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

CACV 80/2020

[2022] HKCA 763

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 80 OF 2020

(ON APPEAL FROM HCAL 1890 OF 2018)

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J U D G M E N T

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Hon Au JA (giving the judgment of the court):

A.  INTRODUCTION

1.  The applicant, SUNeVision Holdings Ltd, is a company within a listed group that operates five data centres in Hong Kong.  It is a major player in the Hong Kong data-centre market.

2.  This is the applicant’s appeal against the judgment of G Lam J (as he then was)  (“the Judge”)  dated 26 March 2020 (“the Judgment”)  whereby the Judge dismissed its application for judicial review against the Hong Kong Science and Technology Parks Corporation (“the Corporation”). In the judicial review, the applicant seeks to challenge the Corporation’s decision made on 28 May 2018.  It is the applicant’s case that the decision amounts to the Corporation failing to take steps to enforce its own policy relating to the leases that it has granted to grantees to operate data centres at the Corporation’s industrial estate.

3.  The Judge has usefully and comprehensively set out the background leading to the challenges in the Judgment at [1] - [51], and we do not intend to repeat the same.  However, in order to properly understand the challenges made by the applicant in the judicial review and the issues raised in this appeal, it is still necessary to set out in some detail the following material background facts.

B.  BACKGROUND

4.  The Corporation is a statutory body that was set up in 2001 under the Hong Kong Science and Technology Parks Corporation Ordinance (Cap 565)  (“the Ordinance”)  to stimulate and promote local technology businesses.  It owns three industrial estates in Tai Po, Yuen Long, and Tseung Kwan O.  The lands on which these estates are situated are granted to the Corporation by the government for a nominal premium for the purpose of facilitating its mission 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 and broadening Hong Kong’s economic base and upgrading its technology levels.

5.  Under the Ordinance, the Corporation in discharging its functions has powers, among others, to sell, let, sublet or otherwise dispose of land or any facilities in any specified premises on such terms and conditions as its Board of Directors considers appropriate[1].

6.  In this respect, the Corporation leases land on its industrial estates (usually at preferential rates)  to firms to construct facilities and operate their technology related businesses at rates which are generally much lower than the market rates for land elsewhere in Hong Kong.  Applications for tenancies and grants on these estates are approved by the Corporation’s Business Development Admission Committee (“the BDAC”).

7.  It is common ground that, in relation to the leasing of land, the Corporation has a general policy against its grantee lessees parting with possession or permitting third parties to occupy premises within an industrial estate (“the Lease Restriction Policy”)[2].

8.  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”)  (“No Alienation Clause”)  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.” (emphasis added)

9.  Hence, under the Lease Restriction Policy, the grantee is not permitted to:

(1)  part with possession of the leased premises or any part thereof (“the Possession Restriction”); and / or

(2)  permit any other party to occupy the leased premises or any part thereof by way of licence or otherwise (“the Occupation Restriction”).

10.  The Possession Restriction and the Occupation Restriction are collectively referred to as “the Lease Restrictions”.

11.  As noted by the Judge at [21] of the Judgment, the rationale behind the Lease Restriction Policy is that land in the industrial estates, granted at a 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 used for rental gain[3].

12.  In about 2009, in furtherance of the government’s policy objective of promoting Hong Kong as a data centre hub in the region[4] and following a consultancy report completed in 2009[5], the Corporation considered inviting applications for leasing buildings in the Tseung Kwan O Industrial Estate (“TKOIE”)  to operate data centres.

13.  In very simple terms, a data centre is a building or dedicated space within a building used to house the data centre operator’s customers’ information and communication technologies (“ICT”)  equipment.  These typically are computer systems and associated components such as telecommunications, computing system and electronic data-storage systems in a secure and controlled environment.  In this respect, for the customers, it is critical to ensure that their IT operations (a)  are uninterrupted, and (b)  have information security.  Hence, data centres will provide essential services (“DC Services”)  to IT operations by providing them with an ultra-secure and fault-proof environment, equipped with redundant facilities including power, cooling, data connection, to protect against risks of power failure, fire, temperature fluctuations, as well as security risks such as damage, hacking or leakage of data, with round-the-clock real-time surveillance, monitoring and servicing, so that the highest standards in integrity and functionality of the ICT equipment hosted there can be attained[6].

14.  As also pointed out by the Judge at [10] of the Judgment, a data centre 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” of the data centre in question.  For example, according to the “Tiers Classification System”[7], the tier classification between Tier I to Tier IV is determined on the level of reliability of a data centre.  The higher the tier, the more reliable the data centre infrastructure is, and the more substantial the investments and resources required to maintain that high level of fault tolerance and round-the-clock connectivity.  In order to achieve the higher tier classification, a data centre operator has to invest very substantially not just on the plant and infrastructure, but also on manpower and technology upgrades.  As a matter of fact, all of the data centre tenants in TKOIE are at least Tier III if not Tier IV[8].

15.  There are also other ways of classifying data centres.  What we are concerned with in these proceedings is based on what is known as a “colocation” business model.  “Colocation” simply refers to data centres that, instead of providing equipment solely for self-use by the operator, make the services available to their customers.  Under this model, 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, which invariably include the DC Services and any other additional services that a data centre offers to its customers over and above the DC Services.  It is up to the customers to decide, according to their own needs, whether to subscribe to these additional services offered by the data centre (“Subscribed Services”), or to outsource them to other service-providers, or to do them in-house[9].

16.  For present purposes, in brief, colocation data centres may operate in different models depending on the level of services, extent of space, and the degree of exclusivity and control of that space that are to be provided to their customers:

(1)  At one end, the data centre operator may designate specific space within the centre for use by a customer, and grants certain 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 designated space.  This type of operation had been referred to by the applicant as the typical “wholesale colocation model”, which terminology is not agreed by the Corporation[10].

(2)  At the other end, different customers’ equipment is housed in the same shared space within the centre for use by a customer (occupying for example different racks or different parts of the racks installed in that 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-to-Presence, 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 managed service provider (“MSP”), the data centre operator requires unrestricted access to the customers’ ICT equipment. This has been referred to by the applicant as the typical “retail colocation model”.  Similarly, the Corporation does not agree with this terminology.

(3)  There are data centres which operate in a model in between these two ends depending on the customers’ requirements.

17.  Given the very nature of the colocation model of operation, before inviting applications for leasing buildings in TKOIE to operate data centres, the Corporation was aware of the concern that the grantees of the lease might be considered as being in breach of the Lease Restrictions.  This is so as colocation operation involves the accommodation of multiple users, and the occupancy of spaces on the premises by persons other than the grantee through placing their equipment within the data centre.  This might be considered as amounting to sub-letting or licensing of occupation of the data centre or part thereof.  As a result, it was once suggested by the Government to the Corporation that it might have to consider amending or relaxing its Lease Restriction Policy before inviting tenders from data centre operators[11].

18.  After seeking legal advice and having various discussions, at its meeting on 9 February 2010, the BDAC resolved that it did not need to relax or amend the Lease Restriction Policy and it would adopt the admission policy that applicants for operating data centres at the Corporation’s industrial estates (designated for that purpose)  must meet the following three criteria (together with the other normal admission criteria)  to be considered not in breach of the Lease Restriction Policy:

(1)  Exclusive possession shall be retained by the grantee (“the Exclusive Possession Criterion”).

(2)  The provision of managed services shall be the dominant element of arrangement between the grantee and its customers[12] (“the Dominant Services Criterion”).

(3)  Right of access of the premises shall remain within the exclusive control of the grantee at all times (“the Exclusive Control Criterion”).

19.  Further, the “approved use” for data centre in the lease shall be “to operate a data centre to provide collocation (sic) services as well as internet connectivity and other networking services, managed and outsourcing services on facilities, data centre management and system management” (“the Approved Use Requirement”).

20.  The above three criteria (“the Three Criteria”)  and the Approved Use Requirement as the “Data Centre Policy” has since been adopted by the Corporation as part of its admission criteria for evaluating applications by data centre operators for leasing premises in the Corporation’s industrial estate[13].

21.  The Corporation’s said adoption of the Data Centre Policy in considering applications for operating data centres at its industrial estates and the TKOIE is evidenced by and explained in various documents[14]:

(1)  The BDAC paper prepared by its management for the meeting on 9 February 2010 (“the Feb 2010 BDAC Paper”)  at paragraphs 22 - 23 and 38.

(2)  The Corporation’s CEO’s letter dated 2 June 2010 to a company which had previously responded in the expression of interest exercise.

(3)  The Corporation’s CEO’s letter dated 9 July 2010 and its attached one-page document headed “Supplemental Information for Policy and Practice Review” in reply to the applicant and certain other data centre operators’ concerns about what they perceived as the Corporation’s interference with the market by allowing other data centres to be operated within the industrial estates.

(4)  The Corporation’s invitation dated 1 June 2011 issued for tender for a lot with an existing building in TKOIE.

(5)  The Corporation’s letter dated 14 December 2011 in reply to the applicant’s subsidiary’s inquiry.

(6)  The Corporation’s invitation for application for Site C of the TKOIE issued in January 2012 to data centre companies.

22.  In early 2012, the Corporation decided to make available three contiguous vacant pieces of land[15] on the waterfront of TKOIE[16] for application for leasing them to operate as date centres.  As in the Judgment, for convenience, two of these pieces of land shall be referred to as “Section B” and “Section C” in this judgment.

23.  The Corporation issued an invitation for tenders to various potential tenderers including the applicant.  In the invitation for application for Site C, the Corporation reminded the potential tenderers of the restrictions in the Lease Restriction Policy and the Three Criteria under the Data Centre Policy:

“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.” (emphasis added)

24.  There were four conforming bids for Site C.  One bid was submitted by Wealth Up Development Ltd, the applicant’s subsidiary.  Another was submitted by Global Switch (“GS”).  The Corporation asked the tenderers several questions when considering the bids.  One of the questions, addressed to both the applicant and GS, 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.

25.  Further, it was the Corporation’s policy to request all grantees to submit a pro forma service agreement for approval.  This was to ensure that the terms on which a grantee engaged a customer would be consistent with the terms of the lease.

26.  On 25 May 2012, Site C was granted to GS.  On 9 November 2012, the Corporation approved a (revised)  pro forma services agreement that was submitted by GS (“GS Pro Forma Services Agreement”).  The GS Pro Forma Services Agreement was the standard services agreement that GS would adopt when contracting with its customers.

27.  On 13 November 2012 the Corporation and GS entered into the formal agreement for the lease for Site C.  The lease for Site C (“Site C Lease”)  was annexed to the formal agreement.  The Second Schedule for the Site C Lease contained various material terms.

