CHAN TIN SHI v. LI TIN SUNG AND OTHERS

cacv 71/2003

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 71 of 2003

(on appeal from HCMP NO. 4191 of 1998)

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J U D G M E N T

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Hon Rogers VP:

1.  This is an appeal from a judgment of Deputy High Court Judge A Cheung, as he then was, given on 14 January 2003.  At the conclusion of the hearing of this appeal, this court reserved its judgment which we now give.

Background

2.  Although the history behind the litigation is somewhat involved and took the judge many pages in his judgment to explain, the essential facts found by the judge are not in dispute.  For the purposes of this appeal it is sufficient to state that the plaintiff’s claim relates to land known as Lot No. 525RP in DD No. 26 in Tai Po (“the land”).  The land is registered in the name of Li Wing Fu, also known as Li Koon Shing, deceased (“Mr Li”).  Mr Li’s estate is sued by the plaintiff as the 4^th named defendant, it is represented by Mr Li’s eldest (adopted) son, the 1^st named defendant (“the 1^st defendant”).  The other two defendants (“the 2^nd defendant” and “the 3^rd defendant” respectively) are the other two sons of Mr Li.  The essential claim in the action is for a declaration that the registered owner of the land and the defendants have lost the right to bring any action to recover the land or any part thereof by reason of section 7(2) of the Limitation Ordinance, Cap. 374.  An order is also sought to vest all the estate right title benefit and interest in the land in the plaintiff.

3.  The judge reached the conclusion that the plaintiff had made out a case of adverse possession of the land, having been in adverse possession since 1954.  There was a question which arose as to whether the period of adverse possession as against the defendants could be counted from 1954 or 1968.  Again, for the purposes of this appeal, that issue does not need to be addressed.  I would mention that the judge approached the matter on the basis that the plaintiff could only rely on adverse possession from the later date and thus, at paragraph 74 of the judgment, he said:

“74.But for one matter, the upshot of all this is that I would be prepared to make a declaration that by 12 March 1988 (the 20^th anniversary of Mr Li’s acquisition of title to the subject lot) at the latest, Mr Chan has acquired a possessary title to the subject lot and Mr Li’s title to the same has been extinguished, by reason of Mr Chan’s adverse possession of the same for a continuous period of no less than 20 years.” 

4.  That one matter to which the judge referred was the effect of the New Territories Leases (Extension) Ordinance, Cap. 150 (“the Extension Ordinance”).  In particular, the question was whether the effect of the Extension Ordinance was to create a new estate by reason of the extension which had the effect of rendering the prior adverse possession by the plaintiff irrelevant.  The judge was faced with conflicting decisions at first instance as to the effect of the Extension Ordinance.  

5.  In Unijet Ltd v Yiu Kwai Hoi HCA 13637/1998 (21 June 2002), Sakhrani J held that the extension under the Ordinance could only be achieved by a surrender and re-grant, or a “reversionary lease”.   In those circumstances, notwithstanding the possessory title vis-à-vis the original lease (as renewed) obtained by a squatter prior to April 1988 [or June 1997] when the re-grant [or alternatively the reversionary lease] took effect, time began to run again upon the re-grant [or the reversionary lease] taking effect. 

6.  In contrast, Lam DJ, as he then was, in Mutual Luck Investment Ltd v Yeung Chi Kuen HCMP 6047/1998 (25 November 2002), had come to the opposite conclusion.  He held, in effect, that the source of the government’s lessee’s right to the extension was his pre-existing lease and, since the title of the government lessee had been extinguished as against the squatter under the pre-existing lease, the fact that he acquired a new legal estate could not assist him.  In so holding, Lam DJ considered that he was following the reasoning in the Privy Council decision in Chung Ping Kwan v Lam Island Development Co. Ltd [1997] AC 38 (“the Lam Island decision”).

7.  The judge below preferred the reasoning of Lam DJ and in doing so mentioned three further points.  The first was that to hold in favour of the government lessee would “mean that a squatter who had obtained a good possessory title prior to April 1988 was, by a side-wind under the Extension Ordinance, deprived of his possessory title to the land in question for the remainder of the term of the renewed lease (pursuant to the Renewal Ordinance) of more than 9 years, before it was due to expire on 27 June 1997.”  Secondly, he felt that it was difficult to construe the Extension Ordinance on the basis that a reversionary lease would take effect in June 1997.  Thirdly, he held that the effect of the Extension Ordinance was to give the government lessees a statutory option to extend their leases, thus, in effect, re-writing the original leases.

