Sunevision Holdings Ltd v. Hong Kong Science and Technology Parks Corporation

HCAL 1890/2018

[2019] HKCFI 539

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 1890 OF 2018

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D E C I S I O N

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INTRODUCTION

1.I have before me a summons taken out by Sunevision Holdings Ltd (“Sunevision”) on 4 February 2019 (“the Interim Injunction Summons”) seeking an interim injunction to restrain Hong Kong Science and Technology Parks Corporation (“the Corporation”) from signing or executing:

“any document (including but not limited to any lease modification agreement) with [Global Switch] to give effect to [the Corporation’s decision] to grant increased plot ratio for more allowable gross floor area to [Global Switch] in Tseung Kwan O Industrial Estate, Sai Kung, New Territories”

pending the final determination of the Applicant’s summons dated 29 October 2018 (“the Substantive Injunction Summons”).

BASIC FACTS

2.For the purpose of disposing of the Interim Injunction Summons, the relevant facts can briefly be summarized as follows.

3.Sunevision is a provider of data centre services and operates 5 data centres in Hong Kong, including one at Tseung Kwan O.  As a data centre service provider, Sunevision offers colocation services which provide space and facilities for customers to house their computer services and IT equipment, as well as cooling, power supply and other services to support the customers’ computer servers and other IT equipment.

4.According to Sunevision, there are two business models which may be adopted by a data centre service provider, namely, “wholesale colocation model” and “retail colocation model”.

(1)   In the case of the wholesale colocation model, the data centre service provider would designate a specific space within the data centre for the use of a single customer, and grant absolute or sole control over that space to the customer.

(2)   In the case of the retail colocation model, the data centre service provider would house the customers’ equipment in the same shared space, such as a rack or cage, and no customer would have the exclusive use or control of any space in the data centre.  Such business model generally caters for customers with a smaller operating scale.

(3)   Data centres operating under the retail colocation model would provide “managed services” to their customers and require unrestricted access to their customers’ IT equipment for such purpose, while data centres operating under the wholesale colocation model would not provide such managed services and thus would not enjoy unrestricted access to the customers’ designated spaces.

(4)   Global Switch Hong Kong Limited (“Global Switch”), a competitor of Sunevision, carries on its business under the wholesale colocation model.

I should mention that both the Corporation and Global Switch challenge the distinction drawn by Sunevision between “wholesale colocation model” and “retail colocation model”, and consider the purported distinction to be misleading or mischaracterize the data centre industry in Hong Kong.  This is not, however, a matter which I need to further deal with in this decision.

5.The Corporation is a statutory body established by the Hong Kong Science and Technology Parks Corporation Ordinance, Cap 565. By Section 6(1) of that Ordinance, the purposes of the Corporation are:

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

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

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

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

6.Under Section 8(2)(c) of the Ordinance, the Corporation has general powers to sell, let, sublet or otherwise dispose of land or any facilities in the “specified premises”, which include the Tseung Kwan O Industrial Estate, Sai Kung, New Territories (“the TKO Industrial Estate”), on such terms and conditions as its board considers appropriate.

7.The Corporation currently operates 3 industrial estates in Hong Kong on lands granted by the Government, including the TKO Industrial Estate, at a nominal premium.  For this reason, it is in a position to, and does, grant individual sections of the industrial estates to its clients, including data centre service providers, at substantially subsidized rates in comparison with the market rate.

8.According to Sunevision, it is the published policy (“the Policy”) of the Corporation in respect of its industrial estates that its lessees are prohibited from:

(1)   parting with possession of the leased premises or any part thereof, whether by way of subletting or otherwise; or

(2)   permitting any third party, including its customers, to occupy the lease premises or any part thereof, whether by granting a licence or otherwise in any practical sense (“the Lease Restrictions”).

9.Such Policy, says Sunevision, is evident from the Corporation’s standard form lease as well as its process for tender applications for sites in the TKO Industrial Estate (including letters sent by the Corporation to stakeholders in the data centre industry including Sunevision, and the tender invitations issued by the Corporation in 2010 and 2011).  Sunevision further contends that:

(1)   the wholesale colocation model is clearly incompatible with the Policy and would be in breach of the Lease Restrictions, while the retail colocation modal would be in line with the Policy and the Lease Restrictions; and

(2)   as a result of the implementation of the Policy by the Corporation, Sunevision has a legitimate expectation that data centre service providers operating in the TKO Industrial Estate under grants made by the Corporation would not be allowed to sublet or part with possession of the leased premises, or to license or allow third parties to occupy the same.