28.  First, Clause B(14)(a)  sets out the permitted user:

“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.” (emphasis added)

29.  Clause B(14)(b)  further explicitly recognised the status of the GS Pro Forma Services Agreement:

“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). …” (emphasis added)

30.  There are other data centre operators who also became lessees on TKOIE, namely, HKCOLO.NET Ltd (“HKCOLO”)  and NTT Com Asia Ltd (“NTT”).  The applicant’s subsidiary was not however successful in its application.  It is the applicant’s position they had put in an application which was based on a retail colocation model but not wholesale colocation model (which would have involved a much more substantial proposed investment level)  as it was the applicant’s understanding that the Lease Restrictions under the policy would only permit the former operation model but not the latter[17].

31.  After having lost the bid for Site C, in 2013 the applicant acquired a piece of land in Tseung Kwan O to construct a data centre.  In January 2018 the applicant acquired another piece of land in Tsuen Wan for a similar purpose.  The applicant acquired all these lands at substantial cost.

32.  Since November 2012, the applicant frequently wrote to the Corporation complaining that various data centre grantees on TKOIE were violating the No Alienation Clause.  The gist of the complaints was that these grantees were operating the data centres on a “wholesale” model of colocation, which was in breach of the No Alienation Clause, and hence the Lease Restrictions.  This resulted in a chain of correspondence between the applicant and the Corporation.

33.  The applicant’s complaints were not only directed against GS.  They were also directed against some of the other data centre operators who were tenants on TKOIE, such as HKCOLO and NTT[18].

34.  On 16 November 2012, the applicant instructed its solicitors, Messrs Woo Kwan Lee and Lo (“WKLL”), to make an anonymous complaint to the Corporation that HKCOLO was violating the No Alienation Clause.  On 5 December 2012, Mayer Brown JSM (“JSM”)  replied on behalf of the Corporation that they were looking into the case already (“the 5 December 2012 Letter”).

35.  On 13 August 2013, WKLL complained that the breaches set out in the 16 November 2012 letter were continuing and further complained that HKCOLO was violating the No Alienation Clause by subletting to IBM.  On 21 August 2013, JSM asked WKLL to disclose the name of its clients.  WKLL refused.  On 27 December 2013, JSM said that the Corporation had always taken lease enforcement very seriously and would continue to actively monitor compliance (“the 27 December 2013 Letter”).

36.  On the other hand, in respect of the complaints relating to IBM, the Corporation did eventually take enforcement action and the breaches were rectified by July 2014.

37.  In 2018, the applicant again instructed WKLL to lodge a complaint with the Corporation.  This resulted in a comprehensive letter of complaint dated 6 April 2018 (“WKLL 2018 Letter”).

38.  The WKLL 2018 Letter alleged that there had been an apparent change of policy or a policy of condonation by the Corporation in relation to the Lease Restriction Policy.  WKLL listed six incidents as evidence of its complaint.  These incidents concerned, inter alia, HKCOLO, NTT, and GS.  In essence, the applicant complained that all these data centre operators operated on a “wholesale” colocation model, which effectively parted possession of their leased space to their customers or licensed their customers to occupy the space of premises.  These actions were not permitted under, and thus were in breach of, the Lease Restriction Policy.  The applicant therefore stated that the Corporation had either changed their relevant policy or had a policy of condoning such breaches.  It further demanded the Corporation to take enforcement actions.

39.  The Corporation’s solicitors, Messrs Wilkinson and Grist, replied to the complaint by a letter dated 28 May 2018 (“the 28 May 2018 Letter”).  In gist, the Corporation replied that it did not notice any breaches by the grantees as alleged by the applicant.  In this respect, it further emphasized that there was no change of any policy and there was also no policy of condonation.  It maintained that the Corporation had been regularly carrying out inspections of the operation of those centres and was of the view that there had not been any breaches of the relevant policies by the grantees. It reiterated that the Corporation would continue to carry out regular inspection and would take enforcement action if and when necessary.  The relevant parts of the 28 May 2018 Letter are as follows:

“No change in policy, and no policy of condonation

1. As your client is aware, our client has repeatedly stated in its previous correspondence to iAdvantage Limited, which is one of your client’s subsidiaries, dated 9 July 2010, 20 October 2010 and 14 December 2011 respectively (copies of which are attached)  that there has been no change in its policy in respect of the admission criteria and lease management for data centre operation. Our client maintains this position. There is no alleged ‘Change in Policy’ or ‘Policy of Condonation’. The following 3 tests continue to govern the admission and lease management of data centres:-

(i)  exclusive possession shall be retained by the grantees of the industrial estates (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.

The said policy was also repeated in our client’s reply to Dr. Elizabeth Quat dated 23 March 2017 (the ‘Reply’), which was referred to in paragraph 42 of Your Letter. The policy has been consistently implemented and enforced by our client.

The alleged breaches

2. In paragraphs 11 to 12 of Your Letter, you referred to Clause 11(a)  of Section B of the standard lease (the ‘Lease’)  entered into between our client and the Grantees which provides, inter alia, that the Grantees shall not assign, underlet or part with the possession of or otherwise dispose of any part of the land granted to them, or enter into any agreement to do so, nor to permit any other party by way of a licence or otherwise to occupy the said premises or any part thereof (the ‘Restriction’). Similar provision is also contained in Clause 8(a)  of Section B of the standard Agreement for Lease (the ‘Agreement’)  entered into between our client and the Grantees prior to granting of the Lease.

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 (‘TKOIE’)  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.

4. Moreover, a data centre operator may bundle its services with some telecommunication, network, cloud or other service providers to enhance the total package of offers to its customers. Following the same model as described in paragraph (3)  above, this would not be considered as a breach against parting from possession, subletting, licensing or sharing of occupation.

Enforcement

5. It is expressly denied that our client has adopted a policy of condonation against breach of the Restriction. In particular, our client has consistently enforced the restrictions against subletting, as well as the restriction against licensing and sharing of occupation. Nothing in the Reply contradicts this point, and the same (which was made in response to Dr. Quat’s enquiry on 23 March 2017 regarding alleged subletting)  should not be taken out of context.

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 hereabove, 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.” (emphasis added)

40.  Dissatisfied with this reply, on 10 September 2018, the applicant applied for leave to apply for judicial review.

41.  The judicial review seeks to challenge the Corporation’s decision (“the Decision”)  as contained in the 28 May 2018 Letter not to take immediate steps to rectify the failure or refusal to take reasonable steps to enforce restrictions in leases against subletting, parting with possession and / or sharing of occupation in TKOIE, the reasons therefor being provided in the letter[19].

42.  In the Amended Form 86, the applicant contended that the reasons provided in the 28 May 2018 Letter showed that insofar as the Lease Restrictions were concerned[20]:

(1)  The Corporation adopted a policy that it would regard it as sufficient that the data centre provided services to its customers, on the supposed basis of some “trade practice”;

(2)  The Corporation considered that there would not be a breach of the Possession Restriction or the Occupation Restriction so long as the grantee provided some services in addition to allowing customers to place their equipment in the data centre;

(3)  So long as the grantees allowed customers to place their equipment in the data centre to avail themselves of the services provided by the data centre operators, the Corporation would consider that there was no breach of the relevant Lease Restrictions;

(4)  In other words, the Corporation did not concern itself with the question of whether, as a matter of fact and law, the grantees had allowed its customers exclusive possession or had otherwise permitted them to occupy the premises in breach of the Lease Restrictions;

(5)  The Corporation would not consider it to be a breach of the Lease Restrictions where the grantee is not the MSP (managed service provider);

(6)  The Corporation considered that exclusive possession as retained as long as the data centre operator had retained the right to allocate different areas in the granted site for the installation of their customers’ servers or to relocate the same; and

(7)  The Corporation considered that all breaches were capable of remedy, and it was only when the grantee refused to take remedial action that the Corporation would take action.

43.  Premised on these contentions, the applicant advanced its grounds of judicial review as categorised by the Judge at [66] - [69] of the Judgment as follows[21].

44.  Ground 1: Breach of the applicant’s legitimate expectation that the Corporation would enforce the Lease Restrictions under the Lease Restriction Policy:

(1)  Ground 1(1): 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.

(2)  Ground 1(2): it is also said that in approving the GS Pro Forma Services Agreement (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.

45.  Ground 2: The Corporation made certain errors of law or misdirected itself in law in construing the Lease Restriction Policy:

(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)).

(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 GS Pro Forma Services Agreement (Ground 2(1)(a), (b), (c)).

(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)).

(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)).

46.  Ground 3: 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.

47.  Ground 4: Despite the applicant drawing attention to the specific alleged breaches by NTT, GS and HKCOLO, the Corporation, in breach of its Tameside duty, failed or refused to take reasonable or necessary steps to inquire into the facts and to take necessary actions.

48.  The applicant hence sought an Order of certiorari to quash the Decision, and an Order of Mandamus to direct the Corporation to reconsider the Decision in accordance with the law[22].

49.  In opposing the judicial review, other than contending that the applicant’s grounds of review are without merits, the Corporation further argued that the application should be dismissed for the applicant’s undue delay in taking out the application and / or that the court should refuse to exercise its discretion to grant the relief sought as that in effect would amount to directing the Corporation to come to a fresh decision that would have the effect of asking GS to impugn or repudiate the GS Pro Forma Services Agreement.

C.  THE JUDGMENT

50.  As mentioned above, by the detailed and comprehensive Judgment, the Judge rejected all the grounds of judicial review.  His detailed reasons for rejecting these grounds can be summarized as follows (unless otherwise stated, all the paragraph references below are references to the Judgment).

C1.  Ground 1 – breach of legitimate expectation and misconstruction of the relevant policy by the Corporation

51.  As the Judge observed, these complaints are premised on the applicant’s principal contentions as to what it says to be the proper meaning of the Lease Restriction Policy and that the Corporation has misconstrued the same.

52.  In relation to these contentions, the Judge first found that an examination of the services agreement, in the context that GS’s data centre (which like all other data centres admitted to TKOIE)  is of Tier III or higher, shows that the placement of the equipment in the customer space is not for the purpose of storage, but for the purpose of utilizing and receiving the services provided by GS (the data centre operator)  through the use of highly sophisticated electrical and mechanical infrastructure with round-the-clock security and monitoring.  See: [97].

53.  The Judge then further found that on a proper reading of the services agreement (which is the same form of the GS Pro Forma Services Agreement):

(1)  There is no exclusive possession by the relevant customer since:

(a)  the customer space is not fixed, which is an important indicator against exclusive possession being enjoyed by the customer: Dresden Estates Ltd v Collinson (1987)  55 P&CR 47, 53 and Brennan v Lambeth London Borough Council (1997)  30 HLR 481; Crancour Ltd v Da Silvaesa (1986)  18 HLR 265, 273.  See: [100].

(b)  GS controls access to the building, as clause 2.2(a)  reserves its right to admit or remove any employees and subcontractors of the customer for security reasons or where the customer has not requested a right of access.  The control seems also to cover access to and removal from the customer space which is part of the building.  See: [102].

(c)  The customer cannot assign the whole or any part of the customer space or any rights under the agreement.  See: [103].

(d)  GS has the right to enter the customer space at reasonable times and on reasonable notice under clause 2.2(b).  Although reasonable notice is required to be given, there is no right for the customer to refuse entry.  There is also evidence showing that in practice GS accessed the customer space of a customer regularly and without notice. Security is not necessarily indicative of excessive possession, and the enforcement actions taken against HKCOLO over the IBM incident show that the Corporation did not accept an arrangement in which the customer could refuse entry of the grantee to any area on the premises.  The customer under the agreement is also not entitled to live there or move his office there.  The customer’s status under the agreement is thus not even akin to a lodger.  See: [104] - [109].

(2)  The dominant purpose of the agreement is for the grantee to provide “managed services” which include the DC Services and the Subscribed Services.  Further, 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 (clauses 4.5 & 4.9).  The customer’s use of space is therefore referable to the provision of services.  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 his equipment is in good working order (clause 4.2)  and comply with GS’s technical standards and procedures (clauses 4.3 and 5).  All these underline the centrality of the element of services for the operation of the equipment.  See: [99].

54.  The Judge therefore also concluded that in approving the GS Pro Forma Services Agreement, there was no departure from or misapplication of the Data Centre Policy.  See: [112].

55.  The Judge did not allow the applicant to argue that the Corporation has departed from its policy as GS has allowed or permitted its customer to occupy the premises by licence or otherwise in breach of the No Alienation Clause and thus the Lease Restrictions.  The Judge was of the view that this complaint based on occupation was not properly pleaded in the Amended Form 86 and did not constitute part of the complaints under the various grounds of judicial review.  The Judge was of the view that this was an afterthought.  See: [119] - [126].

56.  However, in any event, the Judge went on to conclude that the Corporation did not misinterpret its own polices vis-à-vis the complaint that GS had allowed its customer to occupy the premises:

(1)  On reading the Feb 2010 BDAC Paper, the Corporation’s position is 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 [113] - [118] and [129].

(2)  It is the Corporation’s lease enforcement policy that the general Lease Restriction Policy has to be read subject to the specific Data Centre Policy as the admission criteria.  This is so as it would not make sense for the Corporation to grant a lease to a colocation data centre operator based on the Data Centre Policy, but then immediately to insist that it must cease its operation 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.  See: [129].

57.  The Judge therefore concluded that the applicant’s case that the Corporation has erred in treating the Data Centre Policy as sufficient for ensuring compliance with the Lease Restriction Policy is not established.  See: [131].

C2.  Ground 2 – errors of law

58.  The Judge dismissed Grounds 2(1) - (4)  for the following reasons.

59.  Under Ground 2(1), the applicant says 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”, since it adopted the words such as “considers” and “trade practice” etc in explaining its decision.  The Corporation also took into account irrelevant consideration in taking into account “trade practice”.

60.  The Judge rejected this complaint:

(1)  When read as a whole and in context, the use of the word “considers” does not show that that the Corporation has treated the question of exclusive possession as a matter of discretion or policy.  Rather, it was looking at it as a matter of fact and degree.  See: [139].

(2)  As to the references to “trade practice” and “industry custom”, they are only references to the trade 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 to the managed hosting model where the data centre provides the equipment itself or the warehousing of equipment.  See: [140].

61.  Under Ground 2(2)(a), the applicant contends 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.  The applicant says this is wrong as the material question should be the degree of control over the premises and their use retained by the grantee.

62.  The Judge accepted that if that was the case, it would be an error of law.  But he rejected the complaint as the 28 May 2018 Letter properly read did not suggest that that was the Corporation’s position, as it stated expressly that this depended on three factors “(i)  exclusive possession shall be retained by the grantees, (ii)  the provision of managed services shall be the dominant element of operation in the premises, and (iii)  rights of access to the premises shall remain within the exclusive control of the Grantees at all time…”.  He also noted that the dominant services required to be provided do not mean any services, but high-value services such as Facility Management, System Management and Network Management.  See: [144] - [146]

63.  Under Ground 2(2)(b), the applicant contends that the Corporation erred in law in considering that the Lease Restrictions would not be breached as long as the grantee as 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”.

64.  The Judge rejected this complaint as this was taking words from the letter out of context.  On any proper reading of the letter, it does not say that this alone would be treated by the Corporation as a sufficient condition for compliance.  It is only one of the factors that the Corporation is (properly and undisputedly)  entitled to take into account in considering whether exclusive possession has been granted by the grantee to the customer.  See: [147] - [148].

65.  Under Ground 2(2)(c), the applicant contends that the Corporation erred in law in considering that the Lease Restrictions would not be breached as long as the relationship between a grantee and its customers is governed by terms essentially in the form set out in the GS Pro Forma Services Agreement.

66.  The Judge rejected this ground on the basis that it would not be an error of law for the Corporation to take into account the pro forma services agreement and take the view that the Lease Restrictions would not be breached so long as the relationship between GS (or the other grantees, NTT and HKCOLO)  and its customer is governed by terms substantially in the form of the pro forma services agreement already approved.  This is so since it could not have been intended by the parties that an agreement conforming to that which had been expressly approved by the lessor would nevertheless be regarded as a breach of the lease.  See: [150] - [158].

67.  Under Ground 2(3): the applicant says the Corporation erred in law in assuming that the provision of colocation services in the data centre industry necessarily required the operator to part with possession of the premises.  This is wrong, as the typical retail colocation model would be compatible with the policy and not be in breach of the No Alienation Clause. The Judge accepted that such an assumption would be a misdirection but rejected the complaint as there was no such assumption made by the Corporation in the 28 May 2018 Letter or otherwise.  See: [160].

68.  Under Ground 2(4): the applicant says the Corporation in stating in the letter that it would only take action against breaches if the grantee refused to take remedial actions, erred in law in thinking that all breaches of the lease were capable of remedy as subletting would constitute fundamental breach incapable of remedy.  The Judge rejected this as:

(1)  There is nothing erroneous for the Corporation to reiterate in the 28 May 2018 Letter that it would follow the contractual procedures for particular enforcement actions.

(2)  In any event, it is inaccurate in law to say that a breach of the No Alienation Clause must necessarily be incapable of remedy.  It all depends on the nature and degree of the breach.  See: [163] - [164].

C3.  Ground 3 – 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

69.  The Judge rejected this ground:

(1)  The complaint is misconceived in being premised on the suggestion that this classification is determinative of the issue of possession and control, and that there are distinct types of retail and wholesale colocation model.  There are not.  First, the classification itself is not universal and subject to debate since the way the colocation services operate vary with a wide range of models and thus it is simply unhelpful and not correct to characterise the Policy as one that permits a typical retail model but not a typical wholesale model.  Second, the evidence (including the applicant’s own evidence)  shows that the operation models of colocation services involve a host of matters not all of which have any necessary correlation to the degree of control over the premises.  The classification itself is unclear and is neither necessary nor sufficient for determining the issue of possession.

(2)  Further, the complaint amounts to a backdoor attempt to challenge the approval of the pro forma services agreement in 2012.  As recognised by the applicant itself 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 arrangement rather than the label.

(3)  The applicant further complains 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.  The Judge rejected it as (a)  on the evidence, the Corporation did consider the terms of the pro forma services agreement of each intended data centre operator in vetting its application, and (b)  this amounted to an impermissible attack on the Corporation’s 2012 decision to approve the GS Pro Forma Services Agreement.

(4)  The applicant’s further complaint that the approval of the GS Pro Forma Services Agreement shows that the Corporation is prepared to sanction acts by its grantees that would result in breach of its policy or the lease is again an impermissible attack on the 2012 decision to approve the pro forma agreement.

See [175]-[177].

C4.  Ground 4 – failing to discharge its Tameside duty

70.  The Judge concluded that there was no breach of Tameside duty as the Corporation had taken reasonable steps to inquire into any potential breaches of policy or the lease as complained of:

(1)  The Corporation had examined the pro forma service agreement of each of the three grantees and was given to understand that they applied to all their customers.

(2)  The Corporation had also been carrying out regular inspections.  As a matter of fact, in May 2013, it discovered breach by HKCOLO in its arrangements with IBM, which had since been rectified to the Corporation’s satisfaction.

(3)  The Corporation also conducts investigations when it receives complaints of any alleged breach of lease terms.  In relation to the applicant’s complaints made through the WKLL 2018 Letter, the Corporation wrote to the grantees (24 May 2018)  asking them to clarify the situation with regard to the allegations made, which the grantees had responded to.  The Corporation then followed up with further physical inspection of the data centres of GS, NTT and HKCOLO in June, August and October 2018 respectively. It had also made clear in the 28 May 2018 Letter that it would continue with its enforcement exercises from time to time.

(4)  Based on these, it clearly cannot be said that the steps taken by the Corporation regarding enforcement can be said to be ones which are “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”.

See: [180] - [197].

C5.  Question of delay and exercise of discretion

71.  After refusing the judicial review on merits upon rejecting all the grounds of judicial review:

(1)  On the question of delay, although the Judge expressed the view that there had been much delay on the part of the applicant in relation to a considerable number of matters and allegations raised in its application, he did not find it necessary to consider the effect of delay in causing hardship or prejudice to see whether he would in any event refuse to grant the reliefs sought.  See: [198] - [201].

(2)  The Judge appears also to have decided obiter that he would have refused to exercise its discretion to grant reliefs even if the grounds of review had merits as, accepting GS’s submissions, that would cause serious prejudice to GS who had relied on the approval of the GS Pro Forma Services Agreement by the Corporation and invested significantly (to the extent of $6 billion)  to construct a data centre complex.  See: [202] - [211].

D.  THIS APPEAL

D1.  Grounds of appeal

72.  In its 26-page long Notice of Appeal, the applicant effectively challenges all the essential reasons of the Judge in rejecting the grounds of judicial review and, if necessary, his conclusion on the question of delay[23] and refusing to exercise the discretion to grant reliefs.

73.  However, as summarized by Mr Yu SC (leading Ms Sara Tong)  in their written submissions for the applicant, the main grounds of the appeal are these:

(1)  The Judge’s ruling on the proper interpretation of the Corporation’s policies is plainly flawed.  In particular, the Judge had (a)  impermissibly relied on the Corporation’s internal and unpublished statements in the Feb 2010 BDAC Paper (which are not accessible to the public); (b)  ignored the clear language of the Corporation’s policies; and (c)  failed to properly consider the evidence that there are different colocation models and erred in failing to appreciate the applicant’s case that the effect of the Lease Restriction Policy was to permit some colocation models but not others.

(2)  Had the Judge properly construed the Corporation’s policies, he ought to have found that (a)  the effect of the Corporation’s policies is to rule out typical wholesale models but not typical retail models; (b)  the Corporation had consistently failed to properly apply / enforce its own policies; (c)  the applicant’s legitimate expectations had been breached leading to substantive unfairness to the applicant.

(3)  There are no valid grounds for withholding relief from the applicant.  There was no delay, since the first indication as to how the Corporation had misinterpreted / misapplied its own policies only came to light in May 2018.  The lessees also had full knowledge of the terms of the Corporation’s policies when they accepted the grant of premises from the Corporation, and should therefore continue to abide by the Corporation’s policies after their proper interpretation had been determined by the court.  In the case of GS, it had further specifically promised to abide by the court’s ruling.

74.  At the hearing, Mr Yu has further made it clear that the principal focus of his arguments on appeal is that the Corporation had misconstrued its policies, as this forms the fundamental underlying basis of all the grounds of review.  He says that the Corporation’s interpretation of the policies, as shown by the 28 May 2018 Letter, had the effect of allowing customers of data centres to occupy (part of)  the data centre, which violated the No Alienation Clause and therefore contravened the Lease Restriction Policy.

75.  Mr Yu has further accepted and emphasized in his oral submissions that his complaints in this appeal are based principally on a breach of the Occupation Restriction.  His focus is not on the restriction against the parting of possession.

76.  In this respect, his primary complaints are that the Judge has erred in concluding that (a)  the contentions based on occupation had not been properly pleaded by the applicant, and (b)  in any event, there is no merit in them as the Lease Restriction Policy must be read subject to the Data Centre Policy, which inherently permits occupation by the customers of the grantee’s premises which have been designated as the customer’s space.

77.  Mr Yu further submits that the Corporation’s misconstruction of its policies is further evidenced and shown by its approval of the GS Pro Forma Services Agreement.  He submits that the GS Pro Forma Services Agreement in effect allowed customers to occupy the data centre in contravention of the Lease Restriction Policy.

78.  In light of Mr Yu’s above clarifications and indication as to the focus of his contentions, the following core issues arise in this appeal:

(1)  Whether the applicant has sufficiently pleaded its case based on the Occupation Restriction under the Lease Restriction Policy?

(2)  What is the proper construction of the Lease Restriction Policy and the Data Centre Policy, in particular in relation to the Occupation Restriction?

(3)  Whether the Corporation has misconstrued the policies as shown in the 28 May 2018 Letter?

(4)  If so, whether the applicant has successfully established Grounds 1 - 4?

(5)  Whether the reliefs sought by the applicant should be granted as a matter of discretion?

79.  We will look at these issues in turn.

D2.  Is the judicial review challenge based on a complaint of sharing of occupation sufficiently pleaded?

80.  This issue arises as follows.

81.  It is common ground that under the No Alienation Clause, the grantee is not permitted to “part with possession of the said premises” or “permit any other party by way of a licence or otherwise to occupy the said premises or any part thereof”.  As mentioned above, Mr Yu has confirmed that in this appeal, the applicant would focus on its complaint that the grantees in question have permitted their customers to “occupy” the customer space in the relevant data centres, and the Corporation has, in misconstruing the relevant policies, failed to enforce the Occupation Restriction.

82.  However, insofar as the complaint based on the Occupation Restriction is concerned, the Judge ruled that this point was not open to the applicant as this was not sufficiently pleaded.  Indeed, the Judge was of the view that the arguments based on the breach of the Occupation Restriction were an afterthought.  See: [126] of the Judgment.

83.  With great respect to the Judge, we are of the view that, as submitted by Mr Yu, the applicant has sufficiently pleaded in the Amended Form 86 a complaint also based on the Occupation Restriction.  In particular, we note the following specific pleas in the Amended Form 86:

(1)  The applicant has expressly pleaded the policy restriction relating to the Occupation Restriction:

“9. HKSTPC’s [the Corporation] published and promulgated policy in respect of the Industrial Estates was as follows:

(1)  HKSTPC prohibits the lessee, including lessees who are data centre operators, from:

i. parting with possession of the leased premises or any part thereof, whether by subletting or otherwise (the ‘Restrictions Against Parting with Possession’),

ii. permitting any third party, including its customers, to occupy the leased premises or any part thereof, whether by granting a licence or otherwise in any practical sense (the ‘Restrictions against Licensing and Sharing of Occupation’).

…”

(2)  It has specifically referred to the examples of breaches relating to the breach of the Occupation Restriction:

“31. Further, relying on the Legitimate Expectation, in 2013, the Applicant through a subsidiary acquired the Applicant’s TKO Land at the full market price of HK$428,000,000 and constructed thereon a high-end data centre complex to carry out its data centre business mainly based on the wholesale model of colocation, i.e., which can include subletting or licensing part of the premises to its customers, i.e. which may involve the Applicant parting with possession of part of the premises/may involve the Applicant not retaining exclusive possession of the same, and which may involve third parties occupying a part of the premises, such that, for example, the Applicant’s customers may set up an office at the premises or station their security guards at the premises.

…

A.7.1 NTT subletting or licensing to an International Enterprise

35. In about January 2018, NTT Com Asia Ltd. (‘NTT’), one of HKSTPC’s lessees in TKOIE, successfully bid for the ‘provision’ of data centre ‘service’ to a leading international cloud computing enterprise. It is apparent that the de facto substance of the bid is for subletting or licensing of a part of NTT’s leased premises to the enterprise for its exclusive use and occupation, or which at least involves NTT not retaining exclusive possession of the leased premises, and which involves the enterprise occupying a part of the premises. This is clear from the following open terms issued by or on behalf of the said international enterprise to all bidders:

(1)  The service provider [i.e. the successful bidder, NTT] be escorted at all time by the enterprise;

(2)  Apart from emergency cases, access is only authorized for scheduled maintenance which service provider [i.e. NTT] needs to give 48 hours prior notice to the enterprise which the enterprise can approve or reject 6 hours before the scheduled time;

(3)  The enterprise has right to install CCTV, mantraps etc in dedicated space;

(4)  The enterprise has right to have its own security personnel; and

(5)  The enterprise requires office space, storage room, library room and dedicated corridor.

…

A.7.2 Global Switch subletting or licensing to China Telecom Global

37. In around April 2017, Global Switch, another HKSTPC’s lessee in TKOIE secured China Telecom Global Limited (‘China Telecom’)  as an ‘anchor tenant’ for their facility in TKOIE through a service agreement with another third party data centre company in China, Daily-Tech Beijing Co., Ltd (‘Daily-Tech’)  whereby Daily-Tech would take up two of the five planned buildings in TKOIE in 2017 [DB 2/16]. The Applicant then found out that Global Switch already announced in mid-December 2016 in its web site that China Telecom and Daily-Tech have ‘partnered’ with Global Switch to launch its new data centre in TKOIE [DB 2/17]. Under this arrangement, Global Switch would provide the space and other ancillary services to Daily-Tech: Daily-Tech would design and build the infrastructure facilities at the designated space: and China Telecom would provide network facilities at the infrastructure built by Daily-Tech, and operate and manage such space for its customers. It is reasonably clear that Global Switch has allowed third parties to take up two buildings in TKOIE as ‘anchor tenant’ or to occupy the leased space or a part of the leased space as ‘partner’. The arrangement between Global Switch, China Telecom and Daily-Tech was or was highly likely to be in breach of the Restrictions Against Parting with Possession or the Restrictions Against Licensing and Sharing of Occupation, or both. However, HKSTPC has failed and continuously failed, despite requests, to take any action against such anticipatory breach/breach of Global Switch and/or to take reasonable and/or necessary steps to investigate such breach.

37C. Further, under the Agreement for Services (‘GS/DT Agreement for Services’)  entered into between Global Switch, Daily-Tech and Daily-Tech Hong Kong Co. Limited (‘Daily-Tech HK’), and the Services Agreement (‘GS/DT Services Agreement’)  entered into between Global switch and Daily-Tech HK both dated 22 January 2016 and/or as a matter of fact, Daily-Tech was given the right to the exclusive use and/or occupation of ‘Customer Space’ (comprising some 86,930 sq ft (8,076 sqm)  of what was referred to as ‘Technical Space’ and approximately 5,382 sq ft (500 sqm)  of ‘Ancillary Space’), which was used by Daily-Tech/ Daily-Tech HK and/or its business partner. China Telecom to serve end users, who are customers of China Telecom. The terms of the GS/DT Agreement for Services and the GS/DT Services Agreement offend the Lease Restrictions and are inconsistent with the Policy in that they:

(1)  permit Global Switch’s customers to have possession of or to occupy the ‘Customer Space’ (as defined therein);

(2)  do not allow Global Switch to retain absolute and exclusive controls access and possession of the ‘Customer Space’;

(3)  do not require Global Switch to provide managed services as the dominant element of its operation on the leased premises.

37D. According to Global Switch, on 9 November 2012, HKSTPC approved Global Switch’s pro-forma services agreement (‘GS Pro Forma Approved Services Agreement’), upon which the GS/DT Services Agreement is based. However, it is readily apparent that:

(1)  the terms of the GS Pro Forma Approved Services Agreement are significantly different from (i)  the GS/DT Agreement for Services: and (ii)  the GS/DT Services Agreement; and

(2)  the terms of the GS Pro Forma Approved Services Agreement itself offend the Lease Restrictions and are inconsistent with the Policy and the Lease Restrictions as they:

(i)  permit Global Switch’s customers to have possession of or to occupy the ‘Customer Space’ (as defined therein);

(ii)  do not allow Global Switch to retain absolute and exclusive control, access and possession of the ‘Customer Space’;

(iii)  do not require Global Switch to provide managed services as the dominant element of its operation on the leased premises.

