Hong Kong Broadband Network Ltd. v. Hong Kong Cable Television Ltd.

HCA009172/2000

HCA9172/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9172 OF 2000

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Coram: Hon Cheung J in Chambers

Date of Hearing: 16 November 2000

Date of Judgment: 24 November 2000

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J U D G M E N T

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The applications

1. There are two applications before me, the first is the plaintiff's application to continue with the ex parte injunction granted on 23 September 2000, the second is the defendant's application to discharge the ex parte injunction. The defendant had abandoned its application for injunction and discovery against the plaintiff.

The plaintiff's case for the injunction

2. The plaintiff is a company that provides broadband internet access to users. It holds a Fixed Telecommunication Network Service Licence ("the FTNS Licence") issued by the Telecommunications Authority. The licence was granted on 1 February 2000. Under this licence, the plaintiff was required to launch the service within four months from the date of the licence and to attain a coverage of not less than 1,480 buildings within 12 months. The FTNS Licence was the first such licence issued to the plaintiff.

3. The defendant is a cable television company. Licence was first granted to the defendant on 25 May 1993. The defendant also provides broadband internet access to its customers.

4. In most multi-storey buildings in Hong Kong, there is a public television broadcast network. The network extends to each floor of the building and is connected to a cable ("the drop-in cable") which leads to individual units by a 3-way or 4-way tap output of the public network on the individual floors of the building. The defendant built its own cable network in multi-storey buildings in order to supply cable television to the occupants. Since the defendant's network also transmits television signals, in order to enable the user receiving both television signal and cable television service, the defendant would switch the drop-in cable of each unit from the tap output of the public network to the 3-way or 4-way tap output of the defendant's network.

5. In order to supply the broadband internet service to the units in multi-storey buildings, the plaintiff built its own coaxial cable network in these buildings. The method of connecting the plaintiff's network to the individual units of each floor is this : the plaintiff installed a device called a 2-way tap and redirect the drop-in cable of the unit to the 2-way tap which is connected to both the plaintiff's network and the existing 3-way or 4-way tap output of the public network. Inside the unit, the user would be given a modem to connect the drop-in cable in order to receive the broadband internet access. By means of the 2-way tap, the individual units are able to receive both the television signals and also the plaintiff's broadband access.

6. In cases where the defendant's cable customer (whose drop-in cable is already connected to the 3-way or 4-way tap of the defendant) subsequently subscribed to the plaintiff's service, the plaintiff would connect the drop-in cable to the plaintiff's 2-way tap in which the defendant's 3-way or 4-way tap output and the plaintiff's network output are connected. In order to do so, the defendant's 3-way or 4-way tap output would have to be disconnected from the drop-in cable and then immediately reconnected to the 2-way tap of the plaintiff.

7. The construction of the plaintiff's network and installation were carried out pursuant to agreements between the plaintiff and the incorporated owners of the multi-storey buildings and also between the plaintiff and the individual owners. In public estates, the plaintiff entered the agreement with the Housing Authority.

8. In March, June and August 2000, the plaintiff discovered that a number of its customers were off-line. Technicians were despatched and discovered that the drop-in cables of the customers were disconnected from the plaintiff's 2-way taps and were directly connected to the defendant's 3-way or 4-way taps only. The disconnection caused disruption to the plaintiff's service until the plaintiff's technician reconnected the plaintiff's network to the customers. By two letters dated 7 July 2000 and 29 August 2000, the defendant's solicitors, Messrs Bird & Bird ("Bird & Bird"), admitted that the defendant's employees had disconnected the plaintiff's installation.

9. On 22 September 2000, the plaintiff discovered that their installations in eight estates covering 22 blocks of building had been disconnected by the defendant. On 23 September 2000, it made the ex parte application for injunction against the defendant. Notice was served on the defendant's solicitors who apparently did not open its office on a Saturday and were not present at the hearing. I granted the injunction.

The defendant's case for discharge

10. The defendant's case for the discharge of the injunction is that the plaintiff had obtained the injunction by material non-disclosure.

Duty of frank and full disclosure

11. The duty of an applicant in an ex parte application to make full and frank disclosure is well established. Any material non-disclosure may render the order obtained to be discharged : Brink's Mat v. Elcombe [1988] 1 WLR 1350 and Behbehani v. Salem [1989] 1 WLR 726. The non-disclosure, however, must be material : Tete Access Floor Inc. v. Boswell [1991] 2 WLR 304 and A.M.D. Pack Rack Ltd & Others v. The Barrons Group Ltd & Others [1992] 2 HKLR 50 and Pacific Base Services Ltd & Another v. Silver Gain Development Ltd & Others [1996] 2 HKLR 26. The correct test of what is to be treated as material is all facts which are relevant to the weighing operation which the court has to make in deciding whether or not to grant the order : Thermix v. Schott Industrial Glass [1981] FSR 289 and Citibank NA v. Express Ship Management Services Ltd & Another [1987] HKLR 1184. Ultimately, it is a matter of discretion for the court in deciding whether there should be a discharge of an ex parte injunction in the event of material non-disclosure : Dubai Bank v. Galadari [1990] 1 Lloyd's Rep 120. One of the factors to be considered is whether the non-disclosure is innocently made or not : Brink's Mat and Behbehani. If the non-disclosure is innocent, the court may continue with the ex parte injunction or after the discharge, to immediately re-grant substantially the same injunction : Behbehani.

The four areas of non-disclosure

12. The four areas of non-disclosure relied upon by the defendant are as follows :

(1) The plaintiff had not disclosed that what it had done was unlawful.

(2) The statutory scheme on telecommunication installation had not been referred to by the plaintiff.

(3) The plaintiff had failed to disclose the negotiation between the parties that had commenced in March 2000.

(4) The plaintiff had not disclosed whether alternative devices could be used in connecting the plaintiff's and defendant's network to the drop-in cables which would reduce the degradation of the defendant's signal.

Interference by the plaintiff

13. The defendant argued that instead of the picture painted by the plaintiff as being the victim of the unlawful acts of the defendant, the real situation is that the plaintiff's installations had interfered with the defendant's existing network, in breach of Regulation 11 of the Telecommunications Regulations. The defendant complained that there has been degradation of its signals as a result of the plaintiff's connection.

14. Regulation 11 of the Telecommunications Regulations provides that -

"(1) No person shall use any apparatus for telecommunications in such manner as to cause direct or indirect interference with any telecommunications service lawfully carried on, or other apparatus for telecommunications lawfully operated in or outside Hong Kong.

(2) The Authority may, by notice in writing to any person possessing any apparatus for telecommunications, require him to take such measures as the Authority may consider expedient and within such time as may be specified in the notice in order to prevent interference of the nature described in subregulation (1).

(3) Any person who knowingly causes direct or indirect interference in contravention of subregulation (1) or fails to comply with any notice given under subregulation (2) shall be guilty of an offence and liable on conviction to a fine of $20,000."

15. This point can be shortly dealt with. In the affirmation of Leung Ka Pak, Kapak, used in support of the plaintiff's application for the ex parte injunction, the plaintiff referred to the two letters from Bird & Bird. In the letter dated 7 July 2000, Bird & Bird complained about the unlawful connection by the plaintiff of the defendant's network in March, June and July 2000. The letter stated, among other things, that -

"As you will no doubt be aware, the installation of the unlawful interconnections by you constitutes a trespass to our client's property and a breach of the Telecommunication Regulations."

"As a result of your actions our client may have incurred liability to its subscribers in respect of interruptions to our client's service and loss or distribution of subscribers data. Our client is not yet in a position to quantify any such liability. Our client reserves all its rights against you in respect of such liability."

16. The second letter was dated 29 August 2000 in which Bird & Bird referred to further unlawful connection of the defendant's network by the plaintiff in August 2000. The letter stated, among other things, that -

"As we have previously explained to you, the making of interconnections to a CATV system without the consent of the operator/owner such that it causes a degradation in the signal quality and a spillover of third party input signals constitutes both a trespass to the system and a breach of Telecommunications Regulation 11. Our client is entitled in such circumstances to exercise self help to restore the status quo."

"As we have explained, it is a clear breach of Telecommunications Regulation 11 for you to install telecommunication equipment that is connected to our client's telecommunication equipment and that interferes with our client's service without reaching a technical arrangement with our client in advance."

17. The affirmation further disclosed that the plaintiff had, at the meantime, complained to the Office of the Telecommunication Authority ("OFTA") on the actions of the defendant in disconnecting the plaintiff's device. The defendant had also complained to OFTA about the connection of the plaintiff to its network. In a letter dated 22 September 2000, OFTA informed the plaintiff that the defendant alleged that the connection by the plaintiff had violated Reg.11, degraded the performance of its network and caused disruption of its service to its customers.

18. Earlier on 8 August 2000, OFTA informed the plaintiff that the defendant had complained about the plaintiff's interference with its service. A meeting was held between the parties at OFTA's invitation on 1 September 2000 in which OFTA suggested a technical audit to verify the defendant's complaint. On 2 September 2000, the plaintiff and officers from OFTA carried out a technical audit with the finding that the measurement level of the network signals were in accordance with the requirement of Technical Requirement 1101 laid down by OFTA.

19. Apart from the affirmation, paragraph 7 of the written skeleton submission of the plaintiff submitted in support of the ex parte injunction, expressly stated that "Defendant's allegation that plaintiff breached Regulation 11 of Telecommunication Authority Regulations is not substantiated. OFTA has not rule on the matter to date. In fact proven wrong by the technical audit carried out by plaintiff in OFTA's presence".

20. Although at the hearing before me, the wording of Regulation 11 was not specifically referred to by Mr Leong SC, counsel for the plaintiff, in my view, the plaintiff had clearly discharged its duty in drawing the court's attention that the defendant had in fact complained about the interference by the plaintiff. By disclosing the defendant's complaint of interference, the plaintiff had clearly set out the context in which the application for injunction was made.

Statutory scheme

21. The defendant submitted that the plaintiff did not disclose the statutory scheme affecting the connection between the plaintiff's network and the defendant's network.

22. Section 36A of the Telecommunication Ordinance ("the Ordinance") provides that OFTA may determine the terms and conditions of interconnection of the type mentioned in subsection (3D). Subsection (3D) refers to arrangement between two or more parties for interconnection to and between telecommunication systems or services. "Interconnection" means "any connection between systems or services or elements of systems or services for the delivery of any communication, message or signal over the connection and, without limiting the generality of the foregoing, includes interconnection to a system, to a service, between systems, between services and between a system and a service; ..." (subsection (3E)).

23. OFTA may make a determination on the request of a party to the interconnection or, in the absence of a request, if it considers it is in the interest of the public to do so (subsection (2)). The terms and conditions in a determination may include any technical, commercial and financial terms and conditions that OFTA may consider fair and reasonable (subsection (3)). The terms and conditions in a determination may include charge that a party may pay to the other, the points at which interconnection is to be made and technical standards for interconnection (subsection (3A)).

24. The defendant argued that the plaintiff's connection to its network comes within the definition of interconnection under section 36A. It further referred to a document entitled "Guidelines to Assist the Interpretation and Application of the Interconnection Provisions of the Telecommunication Ordinance (Cap.106) and the FTNS Licence" issued by OFTA in June 1995, page 3 of the document stated that -

"THE TA'S [i.e. the Telecommunications Authority] APPROACH

12. The TA is of the view that, as a matter of practice, commercially negotiated arrangements are more sustainable in the market place than arrangements which have to be imposed by determination. The TA considers the licensees should avail themselves of every opportunity to resolve issues commercially before seeking a formal determination.

13. Accordingly, the TA considers that a light handed regulatory approach to regulatory intervention on interconnection matters is preferable to detailed determinations on all interconnection matters. Should commercial negotiation prove difficult, the TA would be prepared to facilitate negotiations by way of conciliation or mediation. These would involve the TA playing an active informal part to assist the parties to reach commercial agreement before resorting to formal determination procedures.

14. The TA will intervene in commercial negotiations when requested to do so by one or all parties to a negotiation, and after considering the public interest criteria referred to above.

15. The TA considers that interconnection agreements need to be finalized promptly, efficiently and at a reasonable cost. This view recognizes that in order for the Government's objectives for competition and consumer choice to occur in telecommunications there is a need for the licensees to reach agreement on interconnection arrangements at an early date. ..."

"22. Technical interconnection determinations may include matters relating to:

· provision of points of interconnection and capacity requirements;

· technical standards to be adopted; ..."

Relevance of the statutory scheme

25. Mr Leong accepted that the statutory scheme as set out in section 36A was not dealt with in the ex parte application, but he submitted that the matter was irrelevant because the statutory scheme does not prohibit the plaintiff from making the connection even in the absence of an agreement or determination by OFTA. Furthermore, whether the plaintiff's connection amounted to interconnection remains to be argued at the trial.

26. While I agree that whether there is interconnection is a matter that cannot be conclusively determined at this stage, it does seem that the features of the plaintiff's connection to the defendant's system comes within the definition of interconnection in section 36A. However, even assuming there is interconnection, one may ask what is the relevance of the statutory scheme if it does not prohibit the connection being made in the first place? In my view, the relevance of the statutory scheme is really in the context of the interference by the competitors of telecommunication networks. In my view, the most important aspect of the requirement of disclosure is the defendant's complaint of interference. This, the plaintiff had disclosed. While the statutory scheme would provide me with a better understanding of the telecommunication framework in Hong Kong, at the end of the day, it played no part in deciding whether the injunction should be granted or not. The test is, of course, not whether if the non-disclosure had not occurred, I would nevertheless have made the order, but rather the facts not disclosed, being relevant, should have been in the scales. While initially I was inclined to accept Mr Bleach SC, counsel for the defendant's submission that the statutory scheme was one of the relevant factors to be considered, on reflection, this is not something that would be relevant to my "weighing operation". Although a party may introduce such evidence out of an abundance of caution and in order to provide the court with a fuller picture of the disputes, ultimately this matter really would have no effect in my decision. This is not a material factor.

Negotiations

27. Between March and August 2000, the parties had carried out negotiations which were not disclosed by the plaintiff. According to the defendant, these negotiations were on the interconnections of the two systems.

28. The plaintiff's case on the discussion is that the discussion did not include buildings in which the defendant did not own the drop-in cables. Mr Leong submitted that when the plaintiff obtained the licence in March, it approached the defendant to make use of its existing pathway. The initial concept was to connect to the defendant's system at the head end, namely to feed the plaintiff's signals at the defendant's Tsuen Wan head office. The discussion was on a reciprocal basis, namely that the defendant could make similar connections to the plaintiff's system. Then the discussion moved to a situation where the plaintiff would build its own pathway but connected to the drop-in cables owned by the defendant. What the plaintiff had actually done in this case was to build its own pathway and connected it to the drop-in cables owned by the owners of the building. This occurred in buildings in which the defendant did not own the drop-in cables. This had taken place while the parties were carrying out the negotiation on the first and second methods of installation. This is a fact that was known to the defendant throughout.

29. The defendant's knowledge of the matter can be supported by the following. On 6 April 2000, the defendant complained to OFTA on the connection by the plaintiff to the defendant's system. Further, the letter of Bird & Bird dated 7 July 2000 referred to the plaintiff's connection carried out on 26 March, 12, 16 June and 6 July 2000. Likewise in the second letter dated 29 August 2000, it referred to connections on 17, 19 and 28 August 2000.

30. Mr Bleach referred to the correspondence to show that the parties were referring to discussions on interconnection without specifying whether it was to be installed in buildings in which the defendant owned the drop-in cables. It was only at a late stage of the discussion that the defendant referred to connections at the drop-in cables owned by the defendant. The building that was chosen by the plaintiff for trial run in fact was a building in which the defendant did not own the drop-in cables. Hence, it undermines the plaintiff's contention that the discussion did not include buildings in which the drop-in cables were not owned by the defendant. Mr Bleach argued that the issue is not on who owned the cables, but whether there was a discussion on interconnection. He submitted that the issue of negotiation merged with the statutory scheme.

31. In my view, it is not within the ambit of an interlocutory application for the court to determine what were the actual matters that had been discussed between the parties. If there was indeed a negotiation on interconnection, all that it means is that the statutory scheme had been invoked by the parties. However, if the statutory scheme has no bearing on the issue of the lawfulness of the plaintiff's action, I do not see how a non-disclosure of the negotiation would constitute a material non-disclosure. In my view, the defendant had not make out a case for the discharge of the injunction under this ground.

Alternative method of installation

32. The defendant argued that the plaintiff could have used a different device in their connection which would reduce the degradation of the signals of the defendant. The defendant found that the plaintiff had replaced the original device with an alternative device which could reduce the level of degradation. It is submitted that the plaintiff should have disclosed the adverse effects that its connection may have on the defendant's system and whether there are other ways that the defendant's system could have been protected.

33. The plaintiff's case is that its device was found by OFTA of not causing any interference with the defendant's system. The plaintiff admitted that in the early installation, the plaintiff did not use the alternative device, the earlier installation only now accounted for less than 10% of the total installations of the plaintiff. The plaintiff further said that the result of testing of both types of devices show that the level of degradation is only slightly higher with the original device.

34. In my view, this would not be an appropriate juncture to go into detailed technical evidence. In light of the evidence that the level of degradation of these two types of devices is only slightly different, it would be imposing too much a burden if the plaintiff is required to deal with alternative methods of installation at the ex parte application. Afterall, the concern at that stage was that the defendant had removed the plaintiff's connections in the course of 24 hours which caused serious problems with the plaintiff's operation.

Defendant's application dismissed

35. I find that the defendant had not made out a case of discharge. I shall accordingly dismiss the defendant's summons to discharge the ex parte injunction.

Continuation of the injunction

36. The defendant accepted that if it fails in its application to discharge the ex parte injunction, then the injunction would continue. This is obviously a proper case for the granting of an injunction. There is a serious question to be tried on whether the defendant's action had interfered with the plaintiff's installation. In cases of this type, where the business competition is extremely fierce, damages is clearly not an adequate remedy. It is the business reputation and ability to capture a share of the market that matters. As to the balance of convenience, ultimately the question is the balance of the risk of doing an injustice : Cayne v. Global National Resources Plc. [1984] 1 All ER 225. In my view there would be less injustice in granting the injunction which may turn out to be wrong than not making the order in favour of the plaintiff at this stage. The plaintiff obviously would suffer irreparable loss if its installations are disconnected.

Variation of the injunction

37. The defendant submitted that there should be modification to the terms of the injunction by requiring the plaintiff to replace the original device with the alternative device. This would involve replacing devices both in the outside and inside of an individual's flat. Although the plaintiff has indicated that it would eventually replace the installation outside with the alternative device, there are technical obstacles in placing the device inside the flat.

38. I would not vary the terms of the injunction. The purpose of the interlocutory injunction is to preserve the status quo so that the plaintiff can carry on with providing service to the customers until the trial. Likewise I have to ensure that the injunction would not affect the normal operation of the defendant as well. In this case, if the plaintiff's installations are really seriously affecting the service provided by the defendant, one would expect numerous complaints from its customers. However, what has been disclosed so far are only a few complaints. I am not satisfied that the situation is such that the plaintiff should be required to completely replace its devices both inside and outside the individual flats.

Speedy trial

39. I shall continue with the injunction. It is to the benefit of the parties that there should be a speedy trial of the action, and I shall so order.

Costs

40. I shall make an order nisi that the costs of the plaintiff's application for injunction be costs in the cause and the defendant is to pay the plaintiff the costs occasioned by its application to discharge the injunction.

Representation:

Mr Alan Leong SC, leading Mr Bernard Mak, instructed by Messrs Li & Partners, for the Plaintiff

Mr John Bleach SC, instructed by Messrs Bird & Bird, for the Defendant