SUNEVISION HOLDINGS LTD v. HONG KONG SCIENCE AND TECHNOLOGY PARKS CORPORATION

HCAL 1890/2018

[2020] HKCFI 548

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 1890 OF 2018

____________

________________________

_________________

J U D G M E N T

_________________

A.     Background

A1.    The parties

1.  These judicial review proceedings concern the policies of the respondent and their enforcement in relation to data centres in industrial estates.  The applicant, SUNeVision Holdings Ltd (“SUNeVision” or “Applicant”), is a company within a group that operates five data centres in different districts in Hong Kong outside the industrial estates.

2.  The respondent, the Hong Kong Science and Technology Parks Corporation (“Corporation”), is a statutory body established in 2001 by the Hong Kong Science and Technology Parks Corporation Ordinance (Cap 565), merging and thus replacing the Hong Kong Industrial Estates Corporation, the Hong Kong Industrial Technology Centre Corporation and the Provisional Hong Kong Science Park Company Limited. 

3.  The Corporation’s purposes are set out in s 6(1) of that Ordinance as follows:

“ (a) to establish or develop any premises where activities related to the purposes prescribed in paragraph (b), (c) or (d) are, or are to be, carried out, and to manage and control the land and other facilities comprised in such premises;

(b) to facilitate the research and development and application of technologies in manufacturing and service industries in Hong Kong;

(c) to support the development, transfer and use of new or advanced technologies in Hong Kong;

(d)  to engage in such activities or to perform such functions as the Chief Executive in Council may, after consultation with the Corporation, permit or assign to it by order published in the Gazette.”

4.  The Corporation’s mission is to stimulate the growth of local technology businesses through intensive research and development activities and to attract new technology‑based investments, with a view to facilitating the broadening of Hong Kong’s economic base and upgrading its technology levels.

5.  By s 7 of the Ordinance, the Corporation is to conduct its business according to prudent commercial principles.  For the purpose of discharging its functions, the Corporation is conferred wide powers under s 8, which include the power to sell, let, sublet or otherwise dispose of land or any facilities in any specified premises (subject to the terms and conditions contained in the land grant) on such terms and conditions as its Board of Directors considers appropriate.

6.  The Corporation is governed by its Board of Directors, which is empowered to establish and delegate functions to such committees as it considers appropriate.  The Business Development and Admission Committee (“BDAC”) is one such committee established by the Board of Directors with the function, inter alia, to approve or reject applications for admission as tenants or grantees into the Corporation’s premises, and to approve or reject requests from tenants or grantees for the renewal or modification of relevant agreements.

7.  The Corporation owns land at three industrial estates in Tai Po, Yuen Long and Tseung Kwan O respectively, on which it allows firms to construct facilities and operate their businesses at rates which are generally much lower than the market rates for land elsewhere in Hong Kong. These proceedings concern the Tseung Kwan O Industrial Estate (“TKOIE”).

8.  The interested party, Global Switch Hong Kong Ltd (“Global Switch”), is a company within a group trading under the brand name “Global Switch” which develops and operates data centres in Europe and Asia‑Pacific.  It is building and operating a data centre in a site in TKOIE.

A2.    Data centre business

9.  Information technology (“IT”) operations are a crucial aspect of most organisational operations around the world today. For most IT operations, business continuity and information security are critical.  Since installing the necessary equipment within their own premises is not viable for many companies (not least because of the power requirements and the need for presence of fuel for generator and cooling agent which might be dangerous for ordinary buildings), the business has emerged of providing data centre service.

10.  A data centre is a building or dedicated space within a building used to house information and communication technologies (“ICT”) equipment, typically computer systems and associated components such as telecommunications, computing system and electronic data-storage systems in a secure and controlled environment.  But it is not an ordinary building or a warehouse.  A data centre would typically be developed with special electrical and mechanical infrastructure to provide a reliable physical environment required for the operation of ICT equipment.  The sophistication level of the technology involved depends on the level, or “tier” (see §14 below), of the data centre in question.

11.  There are different ways of classifying data centres.  The kind of data centres with which these proceedings are concerned is based on a “colocation” model, whereby the data centre operator provides space for the customer to house or “colocate” its own ICT equipment with a range of services in respect of this equipment.  This may be distinguished from a data centre set up by a company purely for its own IT purposes, as well as a model (called “managed hosting”) in which the data centre operator supplies dedicated servers and associated hardware to a customer and then manages those systems on the customer’s behalf.

12.  In these proceedings, SUNeVision contends that colocation data centres fall into one of two models: the “wholesale colocation model” and “retail colocation model”. 

(1)  In the wholesale colocation model, the data centre operator designates specific space within the centre for use by a customer, and grants control over that space to the customer.  This model is typically preferred by large customers who have the internal resources to manage and maintain their equipment in their own dedicated space.  SUNeVision says that the major part of its own data centre business follows the wholesale model and involves the provision of designated space to customers giving them absolute control over the premises.

(2)  In the retail colocation model, different customers’ equipment is housed in the same shared space and no customer would have the exclusive use or control of any space in the data centre.  This model generally caters for customers who need only limited space to set up network Point‑of‑Presence[1] or to house ICT equipment.  The data centre operator will also provide “managed services” such as internet connectivity and bandwidth, network monitoring, and system management.  As their “MSP” (managed services provider), the data centre operator requires unrestricted access to the customers’ ICT equipment.

13.  This description of and distinction between the two models are not accepted by either the Corporation or Global Switch, who consider that it mis‑characterises the data centre industry in Hong Kong.  As explained in a previous interlocutory decision and in section G below,[2] this classification is in my view not helpful in the context of determining whether a particular arrangement in a data centre infringes the Data Centre Policy (defined below) or the lease.

14.  Data centres may also be classified according to the level of services they provide.  One such system is the “Tiers Classification System”, which divides data centres into four tiers (Tiers I to IV), from the most basic to the most sophisticated and reliable.  A Tier III data centre, for example, in addition to having all the Tier I and Tier II capabilities, requires no shutdowns for equipment replacement and maintenance, with N+1 redundant infrastructure,[3] 72 hours power outage protection, and achieves 99.982% “uptime” (as opposed to “downtime”).  A Tier IV infrastructure has all the capabilities of the previous Tiers, with 2N+1 fully redundant infrastructure, 96 hours power outage protection, and “fault tolerance” so that individual equipment failures or distribution path interruptions would have no impact on ICT operations, delivering 99.995% uptime.

15.  The services or facilities typically provided by a data centre include:

(1)  Power.  An uninterrupted and steady power supply is of vital importance, especially to mission‑critical, highly sensitive ICT equipment of high‑end customers.  There must be sufficient power supply as data centres consume an enormous amount of electricity, and also infrastructure to cater for power outage (such as multiple uninterruptible power supplies and back‑up generators) and inconsistencies in the supply such as power surge and frequency fluctuations.  An example is the DRUPS (Diesel Rotary Uninterruptable Power Supply) system used by Global Switch, which combines an electro‑mechanical flywheel and a diesel generator.  Elements of the electrical system are typically provided with redundancy.  There is therefore much more involved than simply connecting the premises with the general electricity grid.

(2)  Cooling.  This requires equipment to monitor and ensure that the temperature and humidity are kept within a specified range which are critical to the operation of ICT equipment.  The system needed is far more sophisticated than simply installing air-conditioning units.  For example, in Global Switch’s data centre, the extensive plant required for the cooling system alone occupies two floors of Buildings 1 and 2.

(3)  Fire protection — this requires fire detection systems and sophisticated fire extinguishing systems that would minimise damage to the ICT equipment in case they are triggered, such as those that use electrically non‑conductive fire suppressing agents.

(4)  Security — this requires security systems with 24/7 monitoring and control of visitors.

(5)  Network connectivity — this involves the provision of network infrastructure (including cabling and facilities for central connection hubs) which enables the ICT equipment housed to connect to telecommunications services providers, local and international.

(6)  Monitoring and troubleshoot — this involves round‑the‑clock, 24/7 monitoring professionals to maintain constancy in the physical environment and network connectivity, usually through a network operation centre within the data centre.

16.  These services have been labelled “DC Services” in the Corporation’s evidence though the term is not a term of art in the industry.  These services are central to the data centre operator’s business and, at least for high‑end data centres, involve highly sophisticated and specialist infrastructure as well as round‑the‑clock, real‑time management and monitoring, taking up a very significant part of the operator’s capital investment, overhead and manpower.  This is a far cry from simply providing fitted out space with power sockets, air‑conditioners and internet connection.

17.  In addition, data centres may also offer further services for customers including:

(1)  offering web‑based business applications thereby saving customers’ cost of investing in software for its IT operations;

(2)  outsourced management of the customers’ ICT equipment, including IT infrastructure design, implementation, monitoring and maintenance support;

(3)  security management for the customers’ networks; and

(4)  providing the data centre’s own cloud infrastructure as computing platform for customers to develop and host their own software applications.

18.  The Corporation has in its evidence labelled such additional and separate services as “Subscribed Services”, which again is not a term of art.

A3.    The Corporation’s policies

19.  As would be expected, for the purpose of discharging its functions, the Corporation has formulated various policies.  In relation to the admission of a firm into an industrial estate, ie granting a lease to a firm, the general selection criteria applied by the Corporation, originally formulated with manufacturing industries in mind, are that the project must be of a nature that effectively prohibits it from being carried out in an ordinary multi-storey industrial or commercial building available in the open market in Hong Kong, it must not be classified as an offensive trade under relevant regulations, and the primary activity must not be storage or warehousing.

20.  The Corporation has also advertised that the most welcome projects would involve new or improved products or services, new or upgraded technology, high added value using local material and manpower, products or services for which there is strong demand from local industry, substantial contribution to Hong Kong’s exports, significant investment particularly in new machinery and equipment, and employment at a higher level of skill. 

21.  In relation to the leasing of land, the Corporation has a general policy against its lessees parting with possession or permitting third parties to occupy premises within an industrial estate.  The rationale is that land in the industrial estates, granted at preferential rates for the purpose of fostering the lessees’ development of industries or businesses which the Corporation has seen fit to promote, should be dedicated to such purposes and not be used for rental gain.  This policy is reflected in the Corporation’s standard lease for individual sections in the industrial estates, which provides in clause B(11)(a) (with the marginal note “alienation”[4]) as follows:

“ [the lessee covenants] … not to assign mortgage charge demise underlet or part with possession of the said premises or any part thereof or otherwise dispose of the said premises or any part thereof or any interest therein or enter into any agreement so to do nor to permit any other party by way of a licence or otherwise to occupy the said premises or any part thereof.”

I shall refer to this provision as the “No Alienation Clause”and the policy reflected in it as the “Lease Restriction Policy”.

22.  Following the recommendation by the Focus Group on Professional Services, Information & Technology and Tourism established by the Chief Executive of Hong Kong in 2007 to promote Hong Kong as a data centre hub in the region, a consultancy study was commissioned by the Innovation and Technology Commission and completed in March 2009, concluding that, in anticipation of new approaches and opportunities to the industry, the Government might need to take further steps to facilitate its future development, and that the Government’s land administration should not impose particular constraints on the data centre sector, and recommending that the Government facilitate development of high profile and mega data centre projects as part of the broader efforts to promote Hong Kong as a location for high technology, high value industries.

23.  Given that TKOIE had been identified to be an ideal location for data centres (because, inter alia, it is a hub of connectivity with four submarine cable landing stations and is equipped with a 150 MVA power substation), the Corporation had initially considered whether to revise the No Alienation Clause and its policies to allow subletting within certain limits, and had included three sites in TKOIE in an “Expression of Interest” exercise in June 2008, to gauge market interest. 

24.  At a meeting of the BDAC on 24 July 2009, the Corporation’s management expressed the view that the user description and restriction in future documents should be simplified to state that lessees within the industrial estates would be permitted “to operate a data centre to provide collocation services (as well as Internet connectivity and other networking services, managed and outsourcing services on facilities, data centre management and system management) to end‑users” but should not part with possession of the lot or any part thereof.  It was considered that the grantee and the operator of the data centre should be the same person.

25.  In October 2009, the Corporation held meetings with OFTA,[5] OGCIO,[6] the Innovation and Technology Commission and InvestHK to discuss issues relating to, inter alia, colocation data centres in cable landing stations in industrial estates.  It was noted that it was popular for multinational content and application providers and multinational corporations to locate their backup platforms in cable landing stations for easy access to the submarine cable systems.  As it was the Government’s policy to facilitate the development of data centres in Hong Kong, it was considered necessary to see what administrative measures could be taken to allow the land available within the industrial estates to be used for operation of data centres.  In November 2009, the Permanent Secretary for Commerce and Economic Development (Communication and Technology) wrote to the Chairman of the Corporation asking the Corporation to expedite action to enhance the evaluation and admission arrangements for suitable applicants in the data centre sector.

26.  Following further meetings with the Government in December 2009 and having obtained further legal advice from the Corporation’s legal advisers (Mayer Brown JSM) to evaluate the implications of the lease provisions, the Corporation’s management prepared a paper for the BDAC to consider at its meeting on 9 February 2010 (“February 2010 BDAC paper”), putting forward the view that:

“ 22.  … the “stipulated use” as approved by BDAC on 24 July 2009 remains valid except for the intention to restrict the customer level to ‘end user’ as described … above.  Management recommends taking away the words ‘to end users’ at the end of the description … above and the revised version becomes:

•  The use shall be to operate a data centre to provide collocation services as well as internet connectivity and other networking services, managed and outsourcing services on facilities, data centre management and system management.

•  The grantee/lessee shall not part with possession of the lot or any part thereof.

23.  If a data centre applicant meets our scrutiny against the above two bullet requirements, we would be inclined to consider that there is no breach of the restriction against alienation.  As such, there is no need to amend the lease condition to suit the operation mode of such data centre use.”

27.  In the context of the general admission criteria, the paper also illustrated how, in terms of value added, a high‑end data centre would command a much higher level of revenue than subletting floor space.  It was noted that the pure subletting of industrial floor space could only score $6‑$8 per ft² and a data centre with base building facilities only $20 or $30 per ft², whereas a data centre with enhanced facilities and the associated management could command $200‑$300 per ft², and upwards of $600 per ft² including network services and outsourced services.  It was considered that, to be admitted into an industrial estate, a data centre operator should carry out substantial amounts of facility management, system management and network management.

28.  In the end, the BDAC endorsed the approach for the evaluation of applications for data centre operation proposed by management, expressed as follows:

“ (a) The current Admission Criteria shall remain in force for the evaluation of data centre applications taking into account the factors as suggested by JSM … above, namely,

• Exclusive possession shall be retained by the grantee.

• The provision of managed services shall be the dominant element of arrangement.

• Right of access shall remain [within] the control of the grantee at all times.

(b)  As described … above, the Approved Use shall be to operate a data centre to provide colocation services as well as internet connectivity and other networking services, managed and outsourcing services on facilities, data centre management and system management. [Please note that the previous referral to ‘end-users’ has been removed.]

(c) Further, we shall maintain our lease restriction on alienation in that the grantee/lessee shall not part with possession of the lot or any part thereof.

(d) As described … above, total investment of new data centre projects should at least exceed the average investment of all projects on the Industrial Estates at $12,500 per m² and hopefully can tally with the average for other IT and T projects on the Estates at around $48,945 per m².” (original italics)

Points (a) and (b) above have been described by the Corporation in these proceedings as its “Data Centre Policy”.