…

A.7.3 HKCOLO subletting or licensing to IBM

…

39. With such a huge and substantial operation being carried on at the premises, and IBM’s specialist staff being stationed at and working at the premises, and with IBM setting up its own regional command centre at the premises and providing managed services directly to IBM’s own customers, it is reasonably clear that IBM would be ‘occupying’ the premises and would have possession of the premises which it leased from HKCOLO. The arrangement between HKCOLO and IBM was or was likely to be contrary to the Restrictions Against Parting with Possession or the Restrictions Against Licensing and Sharing of Occupation, or both. However, HKSTPC has, despite requests, failed and continuously failed to take any action against HKCOLO and/or to take reasonable and/or necessary steps to investigate such breach.

…

A.7.6. NTT subletting or licensing to another Financial Institution

…

45. By virtue of items (1)  and (2)  of the preceding paragraph, NTT would be allowing the financial institution to occupy part of the leased premises in TKOIE for storage and office space. By virtue of items (3)  to (5)  above, the financial institution would be in control of access within the designated space. In the circumstances, the arrangement between NTT and the financial institution was or was highly likely to be contrary to the Lease Restrictions. However, HKSTPC has, despite requests, failed and continuously failed to take any action against NTT and/or to take reasonable and/or necessary steps to investigate such breach.

…

47. Occurrences of suspected subletting or parting with possession, or licensing or sharing of occupation in the TKOIE have also been widely reported in the media and aroused public concern [DB 2/20, DB 2/21].” (emphasis added)

(3)  It has been specifically pleaded that the Corporation’s answer to the complaint (in particular in relation to the 28 May 2018 Letter)  has ignored the complaints about the breach relating to sharing of occupation:

“51. It would appear from the answer provided by Mr. Albert Wong, Chief Executive Officer of HKSTPC, to Dr. Quat, member of Legislative Council, on 23 March 2017 that HKSTPC seemed to have totally disregarded the Restrictions Against Licensing and Sharing of Occupation in adopting the so-called three tests for lease compliance.

…

57. The 28 May 2018 Letter stated, inter alia:

…

(2)  After affirming that the Lease Restrictions are stated in the tender invitations for land applications as well as the offer letter to the intended grantees to the Industrial Estates, and that the Policy was specifically drawn to the attention of prospective tenderers, HKSTPC stated (at §3):

‘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.’

(3)  At §4:

‘Moreover, a data centre operator may bundle its services with some telecommunication network, cloud or other service providers to enhance the total package of offers to its customers. Following the same model as described in paragraph (3)  above, this would not be considered as a breach against parting from possession, subletting, licensing or sharing of occupation.’

(4)  At §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.’

…

58. From the 28 May 2018 Letter it is evident that:

…

(4)  In other words, HKSTPC did not concern itself with the question of whether, as a matter of fact and law, the Grantees had allowed its customers exclusive possession or had otherwise permitted them to occupy the premises in breach of the Policy and the Lease Restrictions;” (emphasis added)

(4)  It has specifically pleaded the legal principles relating also to “occupation” at paragraphs 67 and 68.

(5)  In relation to the ground of breach of legitimate expectation, as Mr Yu submits, the legitimate expectation the applicant has pleaded relates to both limbs of the Lease Restrictions (see paragraph 31 of the Amended Form 86), and the Corporation’s failure to adhere to the published policy is also expressly pleaded to refer to the Occupation Restriction.

(6)  In relation to the ground of errors of law, the applicant has also pleaded that the Corporation erred in law in construing its policies in relation to the Occupation Restriction:

“77. Insofar as HKSTPC treated the question of whether, on a given set of facts, customers of the data centre operators were granted exclusive possession as a question of discretion or policy and/or on the basis of an alleged ‘trade practice’, it had materially misdirected itself. The question of whether (1)  exclusive possession had been granted or whether possession had been parted from, (2)  whether a lease or licence had been granted to the customers, and (3)  whether there had been a sharing of occupation with the customers, are clearly questions of fact and law.

…

79. HKSTPC had erred in law in considering that the Lease Restrictions would not be breached as long as services had been provided:

(1)  The material question is the degree of control over the premises and their use retained by the Grantee: see§ 62 above, not whether the data centre operator had offered any ‘data centre service’, a term apparently used by HKSTPC to mean any service offered by the data centre operator in addition to the provision of space, such as the provision of cooling.

(2)  Where the service agreements specifically restrict the Grantee’s right to access the premises or contain a clause limiting the Grantee’s rights to enter the property, such as those in the agreements between the data centre operators and their customers referred to in A.7.1, A.7.4, A.7.5 and A.7.6 above, this is clear evidence that exclusive possession had been granted to the customer: see §66 above.

(3)  Where the service being offered by the Grantee to the customers at the premises do not require the Grantee to have unrestricted access to the premises, the provision of such service would not indicate that exclusive possession had not been granted to the customer: see §65 above.

(4)  Where the customer of the Grantee is using the premises as its office, there would be a breach of the Restriction Against Licensing and Sharing of Occupation: Tulapam Properties Ltd v De Almeida, supra [AB 1/12].

…

80A. HKSTPC erred in law in considering that the Lease Restrictions and the Policy are not breached if the relationship between a grantee and its customer is governed by terms substantially in the form set out in the GS Pro Forma Approved Services Agreement, for the reasons set out in paragraph 37D above.

…

83. The typical retail colocation model (as described in Section A.4 above)  is, however, compatible with the Policy and would not be in breach of the Lease Restrictions:

(1)  Data centre operators operating under a typical retail colocation model and which are MSPs would have unrestricted access to and use of the customer’s servers and equipment to provide technical support and operation: see §§22, 25 and 26 above. The degree of control over the premises is high.

(2)  Where a premises is shared, there would typically be no exclusive possession by any one sharer unless the sharers can be treated as collectively entitled to exclusive possession under a joint tenancy. However, to construct a grant of a single joint tenancy, the four unities of time, title, possession and interest need to be present. Where the sharers are not self-selected, and enter into different agreements at different times and for different terms, the sharers would not normally be treated as having exclusive possession, as the four unities would not be present: see AG Securities v Vaughan [1990] 1 AC 417, HL at 472B-C, 474D-G [AB 2/19]; Woodfall 一Landlord and Tenant, supra, §1.023.3 [AB 1/1].

(3)  Where the customer’s servers and equipment are placed in the premises to enable the data centre operator to carry out its business of the provision of managed services, and the data centre operator remains exclusively responsible for the premises, there is likely to be no sharing of occupation with the customer.

…

90. HKSTPC failed to take into consideration the terms and conditions by which the Grantees let the premises to their customers and in particular those terms and conditions which conferred right to possession and/or right of occupation on the customers, as well as the fact that the Grantees had allowed their customers possession or occupation of the premises.

90A. In any event, it is apparent from:

(1)  HKSTPC’s approval of the GS Pro Forma Approved Services Agreement (the terms of which are inconsistent with the Lease Restrictions and the Policy for the reasons set out in paragraph 37D above)

that HKSTPC is prepared to sanction acts by its grantees that would result in the breach of the Policy and the Lease Restrictions.” (emphasis added)

84.  When all these specific pleas are read together, we find that the applicant has sufficiently pleaded its case relying also on the Occupation Restriction in support of its grounds of judicial review.

85.  We therefore disagree with the Judge and consider that this contention is open to the applicant to rely on in its judicial review.  Thus, the applicant is entitled to rely on this in support of this appeal.

86.  This takes us to the next issue.

D3.  The proper construction of the Lease Restriction Policy and the Data Centre Policy

87.  As both Mr Yu and Ms Sit agree, the question of the proper construction of the Lease Restriction Policy is the core issue that underlies the judicial review application and the appeal.  In particular, given Mr Yu’s clarification on the focus of his submissions in this appeal, it is the proper construction of the meaning of the Occupation Restriction that features most importantly.

88.  In this respect, Mr Yu submits that the Judge has not arrived at a conclusion on the proper construction of the meaning of the Lease Restrictions in the context of data centres. Instead, the Judge effectively concluded that the Corporation has a policy of enforcement that the Lease Restriction Policy would be read subject to the Data Centre Policy, and thus so long as a grantee has met the requirements under the Data Centre Policy, it would be taken to have also complied with the Lease Restriction Policy.  The Judge has explained this at [129] of the Judgment as follows:

“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 to a 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.” (emphasis added)

89.  Seizing on this part of the Judgment, Mr Yu has also submitted at the hearing that the Judge committed a fundamental and overarching error in concluding that there is a “policy of enforcement” that once the criteria in the Data Centre Policy have been met, the Corporation would also treat the Lease Restriction Policy as having been complied with.  Mr Yu says this is plainly wrong as (a)  it is clear from the Feb 2010 BDAC Paper that the Data Centre Policy is about admission criteria and thus has nothing to do with enforcement, and (b)  none of the parties, including the Corporation, in these proceedings had ever sought to argue that there is a separate policy on enforcement.  Mr Yu therefore submits that, on this basis alone, the appeal should be allowed.  In any event, Mr Yu also submits that it was not open to the Judge to rely on the Feb 2010 BDAC Paper to construe the published policy as that paper was an internal document and not published to the public.

90.  In our view, this “fundamental error” argument would not take Mr Yu’s appeal much further without considering the proper construction of the meaning of the Occupation Restriction.  This is so as the Judge’s reference to a “policy of enforcement” would not have much effect on the outcome of the application if, on a proper construction of the Lease Restrictions in the Lease Restriction Policy in the context of data centres, they bear the same meaning as the Three Criteria and the Approved Use Requirement.

91.  On this basis, we would turn to consider the question of the proper construction of the Lease Restriction Policy, in particular the meaning of the Occupation Restriction.

92.  Before we consider the contentions raised by the parties in this issue, it is important to set out what is not in dispute for this purpose.

93.  First, it is common ground that the construction of policy is a question of law for the court, which is to construe the subject policy objectively and in its proper context.

94.  Second, the meaning and the scope of the restrictions in the relevant policy may change depending on the context, though one cannot construe one part of the policy out of existence because of a different context.

95.  Third, the Lease Restriction Policy and the Data Centre Policy are not inconsistent with each other and the Lease Restriction Policy is also not subsumed into the Data Centre Policy.  A grantee data centre operator must comply with both the Lease Restrictions under the Lease Restriction Policy and the Data Centre Policy.

96.  As mentioned above, the focus now in this appeal is about the meaning of the restriction against sharing or licensing occupation in the Lease Restriction Policy.  We will therefore focus on this below.