8.  On that basis the judge below gave judgment for the plaintiff and made a declaration that Mr Li’s title had been extinguished by reason of the plaintiff’s adverse possession of the land and that since 12 March 1988, at the latest, the plaintiff’s possessory title was good against the defendants.

The Extension Ordinance

9.  Before turning to the arguments on the appeal, it would be convenient to set out some of the provisions of the Extension Ordinance.  Under section 5 of the Extension Ordinance a government lessee may exclude the application of the Extension Ordinance.  Section 5(1) provides:

“Option by the lessee

(1)A lessee may exclude from the application of this Ordinance his interest under a lease, other than an undivided share in the land to which the lease relates, by registering in the Land Office register, before the appointed day, a memorandum in a form specified by the Land Officer.”

10.  Part II of the Extension Ordinance deals with the question of extension of New Territories leases.  That part commences:

“PART II

EXTENSION OF NEW TERRITORIES LEASES

6. Extension of leases

The term of a lease to which this Ordinance applies is extended, from the date on which it would, apart from this Ordinance, expire, until the expiry of 30 June 2047, without payment of any additional premium.”

This appeal

11.  On this appeal Mr Chan SC, who appeared on behalf of the defendants, argued quite simply that the only way in which section 6 of the Extension Ordinance could be implemented is by means of a surrender and re-grant or alternatively by the grant of a new lease which would take effect after the expiry of the old lease in June 1997.  He said that in either event that would constitute a new estate.  In those circumstances, the fact that the plaintiff may have acquired squatter’s rights as against the defendants in respect of the old lease did not mean that any rights had been acquired which would affect the new lease which took effect either on the coming into operation of Part II of the Extension Ordinance or else upon the expiry of the old lease in June 1997.

12.  In the course of his argument, Mr Chan relied heavily on the decision of the majority of the House of Lords in Fairweather v St. Marylebone Property Co. Ltd. [1963] AC 510.  Although the decision in that case was heavily criticised by Professor Wade in an article in 1978 LQR 541, those criticisms are not pertinent to the matters which are relevant in this case.  In his speech Lord Radcliffe explained, in terms to which Professor Wade did not object, the effect of the limitation provisions.  For present purposes the provisions then prevailing in England can be taken as having the same effect as those in Hong Kong.  He said that it was a misunderstanding that had been clearly explained by Scrutton, LJ in Taylor v Twinberrow [1930] 2 KB 16, to treat the legal effect of adverse possession under the Limitation Acts as if it gave a title.  Its effect was “merely negative”.  Where the possession had been against a tenant, its only operation was to bar the tenant’s right to claim against the man in possession.   Although he qualified that by saying at page 535:

“I think that this statement needs only one qualification: a squatter does in the end get a title by his possession and the indirect operation of the Act and he can convey a fee simple.”

He went on to say, at page 536:

“...but he (i.e. the squatter) has not the title or estate of the owner or owners whom he has dispossessed nor has he in any relevant sense an estate ‘commensurate with’ the estate of the dispossessed.  All that this misleading phrase can mean is that, since his possession only defeats the rights of those to whom it has been adverse, there may be rights not prescribed against, such, for instance, as equitable easements, which are no less enforceable against him in respect of the land than they would have been against the owners he has dispossessed.”

13.  Lord Denning, in agreement with Lord Radcliffe, explained that although the title of the leaseholder may be extinguished as against the squatter, the leaseholder’s title remained as against the landlord of the premises.

14.  If one applies those principles to the facts of this case, leaving aside the question of any extension in 1988, the defendants would not have been able to assert title as lessee against the plaintiff but, as against the government, the lease remained good.  One example of that is that rent would still have had to have been paid.  Another example is that the plaintiff would have had no rights against the government under the Limitation Ordinance.  Hence it would naturally follow that the plaintiff would have had no rights once the defendants’ rights had ceased.  Thus although the judge correctly pointed out that the plaintiff could have confidently expected not to have been ousted until the end of the defendants’ term of the lease, the plaintiff could have had no expectation or otherwise that he would have any rights after June 1997, or even earlier, if the lease had terminated for any reason, for example because of government action for non-payment of rent.

