LAM NGOK CHING AND OTHERS v. TSANG YUK MING

HCA1192/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1192 OF 2004

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J U D G M E N T

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1. The plaintiffs claim against the defendant possession of the property situated at and known as Lot No. 5065 in Demarcation District No. 116, Yuen Long, New Territories (“the Property”), together with damages and/or mesne profits.

2. The defendant resists the plaintiffs’ claim and counterclaim for the following reliefs :

(a) A declaration that the two Agreements are enforceable against the plaintiffs.

(b) An Order that the plaintiffs do convey the Property to the defendant free from any encumbrances.

(c) Alternatively, an Order that the defendant is the legal owner of the Property.

(d) Damages, alternatively an inquiry to damages.

Background

3. The plaintiffs are and have been the registered owners of the Property since 30 January 1992.

4. The plaintiffs’ predecessor in title of the Property was Lam Chok Lam (“Lam”) who was the father of the 2^nd to 5^th plaintiffs and the grandfather of the 1^st plaintiff.  It is however not clear when Lam first became the registered owner of the Property, but it would certainly have been before 1947.

5. By two written agreements in Chinese dated 11 March 1957 (“the First Agreement”) and 20 March 1957 (“the Second Agreement”) the defendant agreed to purchase from Lam and Lam agreed to sell to the defendant the Property.

6. It is not in dispute that both the First Agreement and the Second Agreement were intended to be legally binding between Lam and the defendant.

7. By the First Agreement, it was agreed between Lam and the defendant that :

(a) Lam was to sell and the defendant was to purchase the Property.

(b) The consideration was agreed at $1,400 per “deciliter”.

(c) A deposit in the sum of $500 was recorded to have been paid by the defendant.

(d) It was agreed that the balance of the purchase price was to be paid within a week.

(e) It was an express term that should the buyer fail to buy, the buyer shall not claim back the deposit paid, and should the seller fail to sell, the seller shall pay double the amount of the deposit as compensation.

8. It is common ground between the parties that the total purchase price under the First Agreement between Lam and the defendant came to $2,000.  Thus after a deposit of $500 having been paid by the defendant, the balance outstanding amounted to $1,500.

9. By the Second Agreement, it was agreed between Lam and the defendant that due to certain unspecified formalities yet to be completed, the payment of the balance of the purchase price and the completion of the sale and purchase were to be postponed to or before the end of May (1957).

10. It is common ground between the parties that the balance of the purchase price had never been paid by the defendant and that the sale and purchase had never been completed in that there has never been any assignment or conveyance of the Property to the defendant.

11. However, pending the payment of the balance of the purchase price and completion of the sale and purchase of the Property, the defendant was allowed to take possession of and went into actual occupation of the Property at some time after the Second Agreement was made but before the end of May 1957.

12. On 16 January 1970, the defendant was granted a Permit by the relevant government authorities to obtain sand in connection with repair to or erection of structures at the Property.

13. On 27 September 1971, a “Modification of Tenancy” relating to the Property was granted to Lam as the owner, and acknowledged by the defendant as the “permittee” on behalf of the Registered Landowner.  On the same day another Permit to obtain sand was granted.

14. By an assignment dated 22 December 1981, Lam assigned the Property (inter alia) as a gift to his five sons, namely, the 2^nd to 5^th plaintiffs and Lam Shau Hong.

15. When Lam Shau Hong died, his one-fifth share in the Property passed and was succeeded to by his own son, the 1^st plaintiff, who, at the time of Lam Shau Hong’s death was a minor.

16. By a Vesting Deed dated 30 January 1992, the trustee of the estate of Lam Shau Hong holding that one-fifth share of the Property for the 1^st plaintiff vested same in the 1^st plaintiff solely.

17. By letter dated 12 March 2004 from the plaintiffs’ solicitors to the occupiers of the Property, the plaintiffs demanded delivery up of possession of the Property to them.