97.  In this respect, we do note that Mr Yu’s primary contentions are however that it is unnecessary for him or the court to come to a firm view on the meaning of the Occupation Restriction. This is so as the central plank of the judicial review grounds is that the Corporation had clearly misconstrued its own policy since it had purportedly decided that there could not be any breach of this restriction simply on the basis that (a)  it is a trade practice in a colocation operation of data centres that the customers’ equipment has to be placed in the space provided in the premises by the grantee, and (b)  the placing of the equipment is for the purpose of receiving services provided by the data centre operator.  This cannot be correct, says Mr Yu, as whether there is indeed a breach of a restriction under the relevant policy is a mixed question of fact and law, and must be something which is dependent on the factual circumstances and the degree and extent of the matters.  That cannot possibly be determined by simply looking at the trade practice and saying that (solely by reference to the terms of the relevant pro forma service agreement)  the customer is placing the equipment in the designated space for the purpose of receiving the services to be provided by the grantee.

98.  Further, Mr Yu also submits that the Corporation had similarly plainly misconstrued the Lease Restriction Policy by reference only to the compliance with the Data Centre Policy as a satisfactory compliance with the Lease Restriction Policy as well, since it is clear that the Data Centre Policy has made no reference to the restriction against sharing of occupation.  In the premises, in the 28 May 2018 Letter, in misconstruing the Lease Restriction Policy, the Corporation has plainly failed to address the question of the Occupation Restriction and whether on the facts of the complaints, the grantees were in breach of that restriction.

99.  However, when pressed by the court on what he submits to be the meaning of “occupation” the sharing of which is intended to be prohibited under the Lease Restriction Policy, Mr Yu submits that the word “occupation” in the restriction, when construed in the context of data centres, does not refer to the mere fact that the customer’s equipment is placed in (and thus “occupying”)  part of the premises, but refers to the position where the customer would have primary control of access to the designated area where it puts the equipment, and the data centre operator has only a limited access to it.  However, whether as a matter of fact there is a breach would depend on the actual circumstances relating to matters such as the size of the designated space the customer has, the degree and extent of the primary control of access to that space that has been granted to the customer, and the extent and degree of the limit of access that the grantee has retained.  These, Mr Yu submits, are however not a question of construction.

100.  At the same time, Ms Sit SC (leading Ms Esther Mak)  for the Corporation also submits that the word “occupation” in the Lease Restriction Policy in the context of data centres cannot be intended to mean the mere placing of equipment by the customer in the relevant space of the premises. She also submits that it cannot be intended to include the kind of data centre operation that would meet all the criteria set out in the Data Centre Policy. This is so as:

(1)  The Lease Restriction Policy should be construed in the context of the Data Centre Policy, and in particular that the Data Centre Policy is a specific policy while the Lease Restriction Policy is intended to be a general policy.  Hence, the general policy must be read subject to the specific policy as observed by the Judge at [129].

(2)  The Data Centre Policy is formed with the Corporation’s specific intention to focus on the high end data centre market, an operation which is exactly such as GS and the grantees now operate.

101.  In other words, Ms Sit effectively submits that the Occupation Restriction under the Lease Restriction Policy, construed in the context of Data Centre Policy, cannot objectively be intended to cover the kind of operation where the data centre operation model has met all the criteria under the Data Centre Policy.

102.  In our view, the construction of the Lease Restriction Policy should take place in the following proper contexts:

(1)  The statutory purpose of the Corporation, which is to grant leases of the lands provided to it at a nominal premium for the purpose of facilitating its mission 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.

(2)  The data centres must only be operated for the “approved use” as stipulated in the lease to “provide collocation (sic) services”[24].

(3)  The said operation of data centres will necessarily involve the placing of the customer’s equipment in the grantee’s premises.

(4)  There are various business models and ways of operating data centres[25].

(5)  The Corporation was of the view that with the adoption of the Data Centre Policy, there was no need to amend the Lease Restriction Policy to allow the estates to be leased to the grantees for operating data centres[26], emphasizing that they must satisfy the Exclusive Possession Criterion, the Dominant Services Criterion and the Exclusive Control Criterion.

(6)  The data centre operator as a grantee of the lease has to satisfy both the Lease Restriction Policy and the Data Centre Policy.  The Corporation has also made it clear to the public that it will enforce both the Lease Restriction Policy and Data Centre Policy in relation to leases granted for the purpose of operating data centres[27].

103.  Once construed in these contexts, objectively, it is plain that the Possession Restriction and Occupation Restriction imposed respectively against parting of possession and licensing or sharing of occupation serve the purpose of ensuring that the grantee operates at the premises a data centre satisfying the Approved Use Requirement as provided for in the lease, by prohibiting any operation in a manner which renders its exclusive possession, occupation or control of the premises non-exclusive; or its managed services as the dominant element of arrangement with its customers subservient.

104.  In the premises, to achieve these purposes, the Possession Restriction and the Occupation Restriction should be construed in such a way as to prohibit a grantee from running or operating a business in the Corporation’s property that amounts to in substance subleasing or subletting and a business that would not foster and facilitate the growth of local technology through intensive research and development activities.

105.  In this respect, the primary or principal purpose of the customer’s occupation of the grantee’s space is relevant to determining whether that amounts to “occupation” that is intended to be prohibited under Lease Restriction Policy.  As Mr Yu himself also submits, if a shop is leased to a tenant to carry out a computer repair business, with a restriction of sharing occupation in the lease, the fact that tenant’s customers have to place their computers in the shop for the purpose of being repaired would not amount to a breach of the Occupation Restriction.  In other words, if the “occupation” by the customer’s equipment or belongings of the space or place is for a purpose consistent with the carrying out of the business for which the place is leased to the tenant in the first place, this could not be intended to be restricted or prohibited under the Occupation Restriction in the lease.  This must be correct, as otherwise, the restriction would have defeated the intended or permitted user of the rented premises.

106.  Thus, when the word “occupation” in the Occupation Restriction is read together with the Approved Use Requirement in the Data Centre Policy, it is intended to prohibit a data centre operator grantee from permitting its customer to use the designated space primarily not for the purposes approved by the Corporation as set out in the relevant lease.

107.  Further, as submitted by the applicant, although possession is not the same as occupation in law, sometimes, the distinction between the two is technical and elusive: Akici v LR Butlin Ltd [2005] EWCA Civ 1296 at [23].  On the other hand, they are clearly two different concepts.  As commented by the learned author in Gray & Gray, Elements of Land Law (5^th ed)  at paragraph 4.1.63:

“It is this element of overall control that distinguishes the exclusive possession which characterizes a true tenancy from the exclusiveness of occupation which is frequently the attribute of a mere licence. ‘Exclusive occupation’ is not synonymous with ‘exclusive possession’. As elsewhere in English land law, the notion of possession extends far beyond a mere physical occupancy of land to incorporate some kind of conscious will to control that occupancy and to defend it against all comers. It is often the case that persons who are allowed to enjoy sole occupation in fact are not necessarily to be taken as having been given in law a right of ‘possession’ - let alone a right of ‘exclusive possession’. Many contractual licensees and lodgers (eg students in university halls of residence, residents in a hotel, and persons living in an old people’s home)  undoubtedly enjoy sole occupation in this sense, but equally clearly have no tenancy. In such instances factual enjoyment of sole occupation falls significantly short of any conferment of ‘exclusive possession’.”

108.  Moreover, the courts have frequently emphasized that the word “occupation” is not a legal term of art and does not have a single meaning. Its meaning depends on context and purpose: PCCW-HKT Telephone Ltd v Link Properties Ltd [2019] HKCA 82 at [33]. 

109.  On the other hand, despite this, the word “occupation” still has a core natural meaning.  In Graysm Holdings Ltd v P&O Property Holdings Ltd [1996] AC 329, Lord Nicholls remarked at 335F - 336C as follows:

“A further element is introduced into the problem when the business of one person consists of permitting others to use his property for their business purposes, so that in the result both exercise rights over the same property for the purposes of their own separate businesses. In some circumstances the landowner will remain in occupation of the whole even though his business consists of permitting others to come onto the property and use it temporarily for their business purposes. Instances are an hotel company which provides rooms and facilities once a month for an antiques fair, or a farmer who permits his fields to be used periodically for a car boot sale. At the other extreme are cases where the landowner permits another to enter and carry on his business there to the exclusion of the landowner. An instance would be a person who carries on a business of letting office accommodation. He acquires a lease of property, which he sublets. Under the sublease he has the usual right as landlord to enter the sublet property for various purposes, and he derives financial profit from the property in the form of rent, but plainly he would not occupy the property.

To look for a clear line between these instances would be to seek the non-existent. The difference between the two extremes is a difference of degree, not of kind. When a landowner permits another to use his property for business purposes, the question whether the landowner is sufficiently excluded, and the other is sufficiently present, for the latter to be regarded as the occupier in place of the former is a question of degree. It is, moreover, a question of fact in the sense that the answer depends upon the facts of the particular case. The circumstances of two cases are never identical, and seldom close enough to make comparisons of much value. The types of property, and the possible uses of property, vary so widely that there can be no hard and fast rules. The degree of presence and exclusion required to constitute occupation, and the acts needed to evince presence and exclusion, must always depend upon the nature of the premises, the use to which they are being put, and the rights enjoyed or exercised by the persons in question.”

110.  Hence, the word “occupation” connotes a degree of presence over the relevant space, and the “occupier’s” power to exclude other persons from that space.  The degree of presence and exclusion that would amount to “occupation”, however, depends on the facts of each individual case and on matters such as “the nature of the premises, the use to which they are being put, and the rights enjoyed or exercised by the persons in question”.

111.  In the premises, one of the essential elements in determining whether there is “occupation” is the degree of the power of the purported occupier to exclude others, including the person granting the occupier’s right to use that place or space, from that place or space[28].

112.  In this respect, when the word “occupation” is read in the context of and consistently with the Exclusive Control Criterion under the Data Centre Policy, the Occupation Restriction would mean that a data centre grantee operator must not permit the customer to have such primary control of access to the designated space as would result in the grantee not having exclusive control of access to the customer space[29].

113.  Hence, taking the above computer repair shop as an example again, there may well be a question of whether the tenant is in breach of the prohibition against occupation under the lease say if he does not only allow the customer to place its computer in his shop for the purpose of repair, but also designates a specific area in the shop for a particular customer to place its computer and agrees that he can only access that designed area with the permission of that customer and / or upon giving reasonable notice to the customer.

114.  When considered in the light of all of the above, and given the mode of operation of a data centre which almost invariably involves the customer placing its equipment in the grantee’s premises, we are of the view that meaning of the Occupation Restriction in the Lease Restriction Policy construed in the context of the Data Centre Policy refers to the occupation by the customer of the grantee’s space or premises which is not for the primary purpose of receiving the relevant data centre services provided by the grantee and / or where the customer’s control of access to the space or place designated for the customer would render the grantee not having exclusive control of access.

