LUNG KING HONG LTD v. KONG YUK CHING AND OTHERS

DCCJ622/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 622 OF 2005

D E C I S I O N

1. The defendants apply by summons on 6 June 2005 for the setting-aside of the default judgment entered against them on 6 May 2005 and for leave to defend with an interim stay of the default judgment.  The defendants claim they have a good defence and a real prospect of success defending the action.

2. On 16 July 2005, the defendants filed another summons asking for the hearing of their earlier summons of 6 June to be stayed or adjourned to a date after the hearing and judgment of the Court of Final Appeal in the appeal of CACV71 of 2003 which would be heard in October 2005.  It further asks for a stay of the default judgment of 6 May 2005. 

The Background

3. The plaintiff became the registered owner of the land known as Lot No. 2198 in Demarcation District 76, hereinafter known as “the said lot,” together with other lots of neighbouring land pursuant to an assignment dated 28 April 2003.  The land is held under a Block Crown Lease, the term of which expired on 27 June 1997.  Pursuant to section 6 of the New Territories Leases Extension Ordinance, Chapter 150, the term of the government lease of the land was extended to 30 June 2047.

4. The plaintiff claims that the defendants are trespassers to the said lot.  The 1st to the 5th defendants are members of the same family residing in part of the said lot.  It is the defendants’ case that they have been in occupation of the said lot since 1962.  The land they occupy is also known as 181 Kwan Ti North Village, Fan ling (hereinafter refer to as “the said land.”) 

5. According to the defendants’ affirmation, the 1st defendant raised her nine children in the said land.  Not only did they live in the said land.  They had also conducted farming activities on the land.  The defendants’ claim that they have acquired an adverse possessory title to the said land against the plaintiff and the plaintiff’s predecessors in title. 

6. Upon being served with the writ in this action in February 2005, the defendants applied for legal aid.  However, they were under a misunderstanding that upon lodging the application to the Legal Aid Department, the action would be dealt with by the department and therefore they have failed to file a notice of intention to defend this action in court on time.  Consequently, on 6 May 2005, final interlocutory judgment in default was entered for the vacant possession of the said land and damages for trespass to be assessed against the defendants.

7. On 13 May 2005, the defendants were notified that their applications had been refused by the Legal Aid Department.  On 25 May 2005, the defendants’ solicitors filed a notice to act into court.  On 6 June 2005, the defendants filed the summons to set aside the judgment in default. 

8. Based on the aforesaid facts, it is not disputed that the judgment entered was a regular one.  The burden is therefore on the defendants to show their defence has a reasonable prospect of success on merits.  Order 13/9/12 and Order 13/9/13 of the Hong Kong Civil Procedure stated and provided sufficient support.

9. The lapse of time and delay in the defendants’ application to set aside the default judgment was not a prolonged one, and the defendants’ default was due to a misunderstanding of the legal procedure.  The defendants, however, have to satisfy the court that their defence is a meritorious one.  The Hong Kong Civil Procedure, Order 13,/9/14 provides that for a meritorious defence:

“It is not sufficient to show a merely arguable defence that would justify leave to defend under Order 14.  The defendant must show that he has a real prospect of success.”  To do so, he must satisfy the court that his case and the evidence that he adduces in support of it is potentially credible and carries some degree of conviction.  Thus, the court must form a provisional view of the probable outcome of the action.”  “The right to apply to set aside on the ground of existence of a meritorious defence is not lost even if the defendant, having had judgment entered against him in default of acknowledgement of service, obtained from the plaintiff time in which to pay.” 

“However, where the ultimate outcome would depend on whose evidence is believed and no provisional view of the probable outcome of the action can be formed without a trial, the appropriate test to determine whether the defendant has a real prospect of success is whether the defence “could well be established” at trial.”

10. Under the rules, the court has a discretion, after considering the merits of the defence and all the circumstances, to decide if judgment should be set aside. 

11. It is not disputed that whether the defendants’ defence of an adverse possessory title against the registered owner is meritorious or not has been concluded with the Court of Appeal’s decision in Chan Tin Shi v Li Tin Sung & Others.  The defendants, however, submitted that all was not lost because the Court of Appeal’s decision in Chan Tin Shi is subject to an appeal to the Court of Final Appeal in CACV71/2003, and therefore whether the defendants’ defence would have any prospect of success depends on the outcome of the Court of Final Appeal’s decision.  It is therefore the defendants’ wish that their application to set aside may be adjourned until after the hearing and the outcome of the Chan Tin Shi appeal is known.  The appeal, I am told, will take place in October or November this year.

