HARBOUR HERO ENTERPRISES LTD v. CHAU NUNG TAI

CACV 162/2018

[2019] HKCA 565

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 162 OF 2018

(ON APPEAL FROM DCCJ NO 4969 OF 2016)

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the court):

1.  This is the defendant’s appeal against the decision of His Honour Judge M K Liu on 10 October 2017, in which he dismissed her summons to set aside a regular default judgment obtained by the plaintiff on 23 March 2017 for vacant possession of a piece of land known as section R of Lot No 2056 in Demarcation District No 91 New Territories (“the Land”). The appeal is brought with leave granted by the Court of Appeal[1]. At the conclusion of the hearing, we allowed the appeal and set aside the judge’s decision. We granted the relief sought in the defendant’s summons and ordered the default judgment to be set aside, as well as the writ of possession dated 20 June 2017, and gave leave to the defendant to file a defence in the action within 28 days of our judgment. These are the reasons for judgment of the court.

Background

2.  The background of the case may be summarized as follows.

3.  Hing Yip Tong (興業堂; “the Tong”), a t’ong within section 15 of the New Territories Ordinance, Cap 97, was the registered owner of Lot No 2056 in Demarcation District No 91 (“the Lot”) from 1949 to 13 November 2015, when it assigned the Lot to a purchaser being the plaintiff.  After the plaintiff became the registered owner, it divided the Lot into 19 sections by a deed poll dated 5 February 2016, and named them Sections A to R and the Remaining Portion.  Prior to the execution of the deed poll, there were 18 structures constructed on the Lot[2].  Except for Sections L and M and the Remaining Portion which were vacant, structures were constructed on the other sections.

4.  The plaintiff alleged that the occupants of the structures on the Lot were tenants of the Tong under oral tenancy agreements.  Kwok Man Yau (“Kwok”), the person who was authorised to collect rent for the Tong from 2012 onwards, made an affirmation deposing that he collected rent for the rental period of two years from 2012 to 2013 within one week from 26 January 2014 and for the rental period of two years from 2014 to 2015 within one week from 18 January 2015.  He produced the rental receipts he issued for 17 structures in January 2014 and the rental receipts he issued for the same 17 structures in January 2015.  The receipts set out the name of the tenant and the house number of each.  The rent was stated to be rent of the land each occupied (地租).  As the deed poll had not been made at the time, the section numbers were not given on the receipts although Kwok correlated the section numbers with the house numbers in his affirmation.  Each of the receipts bore a serial number (from 03 to 23 in respect of the 2014 receipts and from 071433 to 071457 for the 2015 receipts) but some of the receipts in sequence in each group were not produced.

5.  Among the rental receipts produced were two rental receipts issued to the defendant with house number 10, showing that rent for the land occupied was paid in the sums of $1,500 and $1,800 for the periods covered.

6.  The defendant alleged the receipts were fabricated and denied she had ever received the receipts or had ever paid rent. She claimed to have occupied the structure on the Land as her home since August 1998.  She produced a handwritten agreement dated 28 August 1998 (“the SPA”) showing that Lee Chik Sam (“Lee”), her former husband, purchased the structure from one Kung Yuk Chuen for $120,000.  She and Lee had never entered into any tenancy agreement concerning the structure or the Land.  She continued to live in the structure after her divorce in 2002 and produced her daughter’s student handbook and utility bills to show her occupation.  She had incurred substantial expenses from 2014 to 2016 to renovate the structure in the amount of $698,133.  She claimed she has acquired possessory title to the Land by adverse possession by August 2010.

7.  The defendant produced an affirmation from U Sou Seong, who occupied the structure bearing house number 23.  Madam U was the person who drafted the letter dated 18 November 2015 (“the Reply Letter”) signed by a number of “users” (使用人) of the Lot in reply to the letters sent by the plaintiff’s former solicitors to them dated 13 November 2015 stating that their tenancy agreements were due to expire on 31 December 2015 and proposing three options, namely, renewal of the tenancy, purchase by the tenant, or vacating the premises.  The Reply Letter was signed by the “users” of 13 structures with their house numbers given, including House No 10 occupied by the defendant and House No 23 occupied by Madam U (the name that appeared was “黃一” (“Wong Yat”), not Madam U).  House Nos 11, 12, 13 and 17 were not among the structures for which rental receipts were issued by Kwok as exhibited to his affirmation.

8.  In the Reply Letter, the “users” claimed that they were puzzled by the solicitors’ letter.  Madam U explained in her affirmation this was because they were not the tenants as alleged and they did not need to apply for renewal of the tenancy etc.  She claimed she had never paid any rent to any person, nor had she seen the defendant or Lee ever pay rent to any person.