D4.  Whether the Corporation has misconstrued the policies as shown in the 28 May 2018 Letter

115.  The applicant’s primary complaint about the Corporation’s misconstruction of the Lease Restriction Policy, even viewed in the context of data centres, is in relation to the following parts of the reply at paragraphs 3 and 4 of the 28 May 2018 Letter:

“3. … 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.

4. Moreover, a data centre operator may bundle its services with some telecommunication, network, cloud or other service providers to enhance the total package of offers to its customers. Following the same model as described in paragraph (3)  above, this would not be considered as a breach against parting from possession, subletting, licensing or sharing of occupation.” (emphasis added)

116.  Objectively read, what the Corporation was stating in these paragraphs is that under the Lease Restriction Policy, properly understood in the context where the premises have been granted to the grantee to operate a data centre, the Occupation Restriction (and Possession Restriction)  do not prohibit the placing of the equipment by the grantee’s customer in the premises for the dominant purpose of receiving the data centre services provided by the grantee.

117.  Given our above conclusion on the meaning of the Occupation Restriction in the Lease Restriction Policy understood in the context of Data Centre Policy, the problem with the Corporation’s above interpretation is that it has not taken into account the element of whether the grantee has exclusive control of access to the place within the premises which is designated for the customer’s use.

118.  This may raise a further problem as to whether, for example, the fact that it is provided in the GS Pro Forma Services Agreement that GS has the right to access to the customer space by giving reasonable notice and only for the stated purposes only amounts to rendering GS not having exclusive control of access and thus infringes the Occupation Restriction.

119.  GS’s right of access to the customer space is provided at clause 2.2(b)  of the GR Pro Forma Services Agreement as follows:

“2.2 Global Switch reserves the right:

(a)  …

(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

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

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

120.  Ms Sit submits that the stated purposes for access in the clause effectively cover all aspects of GS’s operations as a data centre operator, and thus it is almost without restriction.  On the other hand, Mr Yu contends that the contractual restrictions requiring giving reasonable notice and on the purposes of access show plainly that GS’s right of access to the customer space is circumscribed, leaving the customer effectively with control over the access to the space.  This is particularly so if the designated customer space is, as in the case of GS, of enormous size.

121.  The Judge has in fact dealt with the effect of this clause at [103] - [109] of the Judgment and concluded that these restrictions to GS’s right of access to the customer space did not result in GS granting exclusive possession of the customer space to the customer.  His reasons are as follows:

“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.” (emphasis added)

122.  Without determining whether the Judge’s analysis is a correct one, it must however be noted that that was made (a)  in the context of the Possession Restriction and whether “exclusive possession” had been granted by GS to its customer after considering the limitations provided in clause 2.2(b)  and (b)  on the basis of the fact that GS had indeed been allowed access by some of its customers in the absence of reasonable notice.  The conclusion may well be different when considered in the context of “occupation”[30].

123.  But in any event, in our view, it is unnecessary and inappropriate for this court to deal with this question for the purpose of the appeal.  This is so as, as explained above, in making the Decision and in considering whether the Lease Restrictions had been breached as alleged, the Corporation did not in fact consider the question of the grantee’s control of access to the customer space because of its misconstruction of what would amount to compliance with the policy.  This therefore did not form part of the reasons for the Decision.

124.  Further, as also explained above, and indeed reflected in the Judge’s reasons as quoted above, whether or not GS’s control of access to the customer space is so limited as to render it not having exclusive control of access to it (and thus amounting to a breach of the Occupation Restriction)  is very much a question of degree and extent depending on the actual facts and circumstances of the case.  As noted by the Judge at [106] and [107] of the Judgment, the actual circumstances as to whether GS in fact had free access to the particular customer space may well also be different from what is provided in the clause[31].

125.  In the premises, the court should not venture into this issue in a vacuum without knowing what the Corporation’s evaluation and position on this is.

D5.  Are the grounds of judicial review established

D5.1  Ground 1: Is the applicant’s legitimate expectation breached by the Decision

126.  The Corporation has not disputed that the applicant has a legitimate expectation that grantees who are data centre operators in the relevant industrial estates are prohibited by the Corporation to sublet or part with possession of the leased premises, or to license or allow third parties to occupy any part of the premises, as these are restrictions expressly stated in the Corporation’s published policy[32].

127.  In the premises, we agree with the applicant that once the Decision made was based on a wrong construction of the Lease Restriction Policy on the meaning of the Occupation Restriction in the context of data centres as explained above, it was made in breach of the applicant’s legitimate expectation, as the Corporation would not be properly enforcing its policy in relation to this restriction.

128.  The applicant should therefore succeed on Ground 1(1).

129.  The applicant has also complained that by approving the GS Pro Forma Services Agreement, the Corporation has similarly breached the applicant’s legitimate expectation since “the terms of the GS Pro Forma Services Agreement itself offend” the Lease Restrictions as they “permit Global Switch’s customers to have possession of or to occupy” the customer space, “do not allow Global Switch to retain absolute and exclusive control, access and possession” of the customer space, and “do not require Global Switch to provide managed services as the dominant element of its operation on the leased premises”[33].

130.  Mr Yu at the hearing has confirmed that the applicant is not seeking to challenge the approval of the GS Pro Forma Services Agreement in this judicial review, since (as rightly held by the Judge)  it is simply too late for it to do so.  Counsel has made it clear that this is relied on as an additional or alternative piece of evidence or facet to show that the Corporation has misconstrued the Lease Restriction Policy.  He emphasises that he does not need to rely on this complaint if the court accepts his primary contention that in making the Decision for the reasons set out in the 28 May 2018 Letter, the Corporation had misconstrued the Lease Restriction Policy.

131.  On that basis, and for the reasons we set out at [123] - [124] above, we agree with the Judge that the applicant has not established Ground 1(2).

D5.2  Ground 2: Did the Corporation commit errors of law in construing the Lease Restriction Policy

132.  As explained by the Judge, under Ground 2 of the judicial review, the applicant contends that the Corporation in making the Decision has committed the following errors of law or has misdirected itself in law:

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

(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 GS Pro Forma Services Agreement (Grounds 2(2)(a), (b), (c)).

(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 or share occupation (Ground 2(3)).

(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)).

133.  The Judge rejected Ground 2(1)  for the reasons at [137] - [141] as follows:

“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 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 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.

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, 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.” (emphasis added)

134.  We agree with these reasons.  It is clear from a proper reading of the letter that the Corporation did not make the Decision on the basis that it treated it as a matter of discretion or purely based on the stated “trade practice”.

135.  Insofar as Grounds 2(1)(a) - (b)  and (3)  are concerned, for the reasons we have explained above as to why the Corporation had misconstrued the Lease Restriction Policy in making the Decision, we agree that the Corporation has committed those errors of law in treating the grantee data centre operator as having complied with the Lease Restrictions without considering the question of the grantee’s control of access to the customer space.

136.  The Judge’s rejection of these grounds was based on his reading of the restrictions under Lease Restriction Policy being subject to the Data Centre Policy as explained at [129] of the Judgment without, with respect, considering the Corporation’s failure to consider the question of control of access.  In the premises and for the above reasons, we find that the Judge has erred in this respect.

137.  Ground 2(1)(c)  relates to an alleged error of law insofar as the Corporation relied on the approval of the GS Pro Forma Services Agreement as a basis for making the Decision.  The complaint under this ground is the same as what the applicant has set out at paragraph 37D of the Amended Form 86[34].  For the same reasons we have explained at [129] - [130] above, the applicant has failed to establish this ground, and we would uphold the Judge’s rejection of the same.

138.  As to Ground 2(4), the Judge rejected this ground for the reasons given at [161] - [164] of the Judgment as follows:

“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.”

139.  We agree entirely with the Judge’s reasons.  We do not think Mr Yu seriously challenges this part of the Judgment in this appeal.  We therefore would uphold the Judge’s dismissal of Ground 2(4).

D5.3 Ground 3: Did the Corporation fail to take into account relevant considerations when making the Decision

140.  Again, as summarized by the Judge, the applicant complains under Ground 3 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 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.

141.  Insofar as the applicant relies on what it describes as the distinction between a “retail colocation” and “wholesale colocation” business models in support of this ground, we do not think it is correct.  We think Mr Yu also accepted at the hearing that, as the evidence shows, there is no universally accepted classification of the so-called “retail” and “wholesale” colocation models.  All that the evidence shows is that colocation data centres may operate in different ways depending on the level of services, extent of space, and the degree of exclusivity and control of that space that are to be provided to their customers.  See [15] above.  Whether a grantee is in breach of the Lease Restrictions is thus a question to be determined on the factual circumstances of the operation by looking at the various factors we have explained above.  This is also the position advanced by Mr Yu.  See [97] above.  Indeed, we do not think Mr Yu in his oral submissions insists on contending that there is such a clear distinction between the wholesale and retail colocation models.

142.  Once this is understood, it seems to us that the applicant is incorrect to submit that the Corporation has misconstrued the policy in effectively not recognising that the Lease Restrictions would not permit a “wholesale colocation” model but only “retail colocation” model.  We will therefore also uphold the Judge’s dismissal of this ground.

D5.4  Ground 4: Breach of Tameside duty

143.  It is trite that the decision-maker has a Tameside duty to take reasonable steps to acquaint itself with the relevant information to enable it properly to perform the function in question.  It is however for the decision-maker, not the court, to decide upon the manner, extent and intensity of the inquiry, though its position could be challenged if it is Wednesbury unreasonable[35].

144.  Given our above conclusion that the Corporation in making the Decision had misconstrued the policy in failing to take into account the element of the grantee’s extent and degree of control of access to the relevant customer space, it is clear to us that the Corporation had also breached its Tameside duty, as it had failed to ask the relevant questions concerning access and control in performing its duty to enforce the relevant policy in response to the applicant’s complaints that there were data centre operator grantees who were in breach of the Possession and / or Occupation Restrictions.

145.  The applicant therefore should also succeed under Ground 4.

D6.  Delay and relief

146.  The relief sought by the applicant is an order to quash the Decision on the basis of the correct interpretation of the Corporation’s policies, and an order to direct the Corporation to reconsider its decision not to take enforcement action against its grantees.

147.  Ms Sit submits that even if the applicant succeeds on the merits, the reliefs should be denied because (a)  there was substantial delay by the applicant in bringing these proceedings, and (ii)  the relief sought by the applicant would in effect impugn the approval of the GS Pro Forma Services Agreement, prejudicing GS’s position.

