KOWLOON DEVELOPMENT FINANCE LTD v. CHAN YU MING AND OTHERS

DCCJ 4650, 4651 & 4652/2020
(Heard Together)

[2022] HKDC 756

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4650 OF 2020

________________________

________________________

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4651 OF 2020

________________________

________________________

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4652 OF 2020

________________________

________________________

________________________

J U D G M E N T

________________________

Introduction

1.  Before me is the application of Mr Chan Wing Go (“Chan”)  in each of the 3 captioned actions[1] (collectively, the “Actions”)  to strike out the respective Statement of Claim and for each of the Actions to be dismissed.  Chan applies in the alternative for certain issues (detailed below)  to be tried as preliminary issues.

2.  The Actions share a common factual background.  The issues that require determination are basically identical in each of the Actions so there is no need to differentiate between them for present purposes.

3.  I have had the benefit of succinct and very able submissions from both Mr Ernest CY Ng, counsel for Chan, and Mr Derek Hu, counsel for the common plaintiff in each of the Actions (“P”). I am grateful for their assistance.

The background facts and P’s pleaded case

4.  The background facts are not really in dispute between the parties.  They may be briefly stated as follows.

5.  P was and is a licensed money lender.  In around 2003, the registered owners of 3 plots of land, being Section A of Lot No 2042[2], Section C of Lot No 2075[3] and Section G of Lot No 2075[4], all in Demarcation District No 124, Yuen Long (collectively, the “Lots”), each executed a building mortgage over their respective Lots in favour of P to secure loans advanced by P to them.  Each of the Actions concerns an individual plot.

6.  On different dates in 2005 and 2006 (the exact date does not matter), P commenced actions in the High Court against those owners of the Lots to enforce the building mortgages based on repayment defaults.  P sought orders for possession of the Lots.  There was a separate action for each plot (hence a total of 3 actions, collectively the “High Court Actions”[5]).

7.  P obtained default judgments in each of the High Court Actions in 2006 to 2007 (again the exact date does not matter)  (the “High Court Judgments”).

8.  P then took steps to enforce the High Court Judgments.  Separate Writs of Possession were issued in each of the High Court Actions on 26 June 2008 (collectively, the “WPs”)  to enable P to obtain vacant possession of the Lots.

9.  It is important for me to note at this juncture that Chan was not a party to any of the High Court Actions.  Rather, he claims to be in adverse possession of the Lots. That is the basis upon which he was joined in the present Actions.

10.  Then came the events that took place on 16 September 2008.  The details are set out in the affirmation of Mr Lai Ka Fai (who is a director of P)  which I have fully considered (and it has to be acknowledged that there are parts of Mr Lai’s evidence which Chan does not accept as true or correct, but this has no bearing to the present applications).  In gist, in the morning of that day, P attempted to execute the WPs whereupon the Bailiffs (together with P’s representatives and solicitors)  forcibly entered into the Lots.  They took photographs of the Lots (and the conditions of the fixtures built thereon)  and prepared an inventory list.  The Bailiffs and P’s representatives then locked the fences surrounding the Lots with pad locks as a temporary measure.  They then all left the site, with P’s representatives intending to return after obtaining new (permanent)  locks and the requisite tools to change the locks to the Lots.

11.  When P’s representatives returned in the afternoon (the Bailiffs had left and did not return), they were met with 10 odd men and one of them claimed to be the owner of the lot.  The situation escalated to such an extent that the police was called to the scene. Subsequent discussions did not resolve the dispute.  The long and short of it is that P’s representatives did not manage to change and put on permanent locks to the Lots before they left (Chan also says that the temporary pad locks were swiftly removed soon after they were put in place). 

12.  It is common ground that, to use more neutral words for now because it might affect how the arguments pan out, P has since then not been in possession of the Lots until the commencement of the present Actions on 2 September 2020.

13.  By the present Actions, P claims in trespass of the Lots.  The remedies sought include an order for vacant possession of the Lots, an injunction restraining the defendants (including Chan)  from trespassing and occupying the Lots, and damages / mesne profits.

