I-cable Webserve Ltd v. The Telecommunications Authority

CACV 329/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 329 OF 2008

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BETWEEN

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Before: Hon Rogers VP, Le Pichon and Yuen JJA in Court

Date of Hearing: 7 April 2009

Date of Handing Down Judgment: 11 June 2009

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J U D G M E N T

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Hon Rogers VP:

1.This was an appeal by way of case stated by the Telecommunications (Competition Provisions) Appeal Board (“the Appeal Board”) pursuant to section 32R of the Telecommunications Ordinance, Cap. 106 (“the Ordinance”).  The facts of the case are set out in the case stated.  For present purposes it is sufficient to say that by a notice pursuant to section 36C of the Ordinance, dated 6 November 2007, the Telecommunications Authority (“the TA”) notified the appellant that he had been satisfied that the appellant had contravened section 7M of the Ordinance and the TA exercised the powers under section 36C to require the appellant to pay a financial penalty of HK$100,000.

2.In brief it can be said that the TA was satisfied beyond reasonable doubt that on two occasions salespersons acting on behalf of the appellant had assured members of the staff of the Office of the TA, who were acting as investigators, that they would be able to enjoy English football programmes for the full period of the service contract if they signed for the appellant’s service for a set period.  At the time the appellant did not have the rights to the English football programmes for the whole period and as matters transpired, it was ultimately unable to secure them.  In the case summary the TA said at paragraph 40:

“The Authority would also comment that the appropriate standard of proof to be applied in this case is the civil standard of “on the balance of probabilities”.  That said, given that a finding of breach results in sanctions in the form of financial penalty, the Authority has taken great care in the assessment of the case to ensure that there is solid and reliable evidence before finding that the breach has occurred.  Indeed, with the overwhelming strength of the evidence as detailed above, the Authority would find (the appellant) in breach of section 7M even if the standard of proof to be applied were the criminal standard of “beyond reasonable doubt.” ”

3.The matter was taken to the Appeal Board and, prior to giving its decision, at the request of the parties it stated the following questions of law for this court:

“(1)  for the purpose of forming an opinion as to whether there has been a contravention of section 7M, whether the applicable standard of proof is the criminal one (beyond reasonable doubt) or the civil one (on the balance of probabilities);

(2)  if (a) the legislature in enacting section 7M, together with section 36B and section 36C, intended to create a disciplinary or regulatory scheme with financial penalties having the character of civil sanctions, but (b) the answer to question (1) is the criminal standard of proof by virtue of the financial penalty provisions in section 36C and the consequences thereof under Articles 10 and 11(1) of the BOR, what is the appropriate relief or remedy, if any, to be granted or ordered under section 6(1) of the BORO; and

(3)  on the true construction of section 7M, whether:

(i)  the licensee-employer shall be held not liable if the conduct giving rise to a contravention of section 7M was committed by an employee in the course of employment but contrary to a prohibition issued by the licensee-employer, or

(ii)  liability on the licensee-employer’s part for conduct on the part of employees can only be excluded by completely effective preventative measures and any ineffective steps taken by the licensee to prevent such conduct may rank only in mitigation of penalty.”

4.In my view, the answers to the questions are straightforward.  The Ordinance lays down a means of licensing the providers of telecommunications services.  Sections 7K, 7L, 7M and 7N seek to control the actions of licensees in various ways.  Section 7K requires that the licensee shall not engage in conduct which has the purpose or effect of restricting competition in the telecommunications market.  Section 7L seeks to prevent the licensee from abusing a dominant position in the market in a way which also has the purpose or effect of preventing competition.  Likewise section 7N seeks to prevent a licensee who is in a dominant position in the telecommunications market from discriminating in a way which would have the purpose or effect of preventing or substantially restricting competition.  In slight contrast, section 7M reads as follows

“7M.  Misleading or deceptive conduct

A licensee shall not engage in conduct which, in the opinion of the Authority, is misleading or deceptive in providing or acquiring telecommunications networks, systems, installations, customer equipment or services including (but not limited to) promoting, marketing or advertising the network, system, installation, customer equipment or service.”

5.Thus section 7M, unlike the other three sections referred to above, is not limited to cases where the purpose or effect of preventing the conduct complained of would be to prevent or restrict substantially competition in the telecommunications market.  It extends to any misleading or deceptive conduct with regard to the services provided.  It thus extends to conduct which might affect the customer but does not necessarily (or directly) affect any competitor.  Ms Carss-Frisk QC, who appeared for the respondent on this appeal, argued that the purpose of the section was to ensure competition.  Whereas it can be said to have that effect, it seems to me that the purpose and effect of the section goes beyond ensuring fair competition and is directed to consumer protection in a wider sense.

6.Under section 36B of the Ordinance the TA may issue directions to a licensee requiring it to take action in respect of, amongst other things, compliance with the provisions of the Ordinance.  It is with section 36C that this case is concerned.  For convenience it is set out here:

“Authority or court may impose financial penalties

(1)  The Authority may, by notice in writing addressed to a licensee, require the licensee to pay to the Government the financial penalty specified in such notice in any case where the licensee fails to comply with-

(a)  any licence condition;

(b)  any provision of this Ordinance or any regulation made thereunder; or

(c)  any direction issued in respect of the licensee by the Authority under section 36AA(1) or 36B(1)(a).

(2)  The Authority may, by notice in writing to any person of the description mentioned in section 36B(1)(b), require that person to pay to the Government the financial penalty specified in such notice in any case where that person fails to comply with the requirement of any direction issued in respect of that person by the Authority under that section.

(3)  A financial penalty imposed under subsection (1) or (2) shall not exceed-

(a)  $200000 for the first occasion on which a penalty is so imposed;

(b)  $500000 for the second occasion on which a penalty is so imposed; and

(c)  $1000000 for any subsequent occasion on which a penalty is so imposed. (Amended 36 of 2000 s. 23)

(3A)  Without prejudice to subsections (3) and (3B), the Authority may, by notice to a licensee who has committed a breach of a licence condition or provision in this Ordinance or regulation made thereunder, or a breach of a direction, require the licensee-

(a)  to disclose to the public, to a particular person or to a class of persons, in such manner as is specified in the notice, such information, or information of such a kind, as is so specified, being information that relates to the breach and is in the possession of the licensee or to which the licensee has access;

(b)  to publish, at its own expense, in newspapers corrective advertisements in such manner, at such times and on such terms as are specified in the notice and for this purpose, the Authority may specify among other things the newspapers in which the advertisements shall be published, the languages that shall be used, the days on which the advertisements shall be published, the content of the advertisements and the size and prominence of the advertisements in the newspapers.

(3B)  Where the Authority considers that if he were to impose a financial penalty under subsection (3) it would not be adequate for a breach referred to in subsection (1)-

(a)  the Authority may-

(i)  within 3 years of the commission of the breach; or

(ii)  if the breach comes to the notice of the Authority within 3 years of its commission, within 3 years of it so coming to the notice of the Authority,

whichever is the later, make an application to the Court of First Instance; and

(b)  upon such application, the Court of First Instance may, without prejudice to any powers conferred on the Authority by any provision of this Ordinance or any regulation made thereunder or any licence condition, impose upon the licensee who has committed the breach a financial penalty of a sum not exceeding 10% of the turnover of the licensee in the relevant telecommunications market in the period of the breach, or $10000000, whichever is the higher.

(4)  The Authority shall not impose a financial penalty under this section unless, in all the circumstances of the case, the financial penalty is proportionate and reasonable in relation to the failure or series of failures concerned giving rise to that penalty.

(5)  Subsection (1), (2) or (3A) shall not apply in the case of the licensee or person concerned unless the Authority is satisfied that the licensee or person, as the case may be, has been afforded a reasonable opportunity of complying with the requirement of any licence condition, provision of this Ordinance or regulation made thereunder, or direction, in respect of which that subsection is sought to be applied.

(5A)  A financial penalty imposed under this section shall be recoverable as a civil debt due and payable to the Government.

(6)  The imposition of a financial penalty under this section, in relation to a licence, shall not be construed as affecting the application of section 34(4).