The plaintiff’s claim

18. The plaintiffs now claim possession of the Property on the basis of being the registered owner thereof.

19. By reason of the fact that the plaintiff’s claim relies solely on the fact of being the registered owner, the plaintiff did not call any factual witness in evidence.

20. Accordingly, the dispute between the parties relates solely to the defences (and therefore also the counterclaim) raised by the defendant.

The Defence and Counterclaim

21. Specifically, the defendant relies on two issues to dispute the claim of the plaintiffs.

22. The first is that the defendant is entitled to specific performance of the First and Second Agreements.

23. Secondly, the defendant relies on continuous adverse possession of over 20 years.

24. I shall deal with each of these issues separately in this judgment.

Specific performance

25. Firstly, it would appear that the defendant is asking for specific performance of the First and Second Agreements in this case.

26. I say ‘appear’ because specific performance does not seem to have been properly pleaded by the defendant in the Defence and Counterclaim.  What have been asked for by way of relief in the Counterclaim are :

(a) a Declaration that the two Agreements are enforceable against the plaintiffs; and

(b) an Order that the plaintiffs do convey the Property to the defendant free from any encumbrance.

27. There is therefore no specific relief sought for specific performance of the First and/or Second Agreements.

28. Counsel for the defendant attempted to explain why the pleadings had been pleaded in such a way when he said, in opening the defendant’s cases, that such a plea would be inconsistent with the plea of adverse possession, and therefore deliberately not pleaded.

29. Be that as it may, it did not seem to deter counsel for the defendant from submitting on specific performance at the trial, even though not specifically pleaded.

30. However, in view of the first two reliefs contained in the Counterclaim and referred to above, and the fact that the issue of specific performance has been responded to by counsel for the plaintiffs (including the fact that it had not been specifically pleaded), I will still have to deal with the arguments put before me.

31. In submitting his case on specific performance, counsel for the defendant sought to rely on the doctrine of part performance.

32. That likely came about as a result of what was pleaded in paragraph 6 of the Amended Defence which reads :

“…Pursuant to a written Agreement in Chinese dated 11^th March 1957 (“the 1^st Agreement”), the Defendant had unequivocally acquired the legal and equitable interests in the Property by way of part performance…”

33. Defence counsel’s reliance on part performance appears to be to this effect.  That once the defendant can show that the act performed by the defendant is referable to a certain contract, and that the defendant shows that he has acted to his detriment pursuant to the contract, then the defendant is entitled to seek specific performance, almost as of right.

34. I am unable to accept that suggestion by counsel for the defendant.

35. On the other hand, I do accept the submission of counsel for the plaintiffs that the doctrine of “part performance” has been wholly misunderstood by counsel for the defendant.  The true position is that the doctrine of “part performance” is only relevant when, for instance, an agreement for the sale of land is not in writing or not evidenced in writing (as it should be) then that difficulty can be overcome where it “involves one party performing certain acts which are referable to the contract he claims exist, and for which he seeks equitable relief in the form of specific performance”.  (See paras VIII [1951] to [1954] of Hong Kong Conveyancing Law and Practice by Sihombing and Wilkinson.)

36. In short, part performance is really some evidence to show or prove the existence of a contract.

37. The proper position must therefore be that without acts of part performance, the court will not even begin to consider the question of specific performance.

38. Where sufficient acts of part performance can be shown, the court may then be invited to consider the question of specific performance, and will only grant such relief if satisfied that in all the circumstances specific performance should be granted in the exercise of its jurisdiction, the relief being an equitable relief.

39. In the present case, that there was a contract in existence between Lam and the defendant for the sale and purchase of the Property is not disputed.  Indeed the First and Second Agreements have been produced in evidence.

40. It is also accepted by the plaintiffs that there has been sufficient acts of part performance on the part of the defendant in the payment of the deposit of HK$500 and entering into possession of the Property.