29.  In conjunction with this policy decision, the standard lease used by the Corporation has been adapted for use in relation to data centres by the addition of a sub‑clause (b) into the original clause B(14), which provides:

“ (b) The operations in the said premises shall be in accordance with the purpose referred to in the Second Schedule hereto and shall be governed by a proforma Service Agreement to be made between the Lessee and its customers if colocation is involved. Such proforma Service Agreement shall be upon such terms and conditions as first be approved in writing by the Corporation.”

The Second Schedule is to specify the purpose for which the premises may be used, as described in the grantee’s application and supporting documents.  Further, as decided at the BDAC meeting of 9 February 2010, no amendment of clause B(11)(a) — the No Alienation Clause — need be made, so that it remains in the lease to be used for data centres.

A4.    Correspondence with participants in the industry

30.  On 2 June 2010, in his letter to a company which had previously responded in the Expression of Interest exercise, Mr E Anthony Tan, the then CEO of the Corporation, stated, in relation to the admission of data centres into industrial estates:

“ The rationale for controlling subletting remains here in that the grantee should be the one who undertakes the approved use in the premises. In essence, we will consider an application based on our normal admission criteria taking into account all the relevant circumstances of the application including the following factors:

• Exclusive possession shall be retained by the grantee.

• The provision of managed services including internet connectivity and other networking services, managed and outsourcing services on facilities, data centre management, system management and the like shall be the dominant element of the operation in the premises.

• Right of access to the premises shall remain within the exclusive control of the grantee at all times.”

31.  At around the same time, it appears that SUNeVision and certain data centre operators had expressed concerns to the Government about what they perceived as the Corporation’s interference with the market by allowing other data centres to be operated within the industrial estates. Their letter was passed to the Corporation and replied to by Mr Tan on 9 July 2010 in these terms:

“ HKSTP does not consider it necessary to make any change to our admission criteria in the evaluation of data centre application and that it is not necessary to relax the lease restriction on subletting. In essence, HKSTP will consider an application from a data centre operator based on our established admission criteria taking into account all the relevant circumstances of the application including the following factors: [and the three bullet points in the letter dated 2 June 2010 are set out].”

The letter attached a one‑page document headed “Supplemental Information for Policy and Practice Review”, which stated:

“ … In general, we understand that by virtue of this operation, it may require a client placing its equipment in the premises to enjoy the services provided by the grantee; the latter being the dominant element of the operation of a data centre. Data centre operators as well as other manufacturers who consider that they can meet our admission criteria and lease conditions are welcome to apply for sites on the Industrial Estates.

For argument sake, the licensing of a grantee’s own printing and food processing machinery to others for printing / making their own products is in breach of our lease conditions as the grantee is not carrying out the approved use itself.  Similarly, a data centre grantee that does not carry out the approved use in the premises will be in breach of the lease conditions.”

32.  This was followed by a letter from the Applicant and its associates in September 2010, in which they apparently claimed that ordinary multi‑storey industrial or commercial buildings in Hong Kong could meet the requirements of all tiers of data centre.  The Corporation responded on 20 October 2010 questioning that claim, and also stated in relation to “restriction on subletting” that “the basic test factors” the Corporation had been using to address the specific nature of data centre operation had been explained in the letter of 9 July 2010.

33.  On 1 June 2011, the Corporation issued an invitation to tender for a lot with an existing building in TKOIE, stating:

“ Operators in manufacturing / service industries whose projects meet admission criteria are welcome to apply for sites. Applications are requested to note our standard lease restriction on alienation in that the grantee shall not part with possession of the lot or any part thereof. In effect, no subletting shall be allowed and the grantee shall always retain exclusive possession of the premises including the control of access right. Further, for data centre / collocation centre projects, the dominant operation in the premises shall be the provision of managed services including internet connectivity and networking services, managed and outsourcing services on facilities, data centre management and system management and the like.”

34.  Subsequently, iAdvantage Ltd, a subsidiary of SUNeVision, wrote to the Corporation on 5 December 2011 referring to the criteria used by the Corporation in the Data Centre Policy.  On 14 December 2011 the Corporation replied as follows:

“ I am pleased to see that you are well aware of the criteria we have been using on the Industrial Estates to address the specific nature of data centre operation. You are also correct in suggesting that a simple landlord‑tenant relationship would not meet those criteria.

Since our last letter to you on 20 October 2010, there has not been any change to our admission policy for data centre. According to our standard lease and in particular the restriction on alienation, the Grantee shall not part with possession of the lot or any part thereof.  Accordingly, … the Grantee shall always retain exclusive possession of the premises including the control of access.  In assessing data centre applications, we would expect that the dominant element will be the provision of managed services, networking and outsourcing services etc in respect of facilities, data centre management and system management and the like. …”

35.  It should be noted that as used in the Data Centre Policy, the services that should be a dominant part of the operation cover a range of services, including “managed and outsourcing services on facilities” and “data centre management”.  The Corporation includes both DC Services (§16 above) and Subscribed Services (§18 above) within that concept.[7]  As I understand the position, however, this would not necessarily include the provision of base facilities but what the Corporation regarded as high‑value‑added Facility Management (see §27 above).

A5.    Tender of Site C

36.  TKOIE is situated at Tseung Kwan O Town Lot No 39 and the Extensions thereto, under New Grant No 21680 (“Land Grant”) made by the Government to the Corporation’s predecessor for a nominal premium.  The land has been divided into various sub‑lots which the Corporation in turn leases to its “grantees”, ie firms admitted into TKOIE and to whom leases are granted.  In early 2012, the Corporation decided to make available three contiguous vacant pieces of land on the waterfront of TKOIE, namely Sections B, C and RP of Sub‑Section 5 of Section Q of Tseung Kwan O Town Lot No 39 and Extensions thereto, for application (Section B and Section C will be referred to as “Site B” and “Site C” respectively).  The invitation for application was issued by the Corporation in January 2012 to, among others, a number of data centre companies.  The premiums for the grant of the sites were fixed and specified in the invitation (being, in the case of Site C, $81,760,000, or $3,800 per m² for 21,516 m²).  Instead of competing on price, the invitees were in effect to compete in terms of other parameters including the level of their proposed investment.

37.  In particular, the invitation for application for Site C stated:

“ Applicants are also requested to note our standard lease restrictions on alienation in that the grantee shall not part with possession of the lot or any part thereof. In effect, no subletting shall be allowed and the grantee shall always retain exclusive possession of the premises including the control of access right. Further, for data centre projects, the dominant element in the premises shall be the provision of managed services including internet connectivity and other networking services, managed and cloud services, outsourcing services on facilities, data centre management and system management etc.”

38.  Four conforming bids, including one submitted by SUNeVision via its subsidiary, Wealth Up Development Ltd (“Wealth Up”), and another submitted by Global Switch, were received for Site B and Site C in February 2012.  Wealth Up’s bid involved a proposed investment of $700m or $32,534 per m² which was only about a quarter of the proposed investment by Global Switch.  Further, Global Switch’s bid included a pro forma service agreement to be entered into with its customers, whereas Wealth Up’s bid did not.

39.  As part of the process of considering the bids, the Corporation asked the tenderers a number of questions.  In a questionnaire in April 2012, one of the questions asked of both the Applicant and Global Switch was this:

“ Please elaborate how your operation model will not violate our standard lease restriction on alienation in that the grantee shall not part with possession; and that the dominant element of your operation in the premises shall be the provision of managed and cloud computing services. [If possible, you may submit a proforma service agreement for our reference. If your project is approved by us, it will be stipulated in the lease that the operations shall be governed by a proforma Service Agreement to be approved by us].”[8]

40.  Wealth Up answered on 18 April 2012:

“ This new data centre is designed to primarily focus on a Co‑location model under an ecosystem to support Cloud Computing Services and hence there will not be any lease elements in our service agreements, and we will retain the right to control access to the data centre. …” (original italics)

In response to the enquiry in square brackets, Wealth Up stated it did not have a readily available pro forma service agreement at that stage and did not submit one.

41.  On 25 May 2012, the BDAC decided that Site C would be offered to Global Switch for the establishment of a “mega data centre”. The company that submitted the second best bid was asked to consider Site B for the establishment of a cloud services data centre but in the end decided not to pursue it.  The formal offer of Site C was made by the Corporation on 18 June 2012.  The offer letter drew specific attention to, inter alia, clause B(14) of and the Second Schedule to the Lease, as provisions that “stipulate the type of processes and operations permitted on the Site”.  The Corporation approved Global Switch’s pro forma service agreement on 9 November 2012, as referred to in clause B(14)(b) of the Lease (see §77 below).  The formal Agreement for Lease for Site C, annexing the agreed form of Lease, was entered into by the Corporation and Global Switch on 13 November 2012.

42.  The Second Schedule in the Lease for Site C, which sets out the permitted user, reads as follows:

“ To establish and operate a large scale, carrier neutral, multiple customer data centre to provide managed services, cloud enabling services and other colocation services (including the provision of services to support the placement, installation and maintenance of the Lessee’s and customers’ computer, switch, communications, networking and data storage equipment and the placement, installation and maintenance of connections within the said premises and with cable, antennas and other telecommunications systems and facilities outside the data centre) as set out herein and in the Lessee’s application and supporting schedules, copies of which are annexed to the Lessee’s Proposal Form referred to in the said Agreement for Lease.”

43.  Global Switch intends to operate a data centre comprising 5 buildings at Site C.  Buildings 1 and 2 were completed in December 2017 and currently serve a customer, Daily‑Tech Hong Kong Co Ltd (“Daily‑Tech”).  Building 3 was completed in around October 2019, and Buildings 4 and 5 are still under construction and projected to be completed in two phases this year.

A6.    Other data centres in TKOIE

44.  There are also data centres in TKOIE that are operated on sites granted originally for different purposes.  In those cases, it appears that the leases were formally varied so as to allow data centre use based on proposals submitted by the intended operators.  Thus, on 22 July 2010, the lease for a site in TKOIE[9] was assigned by the former grantee with the Corporation’s consent to HKCOLO.NET Ltd (“HKCOLO”).[10]  At the same time, a deed of variation of lease was entered into between the Corporation and HKCOLO that specified the permitted user of the land as being for

“ a Colocation Centre to serve the IT industry especially in the telecommunication, submarine cable, IP, data, cloud computing and data service market to make Hong Kong a hub centre and concept centre in the world as described in pages nos. #A568‑1 to A568‑48 in HKCOLO Limited’s application dated 29^th January 2010 and supporting schedules (copies of which were annexed to the Proposal Form).”[11]

By the same deed, the lease was also varied to require that the operations in the premises in accordance with the above purpose shall be governed by a pro forma colocation agreement to be made between HKCOLO and its customers containing such terms and conditions as subject to the prior written approval of the Corporation.

45.  Another data centre operator in TKOIE is NTT Com Asia Ltd (“NTT”) which was the grantee of land under an Agreement for Lease dated 6 October 2010 as amended.[12] (NTT has another data centre in the Corporation’s industrial estate in Tai Po which is not relevant to these proceedings).

A7.    SUNeVision’s acquisition of land outside industrial estates

46.  Having failed in its bid for Site C, in 2013 SUNeVision acquired through open tender a plot of land in Tseung Kwan O (near but outside TKOIE) through a subsidiary at the price of HK$428m to construct a data centre there which can include within its business the subletting of part of the premises to its customers.  The data centre was completed and went into business in 2017.  In January 2018, SUNeVision through a subsidiary acquired another piece of land in Tsuen Wan through open tender at the price of $725.8m for developing a similar data centre. 

A8.    Further correspondence with the Applicant and others in the industry

47.  In November 2012, the Applicant and certain data centre operators began lodging complaints with the Corporation that certain data centres in TKOIE (eg the one operated by HKCOLO) were operating in a way that infringed the No Alienation Clause and Lease Restriction Policy.  This chain of correspondence with the Corporation is described in §198 below.

48.  On 24 February 2016, SUNeVision wrote to the Corporation alleging that subletting or attempts at subletting had escalated in recent months, urging the Corporation to take stronger actions to prevent non‑value generating acts such as subletting of land in the industrial estates.  On 21 March 2016, the Corporation replied that it did not consider the customers placing their equipment in the data centres to avail themselves of the services provided to be subletting, and stated:

“ Therefore, in our open invitation for applications, we always draw applicants’ attention to our standard lease restriction on alienation in that the grantee shall not part with possession of the lot or any part thereof. In effect, no subletting shall be allowed and the grantee shall always retain exclusive possession of the premises including the control of access right. In assessing data centre applications, we would expect that the dominant element will be the provision of managed services, networking and outsourcing services in respect of facilities, data centre management and system management and the like.”

49.  In April and June 2016, the Applicant wrote to the Corporation again suggesting that letters of compliance or letters of representation be required to be issued by the grantees on a regular basis to confirm that they had not engaged in subletting.

50.  On 23 March 2017, Dr Elizabeth Quat, a member of the Legislative Council, made an enquiry with the Corporation regarding alleged subletting in TKOIE.  In its reply on the same date, the Corporation stated:

“ For data centre operation, we understand that it may involve customers placing their equipment in the data centres to avail themselves of the services provided by the DC operator. We do not consider this as a breach of lease condition on subletting. In our view, subletting can be defined as ‘subleasing space to other companies as a service’. To ascertain that this is not the case, we would apply the following three (3) tests to demonstrate compliance of our standard lease restriction on alienation in that [the three criteria of exclusive possession, control of access right and the provision of managed services etc being the dominant element of operation were set out].”

A9.    Increase of plot ratio for Site C

51.  Under the Land Grant, any building on the lot or any sub‑lot is subject to a maximum plot ratio of 2.5.  The Corporation had plans to apply for a modification of the Land Grant to increase the plot ratio limit of some of the sites within TKOIE as there were other parts of the land which were under‑utilised or would not be built on.  Global Switch took the opportunity to apply for an increase of the plot ratio for Site C in June 2016, and the Corporation decided to grant an increase from 2.5 to 3.3 for a premium in November 2016.  The formal agreement was entered into between the Corporation and Global Switch in May 2017.  In October 2017, the Corporation formally submitted a modification proposal to the Lands Department seeking approval to increase the plot ratio of eight sites within TKOIE including Site C. This was approved at the District Lands Conference in March 2018.  In November 2018 the District Lands Office proposed basic terms for lease modification, which were accepted by the Corporation on 18 December 2018.  The entirety of the design for Buildings 4 and 5 of Global Switch’s data centre is based on the increased plot ratio of 3.3, the construction of which had started in July 2018.  As stated below, SUNeVision attempted unsuccessfully to expand the scope of this judicial review to attack the Corporation’s decision to allow additional plot ratio for Site C.

A10.  The decision challenged

52.  By a letter from its solicitors, Woo Kwan Lee & Lo (“WKLL”), to the Corporation dated 6 April 2018, SUNeVision complained that there had been an apparent change of policy by the Corporation as shown in its failure or refusal to take steps to enforce lease restrictions or it had adopted a policy of condonation of such breaches, contrary to SUNeVision’s legitimate expectation.  Six incidents, some dating back to 2011 and 2012, were set out in which three grantees in TKOIE had been allegedly acting in breach of the Corporation’s policies and the No Alienation Clause:

(1)  In January 2018, NTT successfully bid for the provision of data centre services to an international search and cloud computing enterprise that amounted to subletting or licensing part of its premises to the customer for its exclusive use and occupation.  Certain alleged terms in the tender issued to all bidders were cited in support.

(2)  In November 2017, Global Switch entered into an arrangement with Daily‑Tech and China Telecom Global Ltd (“CTG”), securing CTG as an “anchor tenant” and allowing Daily‑Tech to occupy the premises as a “partner”.

