appearance of predetermination on the part of the Authority.  In my view, the Interested Parties did not have an interest that required separate representation.

40.  Insofar as the Interested Parties were served with a notice of appeal, I will proceed on the basis they were parties “directly affected by the appeal” for the purposes of RHC O.59 R.3.  However, they did not have to appear, there being no separate issue arising that entitled the Interested Parties to be heard.  Nor do I accept that they had a separate interest that needed separate representation.  Accordingly, I do not consider that there should be a second set of costs.  I would therefore order that there be no order as to costs as between PCCW and the Interested Parties.

Hon Cheung JA:

41.  I agree with the judgment of Le Pichon JA.

Hon Stone J:

42.  I agree with the judgment of Le Pichon JA.

43.  In the arena of apparent bias, context is crucial, and in the circumstances revealed on this evidence and when the issue is looked at in the round, I fail to see why the ‘fair minded and informed observer’ could or would have taken the view that the Authority had given the appearance of predetermination of the matters the subject of the consultation process.

44.  For my part I see no reason why the Authority should not have provided a clear indication of his prevailing views, which in the circumstances could not fairly be regarded as being set in stone irrespective of that which resulted from the consultation; in this connection I agree with the observation of Mr Green QC that it is the “quintessence” of his function that the Authority should have (and express) strong views, the better for such to be measured against the responses from consultation participants within an industry which over the past two decades has undergone the most extraordinary technical advance and change.

45.  In my view this appeal had little merit, and only the forensic skill of Mr Pannick QC invested the argument with some semblance of respectability.

46.  I can discern no reason which would justify departure from the clear and considered judgment of Reyes J in the court below.