CHONG HING BANK LTD (formerly known as LIU CHONG HING BANK LTD) v. FAIRVIEW CITY LTD AND OTHERS

HCMP 3225/2014

[2018] HKCFI 1732

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3225 OF 2014

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JUDGMENT

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1.  This is a mortgagee action. The mortgagors and the guarantors do not defend the claim. However, the 5^th and 6^th Defendants intervene in the proceedings and claim adverse possession of the lands they allegedly occupy as squatters. Hence, the issue before the court is whether these Defendants can successfully establish the claims for adverse possession against the Plaintiff, being the mortgagee, who derives possessory title from the other Defendants who are the mortgagors.

Background

2.  On 11 December 2014, the Plaintiff issued the present mortgagee action by way of an originating summons against the mortgagors and guarantors, being the 1^st to 4^th Defendants, in respect of mortgage loans made on 8 May 1980, 19 April 1997 and 20 October 2004 and sought monetary judgments and possession orders against them.

3.  The mortgaged properties in issue are known as Lot No 1177A RP and Lot No 1205 which are situated in Demarcation District No 453 (“the Subject Lands”).

4.  On 22 September 2015, Master Lai granted monetary judgment against the 1^st to 4^th Defendants in the total sum of more than $234 million together with interest.

5.  By reason of the intervention of the 5^th and 6^th Defendants, Master Lai, on 16 November 2015, allowed them to be joined as parties in the present proceedings and adjourned the application for possession order in respect of the Subject Lands for argument.

6.  In the subsequent affirmations filed by the 5^th and 6^th Defendants on 10 February 2017, they also claim for easement rights associated with their alleged possessory titles.

7.  4 joint survey plans (“the Survey Plans”) were filed with the court for the purpose of identifying the lands which are the subjects for the adverse possession claims.   The area claimed to be occupied by the 5^th Defendant is coloured green (“the Green Area”), whereas the area claimed to be occupied by the 6^th Defendant is coloured orange (“the Orange Area”).  The access road to the Green Area is coloured blue and brown, and the access road to the Orange Area is coloured blue and violet. In other words, the “blue area” is the common access road to both the Green and Orange Areas.

8.  On 28 April 2017, Master Lai made a possession order against the 1^st Defendant for the uncontested areas inside the Subject Lands.  For the contested areas, the Master adjourned the application for possession order to be heard by a Judge.

9.  Adverse possession claims are usually fact-sensitive ones.  However, in the direction hearing before me on 13 July 2017, Mr Chan, counsel for the Plaintiff, told the court that his client is not going to dispute the facts put forward by the 5^th and 6^th Defendants in their affirmations, and the dispute would be one on law only.  Hence, instead of ordering the case to be continued as if the same had been commenced by writ, I adjourned the case for substantive argument before me on 31 October 2017.

The case of the 5^th Defendant

10.  According to the 5^th Defendant, her father known as “黃春” (“D5’s Father”) was born in 1933 and passed away in May 2002.

11.  D5’s Father had 5 children with his wife (“D5’s Mother”) including the 5^th Defendant.  D5’s Mother passed away in 2015.

12.  Since 1970’s, or no later than 1 April 1979 (which was the first business registration date of the iron works business), D5’s Father had been carrying on a business of iron works at a piece of abandoned land (“the Iron Works Business Land”) in Chung Kuk Terrace (松菊台), Fu Yung Shan(芙蓉山), New Territories.  At that time, D5’s Father together with one partner known as “簡康” (“Uncle Kan”) jointly occupied the Iron Works Business Land, which was on a slope of about 5,000 to 6,000 square feet in area.  They levelled the land with cement and built thereon a metal hut, later marked as “RTW/4A-168” (“the Iron Works Business Hut”), and a small house (“the Small House”), and used the remaining area as a workplace for storing iron materials and machines and doing business.

13.  Apart from carrying on the business in the Iron Works Business Land, D5’s Father also resided in the Small House.

14.  In 1984, the 5^th Defendant’s elder brother (“D5’s Brother”), who was born in the Mainland, moved therefrom to Hong Kong to assist D5’s Father with his iron works business.  Since then, both D5’s Father and D5’s Brother resided in the Small House.

15.  The Iron Works Business Land had been enclosed with fences no later than 1984.

16.  In 1989, the 5^th Defendant together D5’s Mother and the 5^th Defendant’s younger siblings also moved from Macau to Hong Kong.  Thereafter, D5’s Father erected on the Iron Works Business Land an additional small house for himself and D5’s Mother, whilst the 5^th Defendant and her siblings resided at the Small House.  The remaining area of the land continued to be used as the workplace for the iron works business.

17.  In about 1994, D5’s Father built on the Iron Works Business Land another two-storey metal hut, of which the ground floor was used as kitchen and toilet and the upper floor as bedroom for the 5^th Defendant and her siblings.

18.  It is the 5^th Defendant’s case that the paper owner had been dispossessed of the Iron Works Business Land no later than 1 April 1979, and D5’s Father and Uncle Kan had been in joint and continuous possession of the said piece of land ever since. 

19.  In 2008 or 2009, the 5^th Defendant and Uncle Kan reached an agreement (“the Division Agreement”) to divide the Iron Works Business Land into 2 parts, under which the 5^th Defendant was given possession of the Green Area.   Thereafter, the 5^th Defendant erected additional fences along the dividing line between the Green Area and the other areas of the Iron Works Business Land including that occupied by Uncle Kan.

20.  The 5^th Defendant claims that she is a successive squatter of the Green Area which entitles her to make a claim of adverse possession for such piece of land against the paper owner or other party deriving title from him.

The case of the 6^th Defendant

21.  The 6^th Defendant claims adverse possession in a different manner.  When the 6^th Defendant was born in 1970, her family had been residing at Chung Kuk Terrance in Fu Yung Shan.  The 6^th Defendant’s grandparents as well as his paternal uncles and aunts were also residing in the vicinity.

22.  At that time, whilst the house of the 6^th Defendant’s family was built on government land, her uncle, “鄧文正” (“Uncle Tang”), and his wife were residing at a metal hut, later marked as “RTW/4A/124A” (“the Metal Hut”), built by Uncle Tang on a piece of private land.  Since 1970’s, Uncle Tang had enclosed the Metal Hut together with the garden and some outdoor space with fences.  All these places are marked as the “Orange Area” in the Joint Survey Plan.

23.  It is the 6^th Defendant’s case that the paper owner had been dispossessed of the Orange Area since 1970’s, and Uncle Tang had been in continuous possession of the said piece of land ever since.

24.  In about 2001 or 2002, Uncle Tang as the “landlord” let the Metal Hut to the 6^th Defendant as her residence.  By the written agreement dated 6 June 2011 (“the Sale Agreement”), Uncle Tang sold the Metal Hut to the 6^th Defendant in the amount of $210,000 and she had occupied the Orange Area as “owner” ever since.

25.  The 6^th Defendant claims that she is a successive squatter of the Orange Area which entitles her to make a claim of adverse possession for such piece of land against the paper owner or other party deriving title from him.

The Plaintiff’s arguments

26.  Mr Chan, counsel for the Plaintiff also in the substantive hearing, argues that since the 5^th Defendant is not the personal representative of her parents or the assignee, transferee or beneficial owner of the possessory title of her parents, the 5^th Defendant cannot claim adverse possession in her own right.

27.  Furthermore, the Iron Works Business Land had been jointly possessed by D5’s Father and Uncle Kan prior to 2008 or 2009.  It is trite law that if A and B jointly possess a lot of land as squatters, neither A nor B can sue alone and claim for possessory title against the paper owner.[1] This is Mr Chan’s original argument in the direction hearing.

28.  In the substantive hearing, Mr Chan’s argument is not quite the same.  According to him, the Iron Works Business Land was jointly owned by D5’s Father and Uncle Kan prior to the former’s death.  When D5’s Father died, it triggered the operation of the right of survivorship and D5’s Father’s interest in the Iron Works Business Land passed to Uncle Kan.[2]  When the Division Agreement was made in 2008 or 2009, the 5^th Defendant sought to severe the joint ownership of the Iron Works Business Land.  However, such severance was too late given that D5’s Father passed away back in 2002 and D5’s Father had no more interest in the Iron Works Business Land to be severed after his death.

29.  For the claim by the 6^th Defendant, Mr Chan submits that the Sale Agreement was all about the transfer of the rights of the Metal Hut to the 6^th Defendant and not the land upon which it was built and situated.  Hence, all that had been assigned to the 6^th Defendant could not have been the “possessory title” of Uncle Tang, and so her alleged possession of the Orange Area starting from 6 June 2011 could not make good a full period of 12 years of adverse possession.

30.  Furthermore, Mr Chan argues that the 6^th Defendant is not able to rely on the period of previous occupation by Uncle Tang in establishing the claim for adverse possession.  Uncle Tang’s possession of the Orange Area was permitted by the Government under an implied licence to build and occupy squatter house RTW/4A-124 (i.e. the Metal Hut), and so his possession could not be adverse to the paper owner.  Under such circumstances, the alleged factual possession by Uncle Tang was not in his own right as a squatter and he had no intention to possess the Orange Area adverse to the interest of the paper owner.

31.  Mr Chan also relies on authorities such as Tsang Foo Keung  & Anr v Chu Jim Mi Jimmy & Ors[3] and Lee Siu Fong v Wong Wan Leung and Ors as the Managers of Wong Wai Tsak Tong & Ors[4] to support his argument.

Merits of the adverse possession claims

32.  It is common ground that the 5^th and 6^th Defendants bear the burden of establishing the claims for adverse possession.

33.  Since the Plaintiff does not take issue with the facts, I have to accept the 5^th and 6^th Defendants’ factual allegations as the truth.

34.  In my judgment, both the 5^th and 6^th Defendants are able to rely on the limitation defence to oppose the making of a possession order against them.  Mr Chan’s submissions have overlooked the fact that both the 5^th and 6^th Defendants are successive squatters in their own right and so they are able to rely on the occupation of the previous squatters in defeating the title of the paper owner.

35.  The laws on successive squatters are trite.  In Megarry & Wade, The Law of Real Property[5], the learned authors said the following:

“(a) Dispositions by squatter. As already explained, a squatter has a title based on his own possession, and this title is good against everyone except the true owner. Accordingly, if a squatter who has not barred the true owner sells the land he can give the purchaser a right to the land which is as good as his own. The same applies to devises, gifts or other dispositions by the squatter, and to devolution on his intestacy; in each case the person taking the squatter’s interest can add the squatter’s period of possession to his own. Thus if X, who has occupied A’s land for eight years, sells the land to Y, A will be barred after Y has held the land for a further four years.

(b) Squatter dispossessed by squatter.  If a squatter is himself dispossessed the second squatter van add the former period of occupation to his own as against the true owner.  This is because time runs against the true owner from the time when adverse possession began, and so long as adverse possession continues unbroken, it makes no difference who continues it.  But as against the first squatter, the second squatter must himself occupy for the full period before his title becomes unassailable.  This has already been explained, but a simple example may be useful here.  If land owned by A has been occupied by X for eight years and Y dispossesses X, A will be barred when 12 years have elapsed from X first taking possession.  But although at the end of that time A is barred, X will not be barred until 12 years from Y’s first taking possession; for Y cannot claim to be absolutely entitled until he can show that everybody with any claim to the land has been barred by the lapse of the full period.”

36.  It is also well established that no formal conveyance or written agreement is required to pass a possessory title through successive squatters.  It can be passed simply by the previous squatter allowing the subsequent squatter into possession.[6]

37.  For the 5^th Defendant’s case, it is clear that she is not claiming the Green Area on behalf of the estate of D5’s Father.  Neither is she claiming the land as the assignee, transferee or beneficial owner of the possessory title of her parents.  The 5^th Defendant is a squatter in her own right.  After the division of the Iron Works Business Land in 2008 or 2009, the 5^th Defendant was in de facto possession and effective control of the Green Area to the exclusion of others.  She was not sharing the possession of the Green Area with any other persons.

38.  So far as the Green Area is concerned, the previous squatters were D5’s Father and Uncle Kan who jointly possessed the Iron Works Business Land which included the Green Area.  It might be the case that the possessory title of such land passed to Uncle Kan upon the death of D5’s Father by the operation of the right of survivorship, but it does not really matter.  As against the paper owner, the 5^th Defendant is a successive squatter.  Time had started to run against the paper owner when he was dispossessed of the Green Area no later than 1 April 1979.

39.  The principle of unity of possession is also not applicable here.  It may be relevant if either D5’s Father or Uncle Kan sought to claim adverse possession against the paper owner at the time when they both possessed the land jointly.  However, since it is the successive squatter, i.e. the 5^th Defendant, who is claiming for possessory title against the paper owner only in respect of the Green Area of which she has exclusive and effective control, whether the Iron Works Business Land was previously jointly possessed by D5’s Father and Uncle Kan or singly by Uncle Kan does not matter, so long as the 5^th Defendant has been allowed to possess the Green Area to the exclusion of others after the making of the Division Agreement.

40.  As against the squatters, the paper owner had lost the right to claim possessory title of the Iron Works Business Land (which included the Green Area) by latest 1 April 1999, i.e. 20 years after 1 April 1979.  As the 5^th Defendant is a successive squatter of the Green Area, the Plaintiff is not entitled to obtain a possession order against the 5^th Defendant.

41.  For the 6 Defendant’s case, Uncle Tang had been occupying the Orange Area since 1970’s.  After the sale of the Metal Hut to the 6^th Defendant, she continued to occupy the Orange Area as a successive squatter vis-à-vis the paper owner.  There is no dispute that the 6^th Defendant has been in possession and effective control of the Orange Area after the Metal Hut was sold to her on 6 June 2011.

42.  It is true that only “ownership” of the Metal Hut was transferred by Uncle Tang to the 6^th Defendant under the Sale Agreement.  However, this is a non-issue as the 6^th Defendant’s claim is not one based on the “ownership” of the Metal Hut.  Rather, she is relying on the fact that she has been in effective control and possession of the Orange Area after the making of the Sale Agreement in 2011.  This makes her a successive squatter which entitles her to rely on the period of occupation by the previous squatter, i.e. Uncle Tang, in defeating the claim for possession by the paper owner.

43.  The facts here are different from those in Tsang Foo Keung[7] and Lee Siu Fong[8].  Neither authorities can assist the Plaintiff’s case in opposing the claim for adverse possession by the 6^th Defendant.

44.  First, I must point out that there is no evidence before the court that the number of the Metal Hut is the registration number under the Squatter Control Policy.  It is not even known when the number was given to the Metal Hut.  For the purpose of this Judgment, I am prepared to assume that the number “RTW/4A-124” is a registration number under the Squatter Control Policy.  The number should have been given to the Metal Hut after it was built, probably in the 1982 survey.

45.  The issues here are whether Uncle Tang’s occupation of the Orange Area was adverse vis-à-vis the paper owner and whether he had the necessaryanimus possidendi.  In trying to establish that the Metal Hut was possessed by Uncle Tang pursuant to a licence by the Government, Mr Chan relies on my own dicta in Lee Siu Fong relating to the Government’s Squatter Control Policy:

“16. It is also not disputed that the Hut was given 3 squatters registration numbers under the Government’s Squatter Control Policy (“the Squatter Policy”), and that these squatter registration numbers were cancelled by the Government in August 2011.

17. According to the Government, the Squatter Policy was established in 1970’s to deal with the problem posed by many illegal squatter structures at the time.  The Squatter Control Unit of the Lands Department conducted 2 territory-wide surveys in 1976 and 1982 respectively on squatter structures which existed on Government lands including those in Cheung Chau.  The purpose was to control the number of squatter structures erected on Government lands.  In the surveys, each squatter structure was given a registration number and its location, dimensions, materials and usages were recorded.  Any alterations to these matters may result in the demolition and the removal of the squatter structures, and any new squatter structures erected after the surveys would also be subject to demolition and removal.”

46.  In showing the lack of animus possidendi, Mr Chan also reminds me of the following passages in the judgment:

“115. Further, if the Plaintiff or the Father accepted the Hut as coming under the control of the Squatter Policy, then the Plaintiff or the Father might lack the animus possidendi because the Squatter Policy only applied to structures on Government land. By accepting that the Hut was subject to the control under the Squatter Policy, the Plaintiff and the Father were accepting that the Government was the rightful owner of Lot 307 and the latter was entitled to exert control over the structures erected on its lands.

116. In 1976, the squatter registration numbers were painted on the exterior of the Hut in a clearly visible manner.  The numbers were not removed by the Plaintiff or the Father but were instead retained until the Plaintiff demolished the Hut.  When the Squatter Control Unit conducted the squatter population survey in 1985, the Plaintiff’s family co-operated with the conduct of the survey and provided information.  Further, the Plaintiff, through his solicitors, protested against the cancellation of the squatter registration numbers.  All these show that the Plaintiff and the Father accepted that the Hut was subject to the control under the Squatter Policy.  They knew that the Hut would be temporarily tolerated by the Government subject to the conditions of the Squatter Policy being complied with.  Under such circumstances, the Plaintiff’s possession of the Hut: (i) amounted to possession pursuant to consent, permission or licence; and (ii) was without the requisite animus possidendi.”

47.  However, the facts in Lee Siu Fong are quite different.  The Government had all along been the true and paper owner of Lot 307 in Lee Siu Fong, and the Government was also the same entity who implemented the Squatter Control Policy.  The consideration in the present case is different because the Metal Hut was built on private land.

48.  More importantly, animus possidendi is a fact-sensitive issue.  Unless sufficient information has been provided to the court about the operation of the Squatter Control Policy, whatever decision made by the court about the effect of such Policy can only be case specific depending on the evidence presented in each individual case.

49.  In Lee Siu Fong, evidence had been produced by the Government about the operation of the Squatter Control Policy. The materials produced therein are not evidence in this case.  On the other hand, the Plaintiff here submits in evidence a pamphlet titled “Squatter Control Policy on Surveyed Squatter Structures” issued by the Lands Department about the Squatter Control Policy (“the Pamphlet”)[9].

50.  In any event, it is clear from my judgment in Lee Siu Fong that the Squatter Control Policy was established to deal with the problem posed by illegal squatter structures rather than the land itself. After the registration of these structures, any alternations to the location, dimensions, materials and usages would result in the demolition and removal of the structures, and not the vacation of the land in question.  In other words, the registration of an illegal structure should at most be construed as an implied licence to maintain the illegal structure on a piece of land.

51.  It is now made clear in §1.2 of the Pamphlet:

“Government’s position is that any Surveyed Squatter Structure on Government land is unauthorised occupation of Government land and any Surveyed Squatter Structure on leased agricultural land is an unauthorised structure on leased agricultural land, but they are tolerated to remain on a temporary basis, provided that the location, dimensions, building materials and use are the same as the record in the 1982 Survey, until the Surveyed Squatter Structure has to be cleared for development, environmental improvement or safety reasons, or until the Surveyed Squatter Structure is phased out through natural wastage (e.g. when the structure is not occupied or ceases to exist). Such tolerance does not create any legal rights or interests or obligations and does not confer on any person the right of occupation of land.”