41. The plaintiffs also accept that the defendant would have acquired certain equitable interest, but before that takes place, the defendant needs to perform his duties under the Agreements, i.e. the payment of the balance of the purchase price, which he has not done so.

42. In the circumstances of the present case, a number of difficulties standing between the defendant and the relief of specific performance sought by him have been identified by counsel for the plaintiff.  These difficulties can be succinctly stated as follows :

(1) The defendant’s claim for specific performance on the basis that he had purchased the Property, and his other claim based on adverse possession are inconsistent.  In particular, he could only ask for specific performance of the First and/or Second Agreements if they are still on foot, but if they are still on foot, and until there is repudiation of the Agreements, the defendant’s occupation of the Property could not be adverse.

(2) The defendant has never offered to complete the Agreements, having only paid $500 deposit, but not the balance of the purchase price.  Therefore the defendant could not claim to have purchased the Property, entitling him to specific performance.

(3) The defendant has neither pleaded nor established that he was ready and willing to perform the Agreements.  All that has been pleaded in paragraph 7(h) of the Amended Defence and Counterclaim was that the defendant was ready willing and able to acquire the Property.

(4) From all the circumstances of this case, in particular the inaction on the part of both Lam and the defendant in enforcing the First and Second Agreements and/or their failure to complete, both of them have clearly abandoned their rights to enforce the First and Second Agreements.

(5) The defendant is seeking to enforce the Agreements which by now is nearly 50 years old, during which time he has done nothing towards its enforcement.  That onus is on the defendant to satisfy the court that equity should come to his aid, an onus which he has failed to discharge.

43. To properly consider and assess the above matters raised by counsel for the plaintiffs as being difficulties which the defendant faces in seeking specific performance, it would be necessary to look at some of the evidence given by the defendant which is relevant to a consideration of those matters.

44. As already indicated above, the plaintiff did not call any live evidence.  Ultimately, the defendant was the only witness called to give evidence in this case and it is his evidence which will have to be looked at.

The evidence

45. It is an undisputed fact that the sale and purchase had never been completed between Lam and the defendant.

46. It is also undisputed that up to the trial the defendant has never tendered or even offered to tender the balance of the purchase price.

47. In his evidence, the defendant claimed that he had been chasing Lam throughout the time after the First and Second Agreements to complete the sale.  It was his evidence that the last time he chased Lam to complete was in the 1970’s.  During the interim, it was the defendant’s evidence that he had always been ready and willing to complete the sale and purchase with Lam, but each time he chased Lam to complete, Lam would stall him by saying that completion will be carried out after Lam’s mortgage of the Property had been settled.

48. As for finances, the defendant gave evidence that a relative of his, a Mr Fong had sent him $2,000 from Tahiti and that the defendant had come to Hong Kong in the early fifties to collect that sum of money and did so.

49. Under cross-examination, the defendant admitted that he had never tried to seek repayment of the deposit from Lam or double the deposit as provided for by the First Agreement if Lam was not prepared to complete the sale.

Assessment of the evidence and findings

50. I am prepared to accept the defendant’s evidence that he had sufficient money to pay off the balance of the purchase price even though his account of how he came by the money and the fact that he had never deposited the money in a bank but was kept for him by a friend of his who operated a pub in Fanling sound far fetched.  I am prepared to accept the defendant’s evidence in this respect only because there is no other evidence to contradict his evidence that he had received the $2,000 from Mr Fong, incredulous though that account may be, but even so not wholly unbelievable.

51. I am also prepared to accept his evidence that for some time after 1957, completion of the sale had been held up because there were encumbrances on the Property in the form of mortgages which had to be cleared (by Lam) before completion could take place.  The land search records which shows that the mortgages encumbering the Property were only removed in 1963 tends to support the defendant’s evidence in that respect.

52. I do not however accept the defendant’s evidence that he had chased Lam until the 1970’s.  That evidence has, in my view, been greatly exaggerated by the defendant.

