FU MEI LING MARY v. YEUNG KONG and Another

IN THE COURT OF APPEAL

1994, No.47
(Civil)

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J U D G M E N T

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Mortimer, J.A.

1. I will ask Leonard J. to deliver the first judgment.

Leonard J.

2. This is an appeal from a judgment of Patrick Chan J., dismissing an appeal from a decision of Master Woolley, who had given judgment for the plaintiffs (the respondents) in an action for possession of land in the New Territories.

3. In about 1949, according to the appellants, one Liu Kam Chung and his son Liu Kwun Keung were in adverse possession of the land in question. No action was commenced against them for possession of the land and as a consequence by about 1969, they acquired a possessory title by virtue of the Limitation Ordinance and the title of the registered owner, who was a lessee of the land from the Crown, was extinguished.

4. On the authority of Fairweather v. St. Marylebone Property Co. Ltd. [1963] A.C. 510, the term "extinguished" in this context does not imply total extinction. It means that the lessee's right and title as against the squatter is extinguished.

5. Lord Radcliffe said, at p.539 of the report in that case:-

"I think, therefore, that it is a false approach to the provisions of the Limitation Acts to regard the "extinguishment of title" as extinguishing more than the title of the dispossessed against the dispossessor. Where the person dispossessed is a lessee, I do not think it right to try to build conclusions on the assumption that the nexus between him and the lessor has been destroyed; or, consequently, that, once adverse possession has been completed, he ceases to hold the term of years and estate in it granted to him by the lessor."

6. At p. 540, Lord Radcliffe added this:-

"I conclude, therefore, that the effect of the "extinguishment" sections of the Limitation Acts is not to destroy the lessee's estate as between himself and the lessor, and that it would be incorrect to say that if he offers a surrender to the lessor he has nothing to surrender to him in respect of the land in the possession of the squatter ... What the lessee surrendered in this case was the encumbrance on the fee simple in possession."

7. There being no material distinction between the relevant parts of the Limitation Ordinance on the one hand and the relevant parts of the Limitation Acts on the other, this court is bound by the majority decision in Fairweather as to the true meaning and effect of the legislation - De Lasala v. De Lasala [1979] H.K.L.R. 214.

8. Fairweather is authority for the following propositions:

1. Adverse possession for the requisite statutory period under the Limitation Acts of land the subject of a lease extinguishes the right of the dispossessed lessee against the dispossessor, but it does not destroy the lessee's estate as between himself and the lessor.

2. If the lessee surrenders the lease, the surrender operates not as an assignment of the term but as a determination of it whereupon the lessor's right to possession of the demised property accrues, because the encumbrance on the fee simple in possession which was represented by the term of years has ceased to exist. In such circumstances, a claim for possession by the lessor against the squatter is not made through the former lessee. The position is the same whether the lease be determined by effluxion of time, forfeiture and re-entry, or surrender.

9. At p.547 of the report of Fairweather, Lord Denning says this:-

"the only reason, it seems to me, which can be urged against this conclusion is that it means that a squatter's title can be destroyed by the leaseholder and freeholder putting their heads together. It is said that they can by a surrender or by a surrender and regrant - destroy the squatter's title completely and get rid of him. So be it. There is no way of preventing it."

10. I would observe that one more step would be needed, i.e. an action for possession against the squatter in the absence of which action his possession would eventually defeat the new lessee and in due course the lessor.

11. In the present case, the court is not concerned with the determination of the lease by forfeiture or surrender. What has happened here is that by the New Territories (Renewable Crown Leases) Ordinance, Cap. 152, there was deemed to be a grant on 1st July 1973 by the Crown to the lessee of a new lease in respect of the land. Following Fairweather, that statutory renewal, in the absence of any provision to the contrary, would produce the situation envisaged by Lord Denning. Under the new lease the lessee would have a right of action against the squatter for possession, notwithstanding that his right of action under the old lease against the squatter had been permanently barred.

