TANG TAK HONG AND OTHERS v. CHEUNG YAT FUK

CACV 203/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 203 OF 2002

(ON APPEAL FROM HCMP NO. 3265 OF 1996)

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JUDGMENT

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Hon Yuen JA (giving the judgment of the Court):

1. This is an appeal from a judgment of Deputy Judge Andrew Cheung dismissing the Plaintiffs' claim of adverse possession of a plot of land in the New Territories of which the Defendant is the registered owner.

2. In his judgment, the judge found a number of facts from which there is no appeal. The 1st Plaintiff had entered into possession of the lot as a trespasser in 1960. He cleared the land of weeds and used it for growing crops. He carried out substantial improvements on the drainage system and erected a fence along the boundary.

3. After thus occupying the land for about 7 years, the 1st Plaintiff let the land to Cheung Man Yau ("the tenant") for a term of 10 years at an annual rent of $120. The tenant renewed the lease twice, in 1977 and 1987 respectively, at increased rents. The leases were in writing and were witnessed by a neighbour who had introduced the tenant to the 1st Plaintiff.

4. The tenant occupied the land for 30 years as part of a poultry farm, erected structures on the land and built a pond.

5. As a result of enquiries made by others about the land, the 1st Plaintiff (the father of the 2nd and 3rd Plaintiffs, who are assignees) issued proceedings in 1996 against the Defendant, claiming a possessory title to the land pursuant to the Limitation Ordinance.

6. It is well-established law that to succeed on such a claim, a squatter has to prove (a) that the paper title owner has been dispossessed and (b) that he (the squatter) has taken adverse possession, i.e. that factually, he has taken a sufficient degree of physical possession (referred to in the older authorities as "factum possessionis"), with the intention ("animus possessendi") to treat the land as his own and to exclude all others, including the true owner, from entering onto it (Megarry and Wade, The Law of Real Property, 6th ed. paras. 21-015 - 21.019; Gray and Gray, Elements of Land Law, 2nd ed. paras. 3.14 - 3.16).

7. The judge found as a fact that the 1st Plaintiff had occupied the land for 7 years and his tenant had occupied it for 30 years, and he also found that the 1st Plaintiff had the necessary animus possedendi throughout.

8. The judge however found that the Plaintiffs nevertheless failed in their claim for adverse possession, on the ground that when the 1st Plaintiff leased the land to the tenant, he thereby ceased to be in possession of the land.

9. The judge rejected the Plaintiffs' case that the 1st Plaintiff had since 1967 been in possession of the land through his tenant. With the greatest respect to the judge, we have to disagree with him on this interesting point of law.

10. Before proceeding with this judgment, it should first be noted that a lease or tenancy can be created between a landlord and a tenant even though the landlord has no proprietary interest or title in the property let. In Bruton v London & Quadrant Housing Trust [2000] 1 AC 406, Lord Hoffmann held at 415:

"the term "lease" or "tenancy" describes a relationship between two parties who are designated landlord and tenant. It is not concerned with the question of whether the agreement creates an estate or other proprietary interest which may be binding upon third parties. A lease may, and usually does, create a proprietary interest called a leasehold estate, or technically, a 'term of years absolute'. This will depend upon whether the landlord has an interest out of which he could grant it. Nemo dat quod non habet. But it is the fact that the agreement is a lease, which creates the proprietary interest. It is putting the cart before the horse to say that whether the agreement is a lease depends upon whether it creates a proprietary interest."

It is clear, therefore, that even though the 1st Plaintiff had no title in the land, Mr Cheung was his tenant.

11. Before we consider possession in the context of limitation, it may first be useful to examine the concept of possession generally in the context of a lease.

12. It is clear law that a tenant enjoys a right to exclusive possession of the land, but it should be recalled that it is the landlord who has granted this right to the tenant through the grant of the lease. If a tenant fails to pay rent, the landlord can forfeit the lease and terminate the tenant's right to exclusive possession. Thus, it has been said that a tenant, although enjoying exclusive possession, is in possession of the land only "with the landlord's consent" and "on behalf of the landlord" (Megarry & Wade, paras. 21-031, 21-017).

