HONG KONG KAM LAN KOON LTD v. REALRAY INVESTMENTS LTD

HCA 15824/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15824 OF 1999

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R U L I N G

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1.  This ruling dealt with four applications made in the course of trial. Due to the under-estimate by the parties as to the length of trial, it had to be adjourned part heard on 29 October 2004. The trial is scheduled to be resumed on 13 June 2005. During the adjourned period, the Court of Appeal handed down its decision in Chan Tin Shi v Li Tin Sung [2005] 1 HKC 1. That decision has an obvious and substantial impact on the viability of the Plaintiff’s claim.

2.  The first application was an application made on 29 October 2004, after the close of the Plaintiff’s factual evidence. The Defendant applied for leave to further amend its Defence and Counterclaim. The application was opposed by the Plaintiff and the 2^nd Defendant by Counterclaim. The second application was an application by the 2^nd Defendant by Counterclaim seeking to discharge the representation order, or alternatively for striking out certain paragraphs in the Defence and Counterclaim. The third application was made by the Defendant for Order 14A judgment against the Plaintiff as a result of the Court of Appeal’s decision. The fourth application is an application by the Plaintiff for the trial to be adjourned pending the Court of Final Appeal’s determination of the appeal in Chan Tin Shi. I have disposed of the first two applications on 21 March 2005 and the reasons for my decisions are given below. I shall also give my decisions on the other two applications in this Ruling.

3.  The most controversial parts of the proposed amendments by the Defendant are,

(a)	a new Paragraph 5(f) in the following terms,
	“since October 1999, the Plaintiff and/or the Association has been in wrongful occupation of the Disputed area, except the footpath. At or since the date of the writ, the Plaintiff and/or the Association has been in wrongful occupation of the footpath.”
(b)	amendments to Paragraph 6, the effect of which is to assert that since the Infringing Acts pleaded in Paragraph 5, the Defendant was dispossessed although there was no dispossession prior to such acts. Before the proposed amendment, the plea in Paragraph 6 was that the Infringing Acts did not and do not, in fact and as a matter of law, constitute dispossession.
(c)	a new prayer (2A) seeking a declaration that the title of the Defendant has never been extinguished.

4.  There are other amendments of minor nature. They are not opposed by Mr F Chan. Although Mr Chong also objected to those in his written and oral submissions, I think the proposed amendments in Paragraph 3A(e) and the main body of Paragraph 5 and paragraph (a) in the Particulars of Paragraph 5 are basically fine tuning the pleadings to tie in the same with evidence already there and they do not cause any prejudice to the other parties that could not be compensated by costs. In accordance with well settled principle, I grant leave to amend as far as those are concerned.

5.  In a way, the amendments to Paragraph 6 tie in with the proposed addition of Paragraph 5(f). As I understand from Mr C H Chan, the purpose of these amendments was to clarify that the Defendant’s case is that after the works in 1999, the Plaintiff and/or the Association occupied the Disputed area in a manner adverse to the Defendant. The occupation continued and the Defendant has been excluded. Hence, the need on the part of the Defendant to seek an order for possession. This case appears to be inconsistent with at least part of the pleas in Paragraph 3(a) and (b) of the draft Re-re-re-re-Amended Defence and Counterclaim and the last sentence of Paragraph 6. At the hearing of 21 March 2005, Mr C H Chan orally applied to revise the draft to remove the apparent conflicts in his pleadings.

6.  To appreciate the implications of these amendments in the context of this action, it is necessary to examine the existing stance of the other parties on the question of occupation of the Disputed area. The Plaintiff’s case is that it took over the occupation and the affairs of Kam Lan Koon since 1972 upon its incorporation. The evidence of its witnesses is to the effect that since the grand opening of the Koon, there had been encroachment of the land in its vicinity progressively. Substantial works were carried out at various stages in the 1970’s starting from 1972. At the latest by mid 1970’s, the Plaintiff has been occupying and using the Disputed areas up to today. This is the very foundation of the Plaintiff’s claim for declarations regarding its possessory title based on adverse possession.

