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

CACV 80/2020

[2022] HKCA 1795

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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Before:  Hon Poon CJHC, Barma and Au JJA in Court

Date of Judgment: 2 December 2022

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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.This court handed down its judgment on 31 May 2022 (“the CA Judgment”), allowing the applicant’s appeal against the judgment of G Lam J (as he then was) (“the CFI Judgment”) dated 26 March 2020.

2.This is the Corporation’s application for leave to appeal against the CA Judgment to the Court of Final Appeal (“CFA”) by way of its Notice of Motion filed on 28 June 2022.  The parties have since lodged their respective written submissions[1] in relation to the application.

3.After reviewing the Notice of Motion and the written submissions, we find no reason to depart from the usual practice of disposing of this application on paper pursuant to paragraph 3 of Practice Direction 2.1[2].

4.This decision should be read together with the CA Judgment and, unless otherwise stated, we will adopt herein the abbreviations used in the CA Judgment.

B.  THIS APPLICATION

B1.  The Notice of Motion

5.Section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance (Cap 484) (“the HKCFAO”) provides that an appeal shall lie to the CFA at the discretion of this court or the CFA if the question involved in the appeal is one which, by reason of its great general or public importance (“GPI”), or otherwise, ought to be submitted to the CFA for decision.

6.In the Notice of Motion, the Corporation sets out the following two questions which it says are of GPI:

(1)  On the basis (as found by the Court of Appeal) that the Lease Restriction Policy (“LRP”) must be construed in light of the Data Centre Policy (“DCP”) and that the Occupation Restriction means that a data centre grantee must not permit its customer to have such primary control of access to the designated space as to result in the grantee not having exclusive control of access to such space ([102] ‑ [106] and [110] ‑ [112] of the CA Judgment), does a data centre grantee’s agreement to give reasonable notice to the customer before exercising its right to access such designated space ([113] of the CA Judgment) in existing or future pro forma agreements approved by the Corporation and in terms similar to those of the GS Pro Forma Services Agreement, in the undisputed context that protection of the customer’s data security is a central tenet of a data centre’s operation, of itself result in a breach of the Occupation Restriction?  The CA Judgment has created uncertainties and may cause customers of data centres with high data security requirements (such as local and international financial institutions, cloud service providers or government authorities) to relocate out of TKOIE or even out of Hong Kong, with possible risks of disruption of services to end users including the general public and serious adverse impact on Hong Kong’s competitiveness as a regional data centre hub. (“Question 1”)

(2)  For the purpose of compliance with Order 53 rule 3(2) and rules 6(1) and (2) of the Rules of the High Court (Cap 4A), in the Form 86:

(a)  must the applicant plead the specific ground(s) of challenge to the impugned decision (in this case, the meaning the applicant ascribes to the Occupation Restriction, which the applicant contends the Corporation had allegedly misunderstood such as to undermine the applicant’s legitimate expectation or give rise to errors of law), or

(b)  would it be sufficient to plead the wording of the restrictions or the underlying fact(s) (in this case, primarily the recitation of the Occupation Restriction) “in support of [the] ground(s) of judicial review” without pleading the actual ground itself ([83] and [84] of the CA Judgment)? (“Question 2”).

7.Further, under paragraphs 3 ‑ 6 of the Notice of Motion, the Corporation has set out various bases to support its application for leave to appeal to the CFA on “the otherwise” limb.

8.We will first look at the questions said to raise GPI grounds.

B2.  The GPI questions

B2.1  Question 1

9.In support of Question 1, the submissions of Mr Wong SC[3] for the Corporation are essentially these.

10.First, he submits that the court held in the CA Judgment that:

(1)  the LRP must be construed in context of the DCP; its purpose is to, inter alia, ensure the grantee operates a data centre (“DC”) satisfying the Approved Use Requirement ([102] ‑ [106] of the CA Judgment);

(2)  the degree of presence and exclusion that would amount to LRP “occupation” depends on the facts of each case and matters such as the nature of the premises, the use of which they are being put, and the rights enjoyed or exercised by the persons in question ([107] ‑ [112] of the CA Judgment);

(3)  notwithstanding (2), where the contract requires the DC grantee to give reasonable notice to its customers before exercising its right to enter the designated area which housed the customer’s ICT equipment (as in the case of GS), “there may well be a question” or “this may raise a further problem”that such an arrangement per se falls foul of LRP “occupation” ([113] and [118] ‑ [121] of the CA Judgment); and

(4)  the Corporation had misunderstood its policies as evidenced by the Letter, which showed it had failed to take into account the Exclusive Control Criterion in the DCP ([115] ‑ [117] of the CA Judgment).

