Statutory bodies – forced to enforce?

Hogan Lovells

Hogan Lovells

The Hong Kong Court of Appeal (Poon CHJC, Barma, and Au JJA) has imposed upon a statutory corporation an obligation to consider whether it should take measures to enforce a lease against a tenant, following an application by a business competitor. The decision is a good example of where public law can be used to achieve commercial aims.

The decision appears to leave open the question of whether the decision of the corporation was in fact amenable to judicial review in the first place. It also may provide an example of how public law litigation, if deployed effectively, can be used to bring about the desired commercial outcome of a private business.

Data dilemma

In SUNeVision Holdings Ltd v. Hong Kong Science and Technology Parks Corp [2022] HKCA 763, the Court of Appeal directed HKSTP to reconsider SUNeVision's complaints under its own lease restriction policy which SUNeVision said was not being properly enforced. The complaint related to leases granted to competitors to operate data centres in the Tseung Kwan O industrial estate.

The HKSTP is a statutory body set up in 2001 under the Hong Kong Science and Technology Parks Corporation Ordinance (Cap 565) to stimulate and promote local technology businesses. It owns three industrial estates across Hong Kong on land granted to HKSTP by the government for a nominal premium for the purposes of furthering its mission to stimulate the growth of local technology businesses.

SUNeVision – whose subsidiary had failed in its own tender bid – argued that HKSTP had failed to enforce its own policies prohibiting lessees from allowing third parties to occupy the premises, in leases it had granted to competitors to operate data centres at its Tseung Kwan O estate. As it had failed to succeed in the tender, the applicant purchased adjacent land at considerable cost by way of substitute.

SUNeVision made multiple complaints to HKSTP which referenced alleged contraventions of the restriction by competitors. It asserted that it had had a legitimate expectation that grantees who were data centre operators in the estates would not be not allowed to sublet or part with possession of the leased premises or to license or allow third parties to occupy part of the premises. Without the lease restrictions, SUNeVision said it would have been prepared to submit a higher amount of proposed investment in its bid.

HKSTP argued it did not view the data centre operators' actions as a contravention of their policies and refused to take action, leading to SUNeVision seeking judicial review against HKSTP in March 2020. The Honourable Mr Justice Geoffrey Lam rejected all grounds of judicial review and dismissed the case.

The appeal

On appeal, SUNeVision argued that HKSTP had misconstrued its own policies which "had the effect of allowing customers of data centres to occupy (part of) the data centre" which violated a "No Alienation Clause" in the lease and so contravened the lease restriction policy.

No alienation clause

The Court of Appeal said that it was common ground that under the No Alienation Clause, the grantee was 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."

SUNeVision argued that the grantees had permitted their customers to "occupy" the customer space in the relevant data centres, and that HKSTP had, in misconstruing its policies, failed to enforce the restriction on occupation.

The Court of Appeal disagreed that the point had been insufficiently pleaded at first instance, quoting at length from the amended Form 86.

Proper construction

SUNeVision's contention that the use of the premises by its competitors contravened the lease restrictions, was described by the Court of Appeal as the "core issue" that underlay the judicial review application and the appeal. In this way SUNeVision sought to compel HKSTP to impose its construction of the lease restriction on its competitors.

SUNeVision submitted that the judge had "not arrived at a conclusion on the proper construction of the meaning of the Lease Restrictions in the context of data centres" but had instead concluded that HKSTP had a policy of enforcement that its Lease Restriction Policy would be read subject to the Data Centre Policy.

The Court of Appeal considered that the restriction should only apply where the occupation was not for the primary purpose of receiving the relevant data centre services provided by the granter or where the customer's control of access to the space would mean the grantee would not have exclusive control of access. It therefore concluded that HKSTP should review the arrangements to decide whether they were in fact properly enforcing their policies in this regard.

The Court of Appeal agreed with SUNeVision that once the decision was based on a wrong construction of the lease restriction policy, it was made in breach of the SUNeVision's legitimate expectation and that HKSTP would not be properly enforcing its policy in relation to the restriction.

Breach of Tameside duty

The Court of Appeal said it was trite that the decision-maker has a duty to take reasonable steps to acquaint themselves with the relevant information to enable it to properly perform the function in question, the so-called Tameside duty. However, it is for the decision-maker, not the Court, to decide on the manner, extent and intensity of inquiry of the facts. The Court will be slow to intervene in a decision maker’s decision, and will not intervene merely because it considers further inquiries would have been sensible or desirable. It will only intervene if it considers that no reasonable decision-maker would have come to that conclusion (i.e. Wednesbury unreasonableness).

In the present case, the Court of Appeal has chosen to intervene in HKSTP's decision. Given the Court of Appeal's conclusion that HKSTP 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 was clear that HKSTP 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 SUNeVision's complaints.

The Court of Appeal granted SUNeVision an order to quash the decision on the basis of the correct interpretation of HKSTP’s policies and an order to direct HKSTP to reconsider its decision not to take enforcement action against its grantees.

The Court of Appeal also rejected HKSTP's contention that there had been undue delay on the part of SUNeVision in bringing the judicial review proceedings and even if there had been delay, the reliefs sought would not prejudice the lessees.

Public or private?

Not all decisions of statutory bodies are amenable to judicial review. Such decisions will only be open to review where the body in question is acting in a public capacity.

In Matteograssi SpA v. The Airport Authority [1998] 2 HKLRD 213, for example, Mortimer V-P said it was important to look to the function rather than the formal source of authority as the test of whether the decision could be reviewed. Hogan Lovells acted for the Airport Authority in this case.

In Ngo Kee Construction Co Ltd v. Hong Kong Housing Authority [2001] HKEC 16, the court held that where a decision is essentially a private one, purely commercial in nature, such as a tendering process or the purchase of goods or services, and where there is no allegation of fraud, corruption or bad faith, the decision will not be amenable to judicial review. Such decisions, it is argued, were in essence no different from commercial decisions made by ordinary citizens.

Neither authority was cited in either the first instance or the Court of Appeal decision in SUNeVision and the decision, if followed, would appear to lay open the possibility of disgruntled tenders being able to challenge decisions that on the face of it, would seem to be purely commercial in nature.

One might argue that, HKSTP in providing land at below market rates to companies which can serve the purpose of fostering innovation in Hong Kong, was performing a public role. The rationale behind the lease restriction policy is to prevent lessees from further subleasing land at market rates for rental gain and it is incumbent on HKSTP to ensure that its leased land is not misused for private gain. As in SUNeVision, the interplay between private and public law when substantial commercial considerations are at stake, is likely to be complex. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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