(3)  In late 2012, HKCOLO entered into an arrangement with IBM which allowed IBM to occupy floor space of 15,000 ft² contrary to the lease restrictions.

(4)  In September 2011, HKCOLO successfully bid for the provision of data centre services to a public authority on terms that involved HKCOLO not retaining exclusive possession and the public authority occupying part of the premises, contrary to the lease restrictions.  Certain alleged tender terms were cited.

(5)  In October 2011, HKCOLO successfully bid for the provision of data centre services to a financial institution on terms which suggested the financial institution had overriding control of the designated area, the right to man its own staff working at that area and the right to exclude HKCOLO’s staff from entering into the area, contrary to the lease restrictions.

(6)  In March 2015, NTT won a bid to provide data centre services to a financial institution on terms which suggested the financial institution would occupy part of the premises for storage and office space and would be in control of access within the designated space, which was likely to be contrary to the lease restrictions.

53.  SUNeVision demanded that the Corporation take immediate steps to stop the change in policy or the policy of condonation by publicly re‑affirming its original policy and taking measures to inquire into breaches of lease restrictions and to ensure the discontinuation of all existing breaches.

54.  The Corporation replied by letter of its solicitors, Wilkinson & Grist, dated 28 May 2018 (“May 2018 Letter”).  Parts of the letter will be quoted below in relevant sections.  In summary, the Corporation replied that:

(1)  There had been no change in the relevant policies and no policy of condonation of breaches.  The three tests (as set out in the Data Centre Policy) continue to govern the admission and lease management of data centres.

(2)  The practice of customers placing their equipment in the data centre to avail themselves of the services provided by the data centre operators, the latter being the dominant element of the operation of the data centre, is not as such considered to give the customers exclusive possession of the space where the equipment is placed or a licence to occupy the space.  This is to be distinguished from the subletting, licensing and/or sharing of space as a service such as the provision of space by grantees to their customers for the storage of unpowered equipment for a rental.

(3)  A data centre operator may bundle its services with telecommunication, network, cloud or other service providers to enhance the total package of offers to its customers.  This would not necessarily be considered as a breach of the lease restrictions.

(4)  The Corporation had consistently enforced the lease restrictions.  Intended grantees are required to provide a pro forma draft service agreement with their potential customers, which the Corporation examines to ensure that the grantees retain exclusive possession and that the arrangements do not amount to subletting, licensing and/or occupation of space as a service.  After the commencement of operation of a data centre, regular inspections are carried out by the Corporation and any suspected breach of lease is promptly dealt with.

(5)  As regards the specific cases mentioned by SUNeVision:

“ Based on [the Corporation’s] regular site inspection at the industrial estates, [the Corporation] is unaware of the alleged breach of the Restriction by the Grantees. As stated … hereabove, [the Corporation] shall continue to carry out regular inspections to the industrial estates to ensure compliance with the Agreement and Lease. If and when our client becomes aware of any irregularities in the industrial estates through the regular site inspection, our client would immediately take steps to investigate into the irregularities, including but not limited to seeking explanations from the Grantees, industrial operators and/or data centre operators. If it is confirmed that a Grantee is in breach of the Agreement and/or the Lease, our client would take appropriate enforcement actions accordingly.”

(6)  The Corporation denied that it had acted in contravention of any alleged legitimate expectation of SUNeVision.  It will continue to monitor the operations of data centres in the industrial estates and ensure that the terms of the grantees’ leases are complied with.

B.     The judicial review proceedings

55.  On 10 September 2018, SUNeVision issued its Form 86 to seek leave to apply for judicial review.  The decision in respect of which relief is sought is specified to be:

“ The decision of [the Corporation] by letter dated 28 May 2018 … from Messrs Wilkinson & Grist not to take immediate steps to rectify the failure or refusal to take reasonable steps to enforce restrictions on leases against subletting, parting with possession and/or sharing of occupation in the Tseung Kwan O Industrial Estate …, the reasons therefor being provided in the 28 May 2018 Letter.”

As will be seen, this is not an accurate description of the Corporation’s position as indicated in the May 2018 Letter.

56.  Leave to apply for judicial review was granted on 9 October 2018 based on consideration of the papers alone. 

57.  On 29 October 2018, SUNeVision issued a summons for stay of the Corporation’s decision to grant the increased plot ratio for Site C (see section A9 above) pending the determination of the judicial review.  Subsequently, on 4 February 2019, it issued a further summons for an interim injunction to prevent the Corporation from executing documents for granting the increased plot ratio pending the application for stay.  The application for interim injunction was dismissed by Chow J on 21 February 2019.[13] The application for stay was subsequently abandoned as a consequence.

58.  By summons dated 6 March 2019, SUNeVision put forward a number of amendments to its Form 86 but only a small portion of the contentious amendments were allowed by this court: see the decision dated 9 May 2019 (“Amendment Decision”).[14]  SUNeVision’s application for leave to appeal was dismissed by this court[15] and by the Court of Appeal.[16]

59.  Further, SUNeVision sought to adduce expert evidence and further factual evidence for its application for judicial review. By a decision dated 12 July 2019 (“Evidence Decision”),[17] this court refused leave to adduce expert evidence, and granted leave to SUNeVision to adduce part of the factual evidence.  SUNeVision’s application for an extension of time to seek leave to appeal was dismissed by this court.[18]

C.     The pleaded case for judicial review

60.  SUNeVision pleads that the Corporation’s relevant policy is that (1) lessees are prohibited from (i) parting with possession of the leased premises or any part thereof whether by subletting or otherwise, and (ii) permitting any third party to occupy the leased premises or any part thereof whether by licence or otherwise; and (2) the provision of managed services including internet connectivity and other networking services, managed and outsourcing services on facilities, data centre management, system management and the like shall be the dominant element of the operation in the premises, and the grantee should be the one who undertakes the provision of managed services in the premises.[19]

61.  SUNeVision relies on clause B(11)(a) of the standard lease for individual sections in the industrial estates, the Corporation’s letters of 2 June 2010 and 9 July 2010, as well as the tender invitation dated 1 June 2011 (see section A4 above), as evidencing the policy.[20]

62.  On the basis and as a result of the policies, SUNeVision says that it has since 2010 had the legitimate expectation (the “Legitimate Expectation”) that:[21]

(1)  “Grantees who are data centre operators in the Industrial Estates are NOT allowed to sublet or part with possession of the leased premises or to license or allow third parties to occupy part of the premises”.

Four examples of prohibited acts are then set out in the Form 86: (i) sublet buildings, floors or caged spaces in the leased premises to as third parties; (ii) let third parties have control on who can access the leased premises including by implementing their own security measures; (iii) let third parties station their staff or have office space or set up office in the leased premises; (iv) let third parties provide managed services; and

(2)  the Corporation will enforce the lease restrictions and will not tolerate or condone any breach.

63.  SUNeVision says that relying on its Legitimate Expectation, in making the application for Site C in 2012 and based on the retail model, it tailor‑made a new business model of providing cloud computing services, which was then a nascent market.  Without the lease restrictions, SUNeVision would have been prepared to put forward a higher amount of proposed investment in its bid.  After its bid failed, and relying on the Legitimate Expectation, in 2013 SUNeVision acquired a piece of land in Tseung Kwan O at market price to construct a data centre based on the wholesale colocation model, and in January 2018 acquired another piece of land in Tsuen Wan again at market price for developing a wholesale model data centre.  It is said that if the Corporation had not adopted the policy, SUNeVision would not have been prepared to pay the prices it paid for these two pieces of land.[22]

64.  SUNeVision says that by reason of events over the past few years, it has become concerned that the Corporation has not been enforcing the lease restrictions against what SUNeVision suspects to be breaches thereof.  The six incidents set out in WKLL’s letter of 6 April 2018 (see §52 above) are then repeated in the Amended Form 86.[23]  It is said that despite requests, the Corporation failed to take any action against the grantees or take steps to investigate the breaches. 

65.  Concerned that there had been a change in policy or a new policy of condonation, the Applicant issued the letter of 6 April 2018 through WKLL to the Corporation setting out its demands.  Parts of the May 2018 Letter are then set out in the Amended Form 86, from which, the Applicant says, it is evident that the Corporation has adopted certain positions.[24] The specific grounds for challenge are then set out in sections C1 to C4 of the Amended Form 86,[25] which may be summarised as follows.

66.  First, it is said that due to the errors and breaches of public duty by the Corporation particularised in Grounds 2 to 4, the Corporation had not in fact been enforcing the lease restrictions in accordance with the law and had therefore breached the Applicant’s Legitimate Expectation, which led to substantial unfairness to the Applicant (Ground 1(1)).[26]  It is also said that in approving the pro forma service agreement of Global Switch (whose terms are, it is said, inconsistent with the lease restrictions and the Corporation’s policy), the Corporation had misconstrued, misapplied or departed from its own policies (Ground 1(2)).[27]

67.  Ground 2 is that the Corporation made certain errors of law or misdirected itself in law:

(1)  First, insofar as the Corporation treated the question of exclusive possession as a question of discretion or policy or on the basis of a “trade practice”, it had misdirected itself ((Ground 2(1)).[28]

(2)  Secondly, it was an error of law to think that the lease restrictions would not be breached so long as (a) services had been provided, (b) the data centre operator had the right to “allocate different areas in the granted site for the installation of their customers’ servers or to relocate the same”, or (c) the relationship between the grantee and its customer was governed by terms in the form of the pro forma service agreement of Global Switch ((Ground 2(1)(a), (b), (c)).[29]

(3)  Thirdly, it would be a misdirection insofar as the Corporation assumed that the provision of colocation of services in the data centre industry necessarily required the operator to part with possession ((Ground 2(3)).[30]

(4)  Fourthly, the Corporation erred in law in thinking that all breaches of the lease restrictions were capable of remedy. Subletting would constitute a fundamental breach incapable of remedy ((Ground 2(4)).[31]

68.  By Ground 3, it is said that the Corporation failed to appreciate that its policy was in effect to allow the grantees to operate a typical retail colocation model but not under a typical wholesale colocation model, and failed to take into consideration the terms between the grantees and their customers which conferred right to possession or right of occupation as well as the fact that the grantees had allowed their customers possession or occupation of the premises.[32]

69.  By Ground 4, it is said that despite SUNeVision had drawn attention to the specific alleged breaches by NTT, Global Switch and HKCOLO, the Corporation failed or refused to take reasonable or necessary steps to inquire into the facts and to take necessary actions.[33]

70.  The only relief sought in the Amended Form 86 is an order of certiorari to quash the May 2018 Letter and an order of mandamus to direct the Corporation to reconsider its decision in accordance with law.[34]

71.  The grounds summarised above will be separately considered in turn below.  Having regard to the arguments the Applicant has sought to raise, however, a preliminary observation is called for, namely that it is of vital importance to focus on the true scope of the judicial review as pleaded.  Several points must be borne in mind in that regard:

(1)  The only decision attacked is the May 2018 Letter, not the entire course of conduct of the Corporation from 2010 onwards in relation to data centres within its industrial estates.

(2)  Specifically, there is no suggestion that there was anything wrong done by the Corporation in formulating the Data Centre Policy in the way it did to cater for the novel data centre user in the industrial estates.  SUNeVision has made no application to impugn the Data Centre Policy as being unreasonable or inconsistent with the No Alienation Clause and the Lease Restriction Policy.

(3)  Nor is there any application to challenge the Corporation’s decisions to approve the pro forma service agreements of Global Switch, HKCOLO and NTT respectively, or the decisions to grant them their respective leases for sites in TKOIE, which were taken many years ago.

(4)  There is also no application to challenge any previous decision of the Corporation on the incidents raised by the Applicant, such as the alleged breaches by HKCOLO.

(5)  The Corporation’s position taken in the May 2018 Letter can only be judged with reference to the matters before it at the time. Information and materials that have subsequently emerged are prima facie irrelevant to the review of the May 2018 Letter.

(6)  As acknowledged by SUNeVision, the present case is not a contest about whether the grantees have in fact breached the terms of their respective leases, which is a private law question as between the Corporation and each grantee, but whether the Corporation committed the alleged public law wrongs.  In fact, none of the grantees referred to was named in the Form 86 as an interested party.  Two of the grantees concerned (HKCOLO and NTT) have not been joined or taken any part in these proceedings.[35]  The actual arrangements in their data centres are matters for the Corporation to inquire into where appropriate, not an issue on which any finding should or can be made in these proceedings.

(7)  Nor is this application about the actual meaning and effect of the terms of the leases of Global Switch, HKCOLO and NTT.  For that, the entire lease documentation would have to be examined and construed as a whole against the factual matrix in each case, to be determined between the parties in question.  The Second Schedule to each Lease, which sets out the permitted user, refers to the grantee’s original application and supporting schedules as annexed to its proposal form.  Each lease also refers to the pro forma service or colocation agreement that required the prior approval of the Corporation.  Quite apart from the fact that HKCOLO and NTT are not privy to these proceedings, none of the initial application, supporting schedules or proposal form of these grantees, nor the approved pro forma agreements (except that of Global Switch), was available as part of the evidence in these proceedings.  Nor is the court apprised of the entire factual background relevant to the construction of each Lease.

72.  Order 53 rule 6(1) provides that no grounds shall be relied upon or any relief sought at the hearing except the grounds and relief set out in the Form 86.  Judicial review is a focussed process for reviewing the legality, procedural propriety and rationality of a specifically identified administrative decision based on pleaded grounds, and must not be allowed to mutate into a general inquiry over administrative conduct with a roving ambit as new materials emerge or arguments come to mind. In the light of some of SUNeVision’s arguments, it is, with respect, necessary to remind oneself of the danger of the application becoming “portals to a playground of infinite possibilities” so famously deprecated by Litton PJ in Lau Kong Yung (an infant suing by his father and next friend Lau Yi To) & Others v Director of Immigration (1999) 2 HKCFAR 300 at 340G. 

73.  The comments of Stock J in Hong Kong Aircrew Officers Association v Director of Civil Aviation (unrep, HCAL 51/1999, 28 October 1999) are also apposite to the present case:

“ There is an increasing tendency for judicial review to become a ‘free for all’, with boundaries ever widening whenever new evidence is filed. Judicial review is not a vehicle for an infinite process of contestation. It is not an occasion where once the foot is in the door by reason of leave given on grounds originally filed, the court is then available, not merely for the purpose for which leave was extended but becomes an open house for whatever points counsel, upon closer examination or further thought, can extract from the evidence as it emerges. …”

D.     Ground 1(1) — legitimate expectation

74.  Ground 1(1) is based on legitimate expectation.  It is said that from the May 2018 Letter, SUNeVision learnt that due to the errors and breaches of public duty by the Corporation particularised in Grounds 2 to 4, the Corporation had not in fact been enforcing the lease restrictions in accordance with the law and had therefore breached SUNeVision’s Legitimate Expectation, which led to substantial unfairness to SUNeVision.[36]  As such, Ground 1(1) is based on Grounds 2 to 4 and requires no separate treatment.

E.     Ground 1(2) — failure to adhere to policies

75.  Paragraph 73B in section C1 of the Amended Form 86 alleges that in approving the pro forma service agreement of Global Switch (whose terms are, it is said, inconsistent with the lease restrictions and the Corporation’s policy), the Corporation had misconstrued, misapplied or departed from its own policies.[37]  This is related to but not the same as paragraph 80A of the Amended Form 86 dealt with under Ground 2(2)(c) below. 

E1.    No application to impugn approval of pro forma service agreement

76.  As mentioned in section A5 above, Global Switch’s pro forma service agreement was already submitted as part of its bid for Site C.  Global Switch provided further explanation in April 2012 in response to the Corporation’s tender questionnaire on how its intended arrangements with customers differed from a lease or sub‑lease arrangement.  In the same response, Global Switch indicated it would abide by the requirements laid down by the Corporation and was willing to develop the pro forma service agreement to deal with any concerns the Corporation might have.

77.  Global Switch’s pro forma service agreement was eventually approved on 9 November 2012 with agreed revisions by the Corporation, before the Agreement for Lease was executed on 13 November 2012.  This is reflected in clause B(14)(b) of the Lease for Site C which provides:

“ The operations in the said premises shall be in accordance with the purpose referred to in the SECOND SCHEDULE hereto and shall be governed by a proforma Services Agreement … to be made between the Lessee and its customers if colocation is involved. The Lessee has submitted the Lessee’s proforma Services Agreement to the Corporation and prior to the execution of the said Agreement for Lease, the Corporation has approved the form of the proforma Services Agreement. For the avoidance of doubt, it is acknowledged by the Corporation that the Lessee does not need the approval of the Corporation to the grant of Services Agreements to customers whose provisions are substantively the same as those approved by the Corporation pursuant to this Clause B(14)(b). …”

78.  The first problem with the Applicant’s allegation in paragraph 73B is that it is not about a decision in the May 2018 Letter, but a decision taken on 9 November 2012.  As noted above, the only decision SUNeVision seeks to impugn by this judicial review is the May 2018 Letter.  The only relief sought is an order for certiorari to quash it and an order for mandamus to require re‑consideration.  There is no application to review the Corporation’s decision to approve Global Switch’s pro forma service agreement whether on the ground of misapplication of policies or otherwise.  That decision was made over seven years ago before Global Switch agreed to take the lease, and was referred to in the Lease which is a public document.

79.  Further, SUNeVision has consciously not applied for leave to challenge the approval of Global Switch’s pro forma service agreement, even after a copy of it was disclosed by Global Switch in these proceedings in December 2018.  There was no application whatever by SUNeVision to include the approval as a decision to be impugned in the judicial review even as it tried to include another decision as a target,[38] or to add any relief sought in relation to that approval or the pro forma service agreement.[39]  Had any such attempt been made, questions would of course have been raised regarding the delay in challenging that decision and the prejudice and unfairness to parties and persons who had been acting on it for years.

80.  Without an application to impugn the decision approving the pro forma service agreement of Global Switch, and having regard to the discussion on Ground 2(2)(c) below, it seems to me that the allegation in paragraph 73B is inconsequential and the point is not germane to this judicial review.

E2.    Whether departure from policy

81.  In case I am wrong on the above conclusion, I go on to consider whether the approval of Global Switch’s pro forma service agreement was indeed a departure from the Corporation’s policies.  For this purpose, it is necessary to consider the true relationship between Global Switch and its customers and the nature of the customers’ “presence” in the data centre under such an agreement.  The principal questions are whether the agreement is in substance a sub‑lease and, as a closely associated question, whether the customer is granted exclusive possession of the premises in question.  This depends on an objective construction of the agreement against the relevant factual background.  Needless to say, the agreement has to be read as a whole, even though for the purpose of exposition I only set out some of the more significant provisions below.

82.  The pro forma service agreement is the form of agreement intended to reflect substantially the terms on which Global Switch is to provide its services to its customers.  Under that agreement, the customer’s ICT equipment is to be placed in the “Customer Space”, defined in the agreement as:

“ the part or parts of the Facility comprising the area set out in the Particulars the boundaries of which are shown [ ] on the plan attached at Annexure 1 or located in such other place or places within the Facility as Global Switch shall from time to time designate pursuant to clause 14.”

The “Facility” means the data centre facility and in practice refers to the particular building or buildings in which the Customer Space is located.

83.  Clause 2.1 is the main provision that sets out the specific rights granted to the customer:

“ 2.1 Subject as herein contained and to the Customer paying the Service Fee, the Non‑technical Services Charge and all the other sums due under this Agreement and to the Customer complying at all times with the Facility Rules & Regulations Global Switch hereby grants to the Customer with effect from the Commencement Date for the duration of the Term the right:

(a) (subject to clause 4.7) to install and retain the Equipment in the Customer Space

(b) to use any cables installed by Global Switch in accordance with clause 6

(c) (subject to clause 4.3) to connect into the low voltage panel designated by Global Switch to serve the Customer Space for the purposes only of the provision of an electrical power supply to the Equipment

(d) to pass and repass at all times over the Common Areas; and

(e) to use the number of car parking spaces in such place or places as Global Switch shall from time to time designate.”

84.  For its part, under clause 3.1, subject, inter alia, to the customer paying the Service Fee, Global Switch as the data centre operator agrees to provide the Services to the customer, and further undertakes under clause 3.2 to perform the Services with reasonable care and skill.  The Services are grouped together under four defined categories and include (i) “Technical Services” covering the provision of uninterrupted power to low‑voltage panels with back‑up diesel generators in an “N+1” configuration, maintenance of air temperature between 20°C and 24°C, maintenance of ventilation with fresh and conditioned air so that the relative humidity lies between 40% and 60%, maintenance of a building management system to detect service interruption and measurement equipment including data‑logging equipment, and maintenance of a three‑layer physical security system (Facility boundary, Facility and Suite) and safety system; (ii) “Non‑technical Services”; (iii) “Managed Services”; and (iv) “Cloud Enabling Services”. 

85.  Managed Services and Cloud Enabling Services as described in Schedule 5 to the agreement include: 1. data storage, 2. network security, 3. managed connectivity, 4. networks, servers, firewalls, 5. monitoring and patch management, 6. Database management, 7. managed DDoS service, 8. managed shared storage, 9. additional consultancy and management services, 10. cloud services, 11. network operation centre, 12. facilities services and project management, 13. remote hands, 14. infrastructure cabling, and 15. global connectivity and reporting.  By clauses 3.3 and 7.3, Global Switch agrees to provide to the customer the Managed Services and Cloud Enabling Services that the customer notifies Global Switch it requires, subject to payment of the relevant fees.  It should be noted that Managed Services as referred to in this agreement have a narrower scope than the services that have to be the dominant element under the Data Centre Policy (see also §111 below).

86.  Clause 2.1(b) and clause 6 confer on the customer the “Cross Connect Right”, which is the right to request the data centre operator to install cables leading from the Customer Space to the equipment of any third party in the Facility.

87.  Clause 2.1(c), which confers the right to electrical power supply through the low voltage panel, is subject to clause 4.3, which requires the customer to comply with Global Switch’s technical and installation standards, electrical power management procedures, and methods statements on cable management and cable installation procedures and limits the power draw by the customer’s equipment to a specified total level and maximum density.  Those limits are backed by further provisions in clause 5 including the imposition on the customer of liability for liquidated damages should his equipment exceed the limit on power draw.

88.  Where “critical outage”, ie outage exceeding specified parameters in relation to cooling, humidity or power occurs, the customer is given “service credits” to be set off against the service fees payable to Global Switch.  This is however subject to the customer’s equipment not exceeding specified limits on total power draw and power density.

89.  While clause 2.1(a) permits the customer to install and retain the equipment in the Customer Space, clauses 4.1 and 4.2 require the customer:

“ 4.1 To keep and maintain in good and substantial repair and condition (damage by the Insured Risks excepted save to the extent that insurance moneys are irrecoverable as a result of the act or default of the Customer) the Customer Space.

   4.2    To maintain the Equipment in good working order and (save to the extent that the same is the responsibility of Global Switch in accordance with the Facility Rules & Regulations) to procure that the Customer Space is kept clean, tidy and safe at all times.”

90.  Clause 4.5 requires the customer:

“ Not to use the Customer Space except for the hosting of information technology equipment and uses ancillary thereto.”

91.  Further, clause 4.9 requires the customer to maintain a complete and accurate inventory of the equipment placed there and to provide Global Switch with a copy.  Clause 4.7 prohibits the customer from making any structural alteration in the Customer Space, or any non‑structural alteration in the Customer Space without the prior written consent of Global Switch (such consent not to be unreasonably withheld) and then only by engaging Global Switch to provide Supervisory Services.

92.  Although an area will have been specified at the outset as the Customer Space in respect of a particular customer, its location is not immutable.  Clause 14 provides for Global Switch’s power to designate some other place as the Customer Space and to require relocation of a customer’s equipment accordingly:

“ 14.1 Global Switch shall have the right exercisable on not less than three (3) months’ written notice to the Customer from time to time during the Term to require the Equipment to be moved from the Customer Space and to be installed in some other part of the Facility, and the Customer will comply with such request. All costs and expenses incurred in connection with such relocation of the Equipment shall be borne by Global Switch.

14.2  Without prejudice to the rights of Global Switch pursuant to clause 14.1, Global Switch agrees that, in specifying the time‑scale for any relocation of the Equipment, Global Switch shall use all reasonable endeavours to consult with the Customer and to specify a time‑scale that causes minimum disruption to the operation of the Equipment.”

93.  Under clause 2.2, Global Switch reserves the right:

“ (a) to refuse access to the Facility or remove from the Facility any employees and sub‑contractors of the Customer whose admission or presence is or would be in the reasonable opinion of Global Switch detrimental to the security of the Facility or in respect of whom the Customer has failed to request a right of access from Global Switch and Global Switch will not be responsible for the consequences of any such refusal or failure or delay by the Customer in notifying it of its access requirements

(b) at all reasonable times and on reasonable notice (except in case of emergency) to enter the Customer Space in order to:

(i)  inspect and record the condition of the Customer Space or any other parts of the Facility

(ii)  remedy any breach of the Customer’s obligations under this Agreement

(iii)  repair, maintain, clean, alter, replace, install, add to or connect up to any Service Media [meaning sewers, drains, pipes, wires, cables, conduits and other conducting media]

(iv)  repair, maintain, alter or rebuild any part of the Facility

(v)  comply with any of its obligations under this Agreement.”

94.  Where a service interruption has occurred, under clause 8.3 Global Switch is entitled to “free access” to the Customer Space “at all times for so long as the Service Interruption persists” in order to carry out remedial works.

95.  Further, by clause 2.3, the customer acknowledges that Global Switch is entitled to:

“ (a)  disconnect or physically terminate or detach or remove cables laid by the Customer in breach of this Agreement and in particular in breach of clause 2.1(b)

   (b)  carry out such cleaning works in the Customer Space as Global Switch deems necessary in compliance with the Facility Rules & Regulations subject to Global Switch first giving notice of the same to the Customer.”

96.  Clause 13.1 provides that the customer shall not assign, novate or transfer the Customer Space or any part thereof or any of the customer’s rights under the agreement except as permitted by that clause.  Clause 13.2(b) provides that the customer may “grant access to the Customer Space or the Equipment to third parties, to enable such third parties to use the Services in accordance with the terms of this Agreement …”.

97.  An examination of the agreement in the context of Global Switch’s data centre, which, like all the other data centres admitted to TKOIE, is of Tier III or higher, shows that the placement of the ICT equipment in the Customer Space is not for the purpose of storage, but for the purpose of utilising and receiving the services provided by the data centre operator through the use of highly sophisticated electrical and mechanical infrastructure, including cables connection with third parties’ equipment, protection in a fault‑proof and ultra‑secure environment equipped with redundant facilities, and round‑the‑clock security and monitoring.

98.  The Service Fee is the consideration paid by the customer for the Services, not a rent.  As the February 2010 BDAC paper noted (see §27 above), within the fees that the kind of data centre such as Global Switch’s commands, only a trifling portion is attributable to the use of industrial floor space.  Global Switch, unlike a landlord, is not simply obliged to make space available and allow the customer to connect to the utilities, but has to provide services using sophisticated systems.  Service outage may result in the customer receiving “service credits” which are in essence liquidated sums to compensate for the failure to provide services.

99.  The customer is not granted a general right of occupation for all purposes, but only for the specified and limited purpose of hosting its inventoried ICT equipment and uses ancillary thereto (clause 4.5 & 4.9).  The customer’s use of the space is referable to the provision of services.  Thus the customer is not granted the space for the purpose of setting up a general office or warehouse.  The customer has an obligation to make sure that his equipment is in good working order (clause 4.2) and comply with Global Switch’s technical standards and procedures and in particular not to exceed the limits on power draw and power density (clauses 4.3 & 5).  These provisions underline the centrality of the element of services for the operation of the equipment.

100.  Further, the Customer Space is not fixed.  There is no part of the land or space which is absolutely designated for the customer during the term of the agreement.  The definition of Customer Space itself includes the provision that it may be located in such other place within the Facility as Global Switch may designate pursuant to clause 14.  Such an arrangement is an important indicator against exclusive possession being enjoyed by the customer: see Dresden Estates Ltd v Collinson (1987) 55 P & CR 47, 53 and Brennan v Lambeth London Borough Council (1997) 30 HLR 481, though by itself not necessarily conclusive: Crancour Ltd v Da Silvaesa (1986) 18 HLR 265, 273.

101.  SUNeVision argues that relocation does not commonly happen, but this does not gainsay the contractual arrangement that is in place. Nor does it indicate in any way that clause 14 is a sham or pretence: see Crancour, p 274.  Global Switch’s response to the tender questionnaire in April 2012[40] explained that the scale of the operations and the infrastructure required to provide the services means that full flexibility must be retained in the allocation of any space to customers.  Furthermore, the provision of contiguous space to a customer, a change in the nature of the usage by the customer or a change in the requirements of the technology employed, may result in the need to alter the location of a customer’s equipment.  In the context of Global Switch’s data centres which are intended to be in operation for many years, such a right seems to me to be a real one that caters for various eventualities which necessitate the movement of customers, such as where damage has occurred or substantial life‑cycle upgrades are needed.

102.  As the operator of the data centre, Global Switch controls access to the Facility.  Clause 2.2(a) reserves to Global Switch the right to admit and to remove any employees and subcontractors of the customer for security reasons or where the customer has not requested a right of access.  This control seems to cover access to and removal from the Customer Space which is part of the Facility.  The retention of the power to exclude people from the Customer Space is another indicator that Global Switch has not parted with possession.

103.  The customer cannot assign the whole or any part of the Customer Space or any rights under the agreement.  Such a provision is consistent with the rights granted being privileges personal to the customer rather than an estate in land that is transferrable to third parties, though I recognise that even leases properly so called may also contain non-assignment clauses.  While the customer can grant third parties access to the Customer Space or to his equipment, this is confined to the purpose of enabling such third parties to use the Services in accordance with the terms of the agreement, and the customer remains responsible to the data centre operator for the observance of his obligations under the agreement (clause 13).  Any such third parties obviously cannot gain any rights greater than those enjoyed by the customer or free from the rights and powers reserved to the data centre operator under the agreement.

104.  Global Switch also has the right to enter the Customer Space at reasonable times and on reasonable notice (except in case of emergency) under clause 2.2(b).  SUNeVision argues that the reservation to the grantor of limited rights of entry such as to view and repair and maintain the premises is not inconsistent with, and may even be indicative of, the grant of exclusive possession, citing Street v Mountford [1985] AC 809, 818C. But it seems to me that the right of entry under the agreement is wider than the kind of reservations referred to in Street v Mountford.  Global Switch may enter the Customer Space “to inspect and record the condition” of not only the Customer Space but also any other parts of the Facility (clause 2.2(b)(i)). This seems to me to be a very wide and flexible reason.  The word “condition”, which is not defined, ordinarily means the state something is in.  Thus this may include entry to measure and record the cooling, ventilation and humidity conditions to ensure the agreed standards are maintained and for compilation of reports which may be inspected by the customer upon request, as well as entry for inspection to detect commission of breach of agreement by the customer, for example, in relation to the use of cables and power draw.  Access may be obtained not only for planned maintenance but also for balancing the systems which affect areas not associated with the customer.