12. The question is whether there is any provision to the contrary. That depends upon the construction of section 4(4) of the New Territories (Renewable Crown Leases) Ordinance. That subsection is in the following terms:

"(4) Every new Crown lease and the land thereby deemed to be demised shall be deemed to be subject to such of the following encumbrances and interests as the land and the existing Crown lease relating thereto were subject to immediately before the first day of July 1973-

(a) any mortgage, whether legal or equitable, and whether registered in a District Land Office or not;

(b) any public rights;

(c) any other rights, easements, tenancies or other burdens or encumbrances of whatsoever kind, or nature, except such as were created by an instrument and were not thereby expressed to continue after the 30th day of June 1973."

13. The appellants' case is that the possessory right of the 1st defendant was preserved by section 4(4)(c). Their right to possession immediately before the 1st July 1973 was good against all who could not prove a better right, including the lessee at least during the subsistence of the lease. It was not merely a personal right against the dispossessed lessee: it was a free-standing title rooted in possession and not depending upon the title of the dispossessed lessee.

14. Patrick Chan J. held that the operation of the Limitation Ordinance, being purely negative, conferred upon the squatter no right against the lessee. That, with respect, is incorrect. Once the lessee's title had been extinguished as against the squatter, then if the lessee had entered upon the land without permission the squatter in possession would have had a cause of action against him, and the lessee would not have been able to plead the lease in his own defence. It is difficult to see how a right to possession enforceable by action by a squatter against a lessee during the subsistence of the lease, and everyone else who cannot show a better title, can fail to be an interest to which the land was subject before the 1st July 1973.

15. Was that right to possession also an interest to which the Crown lease was subject before the 1st July 1973? I am of the opinion that it was. Since the lease was extinguished only as against the squatter holding the possessory title, it was capable of being assigned, but an assignee would take the lease subject to the squatter's right to possession which was superior to the assignor's right.

16. The assignee would have a right to possession, however, against everyone other than the holder of the possessory title. Thus both the land and the Crown lease are subject to the squatter's right to possession.

17. In Lam Kee On v. Lam Hing [1991] H.C. No. A5458, Godfrey J., as he then was, considered the effect of section 4(4). He said:-

"... I have not forgotten the provisions of section 4(4) of the New Territories (Renewable Crown Leases) Ordinance. I appreciate that the renewal of the plaintiff's lease of the disputed land took effect subject to rights affecting the disputed land when held under the original Crown lease. But, as it seems to me, the "rights" of a squatter against a tenant do not survive the end of the term created by the tenants lease. When that term comes to an end, whether by effluxion of time (as in fact happened here) or in any other way, e.g. surrender, compare Fairweather v. St. Marylebone Property Co. Ltd. [1963] A.C. 510, that marks the end of the squatter's title."

18. With that view I must respectfully disagree. The rights of a squatter immediately prior to the determination of the lease, where he has acquired a possessory title by adverse possession, are rights enforceable not only against the lessee, whose rights as against the squatter have been extinguished but also against everyone lacking a better claim to possession. When the lease is determined, (leaving aside section 4(4)) the squatter still has a right to possession enforceable by action against everyone other than the former lessor (or someone with a better title than the former lessor). If the former tenant enters upon the land it will be as a trespasser, unless he has somehow acquired a new right to possession superior to that of the squatter. The determination of the lease, therefore, does not mark the complete extinction of the squatter's title. If the landlord does not commence proceedings for possession within the limitation period which starts to run upon the determination of the lease, then he too will as against the squatter lose his right to possession.

19. Patrick Chan J. held that since the title of the lessee was extinguished by reason of section 17 of the Limitation Ordinance, there was nothing to which the squatter's title could attach. But it did not need to attach to another title. It stood alone as an independent title subject only to any superior claim.

20. The appellant says, in effect, that Godfrey J. was stating the law as it would be if section 4(4) did not exist. The purpose of section 4(4) was to preserve existing rights. The first question is, was the squatter's right to possession in existence immediately before the expiration of the lease. Of course it was. The next question is, was it a right coming within the scope of section 4(4)(c).

21. The respondent says that it was not, for the following reasons:-

(a) As between the lessor and the squatter, the squatter has no status and the lessor's reversion is certainly not subject to the possessory title.

My comment is that this is irrelevant. Section 4(4) looks not to the reversion but to the lease immediately before its determination.

(b) It does not make sense to say that a lease that has been extinguished is subject to a possessory title.

My answer to that is that it does make sense, for the nature of the extinction is that it only bars an action for possession by the lessee or anyone claiming through or under him. The lease still exists but is subject to the squatter's right to possession. Fairweather v. Marylebone Property Ltd., supra.

(c) Godfrey J. must have been right when he said in his reserved judgment in Lam Island Development Co. Ltd. v. Lai Moon Hung & Others H.C.M.P. Nos. 1566-1567 of 1993 that:

"In my judgment, the legislature was concerned, in Section 4(4), to preserve rights which qualified existing titles not rights which, if established, would operate to defeat those titles altogether".

22. In my judgment, it is apparent from the plain words of section 4(4) that the legislature was concerned to preserve "such of the following encumbrances and interests as the existing land and the existing Crown lease relating thereto were subject to immediately before the first day of July 1973." The emphasis is mine.

23. Those encumbrances and interests are expressed to include:-

"any other rights ... of whatsoever kind and nature."

24. Why should it be assumed that the legislature did not intend by section 4(4) to preserve rights which it had itself by statute created? I am not prepared to make such an assumption. The lessee who has slept upon his rights is not entitled to regain them by a statutory windfall where it is plain, as it seems to me, that the purpose of the statute was to grant a new lease without disturbing existing rights. For these reasons, I would allow the appeal.

Godfrey, J.A. This is an appeal from an order of Patrick Chan, J. made on 25 February 1994, whereby he dismissed an appeal from an order of Master Woolley made on 8 November 1993. The master's order was defective in form, but it is unnecessary to go into that; for the parties are content, as I understand the matter, to treat the master's order as having determined, in favour of the plaintiffs in the action, an issue raised by a summons, taken out on behalf of the plaintiffs on 10 August 1993 under Order 14A of the Rules of the Supreme Court, as to whether (as the defendants contend) the plaintiffs' claim in the action is time-barred. The master having held that the plaintiffs' claim is not time-barred, and the judge having upheld the master, the defendants appeal to this court.

25. The plaintiffs' claim in the action is for possession of certain land at Yuen Long in the New Territories (in the statement of claim described as sub- section 1 of section F of Lot 3719 in Demarcation District No. 104) and for consequential relief.

26. The facts may for present purposes be taken to be as follows.

27. The land was comprised in a block Crown lease, granted many years ago, for a term expiring on 30 June 1973 but with a right of renewal. In 1949, one Liu Kam Chung and his son Liu Kwun Keung took possession of the land adverse to the title of the person or persons then entitled to the benefit of the term created by the Crown lease. In 1963, one Fu Tong acquired the term; but in 1969 his right to recover possession of the land as against the Lius became statute-barred. On 30 June 1973, the term expired but there is to be deemed to have been granted to Fu Tong as from 1 July 1973 a separate new Crown lease of the land: see s.4(2) of the New Territories (Renewable Crown Leases) Ordinance, Cap. 152 ("Cap. 152"). Also in 1973, Liu Kwun Keung let the land to the first defendant, Yeung Kong. In 1976, Liu Kam Chung died. In June 1985, Liu Kwun Keung sold his interest in the land to Yeung Kong. Also in 1985, Fu Tong assigned, by way of gift, a moiety of his interest in the land to one Fu Mei Ki. In 1988, Fu Tong died, and one Fu Mei Ling took a grant of representation to his estate. In March 1992, Yeung Kong let the land to the second defendant, Hoi Fat Trading Co., for use as a vehicle park. So Fu Mei Ling and Fu Mei Ki are the plaintiffs in the action, commenced on 10 June 1993, claiming to be entitled to possession of the land under the new Crown lease deemed to have been granted on 1 July 1973 to Fu Tong; Yeung Kong is the first defendant, claiming to be entitled to the rents and profits of the land adverse to the interests of the plaintiffs; and Hoi Fat Trading Co. is the second defendant, claiming to be entitled to possession of the land as the first defendant's tenant.

28. Section 7(2) of the Limitation Ordinance, Cap. 347, provides (so far as is material) as follows:

"7(2) No action shall be brought by any other person to recover any land after the expiration of twenty years from the date on which the right of action accrued to him or, if it first accrued to some person through whom he claims, to that person ...."

29. Section 17 of that Ordinance provides (so far as is material) as follows:

"17. .....at the expiration of the period prescribed by this Ordinance for any person to bring an action to recover land ..... the title of that person to the land shall be extinguished."

30. The plaintiffs say that their right of action accrued on 1 July 1973, less than twenty years before the date on which they commenced their action, i.e. 10 June 1993. The defendants say that the possessory title which had been acquired by 1969 and to which they now claim to be entitled continued to subsist after 30 June 1973 by virtue of s.4(4)(c) of Cap. 152, which provides (so far as is material) as follows:

"4(4) Every new Crown lease and the land thereby deemed to be demised shall be deemed to be subject to such of the following encumbrances and interests as the land and the existing Crown lease relating thereto were subject to immediately before the 1st day of July 1973-

(a) .....

(b) .....

(c) any other rights, easements, tenancies or other burdens or encumbrances of whatsoever kind or nature, except such as were created by an instrument and were not thereby expressed to continue after the 30th day of June 1973."

31. But for s.4(4)(c) I (for the reasons given in the judgment of Leonard J., which I have had the advantage of reading in draft) would have considered the plaintiffs' argument unanswerable; does s.4(4)(c) defeat it? The plaintiffs say it does not. They rely on two cases cited to us, namely Lam Kee On v. Lam Hing, HCA 5458 of 1991, 15 April 1992, unreported and Lam Island Development Co. Ltd. v. Lai Moon Hung and others, MP 1566 to 68,70 to 71 of 1993, 14 March 1994, unreported, both of them first instance decisions of my own in which I rejected arguments based on s.4(4)(c). In Lam Kee On's case I said:

"I appreciate that the renewal of the plaintiff's lease of the disputed land took effect subject to rights affecting the disputed land when held under the original Crown lease. But, as it seems to me, the 'rights' of a squatter against a tenant do not survive the end of the term created by the tenant's lease."

In the Lam Island Development Co. case I said:

"The defendants further say that the possessory titles which they had acquired, or were in the course of acquiring, by 30 June 1993 are to be treated as 'rights' for the purposes of s.4(4)(c) of Cap. 152. I do not think this is a legitimate construction of the words used by the legislature in that subsection. In my judgment, the legislature was concerned in section 4(4) to preserve rights which qualified existing titles, not rights which, if established, would operate to defeat those titles altogether."

32. There is no doubt that the legislature intended, by s.4(4) of Cap. 152, to preserve, as against the new lease deemed to have been granted to the person entitled to the benefit of the expired lease, rights of "whatsoever kind or nature" which, but for s.4(4), would themselves have come to an end with the expiry of the old lease. Do such "rights" include rights acquired or in the course of being acquired under the Limitation Ordinance, Cap.347, contrary to the views I expressed in the two cases cited above?

33. I have to say that I have changed my mind. I can now see no good reason for construing s.4(4) of Cap.152 so restrictively as to exclude such "rights" from the ambit of s.4(4)(c). The reason I gave for the conclusion to which I came on the Lam Kee On case was, I regret to say, fallacious; and the reason I gave for the conclusion to which I came in the Lam Island Development Co. case was, I regret to say, no better. The attractive argument of Mr. Johnson Lam, for the defendants, has satisfied me that these decisions were both wrong on this point. Mr. Johnson Lam pointed out, correctly, that the purpose of Cap. 152 was to provide for a statutory renewal of certain block Crown leases so as to avoid the necessity of each lessee giving notice exercising its right of renewal. He said that it would be an unexpected consequence if Cap. 152, by its mechanism of automatic renewal, had indirectly and fortuitously deprived a considerable number of possessory title owners of their interests in the properties which they might have occupied for over the statutory period of twenty years. That, he said, would be an unreasonable intention to ascribe to the legislature. In the end, I am persuaded that this is correct. I am satisfied that the word "rights" as used in s.4(4)(c) of Cap. 152 is wide enough to comprehend and so to preserve rights acquired or in the course of being acquired under the Limitation Ordinance, Cap.347. (I am fortified in this conclusion by a consideration of s.70(1)(f) of the Land Registration Act 1925 (q.v.) which recognises such "rights" as "overriding interests" in land for the purposes of registered land conveyancing in England and Wales.) I would overrule all earlier decisions at first instance to the contrary and allow this appeal.

