POON CHI HANG v. LAI HO SUN

CACV 119/2017

[2019] HKCA 734

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 119 OF 2017

(ON APPEAL FROM HCMP 1020 OF 2013)

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J U D G M E N T

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Hon Cheung JA:

1.  I agree with the judgment of Barma JA and the orders he proposes to make.

Hon Yuen JA:

2.  I also agree with the judgment of Barma JA.

Hon Barma JA:

3.  This was an appeal against the judgment of Mr Recorder Houghton SC (“the judge”) dated 5 May 2017, by which he dismissed the plaintiff’s claim for a declaration that the plaintiff had obtained possessory title of a residential flat in Ho Man Tin (namely, Flat A on the 2^nd floor, Gallant Garden Mansion, No 23-27 Ho Man Tin Street, Kowloon), arising from his adverse possession of it as against the defendant, its registered owner as from April 1997 (the plaintiff also relied on an earlier period of possession dating back to about February 1996 by his uncle, Poon Yiu Chung, and his uncle’s family).  The defendant alleged that the plaintiff occupied the flat under a licence, which had been revoked by the defendant’s counterclaim against the plaintiff and other members of the plaintiff’s family, seeking vacant possession of the flat and payment of mesne profits for their occupation of it as from the date of revocation by service of the counterclaim, or alternatively that the plaintiff’s occupation of the flat was unlawful.  Consequent upon his dismissal of the plaintiff’s claim, the judge partially acceded to the counterclaim by making an order for delivery up of vacant possession (this following from his rejection of the plaintiff’s claim to have acquired a possessory title). However, the judge declined to make any award in respect of mesne profits as he was not satisfied that the defendant had produced sufficient evidence to enable such mesne profits to be quantified.

4.  Dissatisfied with the judgment, the plaintiff appealed.  The defendant cross-appealed, seeking an award of mesne profits in addition to possession of the flat.

5.  The factual background to the proceedings can be summarised as follows:

(1)   The plaintiff’s father, Mr Poon Wing Chung (“Poon Senior”), and the defendant’s father, Mr Lai Yu (“Lai Senior”), formed a business partnership in about 1964, under the name Sun Cheong Metal Shop.

(2)   In about 1973, Poon Senior and Lai Senior purchased the flat, using funds belonging to the partnership. Notwithstanding that the flat belonged beneficially to the partnership, title to the flat was conveyed into the Defendant’s sole name.

(3)   Initially, the flat was rented out to a tenant at a monthly rental of HK$1,400 per month.

(4)   In 1975, Poon Senior’s brother, Poon Yiu Chung, and his family came to Hong Kong from the Mainland.  As they had nowhere to stay, Poon Senior and Lai Senior agreed that they could reside in the flat.  It was agreed that Poon Yiu Chung would pay a rental of HK$1,400 per month for the flat.  Between about December 1975 and February 1976, Poon Yiu Chung paid Lai Senior HK$700 per month, representing Lai Senior’s share of the rental.  It appears that no payments were made to Poon Senior, who may have waived such payments from his brother.

(5)   In February 1976, the business partnership came to an end in somewhat acrimonious circumstances.  The precise terms on which the partnership was dissolved were not documented and were unclear.  At all events, no particular arrangements seem to have been made regarding the flat.  According to the defendant, Lai Senior considered that Poon Senior had appropriated certain stock and debts belonging to the partnership, and took the view that he was entitled to the whole of the flat as a result.  Although Poon Senior does not appear to have accepted that he was at fault in any way, he did not raise any issue as to how the flat should be dealt with.

(6)   Following the dissolution of the partnership, Poon Yiu Chung and his family continued to live in the flat, but ceased paying any rent to Lai Senior (or the defendant).  Further, the relationship between the Poons and the Lais was poor from that point onwards, with the two sides having little contact, and remaining rather cool and aloof towards one another.  It was common ground that the extent of their contact thereafter was simply to acknowledge each other should they pass each other on the street.

(7)   Poon Yiu Chung passed away in 1988.  However, his family continued to live in the flat, still without paying any rent to Lai Senior or the defendant.

(8)   The plaintiff married in 1996, and his first son was born in January 1997.  In April 1997, his aunt (Poon Yiu Chung’s wife), handed over the flat to him, giving him the keys to the property.  The plaintiff renovated the flat and changed the locks on the front door.  Like his uncle and aunt, he paid no rent to Lai Senior or the plaintiff.  However, he paid the monthly management and maintenance bills for the building issued by the incorporated owners of the building that were referable to the flat, and also paid for the share of expenses attributable to the flat (some HK$65,000) in respect of renovation works to the building carried out by the incorporated owners.

(9)   In 2004, there was a brief contact between Poon Senior and the defendant, who happened to meet by chance. According to Poon Senior, he raised the question of how to deal with the flat. According to the defendant, Poon Senior asked whether Poon Senior could purchase the flat at a favourable price.  The judge accepted the evidence of the defendant as to this conversation.

(10)   In 2013, the plaintiff commenced these proceedings claiming to have acquired title to the flat by adverse possession. The defendant responded with his counterclaim for delivery up of vacant possession of the property and mesne profits as from the date of the counterclaim.

6.  The judge correctly set out the legal principles to be satisfied in order to establish a case of adverse possession, taking these from the accurate summary by Lok J in Lee Siu Fong v Wong Wan Leung (unreported, HCA 122/2012, 3 January 2017).  In brief, to succeed, the adverse possessor must prove both a sufficient degree of factual possession and an intention to possess.  The necessary factual possession must be single and conclusive, and it must be exclusive, continuous, open, visible and notorious. It must not be equivocal, occasional, or for a special or temporary purpose. As for intention to possess, this refers to the intention, in one’s own name and on one’s own behalf, to exclude the world at large, including the owner with paper title so far as reasonably practicable.  Such intention will not easily be established by self-serving statements, but will be a matter of inference from the actions of the adverse possessor in the light of the circumstances of the case.  The burden of proving both elements rests with the adverse possessor, and the evidence must be compelling, although the standard of proof is the normal civil standard based on the balance of probabilities. Occupation under a licence or otherwise with the permission of the paper owner does not amount to adverse possession.

7.  The judge divided the period of occupation of the flat by Poon Yiu Chung, his family and the plaintiff into three periods.

8.  The first period was the short period from December 1975, when Poon Yiu Chung and his family moved into the flat, until February 1976, when the partnership between Poon Senior and Lai Senior came to an end.  The judge found that during this period, the flat was occupied by Poon Yiu Chung under a tenancy, with rent being paid by Poon Yiu Chung for the occupation of the flat (although the share of rent attributable to Poon Senior was apparently waived, the share of rent attributable to Lai Senior was found to have been paid to him).

9.  The second period was from the end of the partnership in early 1976 until 1997, when the flat was occupied first by Poon Yiu Chung and his family, and after his death, by his wife and children.  As the judge found, no rent was paid by Poon Yiu Chung or his family during this period, whether to the partnership, Lai Senior, Poon Senior or the defendant.  During this period, there was little or no contact between the Poons and the Lais.  The defendant stated that Lai Senior had wished to allow the “Poon family” to remain in the premises until such time as the defendant needed the flat for his own use.  The judge accepted this evidence, which he said was self-consistent and also consistent with the absence of any attempt to recover possession or charge rent, despite Lai Senior and the defendant’s awareness that the flat was being occupied by Poon Yiu Chung and his family.  The judge concluded that during this period, the flat was occupied by Poon Yiu Chung and his family with the permission of the defendant, and so could not be regarded as adverse in nature.

10.  The third period was the period of occupation by the plaintiff between 1997 (when he moved into the flat) until 2013 (when he issued his writ in these proceedings).  The judge noted that the plaintiff relied on three matters in support of his claim for adverse possession – the fact of occupation by himself and his family, his changing of the locks to the property on going into occupation, and his payment of building management and maintenance charges.  He also noted the plaintiff’s case that the context for these actions was the acrimonious end to the partnership between Poon Senior and Lai Senior, and some twenty years uninterrupted occupation of the flat by Poon Yiu Chung and his family.