105.  Another reason — installing or connecting “Service Media” which include wires and cables (clause 2.2(b)(iii)) — would seem to be a prominent one for this business.  Depending on the services the customer has subscribed for, there will also be obligations for Global Switch that give occasion for it to enter the Customer Space (clause 2.2(b)(v)). As recognised in Street v Mountford, p 818A, where the landlord provides attendance or services which require the landlord or his servants to exercise unrestricted access to and use of the premises, the occupier is a lodger, not a tenant.  The word “unrestricted” in this context has been said to be primarily concerned with the landlord’s need to go into and out of the lodger’s rooms at the convenience of the landlord and without the lodger being there to let the landlord in: Crancour, p 273.  In Huwyler v Ruddy (1996) 28 HLR 550, cleaning service provided over a period of 20 minutes per week, where the owner was obliged to enter into the premises as and when necessary, rendered the occupier a lodger rather than a tenant.

106.  Under the agreement in question, although reasonable notice is required (except in an emergency), there is no right for the customer to refuse entry.  The legitimate reasons for entry are not limited to the provision of attendance and services to the customer.  The evidence shows that, in practice, Global Switch accessed the Customer Space of a customer regularly and without notice.  For example, there were about 200 entries by Global Switch personnel into Daily‑Tech’s Customer Space between 1 August and 21 November 2018.

107.  It is not in dispute that physical security and data security are the central to a data centre’s operations.  Security is not necessarily indicative of exclusive possession.  As the enforcement actions taken against HKCOLO over the IBM incident show (see §188 below), the Corporation did not accept an arrangement in which the customer could refuse entry to the grantee to any area on the premises.

108.  Finally, I note that clause 2.4 provides that nothing in the agreement is intended to create any relationship of landlord and tenant between Global Switch and the customer.  Such a provision is of course not conclusive: if the agreement viewed objectively meets the requirements of a tenancy, then there is a tenancy notwithstanding that the parties have chosen for it a different label: Street v Mountford, 819F.

109.  On the basis of the provisions of Global Switch’s pro forma service agreement, I do not think that exclusive possession of the Customer Space is granted to the customer or, which virtually amounts to the same thing since the grant is for a fixed term at an annual payment, that a leasehold estate of the Customer Space is thereby demised to the customer.

110.  The customer under the agreement is not even like a lodger who is entitled to live in the house.  The customer cannot live there or move his office there.  All that he is entitled to do is to place his ICT equipment there to enjoy the Services provided and to use the space for uses ancillary thereto.  He may be relocated by the Global Switch.  He cannot call the place his own.

111.  Further, under the agreement the provision of “managed services including internet connectivity and other networking services, managed and outsourcing services on facilities, data centre management, system management and the like” does seem to be the dominant element of the operation, and the right of access appears to remain within the control of the grantee as the data centre operator.  The Applicant says that the customer has an option whether or not to subscribe for managed services, which may therefore not be a dominant part of the relationship.  This argument elides two different concepts.  In fact, what the customer may choose from is the Managed Services (in addition to Cloud Enabling Services) as listed and described in Schedule 5 to the agreement.  Those Managed Services have a narrower scope than the services referred to in the Data Centre Policy which are required to be the dominant element of the operation.  In particular, as stated by the Corporation, DC Services (see §16 above), at least as comprising the high-technology and high-value-added aspects of facility management, are encompassed in the requisite services within the Data Centre Policy.  There is no pleaded allegation that this is a misunderstanding of the Corporation’s own policy.  Managed services as referred to in the Amended Form 86 also include “data centre management, system management and the like”.[41]  Moreover, the evidence is that the provision of Managed Services (as more narrowly defined in the pro forma agreement) was and remains the dominant purpose of Global Switch’s data centre in TKOIE.

112.  In approving Global Switch’s pro forma service agreement, therefore, there was no departure from or misapplication of the Data Centre Policy.

E3.    New allegation based on occupation

E3(a).  The allegation

113.  SUNeVision contends, however, that the Corporation has departed from or failed to apply the Lease Restriction Policy because the No Alienation Clause not only prohibits parting with possession but also prohibits permitting third parties to occupy any part of the premises by licence or otherwise.

114.  The latter part of the No Alienation Clause is a covenant not “to permit any other party by way of a licence or otherwise to occupy the said premises or any part thereof”.  While there would not be any difficulty with this in the case of a manufacturing facility in an industrial estate, one can immediately see that this gives rise to a conflict with the operation of a colocation data centre because the whole point of it is to allow customers to place their ICT equipment in the data centre for the equipment to function in the serviced environment within.  It would be a trespass to place objects on someone else’s land without a licence to do so: Clerk & Lindsell on Torts (22^nd ed), §19-02.  Indeed, one of the uses staunchly opposed by the Corporation in general is use of premises in the industrial estates as warehouse or for storage.  Colocation, including what the Applicant calls the retail model of colocation, inherently comprises the grant of a licence for occupation of the operator’s premises by the customer’s equipment.

115.  In fact, the Corporation recognised early on the concern arising from the No Alienation Clause due to the inherent nature of data centres.  It was considered by the BDAC at its meeting on 24 July 2009 that a data centre that provided colocation services (as well as internet connectivity and other networking services, managed and outsourcing services on facilities, data centre management and system management) to end‑users would be acceptable provided that the grantee did not part with possession of the lot or any part thereof.  At the BDAC meeting on 9 February 2010, after further consideration and obtaining further legal advice, it was decided that the user of operating such a data centre would remain valid without the restriction that the services be provided “to end‑users”.  The condition of not parting with possession of the lot or any part thereof was retained.  It is plain from a reading of the February 2010 BDAC paper that the position adopted was that the Corporation would not consider there to be a breach of the No Alienation Clause provided that the criteria set out in the Data Centre Policy were met to an extent that satisfied the Corporation for the grantee to be admitted, in particular that the grantee did not part with possession of the lot or any part thereof.

116.  The Data Centre Policy, adopted on 9 February 2010, was a policy to enable and promote the accommodation of colocation data centres in the Corporation’s industrial estates.  It would not be sensible to suggest that notwithstanding this policy, such data centres were impermissible because there was a covenant against third party’s occupation within the No Alienation Clause which the Corporation must enforce, and the installation of customers’ equipment in a data centre contravenes such covenant because it is a licence to occupy part of the premises.

117.  Indeed, even SUNeVision does not go that far. It accepts that colocation data centres are permissible under the No Alienation Clause and Lease Restriction Policy.  It accepts that customers’ equipment may, by the grantee’s licence, be placed within the data centre, however bulky and immovable the equipment may be and however much of the premises it therefore occupies, even though the space occupied is therefore necessarily excluded to others.  It accepts that customers can legitimately take up space to set up network points of presence and for housing their IT equipment in racks and even cages.  Indeed, the market research report relied upon by the Applicant stated that under the retail model, a customer may require a single rack, a private cage with dozens of racks, or even an entire pod.[42]

118.  What SUNeVision submits instead is that the Corporation has failed to appreciate that there is something in between, which lies beyond the occupation of the premises by the equipment, but which stops short of amounting to exclusive possession of the premises, that the lease and policy nevertheless prohibit.  This has been variously labelled “exclusive occupation”[43], “sole occupation”[44] or “sharing of occupation”[45] in SUNeVision’s submissions.  It is submitted that the Corporation erred in misinterpreting its own policies and in considering that the requirements of the Lease Restriction Policy are subsumed within the Data Centre Policy.[46]

E3(b).  The point is not open to SUNeVision

119.  This alleged error is not raised in the Amended Form 86 as a ground for judicial review.  The May 2018 Letter specifically referred to the criteria in the Data Centre Policy as the “3 tests” that “govern the admission and lease management of data centres”, and referred to the Corporation’s reply to Dr Elizabeth Quat dated 23 March 2017 which was to the same effect.  WKLL had in their letter of 6 April 2018 commented that this seemed to have disregarded the restriction against licensing of occupation (and this was mentioned again in paragraph 51 of the Form 86), but SUNeVision did not plead any such alleged error in section C of the Form 86 as a ground for judicial review.

120.  In the Corporation’s evidence in response to the judicial review, Mr Patrick Siu, then Chief Operating Officer of the Corporation, specifically stated in his affirmation of 18 December 2018 that the Corporation had

“ formulated the Data Centre Policy in good faith, and adopted the criteria in the Data Centre Policy as sufficient (within a range of different degrees of ‘exclusive possession’) for the purpose of complying with the No Subletting Policy and the No Alienation Clause.”[47]

121.  It is true that there are passages in the Amended Form 86 that refer to both the restrictions against subletting and against permission to occupy, but despite the Applicant put forward two successive draft amendments in February and March 2019, there was no attempt to allege that the Corporation made an error of adopting the Data Centre Policy as the criteria for compliance or to raise this as a ground for judicial review.  In common with the Corporation, the Applicant’s argument then regarded the policy as one of prohibition against parting with possession, which covered both sub-letting and permitting third parties to occupy.[48]  Nor is there any plea as to what “permit to occupy” means which does not preclude the occupation of space by equipment but which precludes something that satisfies the Data Centre Policy.  Such an attack, if it is to be made, ought to be made fairly and squarely in the pleaded case, not cobbled together from scattered phrases not pleaded for that purpose.

122.  Indeed, in the Amended Form 86 it is said (§67) the distinction between possession and occupation is “technical and elusive”: Akici v LR Butlin Ltd [2005] EWCA Civ 1296, §23.  The next paragraph (§68) refers to “sharing possession” and “sharing occupation” as equivalent without drawing any distinction, and refers to Tulapam Properties Ltd v De Almeida and others [1981] 2 EGLR 55 which was a decision based on a covenant not to “share possession” where the court found it appropriate to construe the word “possession” with reference to its “broader popular meaning” rather than its usual meaning in land law.  Clause B(8)(a) of the Corporation’s standard Agreement for Lease, which contains a prohibition against parting with possession but not against permitting third parties to occupy, is pleaded as containing a “similar provision” to clause B(11)(a) of the Lease without there being said to be any difference of any significance.[49]

123.  In argument the Applicant referred to Luganda v Service Hotels Ltd [1969] 2 Ch 209 for the submission that a lodger may be in exclusive occupation of a room notwithstanding that the landlady had a right of access at all times, but it was a decision based on the term “exclusive occupation” within the meaning of s 70(2) of the Rent Act 1968.  This is not a phrase that appears in the No Alienation Clause or even in the Amended Form 86 at all, although it seems to have taken on a significant role in the Applicant’s submissions.

124.  The Applicant pleads that the “content and rationale of the Policy” were stated in the letters of 2 June 2010 and 9 July 2010 (quoted in section A4 above),[50] and that in both letters Mr Tan confirmed that the Corporation’s admission policy for data centre operators was that the Corporation would consider an application based on its normal admission criteria taking into account all the relevant circumstances including the three factors set out in the Data Centre Policy.[51]  There is simply no mention of any alleged criterion based on occupation which is not captured in the Data Centre Policy.  The invitation for tender for Site C and the subsequent tender questionnaire in 2012 were to the same effect and understood by the Applicant’s subsidiary accordingly (see §§37-40 above).

125.  The passage in Mr Siu’s affirmation quoted in §120 above was alluded to at the hearing on 20 June 2019 of SUNeVision’s summonses for leave to adduce further evidence.  When the court asked which part of the Lease Restriction Policy was, on SUNeVision’s case, not already within the Data Centre Policy, the answer was that the Data Centre Policy only stated retention of exclusive possession as one of the factors to be taken into account, not as a necessary requirement.[52] It could therefore result in a case where the Corporation took into account that factor but nonetheless permitted the grantee not to retain exclusive possession; that, it was submitted, would be a misinterpretation of the policies.  The issue therefore centred round exclusive possession.  The point now sought to be made, based on occupation not amounting to possession, was not mentioned at all.

126.  The truth is that what has now taken centre stage in the Applicant’s submissions is an afterthought, a new point raised only in the skeleton argument for the substantive hearing.  No further amendment has been proposed to the Amended Form 86.  In these circumstances, having regard to the principles I have referred to in §§72-73 above, the point should not be entertained.

E3(c).   The Corporation did not misinterpret its own policies

127.  If I am wrong in the above, I am in any event of the view that the point has no merits.

128.  The interpretation of policy is a question of law.  But this does not mean that policy statements are to be construed as if they were legislative texts.  It is common ground that “a broader and wholly untechnical approach should prevail” (In re McFarland [2004] UKHL 17, §24) and that it is to be read in a “practical down-to-earth way” (R v Director of Passenger Rail Franchising, ex parte Save Our Railways [1996] CLC 589, 601; Shiu Wing Steel Ltd v Director of Environmental Protection (2006) 9 HKCFAR 478, §23).  Further, in interpreting a policy, the court should adopt a purposive approach, having regard to its context and purpose, and will presume that the drafter did not intend to produce consequences which are objectionable or undesirable, or absurd, or unworkable or impracticable, or merely inconvenient, or anomalous or illogical, or futile or pointless: Law Mei Mei v Airport Authority [2018] 4 HKLRD 312, §50 per Chow J.

129.  The genesis of the Data Centre Policy has been referred to in §§115-116 above.  It was specifically formulated in light of the lease restrictions and was the considered response on how to approach those restrictions in the case of data centre user.  In my view it is clear that the Corporation’s position, as reflected in the BDAC paper for the meeting of 9 February 2010, was that it would consider that the No Alienation Clause had been complied with provided that the criteria in the Data Centre Policy were met to their satisfaction (see also section E3(a) above).  The Corporation would welcome a business that was in substance the provision of high-value-added quality data centre services, but not a business more in the nature of subletting land (which would not be permitted).  It is to be recalled that the February 2010 BDAC paper stated that provided the conditions were met, the Corporation “would be inclined to consider that there is no breach of the restriction against alienation”and that the lease restriction would be maintained “in that the grantee/lessee shall not part with possession of the lot or any part thereof”.  In that way, although there was no amendment to the No Alienation Clause in the standard lease, when it comes to the Corporation’s policy of lease enforcement, the general Lease Restriction Policy has to be read subject to the specific Data Centre Policy.  It would not make sense for the Corporation to grant a lease toa data centre operator based on the Data Centre Policy, but then immediately to insist that it must cease its operations or forfeit the lease because, even though its operations comply with the criteria of being admitted (ie the Data Centre Policy), they nevertheless involve a breach of the Lease Restriction Policy.

130.  The BDAC paper was not a public document, but the published statements regarding the Corporation’s approach did not in my opinion deviate from the position adopted.  As mentioned above, in his letters dated 2 June 2010 and 9 July 2010 to stakeholders in the data centre industry including the Applicant, the CEO of the Corporation wrote in terms (quoted in section A4 above) specifically setting out the three factors in the Data Centre Policy.  The letter dated 20 October 2010 referred to them as “the basic test factors that [the Corporation had] been using to address the specific nature of data centre operation” (§32 above).  The correspondence in December 2011 shows that the Applicant was well aware of the criteria the Corporation been using to address the specific nature of data centre operation (§34 above).  The tender invitation for Site C, the tender query on 3 April 2012 and Wealth Up’s answer on 18 April 2012 were to the same effect (§§37-40 above). 