Mortimer, J.A. The plaintiffs/respondents brought an action on 10th June 1993 for the recovery of land in respect of which they hold a 24 year Crown lease commencing on 1st July 1973 against the appellants/defendants who are, and have been for many years, in possession.

34. Patrick Chan J dismissed an appeal from Master Woolley who found for the plaintiffs on a summons to determine whether the plaintiffs' claim is statute barred. The defendants appeal against Patrick Chan J's order.

35. The facts are not in dispute and have been rehearsed by Godfrey JA. I do not repeat them.

36. The plaintiffs hold the Crown lease of the land concerned. They, or their predecessors in title, held a Crown lease of the same land prior to 1st July 1973 when they were automatically granted a new Crown lease by virtue of s.4(2) of the New Territories (Renewable Crown Leases) Ordinance, Cap.152.

37. By 1st July 1973 the defendants, or those through whom they claim, had already been in adverse possession of the land for over twenty years and could have defeated any claim for possession by the plaintiffs under the Limitation Ordinance, Cap.347 ss.17 and 7(2). The relevant parts of which read:

"7(2) No action shall be brought by any other person to recover any land after the expiration of twenty years from the date on which the right of action accrued to him or, if it first accrued to some person through whom he claims, to that person...

17 ... at the expiration of the period prescribed by this Ordinance for any person to bring an action to recover land ... the title of that person to the land shall be extinguished."

38. The Crown lease held by the plaintiffs prior to 1st July 1973 was therefore subject to the defendants' rights under the Limitation Ordinance.

39. On the granting of a new Crown lease to the plaintiffs on 1st July 1973, the defendants' rights under the old lease were extinguished (see Fairweather v St Marylebone Property Co Ltd [1963] AC 510) unless the new lease was made subject to the defendants' rights under the old lease - "the existing Crown lease" - by s.4(4)(c) of Cap. 152.

40. The relevant parts of the section provide:

"4(4) Every new Crown lease and the land thereby deemed to be demised shall be deemed to be subject to such of the following encumbrances and interests as the land and the existing Crown lease relating thereto were subject to immediately before the first day of July 1973-

(a) ...

(b) ...

(c) any other rights, easements, tenancies or other burdens or encumbrances of whatsoever kind, or nature, except such as were created by an instrument and were not thereby expressed to continue after the 30th day of June 1973."

The issue for this Court is whether the words in s.4(4)(c) are appropriate to preserve in the new Crown lease, the defendants' rights of adverse possession to which the plaintiffs' Crown lease (the existing lease) was subject immediately before 1st July 1993.

41. To my mind the answer is clear. Both the effect and the intention of the subsection is to preserve rights to which the "existing" Crown lease was subject and also it deemed that the new Crown lease should be subject to the same rights. The subsection seeks to preserve the rights which otherwise would die with the "existing" lease - the only lease which could otherwise be subject to those rights. The general principles applicable in these circumstances to be found in the majority speeches in Fairweather's case do not apply.

42. The rights of adverse possession of over 20 years are rights to which both the land and the "existing" Crown lease were subject. It is not necessary therefore in this case to consider whether the "and" in "... interests as the land and the existing Crown lease were subject ..." is conjunctive or disjunctive. The point may arise in other circumstances.

43. For these reasons therefore I am also satisfied that the new lease granted to the plaintiffs on 1st July 1973 was deemed to be subject to the same defendants' rights as the "existing" lease, and that by virtue of the Limitation Ordinance the defendants succeed on the summons. I also would allow the appeal.

44. I add one final point. If the defendants had not been in adverse possession of the land for twenty years before 1st July 1973, I entertain doubt whether they would have any rights under the "existing" lease to which the new lease was subject, but I prefer to express no view and to leave the matter open for future determination.