10.In 2012, Sunevision submitted an application to the Corporation for leasing a site (“the GS Site”) in the TKO Industrial Estate based on the retail colocation model because of the Corporation’s published Policy, although it would have been commercially more attractive to make an offer based on the wholesale colocation model.  Sunevision’s application was not successful, and the GS Site was eventually granted by the Corporation to Global Switch, which has since been carrying on business as a data centre service provider at the GS Site.

11.Sunevision later found out that various data centre service providers, including NTT, Global Switch and HKCOLO, in the TKO Industrial Estate had acted in breach of the Lease Restrictions by subletting, licensing or parting with possession of their leased premises to their customers.  Since no later than November 2012, Sunevision had, through its solicitors (Woo Kwan Lee & Lo), raised complaints with the Corporation about the breaches of the Lease Restrictions.  Eventually, by a letter dated 6 April 2018, Woo Kwan Lee & Lo demanded the Corporation to take immediate steps to enforce the Lease Restrictions against the lessees.  By a letter dated 28 May 2018, the Corporation refused Sunevision’s demand, on the basis that there was no breach of the Lease Restrictions as alleged by Sunevision.  I should add that, according to Mr Siu Chik Hung (the Chief Operating Officer of the Corporation), there was previously one instance occurring in 2013 where a breach of the Lease Restrictions was discovered but the matter was eventually resolved outside court to the satisfaction of the Corporation.

12.On 10 September 2018, Sunevision applied for leave to apply for judicial review of the Corporation’s decision contained in the said letter of 28 May 2018 “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 [the TKO Industrial Estate]” (“the May 2018 Decision”).

13.On 9 October 2018, Mr Justice G Lam granted leave to apply for judicial review on consideration of papers alone.  The learned Judge also ordered that Global Switch be served with the papers as an Interested Party, and be at liberty to take such part in the proceedings as it might be advised.

THE INJUNCTION APPLICATIONS

14.On 24 June 2016, Global Switch applied to the Corporation for an increase of the permissible plot ratio, or gross floor area, in respect of the GS Site for the purpose of business expansion.  In order to do so, the Corporation would itself require an increase of the permissible plot ratio in respect of the GS Site (from 2.5 to 3.3) under the Corporation’s head lease with the Government.  On 21 November 2016, the Corporation approved Global Switch’s application and decided that it should be granted a total of 17,213 m² of spare gross floor area subject to approval by the Director of Lands (“the Plot Ratio Decision”).  The Corporation’s offer to Global Switch dated 6 March 2017 was countersigned by Global Switch on or about 4 May 2017.

15.It is Sunevision’s position that:

“[t]he grant of an increased plot ratio and extra gross floor area in effect for subletting would not be an exercise of power for the purposes sanctioned by the Ordinance, and would in any event be a breach of the legitimate expectation and/or Wednesbury unreasonable” (see paragraph 97 of the Form 86).

16.In the Form 86, Sunevision sought an interim order under Order 53, rule 3(10)(a) that:

“there be a stay of the decision of [the Corporation] whether to grant increased plot ratio for more allowable gross floor area for [Global Switch] in [the TKO Industrial Estate] or, alternatively, if such decision had already been made in favour of Global Switch, that such decision should not take effect until the Applicant’s challenge is determined”.

17.On 29 October 2018, Sunevision issued the Substantive Injunction Summons seeking the interim relief mentioned in paragraph 16 above.

18.On 21 November 2018, the District Lands Office offered to the Corporation certain basic terms on the proposed lease modification of the head lease in respect of the TKO Industrial Estate.  On 18 December 2018, the Corporation informed the District Lands Office of its acceptance of the basic terms.  Wilkinson & Grist (on behalf of the Corporation) also informed Woo Kwan Lee & Lo of the Corporation’s acceptance of the basic terms offered by the District Lands Office by a letter of the same date.