131.  In my view, therefore, the Applicant’s unpleaded new case that the Corporation has erred in treating the Data Centre Policy as sufficient for ensuring compliance with the Lease Restriction Policy is in any event not established. 

132.  The Applicant has not raised any challenge to allege that the Corporation was not entitled to adopt the Data Centre Policy or that it is a erroneous policy, but in effect the Applicant is trying to do that: it is saying that any data centre that permits customers to occupy space cannot be admitted, even though the grantee satisfies the Data Centre Policy.

133.  The Applicant submits that the restriction against permission to occupy remains in the No Alienation Clause in the actual leases.  However, as explained in §71(7) above, we are not concerned here with the interpretation of the terms of the lease, but with the Corporation’s policy as regards lease management and enforcement.  The meaning of each lease depends on the entire lease documentation, and the construction of clause B(11)(a) has to be undertaken in the context of the whole contract and the factual matrix, including the grantee’s application, supporting schedules and the approved pro forma agreement with its customers.

134.  Insofar as the Applicant says that the customers should not be setting up general offices for staff in the data centre premises, it appears that the Corporation does not take issue and has indeed been enforcing such restrictions: see the IBM incident in HKCOLO’s premises in §188 below.  Nor is there any dispute that the grantee should be the one who undertakes the approved use in the premises. 

135.  The Applicant complains in correspondence and submissions that the Corporation has not stated precisely what level of access or control the grantee needs to retain, and that it is unhelpful for the Corporation to say each case depends on its own facts or that whether there is a breach is a matter of fact and degree.  But there is no pleaded ground attacking the Corporation for failure to issue further guidance or explanation of its policies, nor is the legal basis for the complaint apparent.  On the basis of the Data Centre Policy as formulated, whether or not there is a breach is a matter that depends on the specific arrangements.  The Applicant itself pleads that exclusive possession depends on the question of “degree” of control over the premises.[53]

F.     Ground 2 — errors of law

136.  SUNeVision alleges that the Corporation misdirected itself in law in coming to its decision in the May 2018 Letter. There are four alleged errors of law under this Ground, the second one being subdivided into three allegations.

F1.    Ground 2(1)

137.  The May 2018 Letter contains the following passage:

“ 3. The Restriction is expressly stated in the letter for tender invitations for land applications as well as the offer letter to the intended Grantees issued by our client. You are well aware of the said practice of our client as you recognized in paragraph 16 of Your Letter that our client specifically drew the attention of the prospective tenderers to the Restriction in the invitation to tender for leasing an individual section in the Tseung Kwan O Industrial Estate … dated 1 June 2011. It is common ground that in the data centre operation industry, some customers may place their equipment in the data centre to make themselves avail of the services provided by the data centre operators, the latter being the dominant element of the operation of the data centre. Under such model, our client considers that these customers on the industrial estates do not have exclusive possession of the space in the data centre where their equipment is placed; nor are they licensed to occupy the space and has made it clear to all potential applicants accordingly. Such trade practice ought to be distinguished from the subletting, licensing and/or sharing of space as a service, such as the provision of space by Grantees to their customers for the storage of unpowered equipment, servers or racks for a rental.” (emphasis added)

138.  Relying on the words “considers” and “trade practice”, the Applicant alleges[54] that insofar as the Corporation treated the question of whether customers were granted exclusive possession as a question of discretion or policy or on the basis of an alleged “trade practice”, it had misdirected itself.  A similar allegation is made[55] that the Corporation took into account “trade practice” as an irrelevant consideration.

139.  In my view this argument takes the word “considers” out of context.  What was being referred to in the letter is the colocation model, where customers place their own equipment in a data centre in order to avail themselves of the services provided, with the provision of services being the dominant element.  The Corporation took the view that such a situation was to be distinguished from the subletting or licensing of space for the storage of unpowered equipment.  The word “considers” does not, in my opinion, show that the Corporation has treated the question of whether exclusive possession has been granted as a question of discretion or policy.  The Corporation’s evidence has confirmed that it regards the question of possession as a matter of fact and degree, not a question of discretion or policy.[56]

140.  Nor is the sentence, properly read, a suggestion that there is a “trade practice” or “industry custom”, certain and notorious, in the sense used in the law where a specific custom or usage may be relied upon for the construction of particular expressions in a legal document,[57] that alters what is otherwise the meaning of the policies on their true and proper interpretation in context.  It seems to me that the phrase “such trade practice” simply refers to the business model, described earlier in the passage, where the customers place their own equipment in the data centre to benefit from the services provided, as opposed, for instance, to the managed hosting model where the data centre provides the equipment itself (see §11 above) or the warehousing of equipment.

141.  There is therefore no substance in Ground 2(1). The Corporation did not misdirect itself in the way alleged.

F2.    Ground 2(2)

142.  The next ground alleges that the Corporation erred in law in considering that the lease restrictions would not be breached so long as certain conditions were present.  The complaint therefore is that the Corporation erred in treating each of these matters as sufficient in itself to ensure compliance.  This Ground is analysed below with reference to the three matters separately.

F2(a).  Ground 2(2)(a)

143.  The Applicant alleges that the Corporation erred in law in considering that the lease restrictions would not be breached as long as any services other than the provision of space were provided by the data centre operator to its customers.  It is said that the material question is the degree of control over the premises and their use retained by the Grantee, not whether any data centre services have been offered.

144.  It might be an error of law for the Corporation to direct itself in the way alleged, but it would in my view be a misreading of the May 2018 Letter to say that the Corporation in fact took that position.  In an earlier paragraph, the letter expressly stated that:

“ The following 3 tests continue to govern the admission and lease management of data centres:-

(i) exclusive possession shall be retained by the grantees …

(ii) the provision of managed services shall be the dominant element of the operation in the premises; and

(iii)  rights of access to the premises shall remain within the exclusive control of the Grantees at all times.”

145.  Quite apart from the emphasis on exclusive possession and right of access, there is a requirement that the provision of managed services shall be the dominant element.  The services required do not just mean any services.  As set out in the BDAC paper of 9 February 2010 (see section A3 above), the approved use shall be to operate a data centre to provide colocation services as well as internet connectivity and other networking services, managed and outsourcing services on facilities, data centre management and system management.  The paper indicated that the emphasis was on high-value Facility Management, System Management and Network Management.  As stated in the Corporation’s evidence, it has never been its position that “any service”, such as merely “the provision of cooling”, would by itself suffice for compliance.[58]

146.  Despite the Applicant’s attempt to trivialise what has been called the DC Services, as described in §15 above they can be based on highly sophisticated technology and represent a major component of the capital investment and operations of a data centre.  As mentioned in §§27-28 above, as part of its approach the Corporation required a substantial amount of high-technology and high value-added management services including facility management.

F2(b).  Ground 2(2)(b)

147.  The allegation is that the Corporation erred in law in considering that the lease restrictions would not be breached as long as the data centre operator had the right to “allocate different areas in the granted site for the installation of their customers’ servers or to relocate the same”.  The quoted words come from the following paragraph in the May 2018 Letter:

“ 6. To ensure compliance by the Grantees, the intended Grantees are requested to provide a proforma service agreement showing the service arrangement between the Grantees and their potential customers for our client’s prior approval. Our client requires that the Grantees shall retain exclusive possession to the land, including the right to allocate different area in the granted site for the installation of their customers’ servers or relocate the same in their service agreements. …”

148.  Again, it seems to me the Applicant has taken words from the letter out of context.  On no proper reading of the letter can one say that the Corporation regarded it as a sufficient condition for compliance thatthe data centre operator had the right to require their customers’ equipment to be relocated to different areas within the data centre. The word “including” shows that the power mentioned is among what the Corporation expects, and directly contradicts the alleged error.  There is no dispute that the right is a relevant matter to be taken into consideration in determining whether exclusive possession has been granted.

F2(c).   Ground 2(2)(c)

149.  The allegation is that the Corporation erred in law in considering that the lease restrictions would not be breached so long as the relationship between a grantee and its customer is governed by terms substantially in the form set out in Global Switch’s pro forma services agreement. 

150.  The evidence is that in the case of premises to be used for data centre, all intended grantees have to submit their pro forma service agreements with customers to the Corporation for vetting before the relevant grant is made.  A contractual provision is also included in leases for data centre in the form of clause B(14)(b) requiring the approval of pro forma service agreement (see §29 above). 

151.  In the case of Global Switch, its pro forma service agreement was approved by the Corporation on 9 November 2012.  That approval formed the basis upon which it entered into the Agreement for Lease with the Corporation on 13 November 2012.  A revised form of clause B(14)(b) was inserted into the Lease (see §77 above).  As such, the pro forma service agreement seems to me to be part of the factual matrix and, at least arguably, part of the contractual materials as between the Corporation and Global Switch which must be taken together and construed as a whole.  Obviously it could not have been intended by the parties that an arrangement conforming to that which had been expressly approved by the lessor could nevertheless be regarded as a breach of the lease.  I find it difficult, as at present advised, to see how the Corporation can possibly be expected to complain against Global Switch for breach of lease if its arrangements with customers are governed by terms substantially in the form of the approved pro forma services agreement (see also section J below).

152.  Furthermore, as mentioned in section E1 above, that approval is not challenged by this or any other application for judicial review.  Nor is there any challenge against the decision to grant the lease to Global Switch based on its pro forma services agreement.

153.  Accordingly, in my judgment, it would not be an error of law for the Corporation to take the view that the lease restrictions would not be breached so long as the relationship between Global Switch and its customer is governed by terms substantially in the form of Global Switch’s pro forma services agreement.  On the contrary, indeed, it would at least arguably be an error of law for the Corporation to conclude otherwise.

154.  SUNeVision’s allegation is not limited to Global Switch, but framed in terms of “a grantee”.  As far as HKCOLO is concerned, the lease as varied by a deed of variation in July 2010 provides that:

“ the operations in the Premises in accordance with the purpose referred to in Clause (A)(2) above [see §44 above] shall be governed by a proforma Colocation Agreement to be made between HKCOLO Limited and its customers. Such proforma Colocation Agreement shall be upon such terms and containing such conditions as subject to the prior approval in writing by the Corporation.”

The evidence is that there was a pro forma colocation agreement (as revised) which was approved by the Corporation in evaluating HKCOLO’s application for lease.

155.  In the case of NTT, the evidence likewise is that it was based, inter alia, on the standard form General Terms and Conditions and Special Conditions submitted by NTT that the Corporation granted it a lease in TKOIE.

156.  Naturally, and in my view quite properly, in determining whether HKCOLO and NTT have breached their respective leases or the Corporation’s policies, the Corporation would examine their arrangements with reference to their respective pro forma agreements.  As in the case of Global Switch, there would be nothing erroneous if the Corporation considered that HKCOLO and NTT had committed no breach provided the arrangements conformed to their respective approved pro forma agreements.  There is nothing to suggest that the Corporation took the alleged position, in relation to HKCOLO and NTT, that there would be no breach if they followed Global Switch’s pro forma service agreement. 

157.  Likewise, the Applicant has not in any way challenged the Corporation’s decision approving the pro forma agreements of HKCOLO and NTT respectively or the decision to grant them the leases or to permit data centre user in the leased premises on the basis of such pro forma agreements. Any challenge of that kind would now of course be inordinately out of time.

158.  Accordingly, this ground alleging an error of law also fails.

F3.    Ground 2(3)

159.  SUNeVision contends that “insofar as” the Corporation assumed that the provision of colocation services in the data centre industry necessarily required the operator to part with possession of the premises, then it had materially misdirected itself.  It is said that the typical retail colocation model would be compatible with the Corporation’s policy and would not be in breach of the No Alienation Clause.

160.  The alleged assumption would indeed be a misdirection, but the short answer is that the Corporation did not make this assumption whether in the May 2018 Letter or otherwise.  On the contrary, the Data Centre Policy, reiterated in the letter, shows that the Corporation considered that it was entirely possible to operate a colocation data centre without parting with possession.  This was one of the “basic tests” for admission under the policy.  The Corporation did not misdirect itself as alleged.

F4.    Ground 2(4)

161.  The allegation is that the Corporation erred in law in thinking that all breaches of the lease were capable of remedy as subletting would constitute a fundamental breach incapable of remedy.  The Applicant contends that it appeared from the May 2018 Letter that the Corporation would only take action against breaches if the grantee refused to take remedial actions.

162.  The relevant passages in the May 2018 Letter read as follows:

“ 7. … If it is confirmed that a Grantee is in breach of the Agreement and/or the Lease, our client would take appropriate enforcement actions accordingly.

8.  Pursuant to the terms and conditions of the Agreement and the Lease, our client is entitled to a number of rights and powers against the Grantees to ensure compliance, including in particular:-

…

(ii) If the Grantee shall be in breach of any of the terms and conditions, our client is entitled to demand that the Grantee shall pay additional premium for the period of the breach on a daily basis (… Clause 50 of Section B of the Lease); and

(iii) In case the Grantee has failed to perform and observe any of the stipulations or covenants, our client may serve upon the Grantee a notice of breach requiring the Grantee to remedy the breach within the specified time. If the Grantee has failed to remedy the breach to the satisfaction of our client, our client shall have the right to re‑enter upon and take possession of the said land (… Clause 1 of Section D of the Lease).

   9.  We refer to the statement made by Mr. Gregory So, the then Secretary for Commerce and Economic Development … in the Legislative Council on 25 March 2015 in relation to the general approach adopted by our client to enforce the terms of the Lease.  Our client would usually make enquiries to the Grantee about operations suspected of breaching the Restriction and demand the Grantee to cease the alleged breach.  If the Grantee is confirmed to be in breach and refuses to take remedial actions, our client would take appropriate actions according to the terms of the Lease.  Depending on the severity of the breach, our client may charge an additional premium.  Further, our client may exercise the right to initiate the re‑entry procedure.”

163.  The two clauses in the lease referred to in the letter provide as follows:

Clause B(51)

“ If the Lessee shall be in breach of any of the terms conditions and covenants … in respect of which notice of breach has been given by the Corporation and such breach shall not have been completely remedied to the satisfaction of the Corporation before such date or time limit specified in the said notice given by the Corporation, [the Lessee covenants] to pay to the Corporation on demand … a sum calculated at the rate of HK$20,645 per day as additional premium for the period from the date or time limit specified in the said notice … to the actual date on which such breach shall have been completely remedied to the satisfaction of the Corporation.”

Clause D(1)

“ … if there shall be any breach of any of the covenants by the Lessee herein contained, the Corporation may serve upon the Lessee notice of the breach and thereby requiring the Lessee to remedy the breach within such reasonable time as shall be specified in such notice and if upon the expiration of such reasonable time the Lessee has not remedied the breach to the satisfaction of the Corporation, then and in any such case the Corporation … may at any time thereafter enter into and upon the said premises or any part thereof in the name of the whole re‑enter repossess the same and enjoy as in their former estate but without prejudice to the rights, remedies and claims of the Corporation …”

164.  It seems to me that, in the above passages in the May 2018 Letter, the Corporation was reiterating the contractual procedures for the particular enforcement actions.  There is nothing erroneous in following the contractual provisions.  Furthermore, it would be inaccurate in law to say that a breach of the No Alienation Clause must necessarily be incapable of remedy.  While a breach in the form of actually granting a sublease might be difficult to remedy, there is no conceptual or practical difficulty to remedy if the breach is constituted by, for example, a customer having blocked certain area in the data centre to which the grantee has been excluded from access.  As stated by Neuberger LJ in Akici v LR Butlin Ltd, supra, at §73: “a breach of covenant against parting with possession or sharing possession, falling short of creating or transferring of legal interest, are breaches of covenant which are capable of remedy …”  Neither of the authorities cited in the Amended Form 86, namely, Woodfall, Landlord and Tenant, §17.132.1 and Merry, Hong Kong Tenancy Law (6^th ed), p 191, supports the contrary position.