11.Second, Mr Wong says the court had clearly erred in its above holding in the construction of the LRP together with the DCP in relation to the Occupation Restriction as it had failed to take into account the essential context that the data centre customers’ need for data security and confidentiality is an integral element of their “occupation” of the designated space, and the protection of such security is a central tenet of a data centre’s operation and an essential service provided by the data centre operator for those customers.  Hence, the suggestion in the CA Judgment that the requirement to give reasonable notice to the customer before accessing the designated space, on its own, can amount to a breach of LRP “occupation” is inconsistent with the court’s finding set out in [10(2)] above.

12.Third, Mr Wong submits that this issue is of GPI because, if the Occupation Restriction is infringed by reason of the requirement of reasonable notice to be given before the data centre operator can access the designated place, it would effectively cast “grave doubt” on the ability of data centres in the Corporation’s estates to perform an essential data centre function, namely to provide reasonable and sufficient protection to the data security and confidentiality of customers.  This would also affect Hong Kong’s competitiveness as a regional data centre hub, which is part of the Government’s policy.

13.Fourth, Question 1 is at the very least reasonably arguable as:

(1)  Given the undisputed factual context that physical security and data safety are part of the primary purposes of utilizing the services of DC, it would not make sense if a term to give reasonable notice for the customer’s security protection – being the raison d’etre of the DC operations – would constitute a breach of the Occupation Restriction.

(2)  As held by this court, whether the LRP on “occupation” is breached turns on the facts of each individual case.  The proper approach should be to examine the relevant agreement as a whole to ascertain whether the giving of reasonable notice is or is not consistent with the Exclusive Control Criterion.

(3)  Further, when one examines the relevant clauses in the GS Pro Forma Services Agreement as a whole, the clear conclusion should be as reached in the CFI Judgment at [81] ‑ [112] that there was no “occupation” by the customer such as to flout the Exclusive Control Criterion (especially [111] where the Judge considered right of access, not referred to in [121] ‑ [122] of the CA Judgment).

14.In our view, for the following reasons, Question 1 does not arise from the CA Judgment and, in any event, this ground is not reasonably arguable.

15.The contentions raised by the Corporation are premised essentially on saying that this court in the CA Judgment effectively concluded and held that the requirement to give reasonable notice by the data centre operator grantee of the Corporation’s estate to its customers before it can access the designated space (for example, as provided in the GS Pro Forma Services Agreement) “by itself” is or must be a breach of the Occupation Restriction under the Exclusive Control Criterion.

16.However, the contentions represent a misreading of the Judgment.

17.It is first important to note that we have set out in the CA Judgment the following which forms the underlying basis for our conclusion on the construction of the Exclusive Control Criterion:

(1)  It is common ground that the LRP and the DCP are not inconsistent with each other and must be construed together ([95] of the CA Judgment).

(2)  The LRP contained the Possession Restriction and the Occupation Restriction ([9] and [10] of the CA Judgment).

(3)  It is the Corporation’s own position that any data centre operator must comply with both the LRP (and thus the Possession Restriction and the Occupation Restriction) and the DCP ([21], [23] and [95] of the CA Judgment).

(4)  It is also the Corporation’s own position that under the DCP, there is the Exclusive Control Criterion ([18] ‑ [21] of the CA Judgment).

(5)  In other words, the grantee DC operator must comply with the Exclusive Control Criterion, in that the right of access of the premises shall remain within the “exclusive control” of the grantee “at all times” ([18], [100] and [101] of the CA Judgment).

(6)  Given the undisputed and unchallenged legal principles set out at [107] ‑ [111] of the CA Judgment, the word “occupation” in the Occupation Restriction, when read in the context of and consistently with the Exclusive Control Criterion under the DCP, would mean that a DC grantee operator “must not permit the customer to have such primary control of access to the designated place as would result in the grantee not having exclusive control of access to the customer space” (emphasis added) ([113] of the CA Judgment).

(7)  The degree of presence and exclusion that would amount to “occupation” depends on the facts of each individual case and on matters such as “the nature of the premises, the use of which they are being put, and the rights enjoyed or exercised by the persons in question” ([110] of the CA Judgment).