11.  In relation to this third period, the judge accepted (this not being disputed) that the plaintiff had done the acts relied upon.  He regarded the critical question as being whether these acts were sufficient to satisfy the requirement that the plaintiff should show that he had the necessary intention to exclude the defendant owner from the flat – in other words, that he had the necessary intention to possess the flat for himself.  The judge held that the starting point was that the plaintiff’s occupation should be regarded as being on the same basis as that of Poon Yiu Chung and family.  On the judge’s finding in relation to the second period, such occupation was with the permission of the defendant, and thus not adverse in nature.  The judge also considered whether the plaintiff’s actions, on taking possession of the flat from his aunt or subsequently, demonstrated the necessary intention to possess, and held that they did not, as they were, in his view, as consistent with an occupation under a lease, licence or other permission, as they were with an intention to adversely possess, and were therefore not sufficient to make it unequivocally clear that the plaintiff was intending to oust the defendant.

12.  The judge considered that redecorating the flat and changing the locks were actions that were equally consistent with occupation under a lease, licence or other permission as with adverse possession.  So far as changing the locks was concerned, the judge considered that there was no evidence as to whether the defendant was thereby deprived of access, and that it was in any event unlikely that the defendant would have had occasion to seek access to the premises.  In these circumstances, the judge did not consider that changing the locks made manifest the plaintiff’s intention to exclude the defendant.

13.  Similarly, in relation to paying for refurbishment and management costs, the judge considered that these were matters that lawful occupiers regularly assumed responsibility for, and thus were not unequivocal pointers to an intention on the plaintiff’s part to occupy the flat adversely to the title of the defendant.

14.  The judge therefore concluded that the plaintiff had failed to establish adverse possession in respect of the flat.

15.  Although the judge accepted that it followed that the plaintiff should in principle pay mesne profits for the occupation of the flat from the date on which the defendant revoked his (unspoken) permission for the plaintiff to occupy it (namely, the date of service of the counterclaim), the judge was not satisfied with the evidence put forward by the defendant as to the quantum of such mesne profits.  The only evidence put forward by the defendant was the rateable value of the flat, which the judge considered to be a figure which was used only as the basis on which rates were payable, and not to be evidence of the loss suffered by the defendant, or the gain enjoyed by the plaintiff, for what the judge had found to be the wrongful occupation of the flat by the plaintiff in the period for which mesne profits were claimed.

16.  The plaintiff appealed, contending that:

(1)   the judge was wrong to find in favour of the defendant on the basis of unspoken (or implied) permission, when that had not been pleaded;

(2)   the judge had applied the wrong test in finding that there was an unspoken permission from the defendant to the plaintiff, in that such alleged permission had neither been communicated to the plaintiff, nor were there any overt acts or demonstrable circumstances which pointed clearly to such permission having been granted, even if not communicated to the occupier, such that a reasonable person would have appreciated that permission had been granted;

(3)   there was no privity as between the plaintiff and the defendant in respect of any licence that might have existed as between Poon Senior/Poon Yiu Chung and Lai Senior;

(4)   the pleaded case of an express licence agreement was unsustainable on the facts;

(5)   there was no factual basis for a finding that implied permission had been given, and the judge was plainly wrong to have found that there was unspoken or implied permission;

(6)   the judge had plainly erred in finding that there was no sufficient intention to possess on the part of the plaintiff;

(7)   on the footing that the judge should have found that adverse possession was established, the counterclaim should have been dismissed.

17.  The defendant cross-appealed in respect of the judge’s failure to make any monetary award for mesne profits, contending that the judge should have accepted the rateable value as sufficient evidence of the amount of mesne profits that should have been awarded.

18.  Dealing first with the plaintiff’s appeal, it will be convenient to deal first with the contentions going to the substance of the judge’s decision – namely that the judge was plainly wrong to find that there was an implied or unspoken permission for the plaintiff to occupy the flat, and that the judge was also plainly wrong to conclude that the plaintiff did not have the necessary intention to possess the flat adversely to the defendant’s title.  If the plaintiff succeeds on these grounds, the first three arguments (relating to the pleadings, the question of what is required to establish an implied licence, and the lack of privity between the parties as to any licence that might have been agreed between Lai Senior and Poon Senior or Poon Yiu Chung) will be superfluous.  As for the fourth argument, that the pleaded case of an express licence was unsustainable on the evidence, the judge did not find that there was an express licence, holding that there was at best an unspoken permission for the Poon family to occupy the flat, and this is therefore not a matter that requires to be considered further.