19.On 3 January 2019, Mr Justice G Lam gave directions concerning the further conduct of the Substantive Injunction Summons.  As recorded in the Judge’s Order, those directions were given upon the Corporation’s undertaking as follows:

“(a) in the event that a lease modification letter affecting [the GS Site] is issued by the District Lands Office (the ‘Lease Modification Letter’) to [the Corporation] for signing, [the Corporation] shall upon receipt of the same give notice (“the ‘Notice’) to the solicitors of all parties to these proceedings no later than 7 business days thereof; and

(b)   in the event that the issuance of the Lease Modification Letter takes place prior to the substantive hearing of [the Substantive Injunction Summons], [the Corporation] shall not proceed with the execution of any lease modification agreement or document with [Global Switch] in relation to the GS Site within the period of 14 days from the time when the Notice is given to the parties”.

The Substantive Injunction Summons has now been fixed to be heard before Mr Justice G Lam on 3 April 2019.

20.By a letter dated 28 January 2019, Wilkinson & Grist informed Woo Kwan Lee & Co that:

(1)   the District Lands Office had on 22 January 2019 provided to the Corporation an undated modification letter for execution with respect to the Corporation’s application to vary the plot ratio of 8 sites within the TKO Industrial Estate, and expressly stipulated that the Corporation had to execute the modification letter on or before 11 February 2019;

(2)   the Corporation intended to execute and return the modification letter to the District Lands Office on 11 February 2019; and

(3)   after the modification letter had been executed by the Corporation and the District Lands Office and registered at the Lands Registry, the Corporation would be in a position to execute any lease modification agreement or document with Global Switch (“the Lease Modification Documents”).

21.This letter from Wilkinson & Grist dated 28 January 2019 prompted Sunevision to take out the Interim Injunction Summons on 4 February 2019.  The Interim Injunction Summons first came before me on 13 February 2019.  Up to that time, the only decision under challenge in this application for judicial review was the May 2018 Decision.  The hearing of the Interim Injunction Summons was part-heard on 13 February 2019 and adjourned to today (21 February 2019), for reasons which it is not necessary to set out here.

22.On 19 February 2019, the Applicant issued a summons seeking to amend the Form 86 in order to mount a challenge to the Plot Ratio Decision as well.  The amendment summons has been adjourned to be dealt with by Mr Justice G Lam on 3 April 2019.  I shall come back to the Applicant’s proposed challenge to the Plot Ratio Decision later in this decision.

DISCUSSION

23.The principles for granting interim relief pending the substantive hearing of an application for judicial review are not in dispute.  Essentially, the court applies the American Cyanamid approach and considers (i) whether there is a serious issue to be tried, (ii) whether damages would be an adequate remedy, and (ii) the balance of convenience.  However, in the context of judicial review and depending on the nature of the decision under challenge, the question of balance of convenience, involving a consideration of not just the interests of the immediate parties to the proceedings but also the wider public interest, could become centrally important when considering whether interim relief should be granted.  See Re Lung Chun Hang Sixtus [2018] 5 HKC 138, at paragraphs 12 to 13.

24.On the other hand, where the court is concerned with an application for “interim interim relief”, ie interim relief pending the substantive hearing of a summons for interlocutory injunctive relief, the court’s primary concern is to do practical justice on the balance of fairness. In China Shanshui Cement Group Ltd v Zhang Caikui [2018] HKCA 409, Lam VP (giving the reasons for judgment on behalf of the Court of Appeal), stated as follows:

[13]   … It has to be reiterated that interim relief is meant to be an urgent temporary stop-gap measure and the circumstances were such that the court has to do practical justice on the balance of fairness even though it may not have sufficient time to consider the matter fully: see NPYJ v SMRC [2018] 1 HKLRD 573 at [3] and [4].

[17] The extent to which a judge give weight to the merit on an issue in a particular case depends very much on the context and there are obviously other factors at play including the effect of the grant or refusal of the relief and the subject matter at stake. It is a multi-facet assessment and, as we said, an exercise with high discretionary margin accorded to the first instance judge.

25.I should add that there is also a distinction to be drawn between the merits of the underlying or substantive cause, and the merits of the summons for interlocutory injunctive relief pending the determination of the underlying or substantive cause.  If an applicant cannot show that he has a reasonable prospect of success in the summons for interlocutory injunctive relief, it would be difficult to justify granting “interim interim relief” pending the determination of that summons.