7.  The position of the 2^nd Defendant by Counterclaim is different. As I mentioned in my Reasons for Ruling dated 25 October 2004, as the pleadings stand, it is unclear who comes within the description of the 2^nd Defendant by Counterclaim. To address that concern, Mr CH Chan submitted in writing on 29 October 2004 that the following persons were meant to be sued as such,

“	1.	The members of the Association sued are those who has or had ever been, who are presently, and who becomes, a member of the Association for any period at anytime from October 1999 to date of Judgment on the Counterclaim.
	2.	The aforesaid members of the Association sued include, but are not limited to, all who has and had ever been, who are presently, and who becomes, a member of the Plaintiff for any period at anytime from October 1999 to the date of Judgment on the Counterclaim, as all members of the Plaintiff from time to time were and are members of the Association at the same time.
	3.	The aforesaid members of the Association sued include, but are not limited to, all those persons listed as members of the Plaintiff as on 31 December 2003, being Annexure 1 to the 2nd Supplemental Witness Statement of Kwan Yau Hang filed herein on 14 June 2004, except Low Sai Hong, deceased, as those persons listed as aforesaid were and are members of the Plaintiff from October 1999 (or earlier), up to present.”

8.  Mr CH Chan recognized that within this group of people, some might have separate defence from the others in respect of some causes of action in the Counterclaim. However, he submitted that as regards the claim for possession by the Defendant and the proposed declaratory relief, their position should be identical.

9.  As far as the existing pleadings of the 2^nd Defendant by Counterclaim and the position of Mr F Chan are concerned, the 2^nd Defendant by Counterclaim is not contending that they have a right to occupy the Disputed areas. Nor do they assert that they have occupation and use of the same. Their case is that the Association had ceased to exist since the incorporation of the Plaintiff and the occupation of the Disputed areas, at least as from 1972, was by the Plaintiff.

10.  From the manner in which Mr F Chan conducted the case on behalf of the 2^nd Defendant by Counterclaim so far, he had been confining himself to establish the cessation of activities and occupation by the Association since 1972. He also assured this court it is not his intention to establish positively adverse possession by the Plaintiff although theoretically speaking, it is relevant to the defence to counterclaim (see Paragraphs 22 to 24 and Paragraphs 42 to 54 of the Defence and Counterclaim of the 2^nd Defendant by Counterclaim). He was quite happy to leave that to Mr Chong.

11.  If the Counterclaim against the 2^nd Defendant by Counterclaim were confined to the claim for possession, the real contestants seem to be the Plaintiff and the Defendant. Mr F Chan indicated that the 2^nd Defendant by Counterclaim was quite happy to give an undertaking to this court that in the event the court shall hold against the Plaintiff on adverse possession and made an order for possession in favour of the Defendant, the 2^nd Defendant by Counterclaim would be abided by the same order although on his case, such order vis-à-vis the 2^nd Defendant by Counterclaim would not be necessary as they are not occupying the land.

12.  But the Defendant is also suing for damages. This put a different complexion into the case. Not only does the Defendant sue for damages for trespass, it claims that the trespasses were committed with a calculation to make profit for the wrongdoers that were likely to exceed the compensation payable to the Defendant and asks for aggravated and/or exemplary damages against both the Plaintiff and the 2^nd Defendant by Counterclaim. This means each and every one of those persons who come within the description of the 2^nd Defendant by Counterclaim is potentially at risk of being held personally liable to pay substantially damages to the Defendant in the event the Defendant succeeds.

13.  At the hearing on 2 February 2005, Mr CH Chan indicated on behalf of the  Defendant that the Defendant could undertake to this court that apart from Mr Kwan himself, the Defendant would not seek aggravated or exemplary damages against other members of the association. That addressed some of the concerns raised by this court. However, the Defendant is still reserving the right to seek leave to enforce judgment for ordinary damages against those members. That claim could still be a substantial one.

14.  Legally speaking, to hold a member of an unincorporated association personally liable for the tort physically committed by others in the association is by no means straightforward. Lord Parker had these observations in London Association v Greenlands Ltd [1916] 2 AC 16 at p.38-9,

“Had Sir Samuel Scott applied to the court for leave to defend on behalf of himself and all other members of the association, the court would have had to inquire whether the case was within O.XVI r.9 of the Rules of the Supreme Court; in other words, whether the members of the association have a common interest within the meaning of that rule. Upon such an inquiry the nature and constitution of the association would have been of great materiality. For example, did it carry on business for gain? If so, it would be illegal, and no order recognising its existence could be properly made. On the other hand, if it did not carry on business for gain, the question would at once arise as to the applicability of what may be referred to as the club cases. To use the words of the 8th edition of Lindley on Partnership, p.14, ‘If liabilities are to be fastened on’ any members of such an association ‘it must be by reason of the acts of those members themselves, or by reason of the acts of their agents; and the agency must be made out by the person who relies on it, for none is implied by the mere fact of association’.”

15.  In my judgment, there are two questions that may arise from a claim against the members of an unincorporated association. First, there is a question of substantive law as to how a member would be held liable for the acts or conducts of his fellow member(s) even if he did not take part in such acts or conducts personally. This is the question addressed by the passage in Lindley. Second, there is a question of procedure as to whether a representative action under Order 15 Rule 12 is the appropriate course to adopt to have that matter litigated. To an extent, the second question may depend on answer to the first question. This is because Rule 12(1) is only applicable when there are persons having the same interest in the proceedings.    

16.  But there are cases where the question on substantive law could not be finally resolved at the interlocutory stage. Obviously, the court cannot adjudicate on disputes of facts going to the merits when it is asked to consider an application under Order 15 Rule 12. At the interlocutory stage, all that the court could do is to assess by reference to the materials and the submissions before it whether there is sufficient identity of interest amongst those members so that it would be fair and just to have the action proceeded by way of representative action.

17.  Three consequences follow from this analysis. First, since Order 15 Rule 12 is only concerned with the procedural aspect of an action, it cannot override or pre-empt the conclusion of a trial judge regarding the liability of individual members in the application of the substantive law to his finding of facts. Second, as a matter of procedure, the main concern of the court in deciding whether representative action is appropriate is to ensure that the interests of the individual members who may potentially be affected by the outcome have been fairly and sufficiently safeguarded. Rule 12(5) provides a safety valve to protect members who may have a distinct defence that has not been adequately canvassed at the trial. Third, such assessment must be capable of being varied as the preparation or the conduct of the case developed in such a way that leads to material changes to the positions of the parties. A review mechanism is built into Rule 12(1) where it is provided that the court can order otherwise. In this connection, Mr F Chan cited a number of cases in his very comprehensive written submissions of 5 January 2005 in support of this construction of Rule 12(1): R J Flowers v Burns [1987] 1 NZLR 260 at 273; Taspac Oysters Ltd v James Hardie & Co [1990] 1 NZLR 442 at 447; The Irish Rowan [1989] 2 Ll Rep 144 at 154, 156 and 162; Carnie v Esanda  (1995) 127 ALR 76 at p.81 and 94.          

18.  I therefore reject Mr C H Chan’s submission that as a matter of jurisdiction, this court is barred by the order of Deputy Judge Saunders (see [2004] 2 HKC 673) from reviewing the appropriateness of representation order. I think the more pertinent question on the summons taken out by the 2^nd Defendant by Counterclaim seeking a discharge of the representation order is whether the court should do so in the exercise of its discretion.

19.  Bearing in mind that the 2^nd Defendant by Counterclaim would take part in the action in his personal capacity in any event, I considered that at this stage the most important question is to ensure procedural fairness to the other alleged members of the Association. The question as to liability of such members on substantive law and enforcement of judgment against such members could be ventilated in closing submissions or at a hearing under Order 15 Rule 12(5).  Hence, it is important to ascertain the stance of the other members. For that purpose, I gave directions on 2 February 2005 for notices to be given to them by the Defendant. The notices were duly served and none of them appear at the hearing on 21 March 2005. I can therefore safely assume that they are quite content to leave the matter as it is.

20.  In the light of that, it may not be too meaningful to entertain an application for the discharge of the representation order at this stage. Mr F Chan wisely agreed on 21 March 2005 not to proceed with the summons.  I therefore made no order on the summons of the 2^nd Defendant by Counterclaim with costs reserved to be decided after trial.

21.  Having said so, it should be apparent from what I said that the substantive question as to the personal liabilities of the alleged members is still very much a live issue and parties are at liberty to address me further on that topic in their final submissions.

22.  Coming back to the amendments, Mr F Chan’s main complaint is that it is not clear from the pleadings the basis on which it is alleged that the alleged members of the Association were personally liable for the alleged acts of trespass. He contended that it was not clear from the Defendant’ pleas who did what in the allegations of trespass when considered in the context of the claims against the 2^nd Defendant by Counterclaim.

23.  I have some sympathy with Mr F Chan. However, Mr C H Chan clarified at the hearing on 2 February 2005 that vis-à-vis the 2^nd Defendant by Counterclaim, the Defendant’s allegation of trespass was based on the use and occupation of the Disputed Area by the Association which, according to the case of the Defendant, still retained the character of an unincorporated association. As I understand it, Mr CH Chan’s contention can be summed up as follows,

(a)	the Defendant is relying on the “corporate” occupation of the land by the association instead of any specific act of trespass committed by an individual member;
(b)	the members of the Plaintiff were also members of the unincorporated association that continued to exist despite the incorporation in 1972;
(c)	the occupation of the Disputed areas by the Association constituted “corporate” acts on the part of the association;
(d)	since the occupation was for the furtherance of the purpose of the Association, each and every member is personally liable even though he or she did not commit any act of trespass personally.

Hence, Mr C H Chan submitted that the Defendant needed not pinpoint any specific act by any person.

24.  Whether that contention can be sustained is a matter that I do not wish to express any conclusion at this stage. At this stage, what I am concerned with is whether the 2^nd Defendant by Counterclaim would be embarrassed by such a plea.  So long as the Defendant confines itself to the contention set out above (as Mr C H Chan did), I think there is no risk of the 2^nd Defendant by Counterclaim being disadvantaged by the lack of averment of specific acts of trespass. As regards the Plaintiff, given the position taken by it on occupation, there cannot be any prejudice. I therefore granted leave to amend on 21 March 2005.

25.  Turning to the Defendant’s application for disposal of the case against the Plaintiff on a point of law under Order 14A, Mr C H Chan relied on the recent decision by the Court of Appeal in Chan Tin Shi v Li Tin Sung [2005] 1 HKC 1. The Court of Appeal held in that case that time started to run afresh in respect of land in the New Territories by reason of the effect of the New Territories Leases (Extension) Ordinance Cap.150.

26.  The Court of Appeal has granted leave in Chan Tin Shi for appeal to the Court of Final Appeal. I was told that the appeal is scheduled to be heard in October 2005.

27.  The present case has been adjourned part heard and the scheduled date for resumption of the trial is 13 June 2005 with 15 days reserved.

28.  On the other hand, Mr Chong applied for an adjournment pending the decision of the Court of Final Appeal in Chan Tin Shi. He cited Kingcastle v Owen-Owen, 19 February 1999, an unreported judgment of the English Court of Appeal.  He contended that it is entirely a matter of discretion of this court in deciding whether to wait for the outcome of the decision of the Court of Final Appeal before resuming the trial. In his written submissions of 2 December 2004 and 30 January 2005, Mr Chong advanced arguments as to why the matter should not be determined by way of Order 14A. He submitted that given the stage at which we had arrived in the trial, it would be a waste of judicial resource to determine the case under Order 14A without any finding of facts. He also pointed out that there would still be outstanding matters even if the point of law is decided in favour of the Defendant. Mr F Chan supported that course. He also referred this court to Derby v Weldon (No 5) [1989] 1 WLR 1244 and urged that in any event, discretion should be exercised against proceeding by way of Order 14A in the present circumstances.

29.  Mr C H Chan submitted that the mere fact that the Court of Appeal’s decision is being challenged in the pending appeal to the Court of Final Appeal is not a good reason for delaying justice being administered according to the law laid down by the Court of Appeal. He cited Kung Wong Sau Hin v Sze To Chun Keung [1996] 2 HKC 616 and Hong Kong Ferry (Holdings) v Chan Kwan Fat [1995] 1 HKC 542 in support of this proposition.

30.  In my judgment, it all boils down to how this court should exercise its case management discretion in the disposal of the remaining part of the trial in the light of the decision of Chan Tin Shi and its pending appeal. In the exercise of such discretion, each case must depend on its own facts and the authorities cited by counsel could only serve as illustrations of how the discretion had been exercised in the past in similar, but not precisely the same, circumstances.