Legal principles for striking out

14.  The applicable legal principles are well known and are not disputed.  I gratefully adopt what was stated by Mr Recorder Manzoni SC in Polyline Development Ltd (in liq)  v Ching Lin Chuen [2021] HKCFI 483, HCA 2319/2019, 3 March 2021 at §§10-18.

15.  I specifically remind myself that a strike out application will only succeed in plain and obvious cases, and that disputed facts should be taken in favour of the party sought to be struck out.

Chan’s grounds for striking out

16.  It is convenient for me to first set out Chan’s arguments in support of the strike out application.  They are as follows:-

(1)  First, the execution of the WPs was defective or imperfect.  As a result, P was not “in possession” of the Lots, and thus has no standing to sue in trespass (as it did in the Actions)  (the “Locus Argument”);

(2)  Second, P should have the matter dealt with in the High Court Actions and it is an abuse of process to start new actions (as in the present Actions)  (the “Abuse of Process Argument”);

(3)  Third and in any event, the Actions are time-barred under the Limitation Ordinance (Cap. 347)  (“LO”)  as they are brought 12 years after both the High Court Judgments and the issuance of the WPs (the “Limitation Argument”).

17.  It is fair to say that Mr Ernest Ng has, very sensibly if I may add, focused his oral submissions on the Abuse of Process Argument and the Limitation Argument.  That said, I will still deal with all of the 3 arguments in the same order as set out above.

The Locus Argument

18.  In order for P (who is not the registered owner)  to maintain an action in trespass over the Lots, P has to be in possession of them: Clerk & Lindsell on Torts (23^rd ed, 2020)  at §§18-10, 18-13, cf §18-15.  Chan argues that the WPs were defectively or incompletely executed, with the consequence that P was never “in possession” of the Lots in order to have standing to sue for trespass.

19.  Chan’s argument runs as follows:-

(1)  Execution of a Writ of Possession is not complete until quiet possession has been delivered to P and the Bailiffs have gone away: Halsbury Laws of Hong Kong (2^nd ed, 2021, Vol 11)  at §90.1472.  Reliance is placed on Kingsdale v Mann (1703)  6 Mod Rep 27; 87 ER 791.  In that case, execution of the writ was held to be incomplete where the writ was executed at 9 am but the plaintiff was ousted at 6 pm.  Similarly, in Upton and Wells Case (1588)  1 Leonard 145; 74 ER 135, the plaintiff there was ousted immediately after execution of the writ, and the Court granted a new writ as there was “no execution” of the first;

(2)  On P’s case, it was the Bailiffs who (i)  forcibly broke into the Lots on 16 September 2008 and (ii)  placed, together with P’s staff, temporary pad locks so that P may subsequently install permanent locks.  This proved to be unsuccessful eventually by reason of the facts stated above.  Chan therefore submits that P was never able to permanently and exclusively secure and possess the Lots.  Indeed, it is P’s case that in the afternoon of 16 September 2008 and since then, it has lost possession of the Lots;

(3)  Hence, P was only able to temporarily occupy the Lots for a few hours within the day.  This was insufficient to constitute complete execution of the WPs;

(4)  Without a complete execution of the WPs, coupled with the swift removal of the pad locks (as alleged by Chan), Chan argues that P never had actual possession of the Lots and therefore had no locus to sue in trespass (actual possession is the only basis pleaded by P and relied on in affidavit evidence to sustain the cause of action).  Chan places reliance on Marsden v Miller (1992)  64 P&CR 239 at pp 243-244:-

“...The fence was erected against their vigorous protests. If the fence had been so strong and immovable that it could not have been removed by the defendants and had effectively excluded them from the disputed land, their vigorous protests might not have prevented the conclusion being reached that the plaintiff had achieved de facto possession. But the fence was not of that character. It was removed by the defendants within 24 hours of its erection. The inescapable fact of the matter is that the erection of the fence did not give the plaintiff effective control of the disputed land. Its failure to do so is evidenced by the speed of its removal. The judge was, in my opinion, quite right in concluding that the plaintiff had never obtained such possession of the disputed land as was necessary to support the action of trespass.” (emphasis added)

20.  Despite the attractive way these arguments were presented, I am unable to accept them.

21.  In my judgment, the questions of (i)  whether the WPs were completely executed and (ii)  whether P has obtained a sufficient “degree of possession” of the Lots depend on various factual matters that I cannot resolve summarily.  Some of them are also disputed between the parties.  For example, the surrounding circumstances where Chan claims to have swiftly removed the pad locks will be a material consideration.  The stance of the Bailiffs may also be relevant[6]. After all, when they decided to leave the Lots, it is likely that they had cause to believe that possession of the Lots had been properly secured and delivered to P.