26.On behalf of Sunevision, Ms Tong argues that:

(1)    as the court has already granted leave to apply for judicial review, it must be taken to have met the threshold of showing a serious issue to be tried;

(2)    the refusal of the interim injunction sought by Sunevision may render the Stay Summons entirely nugatory should the Corporation proceed to give effect to the decision to grant increased plot ratio by executing the Lease Modification Documents with Global Switch;

(3)    if the Lease Modification Documents are executed:

(a)   it may become meaningless to grant an order to declare the Corporation’s decision to grant the increased plot ratio to Global Switch to be unlawful (being one of the relief sought in the substantive judicial review);

(b)   Global Switch would acquire contractual/legal rights under the modified lease even before the legality of such decision has been determined in the substantive judicial review;

(c)   Global Switch would be able to leverage upon the formal grant of increased plot ratio to gain further unfair advantage over other data centre service providers based on their current business model, thereby aggravating the distortion of competition in the industry;

(4)    should Sunevision ultimately succeed in this judicial review, any steps taken by the Corporation to implement its decision to grant increased plot ratio in respect of the GS Site would potentially have to be unwound, and the execution of the Lease Modification Documents would complicate the process and create uncertainty; and

(5)    neither the Corporation nor Global Switch would suffer any harm or damage from a grant of the interim relief.

27.In my view, the present application can be disposed of on a simple basis.  Even if one assumes, for the sake of argument, that:

(1)    Sunevision has a “legitimate expectation” in the public law sense that data centre service providers operating in the TKO Industrial Estate under grants made by the Corporation would not be allowed to sublet or part with possession of the leased premises, or to license or allow third parties to occupy the same; and

(2)    the manner in which various lessees, including Global Switch, conduct their business is inconsistent with the Lease Restrictions,

I do not see how it can be argued that Sunevision has any legitimate expectation that the Corporation would not grant increased plot ratio, or permissible gross floor area, to its lessees in respect of sites currently occupied by them.  It is significant that that the Corporation’s position is that it remains committed to its policy of maintaining the Lease Restrictions in respect of sites which it grants to its lessees in the TKO Industrial Estate.  The principal difference between the parties, as I see it, lies in the proper interpretation and/or application of the Lease Restrictions.  Should Sunevision ultimately succeed in this judicial review on those issues, it is to be expected that the Corporation, as a statutory body, would act in accordance with the court’s judgment as regards the true interpretation and proper application of the Lease Restrictions against the lessees.  What it means is that Global Switch will not be permitted to conduct its business at the GS Site, including any additional gross floor area acquired under the Lease Modification Documents, in a manner which is inconsistent with the Lease Restrictions.  I do not, however, see any basis for the court to find the Lease Modification Documents to be invalid, or the increased plot ratio granted in respect of the GS Site to be unlawful.

28.As earlier noted, Sunevision now proposes to include a challenge to the Plot Ratio Decision in its draft Amended Form 86.  The basis of such challenge is encapsulated in paragraph 74A thereof, as follows:

“[The Corporation]’s decision to grant increased plot ratio to Global Switch pursuant to the Plot Ratio Decision proceeded on an error of law and a misapplication of [the Corporation’s] own policies, and in circumstances where Global Switch has been using and will continue to use the GS Site in breach of the Lease Restrictions. This has the effect of compounding [the Corporation’s] error of law, and would have the effect of allowing Global Switch to gain further unfair advantages over other data centre operators operating outside [the TKO Industrial Estate], and is a breach of [Sunevision’s] Legitimate Expectation”.

29.It seems clear that Sunevision’s challenge to the Plot Ratio Decision rests on two matters:

(1)    an error of law on the part of the Corporation and/or a misapplication of the Corporation’s policy in making the decision; and

(2)    a supposition that Global Switch has used and, more importantly, will continue to use the GS Site in breach of the Lease Restrictions.

30.In respect of the second matter, I agree with the submissions of Ms Sit and Mr Man, SC on behalf of Global Switch and the Corporation respectively that there is simply no basis to support the supposition that Global Switch will continue to use the GS Site in a manner in breach of the Lease Restrictions after this matter has been ruled by the court.  On the contrary, both of them have made it clear that their clients would act in accordance with the court’s determination at the substantive hearing of this application for judicial review regarding the interpretation and application of the Lease Restrictions, although I should add that as a matter of public law, there is no principle that a policy once fixed must remain immutable forever.