31.  The starting point is that this court does have the power under Order 14A to determine a case on a point of law at any stage of the proceedings provided that the criteria in Order 14A Rule 1 are satisfied.  I am satisfied that Mr C H Chan’s summons does raise a question of law suitable for determination without a full trial although the issue had not been as precisely framed as that formulated by Rogers VP in Para.4 of the judgment of 27 January 2005 in Chan Tin Shi.

32.  I am also satisfied that a determination of the point of law will finally determine the claim of the Plaintiff in this action. It will also determine the liability of the Plaintiff in respect of the counterclaim. In fact, Mr Chong conceded in Paragraph 6 of his skeleton submissions of 2 December 2004 that this court is bound by Chan Tin Shi and the Plaintiff’s claim must fail in view of that. However, the question of damages vis-à-vis the Plaintiff, including exemplary or aggravated damages, would not be determined. Likewise, the question of liability of the 2^nd Defendant by Counterclaim would not be determined. In the premises, I am of the view that Rule 1(b) is satisfied.

33.  The question is whether I should exercise my discretion to entertain the application at this stage. I do not accept Mr Chong’s argument that the trial has proceeded to such an advanced stage that the application should not be entertained. Based on the estimates of the parties, the trial on liability will take another 15 days if it is not otherwise disposed of. Whilst it is correct that there are still some other issues to be dealt with, they should take up less than 5 days. A disposal under Order 14A may therefore save at least 10 days’ costs.

34.  Order 14A itself provides that the power can be exercised at any stage of the action. Whilst it is unusual for such power to be evoked during the course of trial, there are exceptional circumstances in the present case. First, the Court of Appeal’s decision was not handed down until the trial had been adjourned part heard. Second, it is properly conceded by Mr Chong that the Plaintiff’s claim must fail unless the Court of Appeal’s decision is overturned.

35.  The only disadvantage of deciding the case under Order 14A is that this court will not make any finding of facts on any controversial matters since the Defendant has yet to adduce its evidence. In the event that the Court of Final Appeal overturns the decision of the Court of Appeal, the case will have to be remitted back to this court to continue with the trial. However, there is no need to hear the evidence that had already been heard by this court in October 2004.  There is no question of waste of judicial resource.

36.  It could mean that if the Court of Final Appeal reverses the decision of the Court of Appeal, there would be a long lapse of time before evidence is resumed. Yet, the same disadvantage would arise if the trial were adjourned pending the decision of the Court of Final Appeal.

37.  It seems to me the material difference between deciding the matter under Order 14A and adjourning the trial is that in the former, the Plaintiff would need to launch an appeal to preserve its position pending the outcome of Chan Tin Shi in the Court of Final Appeal and to apply for a stay of execution in the meantime. If parties do not want to incur too much cost, the appeal could be stayed pending the outcome of Chan Tin Shi. The costs involved should be much less than 10 days’ costs in the trial.

38.  Mr C H Chan submitted that the Defendant is entitled to judgment according to the law as laid down by the Court of Appeal and it would not be correct to delay the same by an adjournment of the trial. Having regard to the circumstances in the present case and the principles in R v Kingston-upon-Thames Justices, ex parte Martin [1994] Imm AR 172, I agree it is not appropriate to impose an adjournment on the Defendant merely because there is a pending appeal in Chan Tin Shi. Balancing the potential prejudice that may cause to the parties by the different options, I think the Defendant is justified in having a determination from this court even though the appeal in Chan Tin Shi could affect the outcome. In my view,  the prejudice of delay caused by an adjournment of the trial to the Defendant outweighs the prejudice to the Plaintiff occasioned by the costs of the appeal preserving the position of the Plaintiff pending the outcome of Chan Tin Shi. The application for the trial to be adjourned is therefore dismissed.

39.  Hence, the choice is between deciding the matter under Order 14A or continuing with the trial in June. I do not think it follows from the decision of Vinelott J in Derby v Weldon (No 5) [1989] 1 WLR 1244 that I should continue with the trial instead of dealing with the matter under Order 14A. The underlying factual matrix in that case is quite different. First, the appeal to the House of Lords in that case is likely to be heard before the action was ready for trial. Second, the claims for conspiracy (which the defendant sought to strike out) in that case called for the investigation of substantially the same facts as other claims which are not demurrable and the striking out of the former would not significantly alter the course of the trial. In those circumstances, I can readily understand why Vinelott J declined to entertain the striking out application pending the decision by the House of Lords.

40.  We are in a rather different situation. The appeal to the Court of Final Appeal is scheduled to be heard several months after the resumption of this trial. This means that even if the trial is to proceed without any Order 14A disposal, this court will still be bound by the Court of Appeal’s decision in Chan Tin Shi and determine the claims of the parties accordingly. Further, as mentioned above, the course of the remaining part of the trial would be quite different and the time taken could be substantially reduced if there were an Order 14A determination.

41.  I recognize that if I proceed under Order 14A, there is a risk that if the Court of Final Appeal shall subsequently overturn the decision of the Court of Appeal in Chan Tin Shi, the case will have to be remitted back to the Court of First Instance for hearing the rest of the evidence and making the relevant finding of facts. On the other hand, there is also a possibility that the Court of Final Appeal may agree with the Court of Appeal. In that event, if we proceed with a full-blown trial, the additional costs of a trial with at least 10 additional days and the enormous judicial time spent on fact finding will be wasted. It has to be remembered that the latter is not confined to the 10 additional days of court sittings. I do not have the benefit of hearing the viva voce evidence of Cheung Kung Wing and the Defendant is relying on his deposition that spanned over 12 days. Even with assistance from counsel, this court must therefore spend substantial time on the reading of the transcripts of the deposition in order to deal with the factual issues properly and satisfactorily.

42.  Mr Chong contended that the Plaintiff would suffer hardship if it has to incur the costs of the appeal. I am not impressed by that argument. The Plaintiff has not filed any evidence as to its financial position. In any event, Mr C H Chan indicated that the Defendant is agreeable to have the appeal stayed pending the outcome of the Court of Final Appeal’s decision in Chan Tin Shi. I do not think the additional costs of such an appeal should be so substantial that the Plaintiff could not afford. To the contrary, I believe it would probably be well within the limit of the costs saved by the reduction in the remaining part of the trial.

43.  Neither would there be substantial additional costs incurred for the purpose of the Order 14A application. In fact, all the costs pertaining thereto should have been incurred. The point is a straightforward one. Mr Chong conceded that at the moment, I am bound by Chan Tin Shi and the only possible result is the dismissal of the Plaintiff’s claim and to enter judgment in favour of the Defendant against the Plaintiff on possession and liability for damages in respect of the Counterclaim.

44.  On balance, I think I should accede to the Defendant’s Order 14A application and determine the Plaintiff’s claim and the Defendant’s counterclaim by following the decision of the Court of Appeal in Chan Tin Shi.  There is no dispute that the land involved is New Territories land and the Government Lease under which the Defendant holds the title is subject to the operation of the New Territories Leases (Extension) Ordinance. According to Chan Tin Shi, the Defendant obtained a new estate by the extension. Two possible dates had been specified in Paragraph 4 of the judgment of Rogers VP of 27 January 2005 in granting leave to appeal as the commencement dates of the fresh limitation period: 25 April 1988 or 30 June 1997. It is plain that on either dates, the limitation period for commencement of action had not expired when the Defendant first filed its Counterclaim on 21 June 2003. For a cause of action to recover land accrued on 25 April 1988, the limitation period is 20 years, see Section 38A of the Limitation Ordinance. For a cause of action accrued on 30 June 1997, the limitation period is 12 years.

45.  In the circumstances, the Plaintiff’s claim, which is based on extinguishment of title of the Defendant by adverse possession, must fail and I shall dismiss it. As regards the counterclaim by the Defendant, there shall be final judgment against the Plaintiff in terms of Prayers (1), (2), (2A). When the trial resumes in June, the court will deal with the following outstanding matters,

(a)	the liability of the 2nd Defendant by Counterclaim;
(b)	the proper order to be made against the Plaintiff regarding Prayers (3), (4) and (5) in the Counterclaim;
(c)	the question of costs.

46.  I was told that the parties would not call further evidence on issue (a). I therefore give the following directions as to the future conduct of the case,

(a)	the Defendant shall file and serve skeleton submissions on the outstanding issues by 1 June 2005;
(b)	the Plaintiff and the 2nd Defendant by Counterclaim shall file and serve skeleton submissions by 7 June 2005.