MONAT INVESTMENT LTD v. ALL PERSON(S) IN OCCUPATION OF Part of The Remaining Portion of Lot No 591 in Mui Wo D.D. 4 No.16 Ma Po Tsuen, Mui Wo, Lantau Island AND ANOTHER

CACV 448/2020

[2023] HKCA 479

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 448 OF 2020

(ON APPEAL FROM HCMP NO 1894 OF 2015)

________________________

________________________

________________________

________________________

J U D G M E N T

________________________

Hon Kwan VP:

1.  I agree with the judgment of Yuen JA.

Hon Chu VP:

2.  I agree with the judgment of Yuen JA.

Hon Yuen JA:

3.  This is the plaintiff’s appeal from a Judgment of DHCJ To (“the judge”)  given on 11 August 2020 (“the Judgment”)  dismissing its claim against the 2^nd defendant and entering judgment for the 2^nd defendant on his counterclaim for a declaration, limited to “the area covered by the brick house and the semi-circular paved area immediately outside its front entrance as marked in pink” in a plan annexed to the sealed Amended Judgment.

A.  BACKGROUND FACTS

4.  Briefly, the background facts are as follows.

5.  On 11 July 1987, the plaintiff became the registered owner of the Remaining Portion of Lot No.591 (“RP”)  in Mui Wo D.D.4, Mui Wo, Lantau Island.  On 5 August 2015, it commenced proceedings to recover possession of the RP against unnamed defendant(s)  in occupation.

6.1.  The 2^nd defendant joined as a defendant, claiming that the RP was situated within a bigger piece of land of which he (through a gift from his father and occupation by his family)  had been in adverse possession since the 1950's, and thus the plaintiff’s claim was statute-barred under the Limitation Ordinance cap. 347 (“LO”).

6.2.  That bigger piece of land was called “the Disputed Area” in the Judgment.  It comprised of two parts: the “Brown Area” and the “Green Area”.

7.  I shall first summarize the judge’s findings of fact. In view of the some of the grounds of appeal, it is necessary to go into some detail.

- Occupation of the Brown Area

8.1.  In summary, the judge found that on the Brown Area, there was originally a wooden hut occupied by the father and his family, which the father replaced with a brick house in 1978.  The father occupied it until his death on 14 December 1980 (“the 1^st period”), the mother continued to occupy it until her death on 16 October 1999 (“the 2^nd period”)  and thereafter, the 2^nd defendant occupied it up to and including the time of trial (“the 3^rd period”).

 -  Occupation of the Green Area

8.2.  The judge also found that in 1996, the mother paved a part of the Green Area outside the entrance of the house (“the Paved area”), that she occupied it until her death, and thereafter the 2^nd defendant occupied it up to and including the time of trial.

The 1^st period

8.3.  The judge found on the basis of documentary evidence such as birth certificates, power connections, aerial photographs, survey sheets and water accounts that the father occupied the Brown Area from 1954 until his death in 1980[1] (“the 1^st period”).

The 2^nd period

8.4.  The judge also found that after the father’s death, the mother continued to occupy the Brown Area as head of the family, and by her acts of cutting down trees, clearing vegetation and paving the surface, also occupied the Paved area from 1996.  The judge found that the mother occupied those areas until her death in 1999[2].

The 3^rd period

8.5.  As far as the 2^nd defendant was concerned, he had moved out in 1980 although he was still registered as an occupier in 1982 when the house was assigned a Squatter Control Number by the Lands Department[3].

8.6.  The judge rejected his allegation that prior to his moving out, his father had gifted him the Disputed Area in 1978[4].  The judge also considered that the 2^nd defendant had exaggerated his evidence that he returned to visit frequently at weekends and holidays.

8.7.  However, the judge accepted that the 2^nd defendant and his elder sister Irene had “control and occupation of the brick house since the mother’s death”[5].  The judge found that

-  after the mother’s death, “there is incontrovertible evidence that the utilities bills were all settled ... and the brick house was kept under lock and key during the absence of the 2^nd defendant and his siblings”[6];

-  as none of the 2^nd defendant’s siblings, including Irene, claimed any interest in the Disputed Area, he has been in sole occupation and control of the Brown Area and the Paved area.

B.  THE JUDGE’S JUDGMENT

9.  The judge first referred to authorities holding that a squatter can add a preceding squatter’s period of possession to his own period, provided the periods are continuous.  Accordingly, he found that the 2^nd defendant “has acquired adverse possession over the Brown Area and the [Paved area] since at least December 1980[7] and October 1996[8] respectively”.

10.1.  However, apart from challenging the 2^nd defendant’s factual allegations, the plaintiff had also argued that:

(a)  the occupation of the Brown Area as a residence was in breach of the agricultural user in the government lease, and

(b)  the erection of the brick house was in breach of s.14 Buildings Ordinance[9] (“BO”)  which provides that the approval and consent of the Building Authority should be obtained before the commencement of buildings works. 

As such, the plaintiff argued, the 2^nd defendant was relying on illegal conduct to establish his case, which is not permitted at law under the principle embodied in the maxim ex turpi causa non oritur actio¹⁰.

10.2.  The judge considered the “reliance approach” in the 1993 House of Lords case of Tinsley v Milligan[11]and what he called the “proportionality approach” in the 2016 UKSC case of Patel v Mirza (these approaches will be discussed later in this Judgment).

10.3.  The judge held that the ex turpi causa maxim “has no application to the law of adverse possession whether under the reliance approach or the proportionality approach”¹², and concluded that:

(1)  illegality whether in the act of possession or the manner of possession is generally irrelevant, and

(2)  it is only when the possession or the manner of possession is prohibited by some other statutory provision that it becomes necessary for the court to resolve the conflict by statutory construction or by balancing public interest and public policy behind the statutory provision; and even then, the illegality associated with the squatter’s possession, use or occupation of land should not have any impact on his entitlement to possessory title acquired by adverse possession, as the prohibition could be enforced against the squatter after he has acquired title¹³.

10.4.  The judge held that the fact that the occupation by the 2^nd defendant’s family of the Disputed Area was in breach of the agricultural user in the government lease, and/or the erection of the brick house contravened the BO, had no effect on his claim for adverse possession.  And if it became necessary to balance the public interest and public policy consideration behind the BO and the government lease against those behind the LO, he would find in favour of the squatter, as the authorities had taken no enforcement action in the past 40 years, and in any event, such action could still be taken¹⁴.

Appeal

11.1  On appeal, the plaintiff raised the following arguments:

(1)  the Judgment was given on an unpleaded case;

(2)  (i)  the judge misdirected himself on the evidence in  finding

(a)  that the mother had succeeded to the house on the father’s death, and that the 2^nd defendant had succeeded to the Paved area on the mother’s death;

(b)  that the mother caused the Paved area to be paved; and  

(c)  that the 2^nd defendant had a possessory claim over the Paved area; and

(ii)  the evidence of adverse possession by the 2^nd defendant’s father was “flimsy and equivocal”;

(3)  the judge should have applied the ex turpi causa maxim to defeat the 2^nd defendant’s claim for adverse possession.

11.2.  The 2^nd defendant filed a respondent’s notice to affirm the Judgment on additional or alternative grounds.

DISCUSSION

C.  THE “UNPLEADED CASE” ARGUMENT

12.  In the 2^nd defendant’s Amended Defence and Counterclaim (“Amd Def and CC”), he alleged that his father had gifted the Disputed Area to him in 1978, and since that time, “[he] (together with his parents and the siblings who were permitted by the 2^nd Defendant to remain on the land)  continued to occupy possess and/or use the Land¹⁵ as their family residence”¹⁶.  As mentioned above, this allegation of gift was rejected by the judge.

13.  The plaintiff submits on appeal that the 2^nd defendant should be bound by his pleadings, and that the case that the mother succeeded to the father’s occupation and that the 2^nd defendant succeeded to the mother’s occupation, was not canvassed.  The plaintiff submits that it should follow from the judge’s rejection of the allegation of gift that it should obtain judgment on its claim for possession, and the 2^nd defendant’s counterclaim should be dismissed.

14.1  I do not agree that once the judge rejected the allegation of gift from the father to the 2^nd defendant, that was the end of the matter.

14.2.  As regards the pleadings, the 2^nd defendant had pleaded the following (§6B, Amd Def and CC):

“[the father] (through himself and/or his family members)  was in continuous exclusive possession and occupation of the Brown Area and the Green Area since in or about the 1950's, and such possession and occupation was adverse to the Plaintiff’s predecessor(s)-in-title (or anyone claiming or deriving title from them including the Plaintiff). The title of the Plaintiff’s predecessor(s)-in-title to the Brown Area and Green Area became extinguished by the 1970s at the latest pursuant to sections 7 and 17 of the then applicable Limitation Ordinance ...”.

14.3.  The 2^nd defendant had also pleaded (§§12 - 13 Amd Def and CC)  that since 1978, he “together with his parents” and siblings continued to occupy, possess and/or use the Disputed Area as their family residence, that since 1954 until her death, the mother had been in occupation[17] and that he, whether through his father, mother, himself and/or siblings, had possession, occupation and control of the Disputed Area since the 1950's.

15.1  The 2^nd defendant’s above pleadings were proved by objective documentary evidence presented at trial[18] which verified the allegations of continuous possession by the 2^nd defendant’s family for the full period since the 1950's.  It is noted that in the Reply and Defence to Counterclaim, the plaintiff did not plead any facts alleging a break in the chain of possession, in other words, that there was any interruption (between the 1950's to date)  of occupation by the 2^nd defendant’s family.

15.2.  It is well-established that a judge is entitled to accept only part of the evidence adduced by a party.  In the present case, the judge was entitled, on the evidence, to reject the 2^nd defendant’s pleaded case of a gift, but he was entitled, on the basis of objective documentary evidence, to accept his case that he together with his parents had continuously been in occupation, having found that

-  in the 1^st period, the father as head of the family had been in possession of the Brown Area until his death in 1980,

-  in the 2^nd period, the mother continued possession of the Brown Area as head of the family, paved part of the Green Area in 1996, and continued in possession of both the Brown Area and the Paved area until her death in 1999, and

-  in the 3^rd period, after the mother’s death in 1999, the 2^nd defendant was in occupation and control of the Disputed Area.  Irene confirmed in writing[19] that she was “fully in support of my brother’s [the 2^nd defendant’s] counterclaim against the Plaintiff for a declaration (inter alia)  that my brother has been in adverse possession of the [Disputed Area] and has thereby acquired and is entitled to the possessory title, interest and/or rights in relation to the [Disputed Area]”.

15.3.  The fact that the 2^nd defendant had alleged an earlier date for the commencement of his own period of possession (1978, rather than 1999)  and a different way of acquiring possession (by way of a direct gift from the father, rather than successive squatting by his father, his mother from 1980 and then himself from 1999)  therefore makes no material difference in this case.

15.4.  In Yu Siu Cheuk v Realray Investments Ltd[20], this court[21] held[22]:

“17. ... For the purpose of deciding whether the [paper title holder’s] title has been defeated by limitation the Court does not need to decide the precise point of time when the [squatter] entered the property so long as it is satisfied that the [squatter] has proved that he has been there for twenty years with the necessary intention to possess. That is what the Court which is seized of the matter should decide. The plaintiff has, of course, stated he was there even earlier in 1979. If that is the case, then the title of the defendant would be defeated at an earlier time in 1999.

18. Even if the [squatter] cannot establish that he first entered in 1979, the Court still has to address the issue of the 20 years’ adverse possession. It is true that the plaintiff had not put forward some other specific alternative date or dates when he entered into possession of the Property. He had chosen not to do so but it does not mean that the Court could ignore the plaintiff’s case that he had been in continuous possession since 1979 which encompasses the 20 years’ adverse possession.

19. The plaintiff certainly did not confine his case that either he had entered in 1979 or he had not entered at all. ...” .

15.5.  Yu v Realray was followed in Chan San v Hans Li and others[23], where this court[24] held in a similar appeal that evidence was led on the full period of use and occupation relied upon by the squatter, and the paper title holder’s counsel had the opportunity to challenge such evidence[25].

15.6.  In Chan, the court also referred to Grand Wayfair Investment Co Ltd v Chan Yung Kan[26]where it was held that there was no injustice for a court to reach a conclusion on adverse possession based on a shorter period than the one pleaded, so long as it was clear that the squatter’s case was one of continuous possession[27].

15.7.  For the reasons discussed above, I would reject the “unpleaded case” argument.

D.  ARGUMENTS ON THE EVIDENCE

16.  I will deal with the plaintiff’s arguments on the evidence in chronological order of the events.

17.1  First, regarding the adverse possession by the 2^nd defendant’s father, the plaintiff submitted that the evidence was “flimsy and equivocal” as to how the 2^nd defendant’s father had come onto the property initially.

17.2.  However, that is only to be expected since the 2^nd defendant was only born after his father had started occupation, and his evidence could only be hearsay.  It is well-established that the weight of the evidence is a matter for the trial judge, not an appellate court.

18.1  The plaintiff then argued that the judge should not have relied on the government form R1K (the Rating Department’s Requisition for Particulars of Tenements)  in which the mother had described herself as “owner”, as the mother was illiterate and could only sign her name.  Mr CY Li SC[28] referred us to a passage[29] in the transcript to suggest that the mother only signed on the form to practise her signing skills.  The plaintiff also argued that in the same form, the mother had given Irene’s address as her own correspondence address.

18.2.  These arguments should also be rejected.  There is no evidence to suggest that the mother was or would have been misled by anyone before she signed the form.  The passage in the transcript cannot reasonably be read to mean what Mr Li suggested.  And the fact that the mother used Irene’s address as a correspondence address is neither here nor there.  One does not need to live in a property to be in possession of it.  The weighing of this form as a piece of evidence is a matter for the judge.

19.1.  Then the plaintiff argued that there was no evidence that the mother caused the Paved area to be paved.

19.2.  However, the R1K form signed by the mother dated 5 December 1996 stated that she was the owner of the house.  The Paved area was right in front of the entrance to the house.  There is no evidence who, if not she, would have expended time, effort and costs in causing the area to be paved.  As such, the judge was clearly entitled to infer that it was the mother who caused the area to be paved.

20.1.  Then the plaintiff argued that before the mother’s death, the 2^nd defendant was only her licensee, and there was no evidence that the 2^nd defendant’s possession or intention had changed after her death.  This argument is connected to the further argument that the mother’s possessory title might have gone to all her children (and not the 2^nd defendant only)  on an intestacy in the absence of evidence that she died with a will.

20.2.  These arguments should also be rejected.  When the judge referred to the 2^nd defendant being in adverse possession “by reason of succession from his mother” (see §45 quoted below), the judge did not mean that the 2^nd defendant succeeded to the mother’s estate as the sole beneficiary of her estate.  It is clear from the case law the judge cited immediately preceding those words that the judge meant that the 2^nd defendant was a successive squatter, meaning that his period of possession continued from the period of possession of the preceding squatter (his mother).  The same would apply to the argument that there was no evidence that the mother succeeded to the father’s estate.  The judge found that after the father’s death, the mother took over the house and paved the area in front of it, and after the mother’s death, the 2^nd defendant took over the Brown Area and the Paved area, paying the utility bills for the house, keeping it under lock and key and visiting occasionally.  Although the other siblings sometimes visited as well, none of them has applied to be joined as a party.  Irene, the sibling who had the most involvement with the house together with the 2^nd defendant, had signed a written confirmation supporting the 2^nd defendant’s counterclaim (see §15.2 above).

20.3.  In §45, the judge held:

“It is also trite that in computing time, a successive squatter can add the preceding squatter’s period of possession to his own provided they are continuous: Ng Lai Sim v Lam Yip Shing & Anor. This principle applies to squatters within the same family: Ricas Properties Ltd v Armed Forces Trading Co Ltd. Hence, despite my rejection of the 2^nd Defendant’s evidence that he was gifted the brick house by his Father back in 1978, by reason of succession from his Mother and his continued factual possession of the brick house and the paved area, he has acquired adverse possession over the Brown Area and the paved area since at least December 1980 and October 1996 respectively. The limitation period in respect of the Brown Area and the paved area are 20 years and 12 years respectively and have well expired by the time the plaintiff commenced this aciton in 2015". (Emphasis added).

21.  Accordingly, for the reasons above, I would also reject the grounds of appeal based on the evidence.

E.  THE EX TURPI CAUSA ARGUMENT

22.1.  The plaintiff argues that the judge was wrong to rule that  

(i)  the maxim ex turpi causa did not apply to illegality in the context of adverse possession as a matter of law;

(ii)  if the maxim did apply, the “proportionality approach” in Patel v Mirza should be adopted instead of the “reliance approach” in Tinsley v Milligan;

(iii)  on the facts, the maxim did not apply.

22.2.  The context of the argument is that the plaintiff alleges that the erection of the house was:

(a)  in breach of the agricultural user in the government lease, and

(b)  s.14 of the BO.

E1.  ARGUMENT BASED ON BREACH OF AGRICULTURAL USER IN THE GOVERNMENT LEASE

23.1.  I shall first discuss the argument based on the breach of user in the government lease as it is a “stand-alone” point.

23.2.  In the notification of Sale of Crown Land by Public Auction to be held on 21 December 1934, it is stated that the lot is sold as “an agricultural” lot[30], subject to General and Special Conditions.  None of these conditions has been included in the documents before us.

23.3.  However, as no point was taken below on this lack of evidence, I shall assume that the plaintiff’s case is that residential use of the Brown Lot was in breach of a condition of the government lease.  But that does not assist the plaintiff.

23.4.  It is well-established law[31] that no difference is to be drawn between a lease granted by the government (such as that granted by the government to the plaintiff’s predecessor in title)  and a private lease.  Therefore, occupation of the Brown Area for residential purposes is not a criminal or quasi-criminal act.

23.5.  In Les Laboratoires Servier and anor v Apotex Inc and others[32](which was not referred to the judge or this court), the UKSC held that the ex turpi causa maxim should apply only to criminal acts, quasi-criminal acts, non-criminal acts which engaged the public interest (eg dishonesty in the context of civil disputes), and infringements of rules enacted for the protection of the public.

23.6.  The UKSC held that the public interest was not engaged

“in torts (other than those of which dishonesty was an essential element), in breaches of contract, statutory and other civil wrongs [which] offend against interests which are essentially private, not public”[33].

23.7.  Les Laboratoires Servier was

-  distinguished on the facts by the Court of Final Appeal (“CFA”)  in Ryder Industries Ltd v Chan Shui Woo[34]; and

-  referred to by this court[35] in Leung Chung Ching Edwin v Estate of Leung On Mei Amy[36]on another point.