13. Put another way, although the landlord is not in immediate physical possession of the land and is only entitled to the land in reversion, he remains in control of possession by the tenant through the receipt of rent.

14. We now turn to examine this concept in the context of adverse possession. In our judgment, this concept similarly applies. An adverse possessor's factual possession is denoted by the taking of a sufficient degree of physical control over the land to the exclusion of others. Having taken control, and indeed as a manifestation of his control, he can permit occupation by visitors or licensees. In Sze To Chun Keung v Kung Kwok Wai David [1997] 1 WLR 1232, the Privy Council held in an interlocutory appeal from a strike-out that it was at least arguable that a person could be in adverse possession of land through a licensee.

15. Similarly, in our view, if a squatter lets the land to a tenant, he remains in control of possession by the tenant through the receipt of rent. The tenant is in exclusive possession, but that is only through the landlord's consent pursuant to the receipt of rent. If the tenant fails to pay rent, the landlord can turn him out and he (the tenant) cannot deny the landlord's title. In our judgment, that gives the landlord sufficient "factual" possession for adverse possession, not in the sense that the landlord is himself in immediate physical possession, but in the sense that he has control over the tenant who is in immediate physical possession. It is to be noted that in Megarry and Wade (para. 21-017), Sze To v Kung is cited as authority for the proposition that "the adverse possessor need not himself be in physical possession of the land. If he grants a tenancy or licence, the tenant or licensee possesses on his behalf ...".

16. Consistently with this, it is well-established that where a tenant encroaches on the land of a third party during the term of his tenancy, such an encroachment enures to the benefit of the landlord (Megarry and Wade, para. 21-027).

17. This concept is also consistent with s.12(3) and s.13(3)(b)Limitation Ordinance which equate the adverse receipt of rent with adverse possession of the land itself. Section 12(3) provides that

"where any person is in possession of land by virtue of a lease in writing by which a rent of not less than $20 is reserved, and the rent is received by some person wrongfully claiming to be entitled to the land in reversion immediately expectant on the determination of the lease, and no rent is subsequently received by the person rightfully so entitled, the right of action of the last-named person to recover the land shall be deemed to have accrued at the date when the rent was first received by the person wrongfully claiming as aforesaid and not at the date of the determination of the lease".

Section 13(3)(b) provides that

"receipt of rent under a lease by a person wrongfully claiming, in accordance with section 12(3), the land in reversion shall be deemed to be adverse possession of the land".

If a person cannot be in possession of land through the receipt of rent from a tenant, as counsel for the Defendant contends, then there can be no reason why an interception of rent should entitle him to adverse possession of the land.

18. In Bligh v Martin [1968] 1 WLR 804, a case which has stood the test of time, Pennycuick J held that even though the adverse possessor received rent from the real owner (who was unaware of his ownership and became the tenant of the land), the adverse possessor could still successfully claim the land under the English equivalent of s.12(3) and s.13(3)(b). He held (at 813):

"Both counsel pointed out that where land is subject to a tenancy, the landlord and the tenant have each, in correct legal parlance, possession of the land, though in different senses. ... It seems to me that for the purpose of adverse possession of freehold land under the Limitation Act, 1939, the land should be regarded as in the possession of one or other of the two parties concerned, i.e. the landlord or the tenant; and it seems to me that subsection (3) designates the landlord as the relevant party for this purpose. On that footing, it follows that the plaintiff, having been in receipt of rent during this summer period, remained throughout the period in adverse possession of the land".