22.  In other words, I am not satisfied that it is a plain and obvious case to strike out based on the Locus Argument.

23.  For the same reasons, when I analyse the Abuse of Process Argument and the Limitation Argument below, insofar as is necessary, I should proceed on the assumption (for present purposes only)  that there was complete execution of the WPs on 16 September 2008 and P was once in possession of the Lots (albeit temporarily but at least sufficient to sustain a claim in trespass).

The Abuse of Process Argument

24.  Chan’s argument is that the proper avenue to correct or cure any defects or imperfections in terms of the execution of the WPs is to have those resolved within the High Court Actions. Alternatively, even assuming that the WPs were perfectly executed on 16 September 2008 but Chan subsequently entered into possession of the Lots, it is still incumbent for P to go back to the High Court Action for the matter to be dealt with.  More specifically, Chan submits that the proper redress is for P to apply for a writ of restitution (being a writ in aid of a writ of possession and to “assist in the obtaining of a judgment where satisfaction cannot be obtained by the ordinary writs of execution”: Wiltshire County Council v Frazer (No 2) [1986] 1 WLR 109 at 111G-H)  or a new writ of possession: White Book 2022 at §46/3/2.  It is an abuse of process for P to commence the present Actions.

25.  Mr Ng for Chan relies heavily on the Court of Appeal decision in Yu Fung Co Ltd v Olympic City Properties [2018] HKCA 323.  There, the Court of Appeal held that once a writ of possession is issued, the action would “move past” from the original judgment (which does not bind third parties)  and it is the Writ of Possession (which binds third parties)  that would concern the Court (at §53).  Mr Ng submits, as the argument goes, that P’s entitlement in rem vis-à-vis the world (including Chan)  has been conclusively dealt with in the WPs.  On this basis, no fresh action should be commenced to basically enforce or execute the WPs (or to perfect any previous attempted but incomplete execution); any matter concerning the effectiveness or validity of the WPs or their enforcement should be dealt with in the High Court Actions.

26.  Mr Ng also cites Chan Kwok Chu v Gotland Enterprises Ltd (HCA 282/2015, unreported, 6 January 2016).  It was held that where an occupier of land finds there are proceedings for possession against his interest to which he is not a party, he should apply to take part in those proceedings (at §24)  and any fresh action commenced is liable to be struck out (at §35).  He submits that the same reasoning applies, by reverse logic, no less to P, since (i)  the Actions are “incompatible” with the WPs (at §28), and (ii)  P should not be allowed to gain an unfair advantage by commencing a new action (at §29).  For the latter point, it is said that if P had properly followed the mechanism under Order 46 of the Rules of the High Court (Cap.4A), it will inevitably have to surmount very significant hurdles (for example the need to explain the delay and potentially face an adverse ruling based on limitation): Lougher v Donovan [1948] 2 All ER 11.

27.  I accept these submissions.  The Court of Appeal in Yu Fung at §35 clearly explains the nature of a writ of possession (which operates in rem against all persons who are on the subject land).  Then at §§38-40, the Court of Appeal approved the decision in Chan Kwok Chu and explained that it is an abuse of process for a squatter to commence a fresh action in relation to his possession of land because he should apply to take part in the original proceedings that led to the writ of possession being issued; he should do so because a writ of possession operates in rem.  It does not matter that the squatter was not a party to the original proceedings.

28.  I am unable to see why the same logic should not apply to the person claiming to be entitled to possession of the land (in this case, P).  Such a person should not start a new action (as P has done)  but should go back to the original action for proper redress or remedies. 