Although it was not necessary for the court in either of those cases to consider the correctness or otherwise of the holding in the above two sub-paragraphs (§§23.5 - 23.6), neither court expressed any reservations about that principal ratio of the case.

23.8.  The reasons for that holding were explained in detail in §§13 - 30 by Lord Sumption JSC.  I would respectfully adopt them and hold that the ex turpi causa maxim does not assist the plaintiff here, as the residential user of the Brown Area in breach of the agricultural user of the government lease was and is neither a criminal act, nor a quasi-criminal act, nor a non-criminal act which engaged the public interest, nor an infringement of rules enacted for the protection of the public.

23.9.  As a matter of completeness, I would record that when questioned on this aspect, Mr Li did not press the point that a civil wrong would be sufficient to apply the maxim ex turpi causa in the context of adverse possession.

E2.  ARGUMENT BASED ON CONTRAVENTION OF S.14 BO

24.  The plaintiff however argued that the building of the brick house on the Brown Area contravened s.14 BO (which provides that approval and consent should be obtained from the Building Authority before commencement of buildings works).  A person contravening s.14 BO is liable to criminal sanctions under s.40 BO.  Hence, the plaintiff argues that the maxim ex turpi causa applies, as the 2^nd defendant cannot rely on the father’s illegal act to found his counterclaim of adverse possession.

25.  However, the judge held that:

-  the ex turpi causa maxim “has no application to the law of adverse possession whether under the reliance approach or the proportionality approach”[37],

-  but if it did apply, he would adopt the “proportionality approach” and find that the balance is in favour of the squatter[38].

26.1.  First, it may be helpful to set out a brief summary of the approaches.  It will be seen later in this Judgment that the “reliance approach” has been superceded by the “range of factors approach” in the UKSC in 2016.

26.2.  I shall then discuss the position in Hong Kong.

E3.  THE RELIANCE APPROACH

27.  The “reliance approach” was applied by the House of Lords in 1993 in the case of Tinsley v Milligan.  It has been regarded as establishing as a general rule that a person should not be granted a remedy where he has to rely directly on unlawful conduct to succeed.

28.1.  This led to a concentration on the procedural aspects of a claim for relief, the focus being on the state of the pleadings to see if the cause of action is founded on an illegal act, rather than on the merits of the claim.

28.2.  More importantly, even though historically the rationale of the maxim was one of public policy[39], the courts have applied the reliance approach “mechanically” once the pleading shows reliance on an illegal act, even though no public interest would be served by the denial of the remedy.

E4.  CRITICISMS OF THE RELIANCE APPROACH

29.1.  The reliance approach has had many critics in the two decades since it was decided.

29.2.  In the High Court of Australia in Nelson v Nelson[40], decided one year after Tinsley v Milligan, all the judges unanimously decided not to follow it.  However, the judges were not unanimous in their respective approaches to the issue.

29.3.  In the UK:

-  the Law Commission was described by Lord Sumption JSC as the “chief critic of this approach”[41];

-  Lord Walker in the House of Lords in Bakewell Management Ltd v Brandwood[42](2004)  held that the maxim must be applied as an instrument of public policy, and not in circumstances where it does not serve any public interest;

-  Lord Hoffman said in the House of Lords in Gray v Thames Trains Ltd[43](2009):

“the maxim ex turpi causa expresses not so much a principle as a policy. Furthermore, that policy is not based upon a single justification but on a group of reasons, which vary in different situations”;

-  Lord Phillips said in the House of Lords in Stone & Rolls Ltd (in liquidation)  v Moore Stephens (a firm)[44] (2009):

“I do not believe, however, that it is right to proceed on the basis that the reliance test can automatically be applied as a rule of thumb. It is necessary to give consideration to the policy underlying ex turpi causa in order to decide whether this defence is bound to defeat [the claimant’s] claim”.

-  ParkingEye

30.  In 2012, in the English Court of Appeal case of ParkingEye Ltd v Somerfield Stores Ltd[45], Sir Robin Jacob applied what was called in that case “the disproportionate” test[46], involving the assessment of how far refusal of the remedy furthers one or more of the specific policies underlying the defence of illegality.  Toulson LJ cited Etherton LJ[47] at §53:

“What is required in each case is an intense analysis of the particular facts and of the proper application of the various policy considerations underlying the illegality principle so as to produce a just and proportionate response to the illegality”.

The court however did not propose any factors or steps to be followed when undertaking such an assessment.

- Hounga

31.1.  Then in 2014, Lord Wilson in the UKSC held in Hounga v Allen (Anti-Slavery International intervening)[48] (where the claimant, a Nigerian minor, was illegally employed prior to being dismissed in discriminatory circumstances)  that the application of the defence of illegality to a claim in tort was based on the public policy of preserving the integrity of the legal system by not allowing a claimant to profit from wrongful conduct, and that the test was whether the claimant’s claim was so closely connected or inextricably linked to her illegal conduct that, by permitting her to recover compensation, the court might appear to condone the illegality.  Baroness Hale and Lord Kerr agreed.

31.2.  However, while Lord Hughes and Lord Carnwath agreed with the outcome of the appeal, they were “unable to go quite so far in the basis for this conclusion as Lord Wilson JSC feels able to do”[49].

32.  So, by that time, to quote the editors of Adverse Possession[50](§7-130B):

“The tension in the cases is between two general approaches to the illegality question:

(1)  Should the defence be based strongly on causation, so that a claim must fail if it can be shown that it cannot be made out without reliance on relevant turpitude? The benefit of that rule is a degree of mechanical certainty. The problem with that rule is that it leads to arbitrary results, depending on whether turpitude can be avoided by skilled pleading or by the fortuitous availability of rules of law not dependent upon the turpitude.

(2)  Should the court instead look at the underlying policies to determine whether the defence is engaged, so that, even if the claim necessarily involves a degree of reliance on turpitude of a relevant kind, that is not automatically a bar to a successful claim?”

E5.  THE RANGE OF FACTORS APPROACH BASED ON TRIO OF NECESSARY CONSIDERATIONS

33.  Given the “schism”[51] shown in the conflicting decisions above, nine justices of the UKSC were empaneled to finally decide the issue of illegality in the case of Patel v Mirza in 2016.

Patel v Mirza

34.1.  The claimant and the defendant had agreed to bet on the movement of shares on the basis of inside information, in contravention of the Criminal Justice Act 1993.  The claimant paid a large sum of money to the defendant, but the inside information was not forthcoming.  The claimant sued for the return of the money.