31.In respect of the first matter, it is important to appreciate that the alleged error of law or misapplication of policy relates to the “use” of the increased plot ratio, or gross floor area, of the GS Site, not the “grant” of such increased plot ratio, or gross floor area.  It is by no means clear to me that the alleged error or law or misapplication of policy should have the effect, in public law, of vitiating the grant itself.  In any event, the court has a discretion whether to grant remedy even where a ground of judicial review has been made out, and I do not at the moment see why the court would exercise its discretion to quash the Plot Ratio Decision, or declare it to be unlawful, in circumstances where the increased gross floor area can be used by Global Switch in a manner consistently with the Lease Restrictions.

32.In all, I am not satisfied that Sunevision has shown a “serious issue to be tried”, still less a reasonably arguable case, in relation to the Plot Ratio Decision.

33.In any event, I am only dealing with an application for “interim interim relief” pending the determining of the Substantive Injunction Summons.  Assuming that the Corporation and Global Switch should proceed to execute the Lease Modification Documents in the meantime, it is obvious that Global Switch will not be in a position to start using the newly acquired gross floor area at the GS Site in breach of the Lease Restrictions prior to the determination of the Substantive Injunction Summons due to be heard on 3 April 2019, bearing in mind the time required for the construction of Buildings 4 and 5 of Global Switch’s data centre (to which the additional plot ratio is attributed) which it is estimated will only become 30% operative from mid-2020 and fully operative at the end of 2020.  In other words, I do not see that any injustice will be caused to Sunevision by the refusal of the interim interim injunction sought by it, or why the matter cannot be left until the hearing of the Substantive Injunction Summons on 3 April 2019.

34.On the other hand, I accept the submissions of Mr Man and Ms Sit respectively that there is considerable public interest in promoting the development, transfer and use of new or advanced technologies in Hong Kong, and any unnecessary delay to that process which prevents the TKO Industrial Estate from being put to its maximum or optimum use, such as delaying the implementation of the Plot Ratio Decision, would be detrimental to the public interest.

35.Lastly, there is also the consideration that the Plot Ratio Decision was made a long time ago (on 21 November 2016), and there is evidence that Global Switch has acted and incurred substantial effort and expenses in reliance upon the Plot Ratio Decision (see paragraphs 25 of the 2^nd Affirmation of Mr Damon Ward Reid).  Sunevision says that it only became aware of the Plot Ratio Decision for the first time from the 1^st Affirmation of Mr Siu filed by the Corporation on 18 December 2018.  However, Sunevision was well aware that the Corporation had entered into advanced negotiations with Global Switch for an increase of plot ratio for the GS Site.  As stated in paragraph 95 of the Form 86: “It appears from the Chief Executive’s Statement in the 2017 Annual Report and the 2017 Base Prospectus of Global Switch’s group of companies that [the Corporation] may have already decided to grant the increased plot ratio to Global Switch”. In any event, even if Sunevision has a good reason for not seeking to challenge the Plot Ratio Decision earlier, it remains the case that much has happened since that decision was made, and it is far from clear that the court will, in the exercise of its discretion, grant relief in respect of the Plot Ratio Decision, particularly where, as mentioned above, the additional gross floor area made available to Global Switch under the Plot Ratio Decision can be used in a manner consistently with the Lease Restrictions.

36.There are other minor matters relied upon by Ms Tong on the issue of balance of convenience which I do not consider take Sunevision’s case much further.  In all, I am not satisfied that this is a proper case to grant interim interim relief as sought by Sunevision.

DISPOSITION

37.For the foregoing reasons, the Interim Injunction Summons is dismissed.  I shall now hear the parties on the question of costs.

Ms Sara Tong and Ms Bianca Yu, instructed by Woo, Kwan, Lee & Lo, for the applicant

Ms Eva Sit, instructed by Wilkinson & Grist, for the respondent

Mr Bernard Man, SC and Mr Justin Ho, instructed by King & Wood Mallesons, for the interested party