18.It is pertinent to note that these holdings are all based on the common position adopted by the parties and are not sought to be challenged in the intended appeal to the CFA.

19.With the above holdings, we then further held at [114] of the CA Judgment:

“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.” (emphasis added)

20.Given the above conclusion, we went on to hold that the Corporation had committed an error of law in its answer to the applicant’s complaints that there would be no breach of the policies insofar as the customers of the grantee operators were placing their equipment in the data centre, which was for the dominant purpose for the grantee operators to provide services to the customers[4]. That was an error of law as the Corporation, in misconstruing its own policies, had failed to give regard to Exclusive Control Criterion before it could conclude whether the various grantees operators were in breach of the policies as complained of by the applicant.  We explained this at [115] ‑ [117] of the CA Judgment as follows:

“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.”

21.It is on this basis and this basis alone that we concluded that the Corporation had committed an error of law in the Decision as it had failed to give any regard to or consideration of the Exclusive Control Criterion in deciding that there was no breach of the policies by the grantee operators.  See also [135] - [136] of the CA Judgment.

22.After arriving at this conclusion, we then went on at [118] of the CA Judgment to raise the observation that this “may raise a further problem as to” whether, “for example”, clause 2.2(b) in the GS Pro Forma Services Agreement (which provides that the grantee operator (GS) has the right to access the customer space by giving reasonable notice to the customer and only for the stated purpose) amounted to an infringement or breach of the Occupation Restriction (and therefore the LRP) in not having exclusive control of the customer space.

23.This observation was raised in the context that there was an issue before the Judge and us as to whether the applicant was in effect in this judicial review seeking to challenge the Corporation’s prior approval of the GS Pro Forma Agreement if that contractual provision relating the grantee’s right to enter the customer space amounted to a breach of the Possession and/or Occupation Restrictions.  The Judge indeed held that it did not amount to a breach of the Possession Restriction.  In such a context, on remitting the Decision to the Corporation for reconsideration in light of our above conclusion, one can naturally anticipate that a potential question that the Corporation would have to face with in its reconsideration is whether the said provision would be regarded as a breach of the Occupation Restriction.  See [53], [54], [69(3) ‑ (4)], [77] and [162] of the CA Judgment.

24.However, we then went on to expressly hold that it was neither appropriate nor necessary for us to decide that question since:

(1)  The Decision was quashed on the basis that the Corporation had failed to take into account and consider the Exclusive Control Criterion in the Decision.  Because of its misconstruction of what would amount to compliance with the policy, the question of whether the grantee’s control of access to the customer space in a particular case amounted to rendering the grantee not having exclusive right of access to the customer space did not form part of the reasons for the Decision.  See [123] of the CA Judgment.

(2)  Whether or not GS’s control of access to the customer space is so limited so as to render it not having exclusive control of access to it (and thus amounting to a breach of the Occupation Restriction) is a question of degree and extent depending on the factual circumstances of the case.  This is all the more so as whether 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 relevant clause of the agreement.  See [124] of the CA Judgment.

(3)  This court therefore should not venture into this issue in a vacuum without knowing what the Corporation’s evaluation and position on this is.  See [125] of the CA Judgment.

25.We have further recorded towards the end of our judgment that the court is not making any specific declaration or finding in relation to the GS Pro Forma Services Agreement.  See [164] of the CA Judgment.

26.In the premises, it is plain that we have not determined by way of the CA Judgment that “a data centre grantee’s agreement to give reasonable notice to the customer before exercising its right to access such designated space ([113] of the CA Judgment) in existing or future pro forma agreements approved by the Corporation and in terms similar to those of the GS Pro Forma Services Agreement, in the undisputed context that protection of the customer’s data security is a central tenet of a data centre’s operation, of itself result in a breach of the Occupation Restriction” as formulated in Question 1. 

27.In other words, this question does not arise from the CA Judgment.  Quite to the contrary, this question is expressly left to the Corporation to decide when reconsidering the Decision as remitted by this court by taking into account all the circumstances of each case, which must also include the other relevant provisions of the relevant pro forma services agreement.

28.Further and in any event, insofar as the contentions raised in support of Question 1 are that this court was wrong in interpreting the Exclusive Control Criterion to incorporate the consideration of the degree and extent of the grantee data centre operator’s right to access to the customer’s space because of the security requirements of some of the major clients, they are not reasonably arguable as (a) it is common ground between the parties that this criterion forms part of DCP and thus the LRP, (b) it is the unchallenged and undisputed legal principle that right of access to the place by the grantor is a relevant element in the consideration of whether the grantee is sharing occupation with another which is prohibited by the relevant contractual provision, and (c) it is also common ground that the question is dependent on extent and degree of the right of access the grantor enjoys, as we have summarized at [17] above.