34.2.  Nearly 80 cases were cited in argument before the justices of the UKSC, and more than 70 were referred to in the judgments.

34.3.  In July 2016, the majority (6-3)  held, after referring to “two centuries and more of case law about the extent and effect” of the maxim[52], that the reliance approach in Tinsley v Milligan should no longer be followed, and declared that the correct test to be applied to the defence of illegality was “the range of factors approach”[53]. Other terms for this approach is the “factors-based approach” suggested by the editors of Chitty on Contract[54] and “multi-factorial approach” by the editors of Adverse Possession.

35.  I will use the term “range of factors approach” instead of the judge’s term “proportionality approach”,

-  first to avoid confusion with the latter term as used in ParkingEye[55], and also

-  because proportionality is only one of the “trio of necessary considerations” (set out in §36.4 below)  that the UKSC held a court is required to consider in the “range of factors approach”.

36.1.  The main judgment in Patel v Mirza was given by Lord Toulson JSC, with whom Baroness Hale, Lord Kerr, Lord Wilson and Lord Hodge agreed.  By way of introduction, he stated the maxim at §1, the issue being:

-  on the one side, whether the court must give no assistance to a party which has engaged in any form of illegality; or

-  on the other side, whether the above approach would not advance the public policy which underlies the maxim[56].

(In respect of the public policy underlying the maxim, at §§126 and 129, Lord Kerr added that the maxim has been recognised as an expression of policy, rather than a principle).

36.2.  Lord Toulson discussed Tinsley v Milligan (at §§17 - 20), the subsequent Law Commission review (§§21 - 49), the approach in Australia and Canada (§§50 - 61)[57], the conflicting decisions in the UK (§§67 - 81), “the law at a crossroads” (§§82 - 94), and the way forward (§§95 - 121).

36.3.  At §120, he held:

“The essential rationale of the illegality doctrine is that it would be contrary to the public interest to enforce a claim if to do so would be harmful to the integrity of the legal system ... “.

36.4.  At §101, Lord Toulson held that, in place of a merely mechanistic process[58], a court should consider the following “trio of necessary considerations” found in case law to determine whether it would be harmful to the integrity of the legal system to allow a claim involving an illegal act:

“(a)  consider the underlying purpose of the prohibition which has been transgressed [e.g. in our case, s.14 BO];

(b)  consider conversely any other relevant public policies which may be rendered ineffective or less effective by denial of the claim [e.g. in our case, the justification of adverse possession in the use of land as a natural resource, and in discouraging stale claims];

(c)  keep in mind the possibility of overkill unless the law is applied with a due sense of proportionality”.

36.5.  At §109, he said:

“The courts must obviously abide by the terms of any statute, but I conclude that it is right for a court which is considering the application of the common law doctrine of illegality to have regard to the policy factors involved and the nature and circumstances of the illegal conduct in determining whether the public interest in preserving the integrity of the justice system should result in denial of the relief claimed”.

36.6.  At §113, he replied to criticism of the “range of factors approach” which included a fear that it would create unacceptable uncertainty[59].  This reply was followed up at §120, where he held after repeating the trio of necessary considerations:

“Within that framework, various factors may be relevant, but it would be a mistake to suggest that the court is free to decide a case in an undisciplined way. The public interest is best served by a principled and transparent assessment of the considerations identified[60], rather than by the application of a formal approach[61] capable of producing results which may appear arbitrary, unjust or disproportionate”. (Emphasis added).

37.  In his separate judgment, Lord Kerr described Lord Toulson’s approach as “structured” and held that it would promote, rather than detract from, consistency in the law[62], describing it as a “much more principled approach than one which avoids having to engage with the merits ...”[63].

38.  Lord Neuberger also concluded that Lord Toulson’s approach “providesas reliable and helpful guidance as it is possible to give in this difficult field”[64]. Significantly, he held at §175:

“ ... the structured approach proposed by Lord Toulson JSC is not akin in practice to a discretion, and, in any event, it is the best guidance that can sensibly be offered at the moment. Experience shows that it is simply not possible to identify a more helpful or rigorous test”. (Emphasis added).

39.1.  As for the minority, they accepted that “it is now recognized that some of the reasoning in Tinsley v Milligan can no longer stand”[65].

39.2.  However, Lord Sumption held that the reliance test is “the narrowest test of connection available.  Every alternative test which has been proposed would widen the application of the defence as well as render its application more uncertain”[66]. He considered that the application of the “range of factors” test was unprincipled and uncertain, and made four points against it at §262, including that it devalued the principle of consistency[67] and that where the offence was too trivial to engage the illegality principle, “one would expect most if not all such offences to be covered by the exception for cases in which the application of the illegality principle would be inconsistent with the legal rule which makes the act illegal”[68].

39.3.  It would be noted, however, that Lord Sumption also said this:

“I would readily accept that certainty is not the only value, or even necessarily the most important. But we are concerned in this case with the law of contract, an area in which the value of certainty is very great”[69].

40.  Lord Mance considered (among other things)  that it was not necessary for the resolution of the specific case before the court that the law of illegality should be “generally rewritten”[70].

41.  The upshot of the decision was that by the majority of 6-3, the common law on the defence of illegality was declared[71] to be decided on the range of factors approach based on the trio of necessary considerations.

E6.  THE POSITION IN HONG KONG

42.  I shall now deal with the situation in Hong Kong.

E6.1 THE STARE DECISIS RULE IN HONG KONG

43.  The stare decisis rule in Hong Kong stated by the CFA in the landmark case of Solicitor (24/07)  v Law Society of Hong Kong[72]includes the following:

-  before 1 July 1997, the authority of House of Lords decisions was “very great unless the decision was in a field where local circumstances made it appropriate for Hong Kong to develop along different lines” (§15);

-  after 1 July 1997, decisions of the House of Lords (and its successor, the UKSC)  “should of course be treated with great respect.  Their persuasive effect would depend on all relevant circumstances, including in particular, the nature of the issue and the similarity of any relevant statutory or constitutional provision” (§17).

44.  After the 1993 decision of the House of Lords in Tinsley v Milligan, the courts in Hong Kong have followed it as the common law authority on the defence of illegality.  The question before us is, whether in light of Patel v Mirza and before a CFA decision on the point, we should follow the UKSC decision as the common law of Hong Kong on the defence of illegality.  Applying the test in Solicitor (24/07), the nature of the issue (the common law defence of illegality)  is the same in Hong Kong as in the UK, and no constitutional provisions are engaged.  Are there any circumstances which detract from the persuasive effect of the UKSC decision in Patel? There are some cases which may have some bearing on the point.  For ease of reading, they are discussed in chronological order rather than in order of seniority of the courts.

E.6.2 SOME MORE RELEVANT CASES  

- Loyal Luck

45.1.  First in time is Loyal Luck Trading Ltd v Tam Chun Wah[73] in 2008, where the issue was whether a right of way had arisen over an access road.  One of the arguments pertained to whether the use of land for storing containers was contrary to the criminal provisions of the Town Planning Ordinance.

45.2.  The court[74] was referred to the High Court of Australia decision in Nelson v Nelson.  At §§46 - 47 however, Tang VP noted that the illegality argument did not arise because “we are concerned with the right of way over the defendant’s land.  The use of that right of way for passing and re-passing of vehicles is not unlawful.  Not even for passing or re-passing of container lorries … Here, the use of the access road as such was not illegal under the Town Planning Ordinance”.  He added also that[75]:

“The potential conflict between Tinsley v Milligan and Nelson & Another v Nelson & Others can only be resolved by the Court of Final Appeal. On the basis of Tinsley v Milligan, I agree with the learned Judge that it is not necessary for the plaintiff to plead or rely on an illegality. Moreover, as I have said, the use of the access road itself is not unlawful”.

45.3.  It would thus be seen that Tang VP gave two reasons for the decision, with the first in §§46 - 47 being the crucial one.  As for the reason in §48, the respect given to the House of Lords decision follows the approach set out in Solicitor (24/07).

45.4.  Further, as noted above, in Nelson v Nelson, the judges of the High Court of Australia unanimously declined to follow Tinsley v Milligan but proposed different approaches[76], none of which was that later declared in Patel.

45.5.  Loyal Luck cannot therefore be regarded as an authority of the Hong Kong Court of Appeal preferring the approach in Tinsley to that in Patel.

- Lau Kam Ying

46.  In this criminal case[77] in 2013, the CFA held (§21)  that “it is unnecessary to come to a concluded view” on Tinsley v Milligan because it was not accepted that the prosecution had to prove that a party’s beneficial interest was indefeasible.  In any event, it is clear from the report and the judgment that none of the UK cases post-Tinsley (or indeed, any criticism of the reliance approach)  was referred to the court, and the most that can be said was that insofar as Tinsley v Milligan was applied, it was by reason of the approach set out in Solicitor (24/07).

- Ryder

47.1.  Then, in 2015, Ryder was decided by the CFA before Patel was heard in the UKSC.

47.2.  This was a case on foreign illegality.  The CFA held that judicial comity did not require the Hong Kong court to treat a contract as unenforceable due to incidental breaches under PRC law in its performance.

47.3.  Lord Collins who gave the main judgment said (§36):

“... on this appeal the fundamental question of the scope and content of the illegality defence under the common law of Hong Kong does not fall for decision ...” (emphasis added).

47.4.  However, certain obiter remarks were made by Ma CJ and Collins NPJ regarding the developments in the law of illegality (in the domestic context)  in the UK, in particular in the case of ParkingEye.

47.5.  Lord Collins commented first that (§29):

“It is notorious that the common law in England on the scope of application of the illegality defence is difficult and uncertain, and the position has not been made easier by recent, conflicting, decisions of the UK Supreme Court”.

47.6.  Then, after discussing three recent, conflicting decisions (Hounga, Les Laboratoires Servier and Bilta (UK)  Ltd v Nazir (No. 2)[78])[79], Lord Collins said (§35):

“Faced with these differences of view on the effect and correctness of the leading decisions and an apparent conflict of principle between two differently constituted panels, it is not surprising that the President of the UK Supreme Court, Lord Neuberger, said in Bilta ... that the proper approach to the defence of illegality needed to be addressed by the UK Supreme Court as soon as appropriately possible in a panel of seven or nine justices. I also agree with the observations of the Chief Justice in relation to the position in Hong Kong”.

47.7.  Ma CJ’s observations were as follows (§1):

“... Like Lord Collins, I believe that the outcome can be determined by reference to the applicable conflict of laws principles (for we are here concerned with a foreign illegality). It is not necessary to discuss the matter in the context of a domestic illegality. As Lord Collins points out, the lower Courts determined the case on the basis of the principle contained in Tinsley v Millgan ... and also applied the proportionality test contained in ParkingEye ... Since the decisions of the lower Courts, there have been important developments in the law in this area and reference is made below to the decisions of the UK Supreme Court in Hounga ... , Les Laboratoires Servier ... and Bilta ... It is not necessary ... to discuss illegality in the domestic context and I would accordingly leave open any detailed discussion of the applicable principles for a case in which the point arises. I would like, however, to make this point. Both the lower Courts applied a proportionality test, this being the test advocated by both parties based on their reading of ParkingEye. I am not in favour of applying this test as the applicable test for illegality since it appears to suggest some kind of judicial discretion to be exercised. It seems to me that the question of illegality must be based on firmer principle and policy, although I accept that the facts in any given case will inevitably differ. However, as I have indicated, it is not necessary to go into this aspect in the present appeals”. (Emphasis added).

48.1.  Pausing here, it would be noted that the obiter remarks of Ma CJ (at §1)  and Lord Collins (at §§24, 27 - 28)  on the “proportionality test” related to the test set out in ParkingEye, which is a different test from the “range of factors approach” in Patel based on the trio of necessary considerations.

48.2.  Further, Ma CJ’s concern that “judicial discretion” would be exercised in place of “firmer principle and policy” is similar to the concern about uncertainty, which the majority of the UKSC in Patel considered was ameliorated by the “structured framework” of the “range of factors approach”discussed above.

48.3.  In light of this, I do not read those obiter remarks as evincing an intention by the CFA to pre-emptively disallow the application in Hong Kong of the “range of factors approach” for the common law defence of illegality as declared in Patel.  Indeed, Ma CJ explicitly said that he would “leave open any detailed discussion of the applicable principles for a case in which the point arises”.

- Kan Wai Chung 

49.1.  In Kan Wai Chung and ors v Hau Wun Fai and ors[80] decided 2 days after Patel (which was not referred to the court), the court[81] was referred to the Australian approach in Nelson v Nelson.

49.2.  Cheung JA referred to the approaches in the four separate judgments in Nelson which “was not fully analysed by the parties”[82].  In the event, the court held that it was bound by the CFA decision in Lau Kam Ying[83] (which, as noted above, was prior to Patel, and in which none of the UK cases criticising the reliance approach was referred to the court).

-  Arrow

50.1.  Arrow ECS Norway AS v M Yang Trading Ltd and ors[84] in 2019 appears to be the first Court of Appeal case where Patel was discussed.  It was a security for costs application before this court[85].  The court held (§5.4):

“In our view the defendants have to show that this Court was plainly wrong in its previous decision and therefore that decision should no longer be followed before they could make any headway with the Patel argument. At best the defendants’ argument on Patel is only a reasonably arguable point for the purpose of the appeal but we are not convinced that it is such a strong point that we should exercise the discretion [not to order security for costs] in favour of the defendants”.

50.2.  It would thus be seen that, consistently with the approach adopted for security for costs applications, there was no detailed analysis of the Patel test, nor of its application as the common law of Hong Kong under the stare decisis rule in Solicitor (24/07).

E6.3.  POSITION IN HONG KONG POST-PATEL

51.  In light of the stare decisis rule and the above cases, my understanding of the position in Hong Kong is as follows.

52.1.  As far as the CFA is concerned, it is clear from the judgment in Lau Kam Ying that it did not decide to adopt the reliance approach after undertaking its own examination of, and making its own conclusion on, the common law defence of illegality.  What it did was to follow the House of Lords in Tinsley pursuant to the stare decisis rule in Solicitor (24/07).  Ryder discussed a different test, the one suggested in ParkingEye, not Patel, and in any event, Ma CJ’s observations and Lord Collins’ agreement were expressly obiter.

52.2.  Since the common law on the defence of illegality is now expounded by the UKSC in Patel, applying the same stare decisis rule, it would only be logical that Patel is followed in the absence of any local circumstances that render it inappropriate.

52.3.  This conclusion accords with the declaratory theory of the common law, but also makes practical sense generally.  When a UKSC decision on a point concerning the common law is given, there might or might not happen to be a case involving that point being processed through the Hong Kong courts.  Even if there happens to be a case involving that point, and even if one of the parties decides to appeal to the CFA, there may be a time lag before the case can reach the final court.

52.4.  In my view, it would be surprising if the common law as expounded by the highest authority in the UK (which the CFA has said should be accorded the greatest respect)  is not to be regarded as the common law in Hong Kong simply because randomly, there may or may not happen to be a case involving the point being processed through the Hong Kong courts, which may or may not happen to reach the CFA.

52.5.  Of course, when such a case does reach the CFA, it would be free to follow the UKSC decision or not, in accordance with the stare decisis rule in Solicitor (24/07), but until the CFA pronounces on it, the courts in Hong Kong should not regard themselves as being “hide-bound” to adhere to an old common law rule.  The common law is an integral part of the law governing global commercial activities.  Adherence to an old rule (while hoping or waiting for a case to reach the CFA)  would only lead to a disconnect with other common law jurisdictions, and misunderstanding or confusion of parties engaged in commercial transactions.

53.1.  As for the decision in Arrow, when it is properly understood, it is clear that this court would not be departing from its own decision there in holding that Patel should be followed, and it is thus not necessary for this court to consider the “plainly wrong” test[86].

53.2.  As for other pre-Patel cases in the Court of Appeal, the CFA held in Solicitor (24/07) (§48):

“In examining whether a previous decision is plainly wrong, this court is not confined to a consideration of the matters as they stood at the time the previous decision was made. It may take subsequent developments into account. These include subsequent legal developments, including ... the development in jurisprudence in Hong Kong or elsewhere”.

53.3.  The 2010 cases of Wong Kwok Learn Baldwin v International Trading Co Ltd [2010] 2 HKLRD 334 and Cheerbond Development Ltd v Tung Kwok Yu and the 2012 case of Lau Kwai Kiu v Bian Xintian [2012] 2 HKLRD 954 were cases where the courts reached their decisions by finding that resulting trusts had arisen, and hence turpitude was not pertinent.  The “plainly wrong” test is not engaged.

E7.  ILLEGALITY IN THE CONTEXT OF ADVERSE POSSESSION

54.  Coming back to our case, I should record that, as a matter of completeness, in recognition of the fact that adverse possession must commence with a trespass by the squatter onto the paper title holder’s land, the plaintiff has restricted its argument to the effect that the LO would “only legalize trespass” but not the breach of the government lease or s.14 BO.

55.  As mentioned above, the plaintiff’s arguments are that the judge was wrong to rule that  

(i)  the maxim ex turpi causa did not apply to illegality in the context of adverse possession as a matter of law;

(ii)  if the maxim did apply, the “proportionality approach” in Patel v Mirza should be adopted instead of the “reliance approach” in Tinsley v Milligan;

(iii)  on the facts, the maxim did not apply.

56.  First, it was held in Patel that proportionality is only one of the trio of necessary considerations to be undertaken by the court.  Thus, as noted in §34 above, the test was called “range of factors approach” in Patel itself, “factors-based approach” in Chitty, and “multi-factorial approach” in Adverse Possession.  It is not known why the judge preferred to name the approach by reference to only one of the considerations in addressing the approach, but it may be misleading (as noted in §35 above)  and should be discouraged.  I shall therefore replace it with “range of factors approach”.

(ii)  If the maxim ex turpi causa applied, which approach should be adopted?

57.  It would be more convenient to discuss this second argument of the plaintiff first.  For the reasons set out in Section E5 above, I take the view that Patel now represents the common law on the defence of illegality, and for the reasons in Section E6 above, that accordingly the “range of factors approach” based on the trio of necessary considerations should be adopted in Hong Kong.

(i)  Does the ex turpi causa maxim apply to the law of adverse possession?

58.  The judge held that the ex turpi causa maxim “has no application to the law of adverse possession whether under the reliance approach or the proportionality approach”[87].  He came to that view on the basis that cases such as Tinsley and Patel involved joint enterprises to defraud third parties[88], distinguishing them from the situation of adverse possession which is founded on a different basis, albeit also based on public policy[89].  He concluded (§63):

“If this common law principle is to be mechanically applied to cases of adverse possession it will defeat the entire doctrine of adverse possession which has been developed over the past 400 years and amount to an outright repeal of the Limitation Ordinance. In my view, this common law principle which [sic] is so inconsistent with the statutory regime under the Limitation Ordinance that it must be deemed to have been displaced by the Limitation Ordinance. It has no application to the law of adverse possession whether under the reliance approach or the proportionality approach”.

59.1.  In my view, the judge’s statement above is too wide.  The conflict between the maxim and the LO is clear if the only unlawful conduct is trespass, and the reliance approach is applied mechanically. But that particular scenario does not justify the width of the statement.

59.2.  The ratio of Patel is that the court should exercise a step by step consideration involving many factors.  The first consideration is the underlying purpose of the prohibition which has been transgressed, in our case s.14 BO.  In his conclusion in §63 quoted above, the judge appears not to have considered the underlying purpose of the BO but to have gone straight to the underlying purpose of the LO, which is the second consideration in Patel.

59.3.  Regarding the first consideration, there are of course different provisions which may have been transgressed in different cases of adverse possession.  In our case, it is said to be s.14 BO.  In Loyal Luck, it was said to be s.21 of the Town Planning Ordinance Cap.131, s.27 of the Land Drainage Ordinance Cap.446 and s.14A of the BO.  In Best and Smith referred to below[90], the relevant provisions related to squatting in residential buildings, and occupation of public highways, respectively.

59.4.  As each statutory provision may have a different underlying purpose, I consider that it was far too sweeping a statement to say that the ex turpi causa maxim has no application to the law of adverse possession, whatever may be the statutory provision which has been contravened.  On the contrary, an example of the comprehensive exercise that should be undertaken by the court can be seen in the decision of the English Court of Appeal in R (Best)  v Chief Land Registrar[91] although it was decided before Patel was heard[92].

60.1.  In 1997, the claimant Mr Best had come across an empty building.  He began to treat it as his own property since 2001, expending money in repairing the roof, clearing the garden, replacing the ceiling, and installing electric and heating fitments, with the intention of making it his permanent residence.  He did not live in the house at first, and only moved into it as his home in January 2012.

60.2.  In September 2012, the Legal Aid, Sentencing and Punishment of Offenders Act (“the 2012 Act”)  came into force, of which s.144(1)  made it a criminal offence to be in a residential building as a knowing trespasser for the purpose of living there[93].  Two months later, in November 2012, Mr Best applied to register title to the property on the basis that he had been in adverse possession for the period of 10 years before the application, as required by the Land Registration Act 2002 (“the 2002 Act”).  The Land Registrar refused his application on the ground that s.144 of the 2012 Act prevented Mr Best from relying on any period (i.e. the period between September and November)  of adverse possession which involved a criminal offence.

60.3.  Mr Best issued proceedings in judicial review against the Land Registrar.  The judge at first instance allowed Mr Best’s claim.

60.4.  The English Court of Appeal affirmed the judge’s decision.  Sales LJ (now Sales JSC)  examined the respective public policy considerations underlying the 2002 Act and the 2012 Act, appearing from their own terms[94] and also from the government’s consultation papers for the 2012 Act.  He noted (§71):

“The stated objective of s.144 was to provide deterrence and practical on-the-ground assistance for home-owners in removing squatters from their property. Disruption of the law of adverse possession was not mentioned as an intended effect of the provision, nor was it suggested that it was being introduced to try to re-balance the rights of property owners as against those of adverse possessors with respect to the entitlement to be treated as the title holder in relation to property”. (Emphasis added).

60.5.  He concluded that the mischief at which s.144 of the 2012 Act was aimed had nothing to do with the operation of the law of adverse possession[95].

60.6.  A case involving a different transgression from that in Best (leading to a different result)  is R (Smith)  v The Land Registry[96]where a claim to adverse possession of land, which included criminal trespass over part of a public highway, was rejected.  The English Court of Appeal decision, which was on a narrower point, was referred to in Best.

61.1.  At no stage in any case was it held that the maxim has no application to the law of adverse possession whether under the reliance approach or the proportionality approach whatever the statutory provision transgressed.

61.2.  In other words, the court can only decide whether the ex turpi causa maxim has, or has no, application to a claim of adverse possession in any particular case after examining all the relevant factors set out in the “range of factors approach” based on the trio of necessary considerations in Patel.

(iii)  On the facts, did the maxim apply?

62.1.  Although the judge was, in my view, too sweeping in his statement that the ex turpi causa maxim “has no application to the law of adverse possession whether under the reliance approach or the proportionality approach”[97], he also found as a fact that applying the Patel test, the maxim did not apply. At §80, he held:

“If it becomes necessary to balance interest and public policy consideration behind the Building Ordinance and the government lease against those behind the Limitation Ordinance, I would find in favour of the squatter. The fact that the authorities have taken no enforcement action in the past 40-odd years suggests that on the facts of this particular case there is little public interest or public policy to be served in enforcing the prohibition. Enforcement action, which the authorities have failed to take in all these 40-odd years, could be taken against the 2^nd defendant at any time. The public interest and public policy in protecting the squatter prevail. There is no reason why the paper owner should have the benefit of the windfall caused by the illegality and be spared of the consequence of the Limitation Ordinance”.

62.2.  The judge did not articulate what he considered to be the underlying purpose of s.14 BO (the first consideration in Patel).  I tend to agree with the 2^nd defendant’s submission that it was to ensure public safety in the construction of buildings by ensuring that plans are submitted and approved before building takes place.  In our case, the brick house was built by the father, not by the mother or by the 2^nd defendant.  The plaintiff has not proved that mere occupation by the mother and the 2^nd defendant would be in breach of s.14 BO.  In any event, implicit in the judge’s focus on the lack of enforcement action over the past 40 years is the concept that the underlying purpose of the BO was not to penalize squatters.  A person can of course be in adverse possession of property without erecting a building on it.  Erecting or maintaining a fence would be sufficient.  The underlying purpose of adverse possession (the second consideration)  is plain and has been articulated by the judge in §62 of the Judgment.  In light of the first two considerations, he was clearly entitled to hold in favour of the 2^nd defendant on the third consideration.

62.3.  I therefore consider that applying the Patel test, the judge’s findings of fact were sufficient for him to hold that the maxim did not apply to this case.

F.  ORDER

63.  For the reasons set out above, I would dismiss the appeal with costs to the 2^nd defendant, it having been agreed that costs should follow the event with certificate for two counsel.