MAIN LONG INVESTMENT LTD v. WONG HEI BOR AND ANOTHER

DCMP48/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 48 OF 2004

______________________

D E C I S I O N

1.  This is an Order 14A application where the plaintiff seeks determination of the following question of law as follows:  “Whether the effect of section 6 of the New Territories Leases (Extension) Ordinance, Cap. 150, was to create a new estate in respect of government leases (save those excepted or excluded under that Ordinance) so that any person in adverse possession of the land cannot rely upon the Limitation Ordinance, Cap. 347, on possession prior to June 1997 being time of the expiry of the existing lease.” 

2.  The plaintiff’s counsel urged on me to make my ruling on this question for determination notwithstanding that this same question would be determined by the Court of Final Appeal in November 2005.  The reason is that the trial of the originating summons taken out by the plaintiff for possession is due to take place on 29 to 30 August 2005. 

3.  The Court of Appeal has already decided in Chan Tin Shi  v Li Tin-sung and Others [2005 1 HKC] by a majority that the effect of section 6 of the Extension Ordinance was to create a new legal estate in government leaseholders in the New Territories by the statutory extension provided for in the New Territories Leases (Extension) Ordinance, Cap. 150 (hereinafter referred to as “Extension Ordinance”).

4.  The consequence of that holding is that upon the grant of a new legal estate any rights accrued by a squatter which have not been crystallised by an appropriate declaration under the provisions of the Limitation Ordinance are extinguished and time must begin to run again.

5.  The decision in Chan Tin Shi is binding on this court.  In the appeal before the Court of Appeal in Chan Tin Shi, Mr Chan SC, who appeared on behalf of the defendants, argued that the only way in which section 6 of the Extension Ordinance could be implemented was 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 defendant 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 2 of the Extension Ordinance or else upon the expiry of the old lease in June 1997.

6.  This submission of Mr Chan SC was accepted by the majority decision of Chan Tin Shi. 

7.  It is not in dispute that this decision by the Court of Appeal is binding on this court.  Therefore, it is not open to the 1st defendant to rely on any adverse possession prior to the creation of a new estate under the Extension Ordinance. 

8.  However, the Court of Appeal in Chan Tin Shi did not rule on whether the term of government leases were extended by a surrender and re-grant of the leases upon the coming into operation of the Extension Ordinance on 25 April 1998 or by a grant of reversionary leases commencing on 27 June 1997.

9.  The date of expiry of the original term of the leases is a question of importance to the defendant in this case as the defendant’s adverse possession commenced prior to 1988.  If it were found that the new legal estates were granted to the plaintiff on 25 April 1988, the defendant would be able to assert an adverse possessory title against the plaintiff who only commenced this action against the defendant for possession on 7 January 2004. 

10.  The determination of this question at this point may avoid the necessity of the trial and both parties agreed that were the decision found in favour of the plaintiff the right of the defendants would be preserved by a stay of execution to await the decision of the Court of Final Appeal in its determination of the same question in November 2005.  It is upon that basis that this determination is made at this point.

11.  In support of his contention, the plaintiff’s counsel made convincing submissions.  He referred to section 6 of the Extension Ordinance which stated:

“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.”

He submitted that, as argued by Mr Edward Chan SC and accepted by the majority of the Court of Appeal in Chan Tin Shi v Li Tin-sung, it is not possible simply to convert the existing estate in the land into a different estate by adding more years to it. 

12.  He submitted that as a matter of law, the only way in which section 6 of the Extension Ordinance could be implemented was 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 referred to Jenkin R Lewis Limited v Kerman [COA1971 1 Chancellory 477 at 496 D to E] and a quote in the judgment of Russell LJ: 

“If, for example, a tenant holds a lease of land for 20 years and he and his landlord wish the period of his right to hold the land to be extended for a further 20 years, their object can be achieved by the landlord granting the tenant a reversionary lease to take effect on the expiry of the existing lease, but if they wish a single term for the extended period to come into being that result can only be achieved if the existing term is surrendered and a new term is created.”

13.  He submitted that in this section the legislature has not expressly set out which mechanism was intended or favoured.  Generic words were used in the word “extended”.  This indicated that the legislature wished the leases to be extended however without stating clearly how such intention was to be achieved in law. 

14.  He referred to the application of relevant presumptions to determine the intention of the legislature.  The first of these referred to by him is the presumption that the legislature does not intend to take away or prevent the exercise of any property right without compensation unless clear and unambiguous words are used. 

15.  He relied on Westminster Bank Limited v Minister of Housing and Local Government [1971 AC 508 at 529] of the judgment which states the principle that:

“A statute should not be held to take away private rights of property without compensation unless the intention to do so is expressed in clear and unambiguous terms.” 

16.  This is a comment by Lord Warrington in Colonial Sugar Refining Company Limited v Melbourne Harbour Trust Commissioner [1927 AC 343, 359] which principle was relied on in that judgment. 

17.  He also referred to Benyon Statutory Interpretation [2002 4th Edition, section 278] which stated the principle against doubtful penalisation that,

“The presumption against imposition of a statutory detriment to a person’s property or other economic interests without clear words is an aspect of the general principle against doubtful penalisation explained in Code 271.”

18.  The plaintiff’s counsel submitted that were it not for the Extension Ordinance the squatters who had obtained possessory titles prior to the coming into force of the Extension Ordinance could expect to enjoy the same rights as against the government lessees until the government leases expired on 27 June 1997.  If the extension was achieved by a surrender and re-grant on 25 April 1988 so that a new estate would be created to the government lessee, this would mean that a squatter with a good possessory title was deprived of the rights of this by a side wind for the rest of the term until 27 June 1997.  That would be for a period of nine years.