29.  In addition, Order 46 rule 2(1)(a)  of the Rules of the High Court specifically provides that where 6 years or more have elapsed since the date of a judgment, leave of the court is required before a writ of execution may be issued to enforce that judgment (there is also a requirement that the delay be explained, see Order 46 rule 4(2)(b)). Order 46 rule 3 further provides that a writ of execution in aid of any other writ of execution (eg a writ of restitution)  shall not be issued without the leave of the court. 

30.  I further note that it has been said that such leave will only be given in “exceptional” cases: Limitation Periods by McGee (8^th edition)  §§17.006-17.007, citing Patel v Singh [2002] EWCA Civ 1938, 13 December 2002.

31.  P’s commencement of the present Actions is effectively an attempt to bypass the leave requirements under Order 46 through the backdoor.  P has not provided any explanation why the procedure set out under Order 46 is not followed or complied with.

32.  It is not for me to speculate or form a view whether P would have been given leave by the court if an application is made under Order 46.  The fact remains that no such application was made. 

33.  Accordingly, in my judgment it is an abuse of process for P to commence these Actions.  I am also satisfied that P would gain an “unfair advantage” in doing so (as per Chan Kwok Chu §29), particularly in view of the need to explain the delay and show “exceptional” circumstances if P had properly applied for leave under Order 46.  The Actions should therefore be dismissed.

The Limitation Argument

34.  Section 4(4)  of the LO provides as follows:-

“An action shall not be brought upon any judgment after the expiration of 12 years from the date on which the judgment became enforceable…”

35.  The real question is whether the Actions are actions “brought upon any judgment”. 

36.  In my view, there can be no serious doubt that the Actions are actions that are brought upon either the High Court Judgments or the WPs, for the following reasons:-

(1)  That was the only basis upon which P can claim for trespass, because without the High Court Judgments or the WPs, P simply had no right to take possession of the Lots.  Regardless of how the pleas are dressed up, in substance the Actions were commenced for the full and complete enforcement of the High Court Judgments and/or the WPs.  This is to be contrasted with the position of the registered owner suing for trespass.  His position will be fundamentally different, because the owner is deemed to be in possession of the Lots (Clerk & Lindsell §18-15)  and may sue for trespass without relying on a previous judgments and/or writ of possession.  His title is sufficient to ground the action;

(2)  Mr Ng further submits, and I accept, that whatever happened on 16 September 2008, it all originated from the High Court Judgments and the WPs.  That is also the only pleaded basis in the Statement of Claim upon which P claims to have obtained possession of the Lots[7].

37.  Once this matter is properly analysed and understood, there can be no dispute that more than 12 years have passed since the High Court Judgments were given and the WPs were issued before the Actions were commenced by P.  The Actions are therefore time-barred.

38.  On behalf of P, Mr Hu submits that time only starts to run against P on 16 September 2008 (ie the day when P’s representatives and the Bailiffs temporarily took possession of the Lots).  His argument is modelled on an adverse possession scenario, that P was “dispossessed” of the Lots on that date and that the statutory 12-year period under sections 7 and 17 of the LO is not yet completed by the time the Actions were commenced on 2 September 2020.

39.  I reject this argument.  Section 4(4)  LO expressly provides that time starts to run “from the date on which the judgment became enforceable”.  For present purposes, I am prepared to take the most generous approach in favour of P such that “the judgment” under s 4(4)  refers to the date on which the WPs were issued (and not the earlier dates on which the High Court Judgments were given).  But plainly the WPs “became enforceable” on the date they were issued.  That the WPs were in fact enforced on a later date does not alter the legal analysis. 

40.  For these reasons, in my judgment the correct date when time starts to run against P is (at the latest)  the date when the WPs were issued.  More than 12 years have passed before the Actions were commenced.  The Limitation Argument is therefore made out and the Actions should be dismissed.

Was Chan in possession of the Lots on or before 16 September 2008?