148.  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 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.

149.  For the present purpose, it is not sufficient for the Corporation to simply establish that there was delay.  It has to show that granting the reliefs despite the delay would cause hardship or prejudice to third parties, notably GS and other data centre grantees.

D6.1  Delay

150.  The Judge considered that there was considerable delay in the applicant commencing these judicial review proceedings.  He examined the applicant’s correspondence with, inter alia, the Corporation, and considered that there was delay in relation to a considerable number of matters and allegations.  The Judge’s reasoning on delay is set out in [198] - [199] of the Judgment.

151.  Before this court, Ms Sit submits that the Judge was correct in finding delay.  She refers to two letters by JSM issued on behalf of the Corporation in 2012 and 2013.  She submits that, in light of these letters, the applicant ought to have commenced judicial review proceedings at that time.

152.  The first letter is the 5 December 2012 Letter by JSM on behalf of the Corporation.  It was written in reply to an anonymous complaint by the applicant (through WKLL)  that HKCOLO was operating a data centre in breach of relevant Lease Restrictions.  JSM’s reply read:

“… in fulfilling its public duties, our client has always striven to actively monitor the compliance of lease provisions by the grantees. The present case is no exception and is actually the subject of our client’s enquiry in their normal monitoring even before their receipt of your letter.

Please rest assured that our client has always taken the compliance of lease provisions by its grantees in the Industrial Estates very seriously for precisely the reasons mentioned in your letter. For the sake of good records, can you let us know the identities of your clients.”

153.  The complaint against HKCOLO continued into 2013.  JSM asked WKLL to disclose the name of its clients.  WKLL refused.  In the 27 December 2013 Letter, JSM wrote to WKLL on behalf of the Corporation, stating that:

“We further stressed that our client has always striven to actively monitor the compliance of Lease provisions by the grantees and that our client has always taken compliance of Lease provisions by the grantees in the Industrial Estates very seriously.”

154.  Ms Sit says, having received these two letters, and having seen that the Corporation was not taking any enforcement action against its data centre operator grantees, there was ample ground for the applicants to commence judicial review.

155.  Mr Yu disagrees.  He submits that these two letters only show that the Corporation was refusing to enforce its Lease Restrictions.  It does not show that the basis for such refusal was the Corporation’s misconstruction of their own policies.

156.  We agree with Mr Yu.  It is well established that time does not count against an applicant if the applicant lacks essential information for (a)  ascertaining the basis for the public body’s decision, or (b)  formulating the grounds of judicial review: R v Licensing Authority, ex p Novartis Pharmaceuticals Ltd [2000] COD 232, at 235.

157.  Based on the 5 December 2012 and 27 December 2013 Letters, there was no indication that the Corporation failed to take into account the data centre grantee’s right of access over all areas of the data centre in considering the question of whether there was any breach of the Lease Restrictions.  In fact, if one looks at the correspondence between JSM (on behalf of the Corporation)  and HKCOLO, the Corporation did consider the importance of the data centre grantee’s right of access.  In JSM’s 5 December 2012 Letter to HKCOLO’s solicitors, JSM said at §20:

“Your client’s customers may have their own requests or legislation/rules to comply with, but this is not any reason or excuse for your client’s own breach of the Lease by allowing its customers to set up their own security and checking counter to restrict your client’s access to certain areas of the Premises. Under the Lease your client is not allowed to sublet/license any specific space to its customer with its own security check point, meaning it should be your client, and not its customer, who controls who can enter into that restricted area and who cannot.” (emphasis added)

158.  As such, based on the two letters, the applicant could not have commenced judicial review proceedings on the basis that the Corporation had failed to take action to enforce the Lease Restriction Policy as it had misconstrued it.

159.  The Judge referred to an enquiry made by Dr Elizabeth Quat, a Legislative Council member, as to allegations of subletting on TKOIE.  The Corporation responded as follows:

“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:

(i)  the grantee shall not part with possession of the lot or any part thereof. In effect, no subletting shall be allowed; and

(ii)  the grantee shall always retain exclusive possession of the premises including the control of access right; and

(iii)  for data 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.”

160.  This response mentioned the control of access right, consistent with the Data Centre Policy.  There was no indication that the Corporation is departing from the Three Criteria in the Data Centre Policy.  It was only when the Decision was made and conveyed by the 28 May 2018 Letter that the applicant became aware of the Corporation’s misconstruction of the Lease Restriction Policy as discussed above.

161.  In light of the above, we are satisfied that there is no undue delay on the part of the applicant in bringing these judicial review proceedings on the ground that the Corporation had misconstrued the Lease Restriction Policy.  In any event, as further explained below, even if there was delay, we are further of the view that the reliefs sought would not prejudice GS or other lessees on TKOIE by reason of the delay.

D6.2  Unfairness to GS and other grantees

162.  Ms Sit submits that, if this court were to grant the reliefs to quash the Decision and direct the Corporation to reconsider the Decision in light of the court’s construction of the Lease Restriction Policy, in particular the Occupation Restriction, it would be tantamount to impugning the approval of the GS Pro Forma Services Agreement, which is what the applicant has expressly assured the court it is not seeking to do.  This would be highly prejudicial to GS, who in reliance on the said approval had since invested a substantial amount of money to construct data centres on TKOIE.

163.  Mr Yu on the other hand submits that, in granting those reliefs based on what the court says as to the true meaning of the Corporation’s policies, the court would not be impugning the approval of the GS Pro Forma Services Agreement.  Whether the No Alienation Clause should be enforced against GS is a matter for the Corporation, and GS may have valid defences based on waiver and estoppel.

164.  We agree with Mr Yu.  As we have stressed above, the court is not making any specific declaration or finding in relation to the GS Pro Forma Services Agreement.  In particular, we have not decided, as it is not necessary for us to do so, that the Corporation departed from its own policies when approving the GS Pro Forma Services Agreement.

165.  Indeed, Mr Yu has hastened to point out that, all that the Corporation is required to do is to reconsider the Decision in accordance with the proper construction of the policy as now found by the court.  If, in so doing, the Corporation comes to the view that the approval of the GS Pro Forma Services Agreement is inconsistent with the Lease Restrictions, it does not necessarily mean that it has to revoke that approval or to terminate the formal lease it has entered into with GS based on the pro forma agreement.  As a matter of private law, if the Corporation seeks to revoke its approval of the GS Pro Forma Services Agreement or terminate the formal lease, it may well be met with defences such as waiver / estoppel.  As a matter of public law, it may also be open to GS to contend that the Corporation is breaching its legitimate expectation in impugning the approval.  These matters are however not the concern of this judicial review and thus the court at this stage.

166.  In the premises, we do not find that the granting of the reliefs sought will prejudice GS as it will not necessarily lead to a revocation of the previous approval of the GS Pro Forma Services Agreement.

167.  For completeness, it is however appropriate to mention that in making his submissions under this issue, Mr Yu seeks also to rely on R v Oxby [1997] EWCA Civ 2960 for the proposition that GS (and other lessees on TKOIE)  would in any event not be prejudiced by this court’s declaration of the correct interpretation of the Corporation’s policies, because GS and other lessees on TKOIE would only be deprived of something that they should never have had in the first place – the benefit of an erroneous policy.

168.  With respect, we do not think R v Oxby supports the contention in the present case.

169.  R v Oxby concerned an elderly couple, the Howcrofts, who owned agricultural land.  The Howcrofts entered into an agreement with a man named Coney, whereby Coney would assist the Howcrofts to apply for planning permission regarding their agricultural land.  Once planning permission was granted and the land sold, Coney would take 25% of the price sold, while the Howcrofts would retain the remaining 75%.  Subsequently, it was discovered that Coney had substantial connections with a local council member, and the local council decided to review various planning permissions that were granted upon the application of Coney.  A report was published and concluded that these planning permissions were wrongfully granted because of bias or apparent bias.  The council therefore applied for judicial review to set aside these planning permissions.

170.  In relation to the Howcrofts, planning permission was in fact granted for two pieces of land, known as Parrymore 1 and Parrymore 2.  By the time the case came to court Parrymore 1 had been sold, the Howcrofts and Coney had split the benefit, and houses had since been built on the land.  Parrymore 2 was different.  Although planning permission was granted in respect of Parrymore 2, it had yet to be sold and remained undeveloped.

171.  In relation to Parrymore 1, the council, acting on legal advice, decided to take no further action.  On the other hand, the council applied for judicial review to set aside the planning permission granted over Parrymore 2.

172.  It was in the context of Parrymore 2 that Hobhouse LJ said that it would be just and appropriate to revoke the planning permission:

(1)  First, Hobhouse LJ considered that the planning permission over Parrymore 2 was an unrealised benefit to which the Howcrofts were not entitled in the first place.

(2)  Second, the Howcrofts did not change their position after planning permission had been granted over Parrymore 2.  The land remained unsold and undeveloped.  The only detriment that the Howcrofts said they suffered was that they had lent money to Coney on the assumption that it could be repaid when Parrymore 2 was sold.  However, Hobhouse LJ found that the loan was wholly independent of whether planning permission would be granted over Parrymore 2, and should not be taken into account when assessing the question of prejudice.

173.  Nevertheless, Hobhouse LJ remarked in Oxby at [23], that:

“the position would be different if there had been a material change of position on the part of an affected party on the faith of the consent being valid. Each case would depend upon its own facts and an evaluation of the relevant factors overall.”

174.  In this respect, GS and other lessees on TKOIE may well be able to show that their position is more akin to Parrymore 1 rather than Parrymore 2.  Each case would of course depend on its own circumstances.  Take GS as an example.  Acting on the faith of the approval of the GS Pro Forma Services Agreement, it had invested over HK$6 billion to construct five buildings as data centres.  It would appear to be open to GS to contend that it would be unfair and prejudicial to GS for the court to invalidate the approval of the GS Pro Forma Services Agreement.

E.  CONCLUSION

175.  For the above reasons, we would allow the appeal and set aside the Judge’s orders.  The applicant is successful in this judicial review on Grounds 1(1), 2(2)(a), (b), and 4.  We would further grant the order of certiorari to quash the Decision and direct that the Corporation should reconsider the applicant’s complaints in accordance with the meaning of the Occupation Restriction in the Lease Restriction Policy as found by this court.

176.  As to costs, there is no reason why we should depart from the usual rule that costs should follow the event. We would therefore make an order nisi that costs of this appeal and below be to the applicant, with certificate for two counsel.

177.  Lastly, we thank counsel for their assistance in this matter.