12. The plaintiff is opposed to the adjournment.  Mr Ng, counsel for the plaintiff, submitted that the court should apply and determine the case as the law stands at the time of the hearing of the case and not wait for a judgment which may change the law or may not change the law in future.  Mr Ng referred to a number of decisions in the High Court given after the Court of Appeal judgment in Chan Tin Shi.  In all of these cases, the courts have followed the majority decision of Chan Tin Shi and disallowed the claim of the party in adverse possession.  These decisions were all based on the New Territories Leases (Extension) Ordinance, Chapter 150.

13. Section 6 of the New Territories Leases (Extension) Ordinance, Chapter 150 provides that “the term of a lease to which this ordinance applies is extended, from the date on which it would, apart from this ordinance, expire, until the expiry on 30 June 2047 without payment of any additional premium.”

14. Mr Leung, counsel for the defendants, submitted that the appeal in Chan Tin Shi’s case would greatly affect the title of the defendants to the said land.  Mr Leung agreed, however, under the Court of Appeal decision in Chan Tin Shi, the defendants’ defence is unsustainable.  The majority decision of the Court of Appeal in Chan Tin Shi’s case was that the effect of the New Territories Leases (Extension) Ordinance, Chapter 150 was to create a new estate.  That being so, the fact that a squatter’s right may have been acquired would not affect the new lease upon the coming into operation of the ordinance in Chapter 150 or upon the expiry of the old lease in June 1997.

15. This position of the law has been adopted by the courts in a number of cases referred to to me by Mr Ng.  They include the following: one, the judgment of Suffiad J given on 15 April this year in the case of China Overseas Grand Game Property Development Limited v Mok Yuen Fun& Others HCMP968 of 1999; and the second case, a judgment of Deputy High Court Judge Fung dated 11 May 2005 in the case of Hilda Company Limited v Occupiers of Premises & Others HCMP1853 of 2003; the third case, judgment of Sakhrani J, a judgment handed on 27 June 2005, the Lau Wing Hong & Others v Wong Wor Hung & Another HCA1454 of 2003; fourth case, Deputy High Court Judge Fung in the case of 江有鳳及余大作 HCA12 of 2005, judgment dated 30 June 2005; and Chan Kwok Ting v Chan Nam Ping HCA12955/1998, date of judgment: 4 July 2005, judgment of Deputy High Court Judge Kenneth Kwok.

16. Clearly, the Court of Appeal’s decision in Chan Tin Shi is binding on me.  It is equally obvious that the defendants’ defence therefore is unsustainable as the law now stands.  The question is whether I should adjourn the application of setting aside the default judgment pending the Court of Final Appeal’s decision. 

17. Relying on the authorities referred to me by Mr Ng that I referred to above, I have a discretion in the matter.  However, unlike the cases referred to earlier, the plaintiffs have obtained a default judgment in this case.  The burden is even stronger therefore on the defendants.  The burden is more onerous on the merits that they should have a real prospect of success.  In all the previous authorities cited to me, those courts have decided to follow Chan Tin Shi’s Court of Appeal decision: they were cases on striking out or dismissal of the application to stay or application to adjourn the trial or hearing of either striking-out of a defence relying on adverse possession or dismissal of an application for an adverse possessory title.  I do not therefore think this application should be adjourned on the basis that the Court of Final Appeal is going to hear an appeal on the Chan Tin Shi case.

18. The defendants submitted they would be driven out of their homes of over 40 years should the plaintiff be allowed to execute the default judgment while the plaintiff claim there is a building order under section 27A of the Buildings Ordinance, (Chapter 123) to perform certain acts due to the form of a man made land had become dangerous and remedial work would be required.  The order was dated 30 August 2002.  The man made form or land was adjacent to the said land occupied by the defendants. 

19. The plaintiff’s surveyor proposes to demolish the wall on the said land erected by the defendants or, not to demolish the wall and to do remedial work on the slope but to demolish the man made land.  In order to do so, the demolition of the wall to widen the path leading to the slope erected by the defendants on the said land would be required.  Furthermore, the plaintiff proposes to use the said land as a storage area for the work to be conducted, and this, according to the defendants, would mean that the temporary structures erected, tolerated and recognised by the Buildings Authority that have existed since 1976 would have to be demolished.