19.  The judge correctly stated that in order to establish that he had obtained title to the flat by adverse possession, the plaintiff had to show actual occupation of the flat for the requisite period, that such possession was accompanied by the requisite intention to possess so as to defeat the title of the defendant, and was not pursuant to a licence or some other permission falling short of a licence.

20.  As the judge found, actual occupation by the plaintiff (and his predecessors) was clearly established.  From about February 1976 onwards, the flat was exclusively occupied by Poon Yiu Chung, then by his family and finally (since 1997) by the plaintiff, and the fact of their occupation was known to the defendant, and to his father, Lai Senior.

21.  The judge, however, accepted the defendant’s case that such occupation was throughout with the permission of either Lai Senior or himself.  As the judge noted, there was no documentary or other evidence of this, but the judge accepted this evidence based on his assessment of the defendant as an honest witness, and considered that notwithstanding the acrimonious breakup of the partnership, and the lack of an obvious explanation why Lai Senior would have been disposed to allow the Poons to live at the flat without the payment of rent, Lai Senior had clearly done so.  The only basis for coming to this conclusion would appear to have been an acceptance of the defendant’s oral evidence, and the fact that no steps were taken to evict the Poons from the flat at any time between 1976 and 2013.

22.  With respect to the judge, in coming to this conclusion he seems to have overlooked or disregarded his earlier finding that initially, when Poon Yiu Chung first took up occupation of the flat, he did so on terms that involved the payment of rent to the partnership (in the amount of HK$1,400 per month, which was the amount that had been paid by the previous tenant of the flat). Although Poon Yiu Chung does not appear to have paid the full amount of the rent, paying some HK$700 per month to Lai Senior, but not paying anything to his brother Poon Senior, the fact that there was an agreement between the parties for the payment of rent, which was actually paid (even if not in full, and only for a short period of a few months), is clear evidence of a tenancy, and the judge (in my view rightly) concluded that there was such a tenancy in what he described as the first relevant period.

23.  The existence of a tenancy between Poon Yiu Chung and the partnership is a critical factor in the evaluation both of (1) whether the subsequent occupation by Poon Yiu Chung, his family, and the plaintiff, without payment of rent, was with the permission of Lai Senior or the defendant and (2) whether such occupation was adverse to the defendant as the title holder of the flat, in that the occupants had the requisite intention to possess the flat adversely to the defendant’s title to it.

24.  So far as the issue of permission to occupy the flat is concerned, given that occupation was initially taken up on the basis of a tenancy, when Poon Yiu Chung ceased paying rent, the partnership and later the defendant could have taken steps to evict him and his family.  But this was never done.  Instead, they were left in occupation of the flat notwithstanding that they were not paying rent.  Given that a tenancy had existed, under which rent was paid, at a time when the partnership was continuing and the parties were on good terms, it strains credulity to suggest that permission to continue to occupy the flat without payment of rent would be given when the relationship between the partners, and thus their respective families, had deteriorated following the breakup of the partnership, and become at best cool or aloof, such that they had nothing to do with each other thereafter.  In order to establish the existence of a licence or other permission to continue to occupy the flat, it would in my view be necessary to point to some fact that would be probative of such licence or permission having been granted after payment of rent had ceased.  But no such fact was identified, and in my view, there was none.

25.  When pressed as to this at the hearing of the appeal, Mr Lam (for the defendant) suggested that there were four matters which pointed to permission having been given:

(1)   payment of rates in respect of the flat by the defendant;

(2)   the fact that the defendant had taken no steps to recover possession of the flat from Poon Yiu Chung’s family or the plaintiff;

(3)   the fact that Poon Senior had, as the judge found, asked the defendant (in about 2004) whether the flat could be sold to the Poons at a favourable price;

(4)   the fact that the plaintiff did not ask any questions of his aunt concerning the basis on which the flat was occupied when he went into occupation in 1997.