52.  Hence, the registration under the Squatter Control Policy applied to illegal structures both in Government and private leased agricultural lands.  The Government’s tolerance of “unauthorised building structures” in private land, which is the case here, did not constitute any licence, consent or even tolerance of the squatters’ occupation of such land.

53.  In the present case, it is clear from the evidence that the previous squatter, i.e. Uncle Tang, had de facto occupied and had every intention to occupy the Orange Area as squatter.  The registration of the Metal Hut under the Squatter Control Policy was not an implied licence by the Government to occupy the Orange Area.  There is no evidence that Uncle Tang accepted that the Metal Hut was subjected to the Squatter Control Policy.  Even if he did, Uncle Tang could still occupy the Orange Area as a squatter.  There is no inconsistency between the two, as the registration only applied to the illegal structure only.

54.  In fact, the Orange Area occupied by Uncle Tang was larger than the land occupied by the Metal Hut itself.  Hence, despite the registration of the Metal Hut, it would not the disturb Uncle Tang’s intention to occupy the Orange Area as a squatter.

55.  My dicta in paragraphs 115 and 116 of the judgment of Lee Siu Fong should therefore be construed in this context. They are not support for a general proposition that once a squatter accepted the registration of an illegal structure on the land occupied by him under the Squatter Control Policy, that squatter then did not have the intention to possess that piece of land as a squatter.

56.  I also have to point out that the aforesaid dicta are only obiter.  There are more important reasons as to why the squatter cannot establish the adverse possession claim against the owner of Lot 307,  i.e. the Government, in Lee Siu Fong, for examples, the limitation period of 60 years had not expired as against the Government[10], and the alleged squatter lacked the animus possidendi to possess the land as a squatter because of the existence of a Modification of Tenancy application[11] and the alleged squatter’s willingness to make payments to the Government for retaining the hut in the land[12].

57.  Neither can the case of Tsang Foo Keung assist the Plaintiff.  The land in question there was private land, but the Government nevertheless granted a fixed pitch hawker licence to the “squatters” to operate their business on the land.  It is clear from at least the majority in the Court of Appeal that the alleged squatters lacked the animus possidendi as they possessed the land only because of the hawker licence granted by the Government.  In other words, the alleged squatters, when they entered the land, did have some consultation and obtained permission from the Government.  They simply lacked the intention to occupy the land as squatters, as such intention was incompatible with the permission granted by the Government to them by the hawker licence.  There is no such inconsistency in the present case.

58.  Point has also been taken about the registration of the Iron Works Business Hut under the Squatter Control Policy.   However, the Plaintiff’s case against the 5^th Defendant in this regard is even worse.  I have no idea about the exact location of such hut and whether it was situated in the Green Area.  In any event, my dicta above about the effect of the registration of the Metal Hut apply, a fortiori, to the effect of the registration of the Iron Works Business Hut, and so the Plaintiff cannot rely on such registration to defeat the claim for adverse possession of the 5^th Defendant.

59.  According to the undisputed evidence of the 5^th and 6^th Defendants, it is clear that the paper owner had been dispossessed of the Green and Orange Areas since 1970’s.  The previous and existing squatters of both areas have been in de facto possession and effective control of the lands ever since, and they had every intention to occupy the lands as squatters.  For these reasons, the 5^th and 6^th Defendants, being the successive squatters, have successfully establish their claims for adverse possession of the respective two pieces of land.

60.  The 5^th and 6^th Defendants have not asked for any declaratory relief relating to the possessory titles of the Green and Orange Areas, and so I only dismiss the Plaintiff’s claim for possession order in respect of those areas.

61.  For the “easement” areas, i.e. the blue, violet and brown areas, the parties seem to accept that the claim for possession order for those areas would follow the claims relating to the Green and Orange Areas.  In case of any disagreement, the parties are at liberty to restore the case for further argument.  At this stage, I do not make any final order relating to those areas.

62.  I also make a costs order nisi that the costs of the 5^th and 6^th Defendants be paid by the Plaintiff, which shall be made absolute 14 days after the date of the handing down of this Judgment.