53. There can be no good reason for Lam to stall the defendant in the way alleged by the defendant when the land search records show that all the outstanding mortgages have been cleared off by Lam after 18 December 1963.  Once the encumbrances had been removed, and where possession of the Property has already been given over to the defendant who was already in occupation, Lam could only stand to gain by receiving the balance of the purchase price.  There was therefore no good reason for Lam to stall the defendant after 1963.

54. If the defendant had chased Lam to complete the sale, that, I find, must have taken place before 1963.

55. I further find that after 1963, neither Lam nor the defendant did anything to complete the sale and purchase under the First and Second Agreements.  It would hardly be surprising that after taking six years to redeem the mortgages that Lam forgot about completion in view of the fact that the land search records show that Lam was the owner of numerous other pieces of land all of which were in the vicinity as the Property since his other land were all within the same Demarcation District number as the Property.

56. On the other hand, the defendant, as admitted by him under cross-examination, was content with simply being in occupation of the Property and possibly content with the fact that Lam did not chase him for the payment of the balance of the purchase price.

57. In the circumstances, the above findings lead me to the conclusion that both Lam and the defendant, by their inaction to either enforce the First and/or Second Agreements or to complete the sale, had mutually abandoned their rights under those Agreements a reasonable time after 1963, albeit that neither had repudiated the Agreements.

58. Moreover, up to the time of the trial, there has been no offer by the defendant to pay the balance of the purchase price which remains outstanding, these are sufficient reasons for me to decline to exercise my discretion in granting specific performance, not to mention that specific performance has not even been pleaded or asked for as a relief by the defendant.

Adverse possession

59. I turn now to deal with the defendant’s reliance on adverse possession in this matter. 

60. It is the alternative case of the defendant that he has acquired a good title by adverse possession of the Property beyond the limitation period of 20 years.  There is no dispute between the parties that for the present case, the period of limitation is 20 years, albeit that the relevant section in the Limitation Ordinance has since been amended to 12 years, but that such amendment is not applicable to this case.

61. In so far as the claim for adverse possession in this case is concerned, it does not turn on any factual dispute.  Nor is it disputed that the defendant has been in continuous physical possession of the Property since about May 1957.

62. The contention by the plaintiff is simply that the defendant’s possession of the Property throughout has never been adverse.  That it would appear to be the crux of the dispute between the parties.

63. I can therefore go directly to the relevant law and legal principles applicable in this case relating to adverse possession.

Legal principles

64. A succinct summary of the elements of adverse possession can be found at paragraph V [177] to [187] of Hong Kong Conveyancing Law and Practice by Sihombing and Wilkinson where it is stated :

“There are three elements to possession: first there must be exclusive physical control of the land; secondly, there must be an intention to possess the land; finally, the possession must be adverse to the rightful owner. The claimant has the burden of persuading the court as to the elements of actual possession (exclusive physical control), the intention to possess and that the possession is adverse to the rightful owner…”

65. What constitutes “adverse possession” can be found in the words of Slade LJ in the case of Powell v. McFarlane (1979) 38 P. & C.R. 452 :

“Reverting to section 10 (1), it will be seen that ‘adverse possession’ is defined as simply ‘the possession of some person in whose favour the period of limitation can run’.  This definition calls for two comments.  First, time can never run in favour of a person who occupies or uses land by licence of the owner with the paper title and whose licence has not been duly determined, because no right of action to recover the land has ever accrued against the owner; consequently such a person has no ‘adverse possession’ however long his occupation or use may have lasted…”  (at page 11 of the judgment)

66. Moreover, in the case of Buckinghamshire County Council v. Moran [1990] 1 Ch 623, Slade LJ said at page 636 :

“If the law is to attribute possession of land to a person who can establish no paper title to possession, he must be shown to have both factual possession and the requisite intention to possess (animus possidendi).  A person claiming to have ‘dispossessed’ another must similarly fulfil both these requirements. However, a further requirement which the alleged dispossessor claiming the benefit of the Act of 1980 must satisfy is to show that his possession has been ‘adverse’ within the meaning of the Act….”

and also further down in the same page :

“Possession is never ‘adverse’ within the meaning of the Act of 1980 if it is enjoyed under a lawful title.”