19. It may be, as the judge below held, that s.12(3) and s.13(3)(b) apply only to a situation where the tenant had been put in possession by the true owner. But if the receipt of rent made the recipient the adverse possessor of the land even in that situation, then in our judgment, the situation would be stronger for the adverse possessor who had exercised even more control over the land by himself putting the tenant in physical possession. Although in Sturminster Holdings v James (20 May 1997), Rix J observed that the statute would be "most unfair nonsense" if it meant that "a man could secretly let someone else's land or home to a third party, collect the rent for 12 years and base a claim for adverse possession on nothing more", and held that the receipt of rent must be "open", in our view, the renting out of property is one of the clearest assertions of control over land. Evidentially, the fact that at least two parties are involved makes the adverse possessor's assertion of control more "open" than mere occupation by himself, leading to the possibility of ambiguity as to his intentions.

20. In arguing against the case that possession by a tenant functions as possession by his squatter landlord, counsel for the Defendant contended that in Powell v McFarlane (1979) PCR 452, 469, Slade J had regarded the word "possession" in the limitation context as "bearing the traditional sense of that degree of occupation or physical control, coupled with the requisite intention commonly referred to as animus possedendi, that would entitle a person to maintain an action of trespass in relation to the relevant land". It was submitted that as it was the tenant who had physical control of the land, any action in trespass against a third party would have been maintained by him, and not by the landlord. Therefore, the 1st Plaintiff was not in possession of the land.

21. We cannot accept that submission. First, it should be noted that the test propounded in Powell v MacFarlane was one of the "degree" of occupation or physical control that would normally be required before the fact of possession can be established. The passage should not be read to mean that if a person cannot at law sue for trespass because he has granted the right of immediate possession to his tenant , then he does not have the requisite degree of control needed to establish a claim in adverse possession. That case was not one of a tenancy over land at all.

22. Further, the point is that a tenant can sue a trespasser precisely because his landlord has granted him the right to immediate possession and thus, the right to sue for trespass on it.

23. Counsel for the Defendant argued also that for the purposes of the Limitation Ordinance, possession should be regarded as being in the person whom the paper title owner would have had to sue to recover the land. When the land is occupied by a tenant, the paper title owner would have sued the tenant, not the landlord, in order to recover possession of the land. Therefore, the landlord was not in possession.

24. We do not agree that that is the right test to apply. The test for factual possession should be a test of control in fact, not a test of a suit in law. However, even if the "lawsuit" test is applied, the situation would simply be that when the paper title owner sues the tenant, the landlord would be brought into the suit by the tenant for breach of the covenant for quiet enjoyment, and the true issue of control would then be addressed between the paper title owner and the squatter landlord.

25. If the "lawsuit" test were correct, similarly it might have been said that the paper title owner would only have sued the licensee, not the licensor, in order to recover possession of the land, and therefore a person cannot be in adverse possession through a licensee (but see Sze To v Kung at 1235 E-F).

26. Counsel for the Defendant also relied on the principle that where a tenant has been dispossessed by a trespasser, the landlord is not dispossessed until his estate falls into possession. This was held in Fairweather v St Marylebone Property Co Ltd [1963] AC 510 and affirmed (at least in relation to this aspect) in Chung Ping Kwan v Lam Island Co Ltd [1997] AC 38, 47. It was suggested by counsel for the Defendant that the corollary was that a landlord cannot be in adverse possession through a tenant.

27. However, in our judgment, that is not a correct assumption to make. The tests for the taking of adverse possession and dispossession are not identical. The test for the former is based on facts effecting control of possession. In granting a lease to a tenant, a person asserts the rights of an owner in giving possession upon the tenant's covenant to pay him rent. The test for the latter however, is based on defeating the rights of the person who has an accrued right of possession. After granting a lease to a tenant, the landlord's right to immediate possession does not accrue until the lease is forfeited (e.g. by the tenant failing to pay rent) or until the tenant surrenders the lease.

28. In the circumstances, given the judge's findings of fact, the 1st Plaintiff was in adverse possession of the land, first through his own occupation and then through his tenant's occupation. Accordingly the appeal should be allowed, with an order nisi that the Defendant is to pay the Plaintiffs' costs here and below.