G.     Ground 3

165.  According to SUNeVision’s classification, data centre colocations typically fall into either the retail or wholesale category, broadly as described in §12 above.  By this Ground, SUNeVision contends that the Corporation misunderstood its own policy and failed to appreciate that it was in effect to allow the grantees to operate a data centre under a typical retail colocation model but not a typical wholesale colocation model. 

166.  The Corporation’s Data Centre Policy, however, makes no reference to the particular business model of a data centre.  Nor was there any reference to any retail or wholesale model in the formulation of that policy as described in the BDAC paper of 9 February 2010.  As already mentioned, it was previously considered by the BDAC that the user was to be limited to colocation services provided by the grantees “to end-users”, but this interim internal position was expressly abandoned by the BDAC in the meeting of 9 February 2010.  As finalised and implemented, the Data Centre Policy was not framed with reference to the nature or level of the grantee’s customers at all and, in particular, whether or not such customers are end‑users.  In dismissing SUNeVision’s application for leave to appeal against this court’s decision not to allow an amendment of the Form 86 based on a limitation to end-users, the Court of Appeal stated:

“ … the ‘end‑users limitation’ as recorded in the Feb 2010 Paper is not only just an unpublished factor discussed at the BDAC’s ongoing meetings but has also been expressly excluded and replaced by the three matters adopted in the published policy. This once‑considered but expressly excluded factor cannot be relevant to inform the court as to the proper meaning of the Policy and the Lease Restrictions.”[59]

167.  Instead, the Data Centre Policy is framed in terms of exclusive possession, control over right of access, and the dominance of the provision of managed services.  General admission criteria include whether the activity can be carried out in an ordinary industrial building, the level of technology and the amount of investment involved.  There is no complaint in these proceedings about how these policies were formulated or expressed.

168.  SUNeVision appears to suggest that because wholesale customers “typically” require more control over the data centre premises, if a grantee has adopted a “typical” wholesale model and provided space to a wholesale customer, then it is more likely that the grantee has acted in breach of lease or in breach of the Data Centre Policy.  In my view, such reasoning is unhelpful and an unnecessary digression.  Whether there may be a breach depends on the particular arrangements between a data centre operator and its customer, not on the result of a forced classification of the general operations of a data centre into one of two so‑called “typical” models. 

169.  Nor is the classification determinative of the issue of possession and control.  There is no clear touchstone for the concepts of “wholesale” and “retail”.  As used by SUNeVision, they do not refer only or even primarily to the position of the grantee’s customer in the supply chain of data centre services, but to a host of matters not all of which have any necessary correlation to the degree of control over the premises.

170.  Furthermore, as SUNeVision recognises by including the word “typical” in its assertions, the implications for control of the premises depend on the specific arrangements.  The classification into typical wholesale and retail models is neither necessary nor sufficient for determining the issue of possession, and would simply give rise to arid questions as to whether or not certain arrangement is typical.

171.  As SUNeVision itself recognises,[60] whether, in a given situation, the grantee has parted with exclusive possession is a question “normally determined by examining the contractual provisions governing the relationship between the parties”.  Irrespective of whether one labels the business model as wholesale or retail, the question of possession depends on the actual arrangements rather than the label.

172.  In the market research report dated June 2017 relied upon by SUNeVision itself, it was stated[61] that the “wholesale and retail distinction continues to blur”, that “[i]n recent years, new data centre options that blur the lines between wholesale and retail have started gaining popularity”, and that there are “hybrid facilities”, thus recognising there could be a whole range of possible arrangements. 

173.  In any event, even if there exists something that is “typical” in the industry generally, there is no reason why the grantees in the industrial estates, in particular TKOIE, must follow any typical arrangements elsewhere, rather than enterprisingly devise and calibrate their operations to best position themselves in the market within the constraints that apply in the industrial estates.

174.  For these reasons, the Applicant’s attempt to re‑characterise the Corporation’s policy as one that permits a typical retail model of colocation data centre but not a typical wholesale model has, in my view, been shown on analysis to be misconceived.

175.  In addition, it is contended that the Corporation failed to take into consideration the terms and conditions between the grantees and their customers which conferred right to possession or right of occupation and the fact that the grantees had allowed their customers possession or occupation of the premises.[62]

176.  This contention does not assist the Applicant:

(1)  There is no factual basis to suggest that the Corporation did not take into account the terms and conditions between the grantees and their customers, since the Corporation did consider the terms of the pro forma service agreement of each intended data centre operator in vetting its application. 

(2)  The pro forma service agreements, with the revisions required by the Corporation, have been approved by the Corporation in decisions made many years ago.  In doing so the Corporation considered that they complied with its Data Centre Policy and the No Alienation Clause as applied pursuant to its policy.

(3)  As stated above, each of the approved pro forma service agreements formed part of the contractual setting between the Corporation and the grantee in question, and seems to me prima facie to be binding on the Corporation.

(4)  The Applicant is by this complaint trying through the backdoor to impugn the decision approving those pro forma service agreements.  For the reasons already explained, this is impermissible.

177.  The Applicant also alleges that it is apparent from the Corporation’s approval of Global Switch’s pro forma service agreement that the Corporation is prepared to sanction acts by its grantees that would result in the breach of its policy or the lease.[63]  This is an allegation that is, again, a disguised attack on the decision in 2012 to approve the pro forma service agreement.  For the reasons explained above (see eg sections E1 and F2(c)), this argument fails.

H.     Ground 4

178.  By this Ground, the Applicant alleges that despite it had drawn attention to the alleged breaches by NTT, Global Switch and HKCOLO, the Corporation failed or refused to take reasonable or necessary steps to inquire into the facts (thus failing to discharge its Tameside duty[64]) and to take necessary actions on the breaches. 

179.  It is not in dispute that the decision‑maker’s duty here was one to take reasonable steps to acquaint itself with the relevant information to enable it properly to perform the function in question.  It is for the decision‑maker, not the courts, to decide upon the manner, extent and intensity of the inquiry, though its position could be challenged if it was Wednesbury unreasonable[65]: Smart Gain Investment Ltd v Town Planning Board (unrep, HCAL 12/2006, 6 November 2007), §87; R (Khatun and others) v Newham London Borough Council [2005] QB 37, §35.  In Deng Suet Yan v Hong Kong Housing Authority [2017] 4 HKLRD 73 at §19, the Court of Appeal referred with approval to the principles set out by Hallett LJ in R (Plantagenet Alliance Ltd) v Secretary of State for Justice [2015] 3 All ER 261 at §100 including the following:

“ (3) The court should not intervene merely because it considers that further inquiries would have been sensible or desirable. It should intervene only if no reasonable authority could have been satisfied on the basis of the inquiries made that it possessed the information necessary for its decision (R v Kensington and Chelsea Royal London BC, ex p Bayani (1990) 22 HLR 406 at 415 per Neill LJ).

   (4)  The court should establish what material was before the authority and should only strike down a decision by the authority not to make further inquiries if no reasonable council possessed of that material could suppose that the inquiries they had made were sufficient (per Schiemann J in R v Nottingham City Council, ex p Costello (1989) 21 HLR 301; cited with approval by Laws LJ in (R (on the application of Khatun) v Newham London BC at [35]).”

180.  Wednesbury unreasonableness is of course a high threshold.  It is not satisfied simply because the court, if it were called upon to decide the question, might or would have come to some different conclusion.  It refers to a decision “so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it”.[66] 

181.  The gist of WKLL’s letter of 6 April 2018 has been referred to in §§52-53 above.  After setting out the six incidents, the accusation made against the Corporation was that there was a change in policy or the adoption of a policy of condonation.  SUNeVision demanded that the Corporation take immediate steps to stop the change in policy or the policy of condonation by re‑affirming its original policy and taking measures to inquire into and stop existing breaches.

182.  It is important to note what the response of the Corporation actually was.  In the May 2018 Letter, the Corporation confirmed there had been no change in policies and there was no policy of condonation, and re-affirmed its existing policy.  In relation to enforcement, it was stated:

“ 6. To ensure compliance by the Grantees, the intended Grantees are requested to provide a proforma service agreement showing the service arrangement between the Grantees and their potential customers for our client’s prior approval. Our client requires that the Grantees shall retain exclusive possession to the land, including the right to allocate different area in the granted site for the installation of their customers’ servers or relocate the same in their service agreements. If the service arrangement provides for or amounts to subletting, licensing and/or occupation of space by the intended Grantee as a service, such proposal would be screened off in the application stage. After the commencement of operation, regular inspections to industrial premises and data centres on the industrial estates are carried out by our client and any suspected breach of the Restriction is promptly dealt with.

7. We do not intend to engage in protracted arguments with you on the specific cases of individual Grantees mentioned in paragraphs 26 to 36 of Your Letter. Based on our client’s regular site inspection at the industrial estates, our client is unaware of the alleged breach of the Restriction by the Grantees. As stated in paragraph 6 hereinabove, our client shall continue to carry out regular inspections to the industrial estates to ensure compliance with the Agreement and the Lease. If and when our client becomes aware of any irregularities in the industrial estates through the regular site inspection, our client would immediately take steps to investigate into the irregularities, including but not limited to seeking explanations from the Grantees, industrial operators and/or data centre operators. If it is confirmed that a Grantee is in breach of the Agreement and/or the Lease, our client would take appropriate enforcement actions accordingly.

…

9. We refer to the statement made by Mr. Gregory So, the then Secretary for Commerce and Economic Development, in response to the Honourable Frederick Fung in the Legislative Council on 25 March 2015 in relation to the general approach adopted by our client to enforce the terms of the Lease. Our client would usually make enquiries to the Grantee about operations suspected of breaching the Restriction and demand the Grantee to cease the alleged breach. If the Grantee is confirmed to be in breach and refuses to take remedial actions, our client would take appropriate actions according to the terms of the Lease. Depending on the severity of the breach, our client may charge an additional premium. Further, our client may exercise the right to initiate the re‑entry procedure.

10. The above approach was also adopted by our client in the past against a Grantee who was in breach of the Restriction and the said Grantee had rectified the breach upon our client’s demand. …

…

14. Our client always strictly observes the terms of the Lease and also ensures that the terms of the Agreement are duly complied with.  Your client [may] rest assured that our client shall continue to monitor the operations of the data centres in the industrial estates and take appropriate and lawful steps in ensuring the Grantees’ compliance with the Agreement and the Lease.”

183.  The May 2018 Letter was, therefore, not a refusal to enforce the Data Centre Policy and the No Alienation Clause, nor a final and conclusive decision that there were no breaches.  On the contrary, by the letter the Corporation affirmed its commitment to their enforcement.  The Corporation stated it was not aware of the alleged breaches based on its regular site inspections, but would continue to carry out regular inspections to ensure compliance.  It was not a once and for all performance of the Corporation’s functions with regard to premises leased for data centre purposes.  The Applicant’s attack must be seen in the context of what the Corporation’s position actually was.  It was not a refusal to take reasonable steps to enforce the lease restriction against parting with possession, as the Applicant describes the May 2018 Letter in the Amended Form 86.

184.  Under the Corporation’s approach, at the application stage, all intended lessees or operators are asked to provide their pro forma service agreement with their potential customers for prior consideration and approval by the Corporation.  If what that agreement provides would give rise to an infringement it would be screened off at that stage.

185.  After the premises are leased out, the Corporation would monitor the operations of the data centres by conducting regular site visits and interviews with the operators.  Thus the estate supervisor carries out regular inspections of each factory including data centre, based on a designated schedule throughout the year, normally accompanied by a member of the Estate Management staff of managerial grade from the Corporation’s Headoffice.  The estate supervisor is able to check for changes in the set‑up and configuration of each data centre as between one visit and another, and compare the configurations of different data centres to check for irregularities.

186.  Besides, the Corporation’s Development Manager and the Chief Operating Officer would also conduct inspections.  The inspections thus conducted at the premises of NTT, HKCOLO and Global Switch in TKOIE by the Corporation’s senior management were as follows:

Names	Number of inspections
	2012	2013	2014	2015	2016	2017	2018	Total
NTT			1	2	3	2	1	9
HKCOLO	2	0	2	1	2	2	1	10
Global Switch							1	1

187.  Further, the Chief Operating Officer and his staff would undertake ad hoc inspections to check for irregularities and to address specific concerns that may arise from time to time, for example when complaints are drawn to their attention.

188.  On a previous occasion, the Corporation took steps to enforce compliance when it discovered a breach of lease.  During an ad hoc site inspection on 22 May 2013 following requests and demands made by the Corporation in correspondence, it discovered that at HKCOLO’s site,[67] inter alia: (i) IBM, a customer of HKCOLO, was occupying certain floor space on the ground floor of the building as their own security and check-in counter with its own name, logo and signs put up; and (ii) IBM occupied a supporting area on the second floor with a control room, conference room and office settings.  There was a complaint received that IBM, rather than HKCOLO, was operating a data centre.  Taking the view that these arrangements infringed the No Alienation Clause and went beyond HKCOLO’s approved pro forma colocation agreement, on 27 May 2013 the Corporation through its solicitors issued a notice to HKCOLO requiring the breaches to be remedied within one month failing which a daily additional premium would be payable pursuant to the lease.  This was followed by two further site inspections by the Corporation on 3 September and 11 November 2013, as well as further solicitors’ letters from the Corporation.  Eventually, the Corporation was satisfied in around July 2014 that HKCOLO had remedied the breaches.

189.  HKCOLO’s arrangement with IBM is in fact one of the six incidents raised in WKLL’s letter of 6 April 2018, as mentioned in §52 above, which the Corporation had investigated and was eventually rectified in 2014.  The other two incidents relating to HKCOLO referred to in WKLL’s letter related to two tenders both in 2011.

190.  The allegations in WKLL’s letter of 6 April 2018 were made without any proper supporting documentation or evidence.  For example, the allegations about the tender terms of NTT and HKCOLO were not supported by any tender document; only some newspaper articles were attached. Even in an affirmation filed in these proceedings in February 2019, SUNeVision only produced very heavily redacted copies of the tender documents which were said to be “highly commercially sensitive” and which SUNeVision was bound by confidentiality obligation not to disclose.  It was only on 13 September 2019 that SUNeVision produced to the Corporation substantially unredacted versions of those documents, whilst still withholding consent for the Corporation to show them to the grantees in order to seek their explanation.

191.  It is unnecessary for present purposes to deal with the contents of these tender materials which have since emerged.  What is clear is that it is necessary to see the entire substantive provisions of the applicable agreements before one can analyse and come to any conclusions on the nature of the relationship.

192.  Thus at the time of WKLL’s letter, the Corporation had examined the pro forma agreements of each of the three grantees and was given to understand that they applied to all their customers.  The Corporation had also been carrying out regular inspections (except for Global Switch’s data centre which had only recently been completed) and had previously examined HKCOLO’s arrangements with IBM which had been rectified to its satisfaction.  During that investigation the Corporation had sought to obtain the actual agreements entered into between HKCOLO and its customers but was told that they were confidential and the Corporation had no legal entitlement to them.