(7)  The Authority shall, before imposing a sanction under this section on a licensee or person concerned, afford the licensee or person concerned, as the case may be, a reasonable opportunity to make representations and shall consider all representations made before the Authority decides whether or not to impose such sanction.”

7.Looking at the Ordinance as a whole and, in particular, the provisions of sections 36B and 36C, I consider that there is no doubt that the effect of those provisions is what can be described as regulatory or disciplinary.  As far as this case is concerned I do not consider that there is any relevant distinction to be drawn between the two.  Whatever might be said, those sections do not make a contravention of section 7M a criminal offence.

8.In contrast, it can also be observed that there are specific sections in the Ordinance which clearly do provide for criminal offences.  In this regard, Part V contains a number of sections which make that clear.  Furthermore, as was pointed out in the course of argument, section 7M is directed only to licensees under the Ordinance who operate in the telecommunications sphere.

9.The fact that the penalties which can be imposed under section 36C cannot be described as de minimis does not of itself make the matters under section 7M criminal in nature.

10.Reference can also be made to section 6A(3) which provides that the TA shall only form an opinion or make a determination, direction or decision on reasonable grounds, having regard to relevant considerations, but it is also required to provide reasons in writing.  Section 6C gives the power to the TA to consult (a) the persons who may be directly affected by the performance of that function or the exercise of that power, as the case may be; or even (b) members of the public.  Again, it has to be emphasised that all these provisions have to read together.  Nevertheless, these are scarcely provisions which could be expected to be found in respect of prosecution of a criminal offence.  They would, in some respects, be otiose and, in other respects, be entirely inappropriate.

11.In my view the answer to question 1 is clearly that the standard of proof is a civil one, but the TA was entirely correct in its approach in paragraph 40 quoted above.

12.In those circumstances the second question does not arise.

13.Turning to the question of whether the licensee-employer should not be liable if the act was committed by an employee in the course of his employment but contrary to a prohibition issued by the licensee-employer, in my view the question must be answered in the negative.  On the basis that section 7M does not create a criminal offence but is part of the regulatory regime, what it is there to do is to regulate how the licensees should go about their business and, in particular respects, what they should not do.  Since the licensee can only act through its employees, if an employee is employed to do a particular act, in this case to negotiate with potential customers, the licensee must be responsible for what that employee does in the course of his employment and in carrying out the duties which the employee does as part of his employment.

14.It would appear that on a simple contractual basis the employer must be responsible for any representation made by an employee who is employed to negotiate and sell products or services to a potential customer and makes the representation in the course of doing that.  In those circumstances, if an employee, when carrying out his duties, so to speak, oversteps the mark in relation to representations or promises which he makes to potential customers, the employer must be responsible unless it can be demonstrated that the employee was on a frolic of his own.  That simply could not be the case where the employee was doing precisely what he was employed to do, namely, entice customers to enter contractual relations with his employer.

15.Whilst there is nothing in the Ordinance which specifically provides that the employer’s responsibility and liability can only be excluded by “completely effective preventative measures”, that is, in effect, the result which is achieved.  Doubtless, the Authority will take into account what steps were taken and the extent to which the employer tried to prevent its employees from putting it in breach of the Ordinance.

16.I would therefore answer the questions posed in the case stated as set out above, namely:

Question (1): the standard of proof is the civil one

Question (2): inapplicable

Question (3):

(i)  the licensee-employer is not exempt from liability if the conduct giving rise to a contravention of section 7M was committed by an employee in the course of his employment but contrary to a prohibition issued by the licensee-employer;

(ii)  liability on the licensee-employer's part for conduct on the part of employees acting in the course of their employment can only be excluded by completely effective preventative measures and any ineffective steps taken by the licensee to prevent such conduct may rank only in mitigation of penalty.

17.I would therefore order accordingly and make an order nisi of costs in favour of the respondent.

Hon Le Pichon JA:

18.I agree.

Hon Yuen JA:

19.I agree.

Hon Rogers VP:

20.There will accordingly be an order in terms of paragraphs 16 and 17.

Mr Rimsky Yuen SC, instructed by Messrs Jones Day, for the Appellant

Ms Monica Carss-Frisk QC & Mr Edward Alder, instructed by Department of Justice, for the Respondent