20. The defendants’ surveyor proposes therefore an alternative route of access in another piece of land for the storage of machinery, mud and rubbles. 

21. After reading the two surveyors’ reports and the sketch plans of the area attached to the reports, even with the aid of the photographs supplied, I find it difficult and impossible to determine if the plaintiff’s surveyor’s proposal is the only viable option without further clarifications.  The building order imposed on the plaintiff on 30 August 2002 demanded that the plaintiff’s predecessor should appoint an authorised person within 2 months and submit an investigation report with proposal of remedial and preventive work for the Buildings Department’s approval within 7 months.  The plaintiff’s surveyor’s report was submitted this year.  Over two and a half years had elapsed by then. 

22. No evidence has been exhibited on the urgency of the work to be conducted at this slope or man made form.  In fact, no evidence as to the approval of the proposal by the plaintiff’s surveyor had been adduced for the work to commence.  As I cannot find any evidence of urgency in the work proposed or the approval of the plan suggested by the plaintiff by the Buildings Department, and after weighing the balance of prejudice, I do not find a stay of execution would be unduly prejudicial to the plaintiffs.

23. I will follow the Court of Appeal in the case of Hong Kong Ferry Holdings Company Limited v Chan Kwan Fat & Others [1995] 1 HKC 542 in dealing with the situation where a pending appeal to the Privy Council on the effects of the New Territories Lease (Renewable Crown Leases) Ordinance, Chapter 152, the Court of Appeal stated that:

                 “The correct course was to dismiss the appeal that they were dealing with but to stay execution of the order made below until after the determination of the application for leave to appeal to the Privy Council and further staying such execution, if that application was successful, until after the determination of the appeal to the Privy Council in that case.”

24. The same course was adopted by Le Pichon J (as she then was) in the case of Kung Wong Sau Hin & Another v Szeto Chun Keung & Others [1996] 2 HKC 616 where she dealt with the same ordinance, Chapter 152, and ordered the striking-out of the defence but stayed the execution of the order for possession until after the determination of the appeal in the Privy Council of a case that was going to the Privy Council at the time.

25. In Hong Kong Lam Lan Koon Limited v Realray Investment Limited HCA15824 of 1999, Lam J had refused to adjourn the case pending the appeal to the Court of Final Appeal in the Chan Tin Shi case but ordered a stay of execution.  Sakhrani J in the case of Lau Wing Hong did the same.  He held in paragraph 14 of his judgment:

                 “As I have said, there is a possibility that the Court of Final Appeal may reverse the decision of the Court of Appeal.  I am satisfied that I should not make an order at this stage which may prejudice the position of the defendants should that event occur.  Nevertheless, it seems to me that I ought to deal with the application to strike out and not adjourn the summons because the plaintiffs are entitled to have the matter determined on the law as it presently stands.  It seems to me that the prejudice to the plaintiffs far outweighs the prejudice to the defendants if the matter were adjourned.  It seems to me that in the interest of justice, the matter ought to be dealt with by my dealing with the application to strike out.  There really is no answer to the summons to strike out.  So I will strike out the defence and counterclaim and give judgment to the plaintiffs, but it seems to me to be right to grant a stay of execution to the defendants so that their position is not prejudiced in the event the Court of Final Appeal reverses the decision of the Court of Appeal.  That is the order I make and I will hear the parties on the formal order I should make.”

26. On the same basis and adopting the same approach, I will dismiss the defendants’ summons to adjourn the application to set aside the default judgment, and I will also dismiss the defendants’ application to set aside the judgment for reasons I have given earlier, and I will order a stay of execution pending the outcome of the Court of Final Appeal’s hearing of the case of Chan Tin Shi.  I will also impose the payment of $5,000 a month from the date of judgment in default, which is 6 May this year, until the outcome of this Court of Final Appeal’s hearing of Chan Tin Shi is known.  That is the date of the judgment in Chan Tin Shi from the Court of Final Appeal.

(Court discussion re costs)

27. I will order costs against the defendants because this is an indulgence, and in spite of the letter, the proposal of payment of $5,000 into court pending the hearing has in fact not been a genuine one.  Because it is subject to what the court would order.  So it is not an open offer and there were protracted arguments yesterday and today on the last occasion.  So I will order costs of the hearing of the two applications to be paid by the defendants to the plaintiff, to be taxed if not agreed, and including the hearing on these three occasions, with certificate for counsel.