67. The Court of Final Appeal in Hong Kong has adopted these principles stated above in their decision in Wong Tak Yue v. Kung Kwok Wai [1998] 1 HKLRD 241 confirming the requirement that the possession has to be “adverse” as well as describing adverse possession to be “possession of wrong”.

68. The principles stated in Buckinghamshire County Council v. Moran has also been adopted by the Court of Appeal in Hong Kong where in the case of Cheung Chung Yan v. Chan Man Kwong,CACV No. 268 of 2003, Ma CJHC said at paragraph 17 of that judgment :

“As a matter of law, where a person occupies land as a licensee or otherwise with the permission of the true owner, he is not in adverse possession, for he enjoys his occupation under lawful title.”

69. Those principles stated above, can be summarized as follows, namely, that possession is not adverse if it is :

(i) taken by a licensee;

(ii) or otherwise taken with the permission and consent of the true owner; or

(iii) the possessor enjoys occupation under lawful title.

70. Finally, coming back to Hong Kong Conveyancing Law and Practice by Sihombing and Wilkinson, and applying those principles more in line with the facts of our present case, at paragraph V [177] it is stated :

“Clearly a person who acquires possession under a sale and purchase agreement (unless that agreement is later cancelled) where there is no subsequent assignment will not be a squatter, since he is in possession with the consent of the owner.  This was the decision of Cheung J in Country Rich Development Ltd. v Ma Chan Fuk Kiu (1994) HCA No. A5503/93, following Hyde v Pearce [1982] 1 All ER 1029.”

This brings me to a consideration of the case of Hyde v. Pearce [1982] 1 All ER 1029.

71. The facts of that case was that the plaintiff there bought a property at auction in 1958 and immediately went into possession with the vendor’s consent.  A dispute then arose between the vendor and the plaintiff (as purchaser) and the contract of sale between them was never completed.  The plaintiff remained in possession despite the vendor’s request that he should leave.  In 1972 the vendor conveyed the land to the defendant while the plaintiff was in prison, and the defendant took possession of the land.  The plaintiff sought to recover possession on the basis of his own squatter’s title.

72. One of the issues in that case was whether or not in the events which happened the possession by the plaintiff was adverse possession.  There was no doubt that he was in possession for 14 years (from 1958 to 1972) but the dispute was whether he was in adverse possession.  [It should be noted that the limitation period in England was 12 years being the limitation period applicable to that case.]

73. On this issue of whether the possession by the plaintiff was adverse possession, Templeman LJ held that it was equivocal as to whether the possession was adverse and had this to say :

“…[The plaintiff] was a licensee whose licence could be determined at any time on demand by the vendors to quit the property, and the vendors in 1958 did purport to determine the licence and to ask for possession of the property.

But the matter does not, however, end there because, notwithstanding the determination of the plaintiff’s licence to occupy, the question is whether, after that determination, he was in adverse possession, and it seems to me that he was, at any rate, in an equivocal position.  He was not in the same position as a squatter or a trespasser who, without a shadow of a claim of right, sits in the property for the requisite period and thus acquire a title.”

74. Applying the above principles to the present case, there can be no doubt that the defendant was let into occupation and/or possession of the Property by Lam because of the First and Second Agreements entered into between them for the sale and purchase of the Property.

75. It is also not in dispute that the full purchase price has never been paid by the defendant (for whatever reason), apart from the $500 deposit.

76. As such, it follows that there can be little doubt that the original entry into the Property by the defendant was as a licensee, or at any rate it was lawful entry with the consent of Lam on the basis as a purchaser.

77. Applying the legal principles stated above, the defendant could not have been in adverse possession of the Property when he first took possession of the Property.