15.  Mr Chan argued that, in those circumstances, since the government had good title as against the plaintiff, if it granted a new estate, whether it be to the defendants or anybody else, that new estate would be good as against the plaintiff.  Chung Ping Kwan v Lam Island Development Co. Ltd [1997] AC 38 at 46H-47B.  In my view, Mr Chan’s argument to this extent cannot be faulted and, indeed, the defendants did not seek to argue otherwise, nor did the judgment below proceed on any other basis.

16.  The Lam Island decision is not directly relevant to this case.  It was a decision as to the effect of the New Territories (Renewable Government Leases) Ordinance, Cap. 152 (“the Renewal Ordinance”) in relation to a lease that had contained an option to renew.  Quite apart from the fact that the wording of the Renewal Ordinance is different from the Extension Ordinance, the important part of the decision was that the original lease had contained a right of renewal.  That, the Privy Council held, gave the lessee a right in respect of the property which he could enforce against the landlord.  The Privy Council held that the adverse possession barred the lessee from asserting against the squatter that specifically enforceable right, and the legal estate which flowed from that right, as much as it barred the lessee from asserting against the squatter the other rights granted to him by the lease.

17.  The question in this case might be thought to come down to whether the extension granted by section 6 of the Extension Ordinance amounts to a new estate which was created or whether as Lam DJ held, there was for all practical purposes an insertion into the old lease of an option to renew which would take effect as a surrender and new grant.  However, even when that latter proposition is analysed it can be seen that the notional insertion of an option to renew in a lease must constitute giving a new right.  Hence, even if it should be assumed that there was a notional insertion of the option, that would, in my view, constitute the creation of a new estate or at the very least a new right which would rise to a term beyond that originally contracted for and time would begin to run again as against the squatter.  I consider that on its proper construction section 6 of the Extension Ordinance did create a new estate in the leaseholders who did not opt out of the provisions of the Extension Ordinance under section 5.

18.  Thus, although I consider that there is some attraction in the notion that section 6 of the Extension Ordinance means that somehow the original leases were to continue unaltered save for the fact that they would not expire in June 1997, I consider that without very clear wording, which would have in some way either preserved the “squatter’s title” or made it clear that no new estate was being created, the effect of what has been done is that a new estate had been created.  The legal effect may thus be wider than had at first been envisaged. 

19.  It may well be that squatters’ rights were curtailed in the New Territories in the period after March 1988, after the coming into force of the Extension Ordinance, but, as was pointed out by Lord Denning, squatters’ rights are often vulnerable.  Whilst that result might have not been at the forefront of the intention of the legislature, it would be equally unimaginable, if not more so, that the legislature would have wished to grant immunity to squatters in the New Territories as against the registered owners who would be liable to pay the rent for the land. 

20.  The intention of the legislature in passing the Extension Ordinance was to provide legislation in accordance with what had been agreed in the Joint Declaration.  That agreement would appear to have had a twofold purpose.  In the first place it was to secure the continuity of land tenure, particularly in the New Territories, so that financial confidence could be maintained based upon a certainty that land tenure would continue.  By the early 1980’s the continued financing of land purchases in the New Territories had become something of blind faith since bankers were in severe quandaries as to whether land tenure which expired in 1997 could be used as security for loans extending beyond that date.  In the second place the provisions of the Joint Declaration, in this regard, were there to safeguard the revenue source from land for the future government of Hong Kong.  Hence questions of squatters’ rights did not come into the policy behind the Extension Ordinance. 

21.  Insofar as it might be relevant to consider the policy behind the legislation relating to limitation of actions, that has been variously described as being that long dormant claims should not be permitted since they had “more of cruelty than justice in them”; coupled with that, defendants might have lost the evidence to disprove a stale claim and finally that persons with good causes of action should pursue them with reasonable diligence: see Halsbury’s Laws of Hong Kong, vol. 17 para. 245.004.  Whilst it might be said that statutes relating to limitation are beneficial and should be construed liberally and not strictly, that does not, in my view, predispose that construction of a statute relating to ownership of land, but not in any way concerned with limitation, has to be favourable to squatters, who, after all, commenced their occupation as trespassers and thus were wrongdoers.  This would be all the more so since they would be occupying land without paying rent and one of the purposes behind the Extension Ordinance was to enact provisions which had been agreed on the basis that they would preserve the income of the ultimate landlord i.e. the government.