29.Similarly, the Corporation’s submissions that we had erred in the CA Judgment as the proper approach should be to examine the relevant agreement as a whole to ascertain whether the giving of reasonable notice is or is not consistent with the Exclusive Control Criterion are misplaced since, as explained above, we have not decided one way or other that the particular reasonable notice clause “by itself” is inconsistent with the criterion.  See [24(2)] above.  As mentioned above, it is up to the Corporation to consider whether to adopt that approach when reconsidering the Decision on remittance with reference to the factual circumstances of each of the complained cases.

30.Moreover, we are in any event not persuaded that the issues raised in the intended appeal under Question 1 involve questions of GPI.

31.The purported “uncertainties” said to have been created by the CA Judgment as stated in Question 1 is, with respect, a veiled attempt to in effect ask the court and the CFA to decide the question whether a clause in a pro forma services agreement requiring the grantee operator to give reasonable notice to the customers before it can access the designated space amounts to a breach of the Occupation Restriction, which is an entirely fact sensitive and circumstances related question.  This is also the very question that we have remitted to the Corporation to reconsider by reference to the factual circumstances of each of the complained cases.  This by itself cannot be a question of GPI.

32.Similarly, we also do not accept the contention that this question raises a ground of GPI since the Corporation is seeking to facilitate the Government policy to establish Hong Kong as a data centre:

(1)  First, this is also dependent on the contention that the CA Judgment has determined that the reasonable notice provision in the GS Pro Forma Service Agreement infringes the Exclusive Control Criterion under the Occupation Restriction.  However, as explained above, we have not determined that question.

(2)  Second, in any event, as identified in the CA Judgment and as it is common ground, there are different models of operation for data centres.  See [12] ‑ [16] of the CA Judgment.  Thus, even if the Exclusive Control Criterion is one which renders it impracticable for the data centre grantees of the Corporation to operate for those specific customers as identified in the Corporation’s submissions (eg, banks, cloud service providers or government authorities)[5], it does not mean that they cannot provide data centre services to other types of customers, which itself would also facilitate the Government’s policy to establish Hong Kong as a data centre hub.  The Government policy is not to establish Hong Kong as a data centre hub only for those customers which have been cited as examples by the Corporation in support of this application.

(3)  Moreover, it is up to the Corporation to amend or change its own policies if it wishes to do so to the extent needed to facilitate its objective to lease its premises to data centre operators to serve those customers as identified.  As we have stated at [17] of the CA Judgment, the Government department had indeed suggested the Corporation to consider doing so.

33.For all the above reasons, we will not grant leave to appeal for Question 1, as (a) the question as identified does not arise from the CA Judgment, (b) it is not reasonably arguable, and (c) it in any event does not involve issues of GPI.

B2.2  Question 2

34.We can deal with this briefly.

35.As submitted by Mr Yu SC for the applicant, the principles governing pleadings in judicial review are well settled and not disputed at the appeal.  This court only applied those principles to the specific Amended Form 86 in this case with reference to the specific pleaded particulars, and came to the conclusion, different from the Judge, that the applicant had sufficiently pleaded the challenge against the Decision based on the Occupation Restriction.  The intended appeal against this part of the CA Judgment cannot in any respect be regarded as involving an issue of GPI.

36.Question 2 as framed relates in substance to the Corporation’s disagreement with the court’s conclusion after applying the well settled principles to the specific facts of this case (ie, the specific pleas made in the Amended Form 86).  This is not a question of GPI.

37.In any event, the arguments raised in support of Question 2 on merits are in effect a repetition of the arguments raised before this court in support of the Judge’s conclusion, which have been rejected for the reasons we have explained in the CA Judgment at [83] - [85].  Effectively repeating the same arguments does not constitute proper grounds of appeal for the present purpose.

38.For all the above reasons, we also refuse to grant leave to appeal for Question 2.

B3.  The “otherwise” limb

39.The Corporation submits that leave to the CFA should be granted under the “or otherwise” ground given:

(1)  The substantial public interest involved as submitted above.