78. Moreover, as late as September 1971, the defendant had acknowledged the grant of the Modification of Tenancy as the ‘permittee’ of the Registered Landowner, being Lam.  By so acknowledging, the defendant was effectively acknowledging that Lam was the owner of the Property.  That therefore is further proof that the defendant was not in adverse possession of the Property since he acknowledged Lam to be still the owner of the Property.

79. After 1971, it does not appear from the evidence that anything of significance happened which could effectively have changed the status of the defendant’s possession of the Property to being in adverse possession.

80. Until the solicitor’s letter of 12 March 2004, the defendant had not been asked to leave or vacate the Property either by Lam or by any of the five sons of Lam or any of the present plaintiffs even after the Property was assigned to the five sons of Lam in 1981 by way of gift.

81. The fact that the defendant seeks as his primary relief specific performance of the First and Second Agreements on the basis that those agreements are still on foot further attests to the fact that his possession of the Property was not adverse and has never been adverse possession.

82. Even if in 1981, when the Property was assigned by Lam to his five sons, the effect of that assignment may have terminated the licence upon which the defendant came into occupation and possession of the Property in the first place, but the fact that the defendant held over after termination of the licence does not make his possession adverse as he had initially entered the Property lawfully and with the consent of Lam.  Moreover, after the assignment of the Property to Lam’s five sons, the defendant was at no time asked to leave or vacate the Property, at least until the solicitor’s letter of 12 March 2004.

83. Lam died on 16 December 1984, but that event per se cannot have any impact on the issue of adverse possession in view of the fact that the Writ herein was issued on 15 May 2004 which would be less than 20 years from the death of Lam.

84. For these reasons, I do not accept that the defendant can have obtained a squatter’s title over the Property by way of continuous adverse possession for over 20 years before the Writ was issued in this matter.

85. Before leaving the issue of adverse possession, I should also mention that the plaintiffs had submitted at some length on this issue, a further legal point relating to the limitation point, namely, that the defence of limitation as provided for in sections 7(2) and 17 of the Limitation Ordinance being inconsistent with Article 6 and 105 of the Basic Law and is therefore null and void since the “right to private ownership of property” is recognized by Article 6 of the Basic Law.

86. However, in view of my finding above, that the defendant was never in adverse possession of the Property, it is not necessary for me to decide on the Basic Law point sought to be relied on by the plaintiffs.

87. The only reason for me to make mention of it in this judgment is that in the event I should be wrong as to the adverse possession issue, the Basis Law point is a matter which has been raised by the plaintiffs at first instance and in those circumstances will likely have to be rehearsed by them to be heard and decided upon before another court.

Waiver and estoppel

88. The defendant has also attempted to raise the issue of waiver and estoppel saying that the plaintiffs ought to be estopped from alleging that Lam could still exert his rights of assignment in 1981 of the Property to his five sons.

89. The short answer to that is that I do not see why Lam should be so estopped when the defendant have not sought, all these years, to exercise his rights to enforce the First and Second Agreements or to complete the sale thereunder or even to complete his own end of the bargain by tendering the balance of the purchase price.

90. Moreover, having found that the defendant and Lam have both abandoned their rights under the First and Second Agreements a reasonable time after all the encumbrances to the Property by way of the mortgages have been removed in 1963, which would have been long before the assignments in 1981, I do not accept that any estoppel arises in the way suggested by the defendant.

Conclusion

91. For the reasons given, there will be judgment to the plaintiffs for possession of the Property and mesne profits assessed at the nominal amount of $1 since there is no evidence presented by the plaintiffs as to the value of the Property.

92. The defendant’s counterclaim is dismissed.

93. There will be a costs order nisi that the defendant pays the plaintiffs’ cost of the plaintiffs’ claim as well as the costs of defending the defendant’s counterclaim, to be taxed on party and party basis upon the High Court scale if not agreed.