22.  I would therefore allow this appeal, make an order dismissing the plaintiff’s claim, make a further order granting an injunction in terms sought in paragraph 2 of the prayer for relief sought in the notice of appeal and make an order for an enquiry as to damages as sought in paragraph 3 of the prayer for relief in the notice of appeal.  I would make an order nisi that the costs of this appeal and in the Court below be to the defendants.

Hon Le Pichon JA:

23.  I have had the advantage of reading in draft the judgments of the Vice President and Yuen JA.  I agree with the Vice President that the appeal should be allowed for the reasons he gives in his judgment and the order he proposes.  In view of the difference of opinion on the effect of the Extension Ordinance, I would add a few observations of my own. 

24.  The judge below followed the decision of the Lam DJ (as he then was) in Mutual Luck Investment Ltd v Yeung Chi Kuen, HCMP 6047 of 1998 (unreported, 25 November 2002) whose judgment was premised on a surrender and re-grant having taken place on 25 April 1988 which was when section 6 of the Extension Ordinance came into operation.  Lam DJ concluded that time did not begin to run again upon the re-grant in April 1988.  He reached that conclusion because he did not think that Lord Nicholls intended to confine the rationale of Chung Ping Kwan v Lam Island Co Ltd [1997] AC 38 to a new estate obtained pursuant to an option to renew contained in the original lease and that a new interest granted pursuant to statute could come within the scope of such a rationale provided there was sufficient nexus between the old interest and the new one.  See paragraph 55 of Mutual Luck.  In considering the correctness of this analysis, it is necessary first of all to determine what Lam Island did decide.

25.  Lam Island had nothing to do with the interpretation of the Extension Ordinance.  Rather, it concerned the interpretation of the New Territories (Renewable Crown Leases) Ordinance, Cap. 152 (“the Renewal Ordinance”) and its effect on squatters who had been in adverse possession of land in the New Territories.  Until 1959, crown leases of land in the New Territories were normally for a term of 75 years from 1 July 1898 with an option to renew for a further term of 24 years less three days.  Original leases were thus to expire on 30 June 1973 and renewed leases on 27 June 1997.  Under the Renewal Ordinance, such leases were deemed to have been renewed for a period of 24 years less three days from 1 July 1973.  It was held that an option to renew contained in the original lease was an existing property right vested in the lessee which was specifically enforceable against the lessor and although upon the exercise of the option, the lessee obtained a new legal estate, that was no more than implementation of a pre-existing contract embodied in the original lease.  Where a squatter has been in adverse possession for the prescribed period, that barred the lessee from asserting against the squatter all his rights under the original lease and that included the option to renew because the source of that right was the original lease itself. 

26.  In his speech, Lord Nicholls cited with approval the decision of the Full Court of Victoria in Bree v Scott (1904) 29 VLR 692.  In that case, the defendant had been in adverse possession of land since 1878 under such circumstances as to acquire title under the Statute of Limitations.  A., the plaintiff’s predecessor in title had entered into the land in question under the Land Act 1869 sometime prior to 1878 as Crown licensee and subsequently became Crown lessee.  A person who had acquired prior rights by licence and lease under that Act could acquire the fee upon the performance of her obligations under them.  In 1885, a grant of the land in question issued to A., “in pursuance of the Land Act 1869”.  The plaintiff brought an action to recover the land from the defendant and the question for determination was whether that claim was time-barred.  The answer depended on whether time ran in favour of the defendant from the time she entered into possession or from the date of the Crown grant.  In holding that time ran from the earlier date, A’Beckett J said this (at p. 713):

“This inactive licensee and lessee afterwards acquired a legal estate in the fee, not by virtue of any new right unconnected with her prior interest, but by the maturing of a right which had its inception in the licence.”

It will be seen that the point made here was that ownership of the licence vested in the licensee an inchoate right to call for the Crown grant which right became absolute on the performance of certain obligations.  The acquisition of the licence under the Land Act was therefore crucial: without it, A. would not have been in a position to call for a Crown grant at the later date.  The right to the Crown grant could thus be said to have had its inception in the licence. 