26.  With respect, none of these matters is probative of permission to occupy the flat (spoken or unspoken, communicated or uncommunicated) having been given.

27.  The payment of rates by the defendant is at best wholly neutral on this question. It is certainly not probative of permission having been given.

28.  As to the failure to take steps to recover possession of the flat, Mr Lam fairly accepted that this was consistent both with the defendant having given permission (as he suggested) or having given up his claim to the property.  He also accepted that there could be many reasons why no such steps were taken, including a desire to avoid stirring up any dispute as to the ownership of the flat, which had been purchased using partnership funds, so that it would be at least well arguable that the beneficial ownership of the flat would have rested with the partners, rather than the defendant.  Given this acceptance, this factor has no probative weight on the question of permission.

29.  Similarly, the enquiry by Poon Senior as to the possibility of purchasing the flat is of little relevance or probative value on this question.  Mr Lam suggested that if title had been obtained by adverse possession through the occupation by Poon Yiu Chung and his family after payment of rent had ceased, such title would have already been obtained by the time this enquiry was made.  According to Mr Lam, it followed from the enquiry that such title had not been obtained by that stage, and thus that occupation up to then had all along been with permission.  With respect, this does not follow.  Just as there may be many reasons why the defendant took no steps to recover possession, there may be various reasons why this enquiry was made, not least, to avoid disputes over the property. Moreover, it should be noted that this enquiry was made not by the plaintiff, but by Poon Senior, and as such would not, in my view, be binding on the plaintiff absent some evidence that Poon Senior was speaking for him, and there is no such evidence.

30.  Finally, the fact that the plaintiff made no enquiries as to the basis on which his aunt had been occupying the flat is similarly a wholly neutral factor.

31.  In my view, these matters, and the behaviour of the defendant throughout the period of occupation after the payment of rent had ceased, amounts to at most acquiescence on the defendant’s part in the continued occupation of the flat by Poon Yiu Chung, his family and the plaintiff.  It cannot suffice to establish actual permission (whether spoken or otherwise).   Mere acquiescence would not prevent such occupation from being adverse.

32.  Similarly, it seems to me that the fact that there was a tenancy to start with is a key factor in ascertaining whether or not possession by Poon Yiu Chung, his family, and the plaintiff was accompanied by the requisite intention to possess adversely to the title of the defendant.  Given the existence of such a tenancy, under which rent was paid for a short period, the continued exclusive occupation of the property without payment of rent was clear evidence of an intention to possess the property adversely to the rights of the true owner. In my view, this alone would be sufficient to establish the requisite intention to possess.

33.  As to the other matters relied on by the plaintiff, it seems to me that the changing of the locks was also evidence of an intention to exclude the defendant from the property, particularly as the effect would be to prevent the defendant from accessing the property.  As for the payments made in respect of management charges, internal redecoration and levies for building maintenance and renovation, although the first two types of payment would be equally consistent with occupation under a tenancy as occupation in one’s own right, it appears to me that the third type of payment does support the plaintiff’s claim as such payments are not such as would usually be borne by a tenant, being capital in nature and for the benefit of the owner of the property.

34.  For the reasons explained above, I am satisfied that the judge erred and was plainly wrong to conclude (1) that the defendant had established that unspoken permission to occupy the flat had been given to any of Poon Yiu Chung, his family, or the plaintiff after February 1976, and (2) that the plaintiff had failed to demonstrate the intention to possess required to make good his claim to have acquired title to the flat by adverse possession.  In the light of these conclusions, it is not necessary to deal with the other points advanced by the plaintiff in support of his appeal.

35.  It follows that the appeal must be allowed, and the plaintiff should be granted the declaration he seeks.  This being the case, the defendant’s cross-appeal as to the failure to make a monetary award in respect of mesne profits necessarily fails.

36.  I would therefore make an order allowing the appeal, setting aside the judgment below, and granting the declaration sought by the plaintiff.  So far as costs are concerned, I would make an order nisi that the costs here and below be paid by the defendant to the plaintiff, to be taxed on the party and party basis if not agreed.