9.  Regarding the SPA, the plaintiff adduced an affirmation from Kung Lam, the father of Kung Yuk Chuen, alleging that when the SPA was made, Kung Yuk Chuen had told Lee that the price of $120,000 was for the structure only and not in respect of the Land which was owned by the Tong, and that Kung Yuk Chuen was required to pay an annual rent of $250 to the Tong for the use of the Land and Lee would need to do likewise.  Kung Yuk Chuen was among those to whom rental receipts were issued by Kwok and was one of the signatories of the Reply Letter.  The structure he occupied was House No 19.  He did not provide any affirmation.

Refusal to set aside the default judgment

10.  The relevant principles regarding the setting aside of a regular default judgment are not in dispute.  As stated by the judge, the defendant would have to show “a real prospect of success”, which means that she should show that her defence carries some degree of conviction (Premier Fashion Wears Ltd v Li Hing Chung [1994] 1 HKLR 377 at 383).  In assessing whether she has shown a real prospect of success, it should be borne in mind that there should be no mini‑trial on affidavit evidence.  The court is to form a provisional view as to whether she has a realistic prospect of successfully defending the action and this will involve assessing whether her evidence on disputed factual matters has a realistic prospect of being accepted.  The assessment has to be carried out mindful of the interlocutory nature of the application and with a sense of proportionality (Maryo Development Limited v Tsang Yau May & Ors, CACV 101/2015, 11 January 2016, §13).

11.  The judge declined to set aside the default judgment.  He formed the view that the defendant’s case of adverse possession would not have a real prospect of success at trial for these reasons:

(1)   The plaintiff has produced rental receipts to show that the defendant was a tenant of the Tong.  The defendant would not be able to show a real prospect of success by merely saying that matters relating to the rental receipts are fabrication.  It is incumbent on her to answer this point by cogent evidence[3].

(2)   If there is any truth in the defendant’s case, she should have no difficulty in adducing evidence to refute the plaintiff’s case.  She might simply produce evidence from one or two persons named by the plaintiff to whom the rental receipts were issued to show that they have never paid rent to the plaintiff.  She did not do so, nor has she provided any explanation why she did not[4].

(3)   The only witness the defendant procured to provide an affirmation was Madam U who deposed that she had never paid rent to any person.  The judge noted that Madam U was not among those to whom Kwok had issued receipts for rent in 2014 and 2015 and Madam U did not say whether anyone living with her has ever paid rent to the Tong, so her assertion she herself has not paid rent to anyone is neither here nor there.  He did not think Madam U’s affirmation could add anything of substance to the defendant’s case[5].

(4)   The subject matter of the SPA is only the sale and purchase of the structure.  There was no mention of any interest in land.  Hence, it is not surprising that the defendant had paid rent to the Tong for using the Land[6].

(5)   Apart from bare denials, the defendant has not produced any satisfactory evidence showing that she has never paid rent to the Tong and that the rental receipts are all wrong[7].

(6)   The Reply Letter also constituted an acknowledgment of title for the purpose of section 23(1) of the Limitation Ordinance, Cap 347 in that the signatories of the letter, including the defendant, acknowledged that the plaintiff is the owner of the Lot and did not raise any dispute concerning the plaintiff’s title[8].

This appeal

12.  The defendant raised five grounds of appeal.  They may be grouped under two broad categories.  The first group relates to the judge’s holding that on the disputed factual matters, the defendant’s evidence does not carry the necessary degree of conviction for the default judgment to be set aside.  The second group relates to the holding that the Reply Letter would constitute an acknowledgment of title under section 23(1).

13.  Mr Joseph Vaughan, who appeared for the plaintiff, submitted that this is an appeal against the exercise of the judge’s discretion, so the limitations on the power of the appeal court to interfere with the exercise of a discretion conferred on the court below would apply.  The appeal court will not intervene unless the appellant can show that the judge had erred in principle of law, or had misapprehended material facts, or had taken into account irrelevant matters, or had failed to take relevant matters into account, or where the judge’s conclusion was plainly wrong such that it was outside the generous ambit within which a reasonable disagreement is possible.

14.  The main thrust of this appeal is against the holding that the defendant’s evidence does not have a realistic prospect of being accepted at trial.  This cannot properly be described as an appeal against the exercise of discretion.  Rather, it seeks to challenge a holding (albeit a provisional view) based on the evaluation of evidence.  In Assicurazioni Generali SpA v Arab Insurance Group (BSC) [2003] 1 WLR 577 at §16, Clarke LJ explained the proper appellate approach for this kind of situation:

“Some conclusions of fact are, however, not conclusions of primary fact of the kind to which I have just referred. They involve an assessment of a number of different factors which have to be weighed against each other. This is sometimes called an evaluation of the facts and is often a matter of degree upon which different judges can legitimately differ. Such cases may be closely analogous to the exercise of a discretion and, in my opinion, appellate courts should approach them in a similar way.”

15.  So notwithstanding this is not an appeal against the exercise of discretion, we should approach the appeal in a similar way.