27.  In Mutual Luck, Lam DJ framed the crucial issue (at para 56) as “whether there was such a continuity of interest that the new legal estate … could not be regarded as a new right unconnected with the prior interest under the old lease, but should be regarded as the maturing of a right having its seed in the old lease” and found (at para 58) “a nexus between the old lease and the new legal estate” in the original grant made in 1918 deemed to be renewed in 1973 without which the plaintiff could not have had the benefit of the extension.  Mr Chan SC described paragraph 58 in Lam DJ’s judgment as a “quantum leap” because it ignored the source of the rights possessed by the lessee at the time the squatter’s rights were acquired.  Lam DJ went on to say this (at para 59):

“59. It is true that the Plaintiff’s right under the extension derived from statute rather than an inherent property rights (sic) within the original lease.  But so was the right of the grantee in Bree v Scott (1904) 29 VLR 692.  In that case, the statute had been enacted when the grantee became a licensee of the land whilst in the present case, Cap. 150 was only enacted in 1988.  Is this a material distinction?”

To that question, after referring to certain passages in the judgment of Lord Nicholls in Lam Island, his answer (at para 63) was this:

“63. It seems to me on proper reading of the judgment of Lord Nicholls, the material question is not whether the right of the lessee to the new legal estate stemmed from an option to renew or other right inherently built into the old lease or right bestowed on the lessee when the old lease was granted.  The material question is whether there was a specifically enforceable right in the lessee to call for the new legal estate by reason of his interest under the old lease when he was already lawfully in possession.  If he had such a right, Section 9(1) would operate in favour of the lessor and conversely, if such a lessee had slept on his rights, the fact that he acquired a new legal estate could not assist him.  That is precisely why Lord Nicholls said that the legal source of the lessee’s entitlement to his new legal estate could not be ignored.”

28.  But the focus of Lord Nicholls’ judgment was not the existence or otherwise of a specifically enforceable right; rather it was the existence of a right that was part and parcel of the original lease or embedded in it and one which gave rise to or matured into the new legal estate.  That was the crucial feature of both Lam Island and Bree v Scott.  So, had the option to renew in Lam Island not formed part of the original lease but had come about, for example, through a subsequent agreement between the parties, the result would have been very different.  In that scenario, the right to renew would not have had its source in the original lease but in the subsequent agreement.  Adverse possession by a squatter for the prescribed period would bar all rights of the lessee under the original lease but not those arising under the subsequent agreement.  The fact that there happened to be in existence a landlord tenant relationship is insufficient to satisfy the “continuity of interest in the land” contemplated by A’Beckett J in Bree v Scott (at p. 712) which on proper analysis required the original lease to have been the seed of the subsequent fruition of title (see Madden CJ at 700).  Quite simply, it would not pass the test laid down by Lord Nicholls because, on any footing, the original lease could not be said to be the “legal source of the lessee’s entitlement to the new estate”.

29.  In the present case, whether or not the new estate that came into existence took effect through a surrender and regrant or a reversionary lease of an estate coming into possession on the expiration of the renewed lease on 27 June 1997 or the insertion or the engrafting of an additional term into the lease made mandatory by statute, the crucial fact is that the right to a new term (i.e. the extension) was not part and parcel of the original lease or an inherent property right embedded in the original lease; rather, it was a new right that came into existence in April 1988 and conferred by statute upon a lessee of New Territories land who did not opt out of the Extension Ordinance under section 5.  I cannot agree that the original lease under consideration could be said to be the “seed” from which the extension was the “fruition” as appeared to be the view of Lam DJ.  The observations of Madden CJ in Bree v Scott (at p. 708) viz.:

“… [the grantee] was a person from the seed of whose license the subsequent Crown grant was the fruition”

when properly understood, do not warrant that conclusion.

30.  As noted above, at the date the licence in Bree v Scott was acquired, the Land Act 1869 (which conferred on the licensee the right to call for a grant of the fee upon the performance of certain obligations) was already in place.  When the licensee acquired the licence, she automatically obtained the right to call for a Crown grant subject to her fulfilling certain conditions.  When the lease in the present case was granted, the lessee had no inchoate right to the extension available under the Extension Ordinance for the simple reason that that Ordinance did not exist until 1988.  Put differently, in the present case, the rights of the lessee under his original lease which were extinguished once the prescribed period of adverse possession elapsed did not and could not have encompassed the right to an extension conferred by the Extension Ordinance.  It would follow that the term conferred by the Extension Ordinance is a new estate and for the purposes of limitation of action, time would begin to run again from the date of its creation.

Hon Yuen JA:

31.  I must respectfully differ from the judgments of the Vice-President and Hon Le Pichon JA in this appeal and that of Hon Sakhrani J in Unijet Ltd v Yiu Kwai Hoi [2003] 1 HKC 90.

32.  In the present action, Deputy High Court Judge Andrew Cheung (now Hon Andrew Cheung J) found that the 1^st-3^rd Defendants’ father (“the Lessee”) had present interests in the land (within the meaning of s.8 Limitation Ordinance Cap. 347) in 1954 or 1968 (for present purposes, it does not matter which year is taken).  He found as a fact that the Plaintiff’s father (“the Squatter”) dispossessed the Lessee in 1954 or 1968 and thereafter remained in continuous possession of the land for 20 years or more.

33.  The effect of those findings was that in 1974 or 1988, the Lessee’s title in the land was, as between himself and the Squatter, extinguished under s.17 Limitation Ordinance.  This did not of course affect the Lessee’s interests in the land as between himself and the Government in its capacity as lessor (“the Lessor”).  Nor did this have any effect as between the Squatter and the Lessor, because during the Lessee’s term of years under the lease, the Lessor’s future interests in the land (within the meaning of s.9 Limitation Ordinance) had not yet fallen into possession. 

34.  So much, I believe, is clear on the general principles of the law of limitation.  On what basis, then, could the Lessee recover the land from the Squatter by proceedings commenced in 1998?

35.  Mr Edward Chan SC for the Lessee submitted that by the New Territories Leases (Extension) Ordinance Cap. 150 (“the Extension Ordinance”) enacted in 1988, there was a surrender of the lease from the Lessee to the Lessor and an immediate regrant of a lease from the Lessor to the Lessee.  Alternatively, he submitted, there was a grant of a reversionary lease from the Lessor to the Lessee of an estate to come into possession when the existing lease expired on 27 June 1997.  Either way, a new legal estate came into existence under which the Lessor (and so, the Lessee claiming through it) could eject the Squatter. 

Surrender and regrant

36.  I should first set out my understanding of what is meant by a surrender and regrant.  Generally, a lessor and a lessee can agree to alter the term of years under an existing lease by the lessee surrendering to the lessor the interests he (the lessee) has under the existing lease, and the lessor giving him a fresh grant of a single term of years from that date for the period as altered expiring on the newly agreed date (which may be earlier or later than the expiry date under the original lease). 

37.  For the reasons discussed below, I do not consider that the Extension Ordinance operated as a surrender and regrant.

38.  First, a surrender and regrant has not been expressed, or even been impliedly referred to, in the Ordinance.  In my view, if the legislature had intended that there should be a surrender and regrant of nearly all government leases in the New Territories (short term tenancies and special purpose leases excepted), it could easily have said so.  A search of the Laws of Hong Kong shows that the terms “surrender” and “regrant” are commonly used in our statutes.  They are conspicuously absent from the Extension Ordinance.

39.  The Extension Ordinance refers instead to an “extension”.  Mr Chan on behalf of the Lessee submitted that an “extension” of a term of years is not a concept or mechanism known to the common law (such as surrender and regrant).  In my view, this works against the Lessee, not in his favour, as the legislature must be taken to have known that.  Yet it chose not to use the language of surrender and regrant with which it was familiar, but chose to use the word “extend”.

40.  In fact, the preamble to the Extension Ordinance tells us the source of its power to “extend” the term of years - the Joint Declaration of the Government of the United Kingdom and the Government of the People’s Republic of China on the Question of Hong Kong, in particular the Annex dealing with leases of land granted by the British Hong Kong Government: Annex III of the Joint Declaration, paragraph 2.  The Ordinance was devised in and for unique historical circumstances, deriving its authority from the Joint Declaration of the two governments.  It was adopted as part of the laws of the Hong Kong Special Administrative Region on 1 July 1997 under s.7 of the Hong Kong Reunification Ordinance. 

41.  As I see it, there was an imposition by the legislature of an additional provision in the leases, under which lessees were entitled to extend the term of years as against the lessor for the time being: the British Hong Kong Government and then, upon reunification, the Government of the Hong Kong Special Administrative Region.

42.  Given the unique historical circumstances in which this Ordinance was devised and the purpose it served, it is in my view neither necessary nor desirable to seek to justify, or engineer, the extension by reference to the mechanism of surrender and regrant, which the legislature had clearly chosen not to employ.

43.  Secondly, even within the common law, “the implication of surrender and regrant is a fiction based on estoppel” which is not to be encouraged or extended (Baker v Merckel [1961] 1 QB 657, 667).  This must especially be so where the grant of the right to extend the term of years was not a consensual act of individual parties (it being settled law that no difference is to be drawn between a lease granted by the Government and a private lease: Hang Wah Chong Investment Co Ltd v Attorney General [1981] 1 HKLR 336, 341), but was a right conferred by statute made applicable to nearly all leases throughout the New Territories.  In my view, arguments based on estoppel have no place in such a situation.

44.  Last but not least, the analysis of the Extension Ordinance as a surrender and immediate regrant breaks down even if the Ordinance were read merely as a private document agreed between individuals.  It is settled law that on surrender, the original lease merges in the lessor’s reversion and is extinguished immediately (Megarry & Wade, The Law of Real Property 6^th ed §14-172).  On regrant, a lease is freshly granted for a single term commencing from the time of surrender and expiring at the end of the newly-agreed term of years (see Jenkin R Lewis Ltd v Kerman [1971] 1 Ch 477, 496 and the discussion of this case in Take Harvest Ltd v Liu [1993] AC 552, where the Privy Council held at 565H-566F that the court could not invoke the fiction of a new tenancy for a term of just 21 days when the parties never contemplated it).  On Mr Chan’s submission that the Extension Ordinance operated as a surrender and regrant, the surrender would have occurred on the operative date of s.6 (25 April 1988) and a fresh grant given for a term commencing from that date (25 April 1988) to 30 June 2047.  However, the Extension Ordinance does not confer a single term of years from 25 April 1988 to 30 June 2047.  Instead s.6 provides that the term is “extended from the date on which it would, apart from this Ordinance, expire...”, thus acknowledging the continuous existence of the original lease.

45.  I do not think it is necessary to go further.  In my view, the analysis that the Extension Ordinance operated as a surrender and regrant is incorrect for the reasons discussed above.  Accordingly, it is not necessary in this appeal to seek an answer to the interesting problem posed regarding the validity of a surrender by and regrant to a lessee (whose title has been extinguished by a squatter’s adverse possession) for the purpose of overturning the squatter’s right to possession as against the lessee, and how such a device might be invalidated by, amongst other grounds, invoking the tort of conspiracy to injure: see Wade, “Landlord, Tenant and Squatter” (1962) 78 LQR 541 referred to by Lord Nicholls in Chung Ping Kwan v Lam Island Co Ltd [1997] AC 38, 47 as a powerful critique of Fairweather v St Marylebone Property Co Ltd [1963] AC 510, where Lord Denning (at 547) thought that there was “no way of preventing” the destruction of the squatter’s right to possession.

Reversionary Lease

46.  I then turn to Mr Chan’s submission that the Extension Ordinance operated as the grant of a reversionary lease by the Lessor to the Lessee. 

47.  Again, I would first set out my understanding of what is meant by a reversionary lease.  (As a matter of completeness, I would note, with much respect to the trial judge, that a reversionary lease is not synonymous with a concurrent lease; a concurrent lease is however synonymous with a lease of the reversion: see the discussion on the alignment of leasehold relationships in Gray and Gray, Elements of Land Law, 3^rd ed. 387-391; Megarry & Wade, §14-061 esp fn.31, and §14-103).

48.  Say a lease of land for a term of 10 years has been granted by a lessor L to a lessee T.  After say, 3 years of this lease have run, L can secure a future letting of the land to R to take effect immediately upon the expiry of T’s lease in 7 years time.  Such a lease to R is called a reversionary lease. 

49.  It is no less a reversionary lease if after 3 years of T’s lease have run, L agrees to lease the land to T to take effect upon the expiry of his present term (Jenkin R Lewis v Kerman, 496).  L is free to decide if he wishes to grant a reversionary lease to R or to T (or not at all).  By contrast, if L is under a specifically enforceable obligation under the lease to let the land to T upon the expiry of his present term for a further period of time at T’s option, what T has is not a reversionary lease but a lease with a right to renew for a further term of years. 

50.  As discussed above, the Extension Ordinance gave every existing lessee of the relevant leases a right to extend the lease from its expiry date under the existing lease to 30 June 2047: sections 5 and 6.  The lessee could opt-out of the extension by registering a memorandum within the 2 month period from 26 February 1988 to 25 April 1988: section 5.  However the lessor (and at risk of repeating myself, the Government is to be treated in its lease dealings as a private landlord) could not opt-out of the extension.  It had no freedom to choose whether to let the land upon the expiry of the present term of years to the existing lessee or to another (perhaps better) lessee.  Therefore, in my view, the analysis that the Extension Ordinance operated as a reversionary lease is also incorrect. 

Right of renewal conferred by statute

51.  As I see it, by the Extension Ordinance, the legislature wrote into the existing leases an additional right of renewal, under which the existing lessees were given the right to enforce a further term of years against the lessor for the time being, i.e. the British Hong Kong Government and then the Government of the Hong Kong Special Administrative Region.  It is interesting to note in this regard that the Chinese term “續期” is used for both “renewal” in the New Territories (Renewable Government Leases) Ordinance Cap.152 and for “extension” in the Extension Ordinance.  The fact that the option to renew was deemed by statute to be exercised unless a lessee gave notice to opt-out within the given period makes no difference to the nature of the right.

Effect on squatters’ rights against dispossessed lessees

52.  On this analysis, does the Extension Ordinance affect a squatter’s rights as against a lessee whose title he had extinguished under s.17 Limitation Ordinance?  In my view, it does not affect him at all.

53.  The decision of the Privy Council in Chung v Lam Island, that a squatter’s right of possession against a lessee he has dispossessed is not affected when the lessee acquires a new legal estate through a right of renewal in the lease, is well-known and I will not attempt to paraphrase Lord Nicholls’ judgment.

54.  What I would wish to refer to however is that part of the judgment (at 48) where Lord Nicholls emphasized that “to ignore the legal source of the lessee’s entitlement to his new legal estate would be to exalt form (a new legal estate) over substance (a pre-existing right to the estate)”. 

55.  In Chung v Lam Island, the source of entitlement to the new legal estate was a right of renewal in the lease.  In the present case, the legislature conferred an additional right of renewal in the lease.  I do not see anything in the authorities which dictates that the “pre-existing right to the [new] estate” must be one which had been in the lease from Day 1.  In my view, the crucial point is that the seed of the new legal estate from 1997 to 2047 was planted as part of the lessee’s interest in the land under the existing lease during its currency.  The question is simply whether the new estate was or was not a “new right unconnected with [the lessee’s] prior interest” as lessee under the original lease (Bree v Scott (1904) 29 VLR 692, 713).  In my view, the new estate from 1997 to 2047 was clearly connected with the lessee’s prior interest, because the right to it had been conferred on him as part of his bundle of rights as lessee under the original lease and only by virtue of that interest. 

56.  On this analysis, the rationale of the Privy Council’s decision in Chung v Lam Island, regarding a squatter’s position where the lessee has a new lease pursuant to a right of renewal, is directly applicable.  Lord Nicholls held (48 D-F) that the lessor had no right to eject the squatter even at the expiry of the original term.  That was because the lessee had a specifically enforceable right under the original lease (in our case, imposed on the lessor by statute) which he could enforce against the lessor.  The lessor was consequently not entitled to enter into possession of the land at the expiry of the original term, because the pre-existing right of the lessee to possession under the renewal stood in the lessor’s way.  The lessor therefore had no right to eject the squatter.

57.  Further, as Lord Nicholls explained (49G-H), the lessee’s claim in right of the new lease was not a claim to an estate or interest in reversion under s.9 (1), because the lessee’s right to the new lease was a right he already had as lessee.  However, as the lessee had slept on his rights vis-a-vis the squatter, the new legal estate does not enable him to eject the squatter, because he acquired that new legal estate by virtue only of a pre-existing right included (in our case, by statute) in the lease, his title to which has been extinguished as against the squatter (48 F-H). 

58.  In my view, that result accords not only with the recognised policy of the limitation legislation, but also with the intention expressed in the Joint Declaration and the ensuing legislation that all rights in property (albeit the somewhat tenuous rights of squatters as against dispossessed lessees) should continue to be recognised and protected, or at least not abrogated without clear wording, of which there is none in any of the legislation referred to this court.  As with the Renewal Ordinance, the Extension Ordinance leaves the squatter in no better and no worse position.

59.  For the reasons set out above, I would dismiss the appeal with costs.

Hon Rogers VP:

60.  There will therefore be an order as set out in paragraph 22 above.