(2)  The financial magnitude of the possible ramifications: Wang Din Shin v Nina Kung (unreported, CACV 460/2002, 30 November 2004) at [16], [23], and [48]; and

(3)  There is “considerable unease” as to justify leave to be granted “in the interests of justice”: Ting Kwok Keung v Tam Dick Yuen (unreported, CACV 751/2000, 27 September 2001), at [10] and [12].

40.To underline the above bases for granting leave under the “or otherwise” limb, Mr Wong SC for the Corporation has further elaborated the contentions in his skeleton submissions at paragraphs 14 ‑ 17 as follows in support of the grounds set out at paragraphs 3 ‑ 6 of the Notice of Motion as to why the CA Judgment is wrong.

41.In relation to the basis set out at paragraph 3 of the Notice of Motion (ie, the Corporation misconstrued its policies as no mention was made in the Letter that it had considered the Exclusive Control Criterion: [117] of the CA Judgment), Mr Wong submits:

(1)  The Exclusive Control Criterion was in fact referred to in other parts of the Letter (paragraphs 1, 5 ‑ 6) but omitted by this court (as elaborated in the Notice of Motion at paragraphs 3(2) ‑ (5)).

(2)  Given this court’s finding that the Corporation did not misunderstand its policies since their promulgation through to the Letter ([160] of the CA Judgment), and the Corporation was held to have correctly applied it in enforcing against HKCOLO ([157] of the CA Judgment), there is no basis to infer (even in the absence of (1) above) that the Corporation had misconstrued its policies in the Letter. 

42.In relation to the basis set out at paragraph 4 of the Notice of Motion (ie, the Judge might have erred in concluding the Corporation’s approval of the GS Pro Forma Services Agreement was not a departure from its policies as he did not consider the Occupation Restriction: [118], [121], [122] and [124] of the CA Judgment), Mr Wong elaborates as follows:

(1)  GS Pro Forma Services Agreement was approved in 2012.  This court’s expression of doubt is internally inconsistent with its finding that the Corporation had correctly understood its policies up to 28 May 2018: [160] of the CA Judgment.

(2)  This court appeared to have overlooked that the Judge had expressly considered the Exclusive Control Criterion in his finding: [102], [111] ‑ [112] of the CFI Judgment.

43.For paragraph 5 of the Notice of Motion (ie, the Judge erred in failing to consider “the Corporation’s failure to consider the question of control of access” such that Grounds 2(2)(a)-(b) and (3) “errors of law” should be rejected: [136] of the CA Judgment), Mr Wong contends that  the Judge did consider the fact that the Corporation took into account the terms and conditions between grantees and customers ([175] and [176(1)] of the CFI Judgment), which include the grantee’s control of access to the customer’s designated space.

44.In relation to paragraph 6 of the Notice of Motion (ie, the applicant’s case on the Occupation Restriction was sufficiently pleaded ([83] and [84] of the CA Judgment)), Mr Wong repeats his contentions raised under Question 2, and further says the Corporation suffered real prejudice as a result of the applicant’s failure to plead this ground fairly and squarely – had the ground been properly raised in the Form 86, the Corporation could and would have adduced evidence targeting at the control of access requirement.  As this point only surfaced for the first time in the Court of Appeal, the Corporation was deprived of the opportunity to do so.

45.It is not the practice of this court to grant leave under this ground but to defer to the views of the Appeal Committee of CFA[6].  We see no reason to depart from that practice in the present application.

46.In the premises, we will not grant leave on this basis.

C.  DISPOSITION

47.For all the above reasons, we refuse to grant leave to the Corporation to appeal to the CFA and dismiss its application.

48.There is no reason why costs should not follow the event.  We further make an order nisi that costs of this application be to the applicant with certificate for two counsel, which is to be assessed summarily.  For that purpose, the applicant has lodged its Statement of Costs dated 28 July 2022 seeking a total sum of $341,650.  We hereby further direct that the Corporation shall lodge and serve its written comments (not more than 2 pages), if any, on the statement of costs within 7 days from the date of this judgment, and the applicant shall lodge and serve its reply (not more than 2 pages), if any, 7 days thereafter.  We will thereafter assess the costs on paper.

Mr Benjamin Yu SC, leading Ms Sara Tong SC, and Mr Eugene Kwan, instructed by Woo, Kwan, Lee & Lo, for the applicant

Mr Wong Yan Lung SC, leading Ms Eva Sit SC and Ms Esther Mak, instructed by Wilkinson & Grist, for the respondent