If the defendant’s case has the necessary degree of conviction

16.  We are satisfied that the judge is plainly wrong in coming to the provisional view that the defendant’s case does not have a realistic prospect of being accepted at trial.  There is no or no serious challenge to her evidence that she has been in exclusive and continuous occupation of the structure since it was purchased from Kung Yuk Chuen in 1998. That there was no mention in the SPA of the Land does not lead inexorably to the conclusion that the land on which the structure was built did not form part of the sale and purchase transaction for which $120,000 was paid.  The judge did not appear to have taken into account that the terms alleged by Kung Lam were not written in the SPA, and the vendor Kung Yuk Chuen did not provide an affirmation despite his apparent availability.

17.  The judge opined that the defendant should have no difficulty in adducing evidence from one or two persons to whom rental receipts were issued by Kwok to refute the plaintiff’s case and held it against the defendant that she had not done so or had provided satisfactory reason why she did not.  In forming that view, the judge is wrong to discount Madam U’s evidence completely.  Her affirmation could have been more tightly worded but reading the evidence as a whole, it is clear that Madam U lived in House No 23, the same structure occupied by Wong Yat to whom Kwok had issued rental receipts in 2014 and 2015 and Wong Yat also signed the Reply Letter drafted by Madam U.  The relationship between Madam U and Wong Yat, who lived in the same structure, was not mentioned in evidence.  But Madam U did assert clearly that “we were not the tenants as alleged in the first place and we did not need to apply for renewal of the tenancy and etc”.  The judge had however taken a literal reading of her assertion that she had never paid any rent to any person, noting that she did not mention if anyone living with her had ever paid rent.

18.  Had Madam U’s evidence been approached differently, it is plausible that there is yet another person to whom rental receipts were issued who has also deposed that no rent was paid, despite the rental receipts.  The judge also did not take into account there were four structures in the Reply Letter (House Nos 11, 12, 13 and 17) that were not among the structures for which receipts were issued by Kwok as exhibited to his affirmation.

19.  Had the judge taken the above matters into account, he would not have formed the provisional view that the defendant would have no realistic prospect of showing that the rental receipts were fabrication as she has alleged.

20.  Mr Vaughan argued that the judge’s view could be supported by attaching weight to other aspects of the evidence: that no mention was made of any interest in land in the SPA; that the annual rent in 1998 (as alleged by Kung Lam) was only $250 and would appear to be a nominal sum and hence not unreasonable to pay for the use of the Land; that the defendant had lived in the structure without any demand from the Tong to vacate the structure and the Land, and it was implausible that the Tong did not know of or consent to occupation of the structures on the Lot by the occupants over the years.

21.  The points made by counsel belie the substantial factual disputes which should be resolved in a trial and the exhortation that there should be no mini‑trial on affidavit evidence.  The judge was plainly wrong in the provisional view he formed, for this reason his decision must be set aside and this is sufficient to dispose of the appeal.

If the Reply Letter was an acknowledgment of title

22.  The remaining grounds of appeal may be dealt with succinctly.  The complaint here is that the judge erred in law in holding that the Reply Letter constituted an acknowledgment of title under section 23(1).

23.  Mr Vaughan pointed out that the plaintiff was referred to as the owner (業主) six times in the Reply Letter and argued that this was unequivocal acknowledgment that the plaintiff is the owner of the Lot.

24.  Mr Stanley Siu submitted for the defendant that the Reply Letter should be read as a whole and in light of all the surrounding circumstances instead of just focusing on the description of the plaintiff as the owner.  Further, he relied on the proposition that once the owner’s title has been extinguished because his cause of action is time‑barred, no mere acknowledgment can revive the title, citing Sanders v Sanders (1881) 19 Ch D 373 at 379[9]; Tsang Foo Keung & Key Kwong Development Ltd v Chu Jim Mi Jimmy & Ors, HCA 7140/1995, 12 July 2013, G Lam J, §113; Halsbury’s Laws of Hong Kong (2^nd ed), vol 35, §[230.854].

25.  It is not necessary to come to a firm view on the contentions raised except to say that we are satisfied the defendant does have real prospect of success of defending the action if the plaintiff should rely on the Reply Letter as an acknowledgment of title.

Costs

26.  Costs of the appeal should follow the event.  We ordered the plaintiff to pay the defendant’s costs of this appeal.

27.  As for the costs below, the defendant has conceded that as the default judgment is a regular judgment, the plaintiff should have the costs incurred up to 12 July 2017, when the summons for setting aside the default judgment was filed with the defendant’s supporting affirmation (including the costs of perusal).  Once the merits of the defendant’s case have been disclosed, Mr Siu submits the costs for resisting the setting aside application should follow the event and should be borne by the plaintiff, citing Welson International Ltd v Jebson Investments Ltd, HCA 2620/2008, 29 June 2010, Chung J, §§16, 23, 26.  We agree this is the right approach and we so ordered.

28.  In respect of the defendant’s own costs, we ordered that they should be taxed in accordance with the Legal Aid Regulations.