193.  The Corporation also conducts investigations when it receives complaints of any alleged breach of lease terms.  In relation to WKLL’s letter of 6 April 2018, the Corporation wrote on 24 May 2018 to Global Switch, HKCOLO and NTT asking them to clarify the situation with regard to SUNeVision’s allegations.  The three operators responded by letters shortly afterwards.  The Corporation then conducted further physical inspection into the data centres of Global Switch, NTT and HKCOLO on 19 June, 3 August and 9 October 2018 respectively.  While these steps were taken after the May 2018 Letter, this is unremarkable given that there was no final, once-and-for-all decision made by the Corporation in that letter and that, as noted in the letter, its lease enforcement is a continuing exercise.

194.  Based on certain emails dated 2013/14 and an email dated 2016 which SUNeVision obtained confidentially from an insider and disclosed in these proceedings by an affirmation in March 2019, it is now alleged that HKCOLO and one of its customer, KDDI, had at that time exploited the prior notice given by the Corporation of its inspections and adopted a practice of “on the run” (走鬼) to respond to the inspections. On this basis SUNeVision criticises the inspections as ineffective.  The following points may be noted in this regard:

(1)  These emails were not available to the Corporation at the time of the May 2018 Letter or even when these proceedings were commenced, but only in an affirmation filed on 22 March 2019.  As a result, they are not the subject matter of the May 2018 Letter, but of the ongoing investigations being undertaking by the Corporation.  The emails do not show there was a general, long‑standing or prevalent “on the run” practice among all the data centre grantees.

(2)  The grantees are reputable corporations and most of their data centre customers are also well‑established institutions with large-scale operations.  It is not readily to be expected that they would engage in plotting together to mislead the Corporation. Furthermore, there are arrangements, set‑up and configurations in data centres that are not easily removed or changed within a short period of time, which means that it would be difficult for any offending parties to cover all their tracks within a few days before the inspections.

(3)  Even if a grantee had adopted such practice with a customer, one cannot, with hindsight, and by reference to this alone, conclude that the enforcement procedures were so ineffective as to be Wednesbury unreasonable.

(4)  As a matter of fact, the Corporation was able to detect, through inspections, what it regarded as breaches of lease by HKCOLO in relation to its arrangements with IBM, as described in §188 above.

(5)  From the 2013/14 emails adduced by SUNeVision, it can be seen that the grantee actually understood that the Corporation would “severely check whether sub‑lease arrangement [had been] made” and that any breach could lead to the grantee being “disqualified”.  Far from it being evidence of any condonation by the Corporation, it was an indicator that the grantee knew that the Corporation took enforcement of the lease seriously.

195.  Further materials about the arrangements in the grantees’ premises have come to light after the May 2018 Letter, including materials that have emerged in the evidence filed in these proceedings.  They are however not directly relevant since the application for judicial review herein is concerned with the May 2018 Letter, which was a response to SUNeVision’s complaint dated 6 April 2018.  The focus of these proceedings is on that response, examined in the light of what was then before the Corporation, with reference to the specific grounds of challenge set out in the Amended Form 86.  This judicial review is not the forum to canvass such new materials for the first time.[68]  The Corporation’s investigations based on such new matters (including obtaining the grantees’ response on the new materials) are ongoing. 

196.  It would be a rare case where, after exhaustive examination in legal proceedings, it is impossible to think of some further or different, perhaps even more effective, methods or lines of inquiry, especially with the benefit of hindsight.  But this is not the question.  The court needs to beware that it is not the executive body concerned and must not usurp a landlord’s discretion in how its leases are to be managed and enforced.

197.  In all the circumstances, I am of the view that the Applicant has failed to show that the steps taken by the Corporation by way of inquiry and enforcement were Wednesbury unreasonable.  The allegation of breach of the Corporation’s Tameside duty therefore fails.

I.     Delay

198.  The Corporation further submits that there has been great delay in SUNeVision’s application for judicial review.  The following points are of note in this regard.

(1)  In 2010 the Corporation formulated and implemented the Data Centre Policy and made clear the criteria it would apply in admitting data centre operators into its industrial estates, in particular the three “basic test factors” to ensure compliance with the No Alienation Clause.

(2)  The Corporation approved HKCOLO’s and NTT’s pro forma service agreements probably in 2010 and approved Global Switch’s pro forma service agreement in 2012, as can be inferred from the leases in question which are public documents (see §§44-45 & 77 above).  There is a strong undercurrent in the Applicant’s submissions seeking to impugn the approval of these agreements, without facing up to the reality that any such challenge would be hopelessly out of time.

(3)  As early as on 16 November 2012, the Applicant had already instructed WKLL to lodge a complaint with the Corporation about suspected breaches of lease by HKCOLO, citing two incidents which were materially the same as two of the incidents referred to in WKLL’s letter of 6 April 2018 and now found in sections A.7.4 and A.7.5 of the Amended Form 86.  On 5 December 2012, Mayer Brown JSM replied on behalf of the Corporation that the case was the subject of enquiry in their normal monitoring even before receipt of WKLL’s letter.  By letter dated 13 August 2013, WKLL stated that the complained breaches were continuing and raised a further complaint that HKCOLO breached the lease by reason of its arrangements with IBM, which is of course another of the incidents referred to in WKLL’s letter of 6 April 2018 now found in section A.7.3 of the Amended Form 86.  On 21 August 2013, Mayer Brown JSM demanded that WKLL disclose the names of their clients but WKLL refused.  On 27 December 2013 Mayer Brown JSM replied that the Corporation “[had] always striven to actively monitor the compliance of Lease provisions by the grantees and [had] always taken compliance of Lease provisions by the grantees in the Industrial Estates very seriously”, but refused to provide further details since WKLL’s clients had refused to disclose their identities.  Meanwhile, on 11 September 2013, WKLL also complained on behalf of their clients to the Lands Department that there was a breach of the user restriction in the Land Grant itself on the ground that IBM was using part of the premises of HKCOLO as a commercial office.  On 23 January 2014, the Lands Department replied that after an inspection of the premises, they considered that the current use of the premises observed was not in breach of the Land Grant.  As stated above, the Corporation took steps to enforce compliance by HKCOLO in relation to IBM and the breaches were remedied to its satisfaction in July 2014.

(4)  On 20 February 2017, SUNeVision wrote to the Corporation, attaching a newspaper report and raising the concern that Global Switch was involved in subletting in its arrangements with Daily‑Tech and CTG.  This is one of the incidents referred to in WKLL’s letter of 6 April 2018 although that letter contained further developments.

(5)  In the reply to Dr Elizabeth Quat dated 23 March 2017, the Corporation made clear it “would apply the … three (3) tests to demonstrate compliance [with the] standard lease restriction on alienation …”.

199.  There has therefore in my view been much delay on the part of SUNeVision in relation to a considerable number of matters and allegations raised in its application.  This is something that the court can and, indeed, should take into account in relation to the question of relief. As Stock JA (as he then was) said in Lo Siu Lan v Hong Kong Housing Authority (unrep, CACV 378/2004, 17 December 2004), §39, where there are earlier challengeable decisions:

“ it is not then open, in the context of a factual matrix such as this, for applicants who could have challenged those earlier decisions, to sit upon their rights with no risk of leave being refused. Whilst in such a situation the latest decision may itself be amenable to challenge, that is not a fact that is to be looked at in isolation when the court comes to consider the issue of leave and, if leave be given, of relief. It must be looked at in the round, with due regard of course, as in Burkett,[69] to the nature of the earlier decisions and to the framework as a whole.”

200.  Section 21K(6) of the High Court Ordinance (Cap 4) provides that where there has been undue delay in making an application for judicial review, the court may refuse to grant, not only leave to apply for judicial review, but also any relief sought, if it considers that the granting of the relief sought would be likely to cause substantial hardship to, or substantially prejudice the rights of, any person or would be detrimental to good administration”.

201.  In the light of the conclusions on the grounds raised by the Applicant, however, it is unnecessary to consider the effect of delay further.

J.     Relief and discretion

202.  Global Switch submits that even if grounds are established for judicial review, relief should be refused.  In essence, the submission seems to me to be a narrower one that even if the Corporation’s policies and the No Alienation Clause in fact mean what SUNeVision says they mean, and Global Switch’s pro forma service agreement is inconsistent with them, the Corporation should not be directed to come to a fresh decision that would have the effect of impugning or repudiating the pro forma service agreement.

203.  On the basis of my earlier conclusions, this issue does not arise.  In particular, as explained in section F2(c) above, I find it difficult to see how the Corporation can properly, as landlord, resile from the pro forma service agreement which it approved and which arguably formed part of the contractual materials constituting the lease. 

204.  On behalf of Global Switch, Mr Man SC submits that in order to give effect to SUNeVision’s legitimate expectation, the court would be interfering with entirely lawful conduct by Global Switch who in no sense brought about this problem and who has acted throughout in good faith and in reliance upon the approval of its pro forma service agreement apparently properly granted.  What, he asks, of Global Switch’s legitimate expectations, even contractual rights?[70]

205.  In Shek Lai San v Securities and Futures Commission & another [2010] 4 HKC 168, A Cheung J (as he then was) rejected a challenge of the decision of the Securities and Futures Commission and the Hong Kong Monetary Authority to enter into a settlement agreement with 16 banks which had been involved in the sale and distribution of Lehman Brothers‑related minibonds, under which the banks agreed, among other things, to offer to repurchase from eligible customers all outstanding minibonds at prices discounted to their nominal values.  Refusing leave to apply for judicial review, his Lordship said:

“ 41. … the unravelling of the settlement agreement would potentially lead to the unravelling of the repurchase agreements. The relief sought in the Form 86 would have serious repercussions on the interests of third parties. The potential magnitude of the monetary impact is, as mentioned, enormous. In fact, the very existence of these proceedings would have a potential impact on these third parties. Until the conclusion of these proceedings, no eligible customer can safely assume that the payment he or she has received under a repurchase agreement from the bank involved may be used without the risk of being required to repay the same to the bank in the event that the repurchase agreement is subsequently disturbed, following a successful challenge to the decisions in issue.

42. The Court is entitled to take into account the potential impact of the relief sought on third parties. After all, relief in judicial review proceedings is discretionary. …

…

45.  In my view, as regards the first and second decisions, the potential impact of the relief sought in the present case is profound.  There is no realistic chance of the relief sought being granted at a substantive hearing.  I conclude that the applicant has not shown a reasonably arguable case for the relief sought in the Form 86.”

206.  Global Switch says that it took the precaution of submitting a pro forma service agreement, explaining to the Corporation in detail how its operation model would not violate the lease, seeking the Corporation’s approval of the pro forma service agreement before agreeing to take the lease, and procuring a revision to the standard lease so as to make express reference to the approved pro forma service agreement (see clause B(14)(b) quoted in §77 above).  On that basis it agreed to take on the lease, and proceeded to construct a data centre complex with a total investment of $6 billion. It would be wholly unjust to Global Switch if the Corporation were to enforce the lease in a way contrary to the pro forma service agreement and to the common understanding it had with Global Switch as to what would be permissible. 

207.  In my view there is no valid answer to this.  First, SUNeVision submits that because Global Switch, in resisting the interlocutory application for an injunction to restrain the grant of increased plot ratio (see §57 above), has promised to abide by the court’s ruling on the interpretation and application of the restrictions in the lease, it cannot therefore complain of any prejudice when in the end it is required to do so. This argument fails to address that, in determining what Global Switch’s lease requires, the Corporation’s approval of the pro forma service agreement and the modus operandi of the mega data centre as explained by Global Switch is of vital importance.  Global Switch’s promise at the interlocutory stage does not preclude it from asking the court to take into account the actual contractual materials and factual matrix between it and the Corporation.

208.  Secondly, the Applicant argues that Global Switch was fully aware of the No Alienation Clause when it took the lease of Site C. Global Switch must, of course, be taken to have been aware of the clause, but there is in addition an express provision in its lease that the operations in the leased premises shall be in accordance with the purpose referred to in the Second Schedule to the Lease and governed by the pro forma service agreement approved by the Corporation.  The Second Schedule (see §42 above) in turn refers to the materials comprised in Global Switch’s application for the site.  It would be a mistake to look at the No Alienation Clause in isolation in a vacuum as the Applicant suggests.

209.  Thirdly, the Applicant submits that Global Switch has already obtained a benefit in that its breaches of the No Alienation Clause have been condoned by the Corporation in the past.  The “prejudice” in having to comply with the No Alienation Clause is simply loss of a benefit that it should never have had in the first place.  In my view, this takes the argument no further as it begs the question of what Global Switch’s lease requires.  The case of R v Oxby [1997] EWCA Civ 2960 relied upon by the Applicant turns upon wholly different facts.

210.  Fourthly, it is said that Global Switch’s investments would not be wasted if the No Alienation Clause is properly applied in future because Global Switch could still use its data centre to provide colocation service under a retail model in a way that is compliant with the lease.  I have already pointed out that the Applicant’s fixation on the distinction between wholesale and retail model is misconceived (see section G above).  In fact, from the outset Global Switch had informed the Corporation that their data centre was intended to be a “wholesale carrier-neutral data centre”, providing “wholesale managed services” to its customer base which would include major IT players and telecommunication companies — customers that provide technology solution as their core business.[71]  It was on the basis of, inter alia, these materials that the Corporation offered the lease to Global Switch and approved its pro forma services agreement.

211.  Finally, the Applicant’s suggestion that the court should simply grant relief in these proceedings without regard to any prejudice to Global Switch, and leave it to pursue private law remedies or perhaps even another application for judicial review against the Corporation, seems to me to be a course only calculated to create further uncertainty, which of course will benefit no one except Global Switch’s competitors including the Applicant.

K.     Unfairness

212.  SUNeVision says that the consideration paid by the grantees within the industrial estates was a fraction of what it had to pay for land outside, based on the GFA that can be built, and that there was therefore some unfair competition against it.  Whether the decision to allow data centres to be set up within industrial estates in the first place is a fair one and whether the Data Centre Policy strikes a fair balance are not questions raised in this judicial review and not questions for the court.  It is, however, relevant to note that there are significant differences between land in the industrial estates and elsewhere: (1) the land acquired by SUNeVision was perceived by the market as perpetual, whereas leases in the industrial estates have a definite expiry date in 2047 renewal of which is uncertain;[72] (2) there is a narrowly defined restriction on user for each lease in the industrial estates, whereas land use elsewhere is regulated by more general town plans and government leases; (3) there is no restriction against subletting in SUNeVision’s sites and no control over the form of agreements with customers; (4) there are restrictions on mortgages and charges for land in the industrial estates;[73]  (5) SUNeVision’s sites are freely transferrable, like other land in private ownership in Hong Kong, whereas leases in the industrial estates have to be offered to be surrendered to the Corporation at specified consideration before they can be assigned;[74] (6) there are provisions which mandate capital investment commitments for land in the industrial estates.  It may also be noted that a very large part of a data centre operator’s investment is not land cost: in the case of Global Switch, the premium for Site C was about $88m[75] (while SUNeVision paid $428m for its land in Tseung Kwan O), but Global Switch’s total investment when all five buildings are completed would come to some $6 billion.  All this does not, in my view, mean that data centres within the industrial estates can only operate under a retail model or that they would be competing unfairly if they operate on a different model (as SUNeVision alleges), for reasons already explained.

L.     Conclusion

213.  For the above reasons, the grounds raised for the application for judicial review are not made out and the application is accordingly dismissed.  There will be an order nisi that the Applicant do pay the costs of the Corporation and Global Switch, to be taxed if not agreed, with certificates for two counsel.