41.  One of the recurring themes to Mr Hu’s argument is that there is a factual dispute as to whether Chan was in possession (as he claims)  of the Lots on or before 16 September 2008.  It was submitted that Chan might have come into possession of the Lots only afterwards.  If that were the case, P argues that it is incorrect in principle for Chan to benefit from the Limitation Argument – he is no different from a usual squatter and P’s possession of the Lots would only be lost after 12 years when Chan began his possession.

42.  I am unable to accept the argument.  As Mr Ng pointed out, P is only a mortgagee and it took possession of the Lots based on the High Court Judgments and subsequently the WPs.  If, say, upon taking possession of the Lots, a squatter trespasses onto the Lots 5 years later, P’s remedy is to go through the procedures provided in Order 46 (including applying for a writ of restitution). 

43.  But what if the squatter only comes into possession more than 12 years after the WPs were issued?  P would be time-barred to bring a new action as I have held above.  Would P be left without a remedy to kick out the squatter in this scenario?

44.  I should think not:-

(1)  First of all, this scenario should be rare in the extreme, because there is no conceivable reason for a mortgagee to delay selling the property once it enters into possession.  After all, the mortgagee only has a limited title over the security which is available only to secure satisfaction of the debt, and the security is enforceable only for that purpose and no other.  Any enforcement of the security for a collateral purpose will be ineffective: Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2016] AC 923, [2013] UKPC 2 at §73.  It is inconceivable that any reasonable mortgagee would still be holding onto the security 12 years after it has obtained a writ of possession;

(2)  Second, while P would be time-barred to bring a new action, it is arguable that there is no time bar in relation to enforcement steps taken under Order 46 since it is not an “action” for the purpose of the LO: Limitation Periods (supra)  at §17.009.  In other words, s 4(4)  of the LO is not engaged.  Hence, the presence of a squatter long after the WPs were issued may constitute exceptional circumstances under Order 46 rule 2 and may well be highly material in the court’s consideration of giving leave thereunder.

45.  I should also add that my acceptance of the Abuse of Process Argument does not depend on whether or not Chan was in possession of the Lots on or before 16 September 2008.  It is an irrelevant consideration as a matter of law.  This is made clear by the Court of Appeal in Yu Fung at §60 (emphasis added):-

“And the bailiff executing a writ of possession issued to enforce an Order 113 order for possession turns out all persons he finds in occupation not necessarily because all such persons (named or unnamed)  have been joined as defendants, but because of the operation of the writ of possession in rem against the land. This is apparent from the authorities referred to in paragraphs 40 to 44 above, in which a writ of possession was executed to evict persons who had not been joined as defendants to the possession proceedings (Reg v Wandsworth County Court)  and in which a writ of restitution was issued to turn out persons who were not even in occupation when the original writ of possession was issued and executed (Wiltshire County Council v Frazer (No 2)).”

Trial of preliminary issues

46.  Given my decision above, there is no need for me to go into Chan’s application for a trial of preliminary issues.  I will nevertheless briefly state my views for the sake of completeness.

47.  Chan applies for the locus and the limitation issues to be tried as preliminary issues.

48.  The applicable legal principles are well established and I will not repeat them.  I bear in mind the principles set out by the Court of Appeal in Lee Yiu Kwan v Ting Yin Wah (unreported, CACV 311/2002, 1 April 2004)  at §§37-40.

49.  If I had decided not to strike out and dismiss the Actions based on the Abuse of Process Argument and the Limitation Argument, I would have declined to order the locus and limitation issues to be tried as preliminary issues, for the following reasons:-

(1)  I see no real utility for the locus issue to be resolved separately from the other issues, and in terms of case management it is more effective for all matters to be tried in one go;

(2)  As to the limitation issue, it is a pure question of law – there are no factual issues that will affect the analysis.  The matter can be dealt with summarily (eg by way of the present strike out application)  instead of a trial of preliminary issue.

Conclusion

50.  For the above reasons, I will make an order that the respective Statement of Claim in each of the Actions be struck out, and that the Actions be dismissed.

51.  I see no reason to depart from the general rule that costs should follow the event.  I therefore make an order nisi that P shall bear Chan’s costs of the Actions (including the present application and all costs reserved)  to be taxed if not agreed with certificate for counsel.