19.  Based on the presumption that he referred to, the Extension Ordinance should not be construed as having such a draconian effect on an accrued interest in land.  On the other hand, this draconian effect would not happen if the extension was by way of a reversionary lease in 1997. 

20.  His second point in argument was that the grant of a reversionary lease was in accordance with the broad intention of the Joint Declaration to provide for a seamless transition in the 50 years following the resumption of sovereignty as stated in paragraph 2 to Annex 3 of the Joint Declaration (which was referred to in the preamble to the Extension Ordinance).  

“2.  All leases of land granted by the British Hong Kong Government not containing a right of renewal that expired before 30 June 1997 ... may be extended if the lessee so wishes for a period expiring not later than 30 June 2047 without payment of an additional premium.”

21.  The plaintiff’s counsel submitted that the parties to a lease for a term of years cannot extend the term.  If they agree to extend it during its currency, there is implied by law a surrender and a re-grant.  If they agree to extend it at the end of the term, there is implied a new lease of the reversion.  Either way, the lessee obtains a new estate.

22.  He submitted that an extension by way of a reversionary lease in 1997 best aligns with the spirit of the Joint Declaration to broadly keep the law unchanged for 50 years. 

23.  It also embodies the aim of the Extension Ordinance which, in effect, granted a fresh lease of 50 years to government leases. 

24.  He referred to the second reading of the New Territories Leases (Extension) Bill 1987 when the Secretary for Lands and Works explained that in the Hansard “Hansard 1986 - 1987, volume 2 at 1475”: 

“The Bill is essentially about two things both covered by Annex 3 of the Joint Declaration.  The first is the statutory extension of most of the New Territories leases.  Under clause 6, all leases will be automatically extended without a requirement for payment of premium.  The existing nominal rent will be payable until the date on which lease was originally due to expire, in most cases 27 June 1997.  From the date of extension, the annual rent in most cases be an amount equal to three per cent of the rateable value of the property at that date adjusted in step with any changes in the rateable value thereafter.”

25.  He submitted that, clearly, the legislature envisaged that the extended lease would have a different term on rental as opposed to the original lease.  The annual rent of three per cent of rateable value would take effect from the date of extension; that is 27 June 1997. 

26.  He submitted that this supported the contention that a reversionary lease commenced on 27 June 1997 with a different term on annual rent upon commencement of the reversionary lease. 

27.  His third argument was that section 6 clearly envisaged an extended term of lease from “the date on which it would, apart from the Extension Ordinance, expire”.  The date of expiry would be 30 June 2047.  That is an extended term of 50 years. 

28.  The extension of a term of 50 years would not have occurred by a surrender and re-grant for he submitted that it is trite law that on a re-grant a lease is freshly granted for a single term commencing the time of surrender.  He relies on Jenkin R Lewis Limited v Kerman at page 496 for support. 

29.  Were the extension by way of a re-grant, the freshly created term would have commenced from 15 April 1988, rather than 27 June 1997. 

30.  He submitted that it was the plain reading of section 6 of the Ordinance that the extension of the lease started from the date of the expiry of the old leases which is 27 June 1997.  Hence, based on this argument, it was unlikely that the legislature intended a surrender and re-grant commencing from 15 April 1988.

31.  It was on the basis of the aforesaid arguments that the plaintiff’s counsel submitted that a new estate was created under the Extension Ordinance by a reversionary lease commencing on 27 June 1997.  

32.  The 1st defendant’s counsel did not directly argue against any of these three points raised by the plaintiff’s counsel, excepting that he submitted that the variation of the term related to the new rental to be paid upon extension of the lease should not be a deciding factor in relation to the date when the new estate was granted.  He referred to paragraph 2 in the held section in Jenkin R Lewis Limited v Kerman which stated that “a mere agreement between landlord and tenant for an increase in rent did not necessarily result in a surrender of the existing tenancy and the creation of a new tenancy.”

33.  However, the plaintiff’s counsel submitted that in the particular situation where there is an extension granted under section 6 of the Extension Ordinance there is a grant of a new estate together with the change in the term related to rent.  The two together suggested a new estate being granted at the same time as the coming into operation of the new term related to rental payment.

34.  Other arguments of the defendant’s counsel were not relevant.  There were no substantive arguments in opposition to the plaintiff’s contentions.

35.  Having considered the plaintiff’s arguments, I am of the view that they are valid and I accept the principles that he raised in support of his contention that, under section 6 of the New Territories Leases (Extension) Ordinance, Cap. 150, the plaintiff was granted reversionary leases in respect of his two government leases upon expiry of the old leases on 27 June 1997. 

36.  I therefore rule in favour of the plaintiff in the question being determined; that is “the effect of section 6 of the New Territories Leases (Extension) Ordinance, Cap. 150, was to create a new estate in respect of government leases (save those excepted or excluded under that Ordinance) so that any person in adverse possession of the land cannot rely under the Limitation Ordinance, Cap. 347, on possession prior to June 1997, being the time of expiry of the existing lease.”

37.  Having so found, I give judgment for the plaintiff in respect of his application in the originating summons which is that the plaintiff do recover possession of the first and second property referred to in the originating summons on the ground that the plaintiff is entitled to possession, and that the person or persons in occupation is or are in occupation without licence or consent.

Representation: