WONG WAN LEUNG AND OTHERS v. SECRETARY FOR TRANSPORT

FACV No. 19 of 2000

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 19 OF 2000 (CIVIL)

(ON APPEAL FROM CACV NO. 289 OF 1999)

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J U D G M E N T

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Chief Justice Li :

1. I agree with the judgment of Mr Justice Litton NPJ.

Mr Justice Bokhary PJ :

2. I agree with the judgment of Mr Justice Litton NPJ.

Mr Justice Chan PJ :

3. I agree with the judgment of Mr Justice Litton NPJ.

Mr Justice Litton NPJ :

Introduction

4. This appeal concerns a sum of $3,470,865 payable by the government by way of compensation when land was resumed under the Roads (Works, Use and Compensation) Ordinance, Cap.370 ("the Compensation Ordinance"). The appellants are the Wong Wai Tsak Tong (an institution derived from Tsing law and recognised under the New Territories Ordinance, Cap.97, acting through their managers, hereafter referred to as "the Tong"). The respondent is the Secretary for Transport, the authority designated to carry out the objects of the Compensation Ordinance.

5. The land resumed is a portion of Lot 241 in Demarcation District Cheung Chau. The effective date of the resumption was 26 June 1997. On 22 October 1998 the Tong lodged its claim in the Lands Tribunal on the basis that it was the "registered owner under (the) Block Crown Lease" which included the lot at the date of resumption.

6. Under the Compensation Ordinance persons entitled to recover compensation are persons "who would be entitled to claim compensation for land resumed under the Lands Resumption Ordinance (Cap.124) if the land had been resumed thereunder" : see part II of the Schedule to the Compensation Ordinance as applied by s.27(2). This includes "the owner" : That is, the person "registered or entitled to be registered in the Land Registry in respect of any land sought to be resumed ...".

7. There are no competing claimants. The amount in issue is not in dispute : This has been agreed at the figure mentioned earlier : $3,470,865.

8. The only question is whether the Tong is entitled to the compensation money. The Lands Tribunal held against the appellants. This determination was affirmed by the Court of Appeal (Godfrey VP, Keith JA and Ribeiro JA). Hence the appeal to this Court.

9. Ultimately, the question of the appellants' entitlement turns upon a proper construction of the Block Crown Lease (Cheung Chau) Ordinance, Cap.488 ("the Cheung Chau Ordinance"), which is said in its long title to be an Ordinance to provide for the termination of the Block Crown Lease of Cheung Chau granted to the Wong Wai Tsak Tong and for sub-lessees under the Block Crown Lease to hold directly from the government. The Ordinance came into effect on 8 September 1995. It is the respondent's case that as from that date the Tong's interest in Lot 241 was extinguished and the sub-lessees appearing as such in the Land Register became lessees holding the lot directly from the government : Hence, when a portion of the lot was resumed in June 1997 the Tong had no entitlement to compensation under the Compensation Ordinance.

10. To appreciate the issues involved it is necessary to go back to the beginning of the last century : to the time when the Block Crown Lease was first granted.

Historical background

11. His Honour Judge Cruden has set out in detail the history of land tenure on Cheung Chau Island in Suen Sun-yau v. Director of Buildings and Lands [1991] HKDCLR 33 at 35, and all that is necessary is to paraphrase that account, supplementing where appropriate.

12. Following the lease of the New Territories to the British Crown in 1898 surveyors were brought in to survey the New Territories in order to determine land ownership. It was found that many parcels of land were held in the names of families, clans, tongs and bodies of a similar nature. As part of the arrangements for land tenure under British sovereignty, all rights of private ownership were extinguished and simultaneously Crown leases in Block form were granted to persons able to establish their entitlement according to Chinese law and custom. Cheung Chau Island was made a separate Demarcation District and nearly 90% of the private land on Cheung Chau Island was granted to the Tong. The rights of sub-lessees were recognised. A system of land registration was established and the first registered sub-leases were for five years with rights of renewal for further periods of five years until the termination of the Crown lease, namely 3 days before 30 June 1997.

13. In relation to Lot 241 the first sub-lease was granted in 1914 to two persons as managers of Cheung Chau Kai Fong, an institution in the nature of a clan or tong and recognized as such under the New Territories Ordinance. It was for a term of 5 years renewable upon the same terms until the termination of the Block Crown Lease. A second sub-lease on the same terms was made from November 1919 and duly registered in the Land Registry in 1920. The persons acting for Cheung Chau Kai Fong as managers in 1920 were Chu Fuk and Lo Chiu. It appears that Lot 241 was used by the sub-lessees as a market. There is some evidence that they paid rent to the Tong from time to time. The last registration of Cheung Chau Kai Fong's interest as sub-lessees is that effected by memorial in the Land Registry bearing the date 18 June 1920.

14. In 1993 there were complaints by government authorities concerning the state of the lot. The complaints were addressed to the managers of the Tong. They caused a notice to be issued under section 58(1) of the Conveyancing and Property Ordinance, Cap.219, seeking forfeiture of the sub-lease in the absence of remedial steps being taken by the sub-lessees.

15. On 20 September 1993, the managers of the Tong issued proceedings in the High Court - High Court Action A8401 of 1993 - against Mr Chu Pak Sang as manager of Cheung Chau Kai Fong for possession of the lot on the ground of breach of covenant. On 5 October 1993 Cheung Chau Kai Fong acknowledged service of the writ. In November 1993 Cheung Chau Kai Fong lodged its defence in which the allegations of breach of covenant were denied. At the same time they claimed that the Tong's rights as lessor had been extinguished by lengthy adverse possession. In the further alternative they averred that they were in possession pursuant to a "perpetual lease" granted by the Tong. In March 1994 the Tong took out a summons for directions before a Master seeking orders for exchanging lists of documents and for setting the action down for trial. There is no evidence as to whether the summons was heard or what orders were made.

16. The action proceeded at a leisurely pace. In November 1994 the statement of claim was amended. On 1 August 1995 the writ was registered in the Land Registry against the property. In January 1997 the solicitors for the Tong learnt that Cheung Chau Kai Fong's manager Chu Pak Sang had died. A few months later they obtained leave from the court to cease to act in the High Court action. So Cheung Chau Kai Fong was left with neither manager nor solicitors acting for them. There is no evidence as to whether the assistance of the District Officer was sought to have another manager appointed to fill Chu Pak Sang's place. At any rate, the Tong's reaction was to apply to the court for the action to continue in a fictitious name and on 17 July 1997 an order was made that the action should continue against the defendant in the name of "John Doe (on the demise of Chu Pak Sang) as member of Cheung Chau Kai Fong".

17. As mentioned earlier, part of the lot was resumed by the government under the Compensation Ordinance, with effect from 26 June 1997.

The Cheung Chau Ordinance

18. The key provisions, for the purposes of this appeal, are sections 3, 4(1), 5(1), 6(1) and the definition of "sub-lessees" in section 2. As relevant they provide :

19. As mentioned earlier, the commencement date of the Ordinance was 8 September 1995, at which time the action for forfeiture had reached the stage when pleadings were closed and the Tong had taken out a summons for directions.

The issues on appeal

20. The key question is this : Did the Cheung Chau Ordinance operate to vest the portion of Lot 241 in question in the sub-lessees as direct lessees of the government, having regard to the provisions of s.4(1) and the statute as a whole? If it did, then the Tong's property rights as government lessees in respect of the same were extinguished altogether as from the commencement date. If it did not, then s.6(1) applies and the Tong is deemed to have been granted a lease by the government in respect of the portion of the Lot 241 in question.

21. The Tong's case is simply this : At the relevant date - 8 September 1995 - the sub-lease had been forfeited. The writ for possession had been issued, served, and registered in the Land Registry. Once judgment is obtained the forfeiture takes effect retrospectively from the date of service of the writ : This doctrine of "relation back" is well established in the law of landlord-and-tenant : It puts the parties in the same position as if there had been an actual re-entry which was contested but later held to have been lawful. Hence, counsel for the Tong submits, the court cannot treat Cheung Chau Kai Fong as parties "entitled under the sub-lease" in terms of s.4(1) as at the relevant date when, upon judgment for possession being given, the law would regard the sub-lessees as having no entitlement at that date.

22. The respondent's argument is two-fold :

23. The Court of Appeal determined the appeal against the Tong on the respondent's first point : the "registration point". Giving judgment for the court Godfrey VP said :

24. This approach is, at first blush, somewhat surprising, for the registration to which Godfrey VP referred is that effected by memorial more than 70 years earlier, in June 1920. This, and this alone, according to the Court of Appeal, governed the rights of the parties : And if the registration subsisted then, under s.4(1), the sub-lessees' entitlement to the land subsisted : whether the term had in fact been forfeited or not. The Court of Appeal reached this conclusion by applying the definition of "sub-lease" in s.2 and in effect gave the words in s.4(1) : "the land ... to which they are respectively entitled under the sub-lease" : virtually no significance.

25. It would be convenient in these circumstances to deal with the respondent's point (2) first.

Approach to the construction of the Cheung Chau Ordinance

26. Unless the definition of "sub-lease" in s.2 dictates otherwise - as to which I will revert later in this judgment - the expression "land ... to which [the sub-lessees] are ... entitled under the sub-leases" appearing in s.4(1) must be given their ordinary and natural meaning. Plainly it presupposes that, at the operative date, the sub-lessees were entitled to possession of the land as sub-lessees. The question of entitlement is one of law, and can only be resolved, in this case, by applying the common law as it has developed over the years concerning the relationship of landlord and tenant. Happily, the issue is unclouded by considerations such as the application of the Landlord and Tenant (Consolidation) Ordinance, Cap.7, and its numerous amendments, which have drastically affected and altered the relationship as governed by the common law.

27. Here, the respondent is a stranger to the High Court action where the Tong claims possession of the lot on the basis that the sub-lease has been forfeited and the sub-lessees deny the allegation. How, then, is s.4(1) to be applied in this case? For the purposes of the Tong's claim to compensation is the court to assume that the sub-lessees' entitlement still subsisted at the relevant date, or no longer subsisted?

28. A number of authorities have been referred to in argument. Not surprisingly there are shades of differences in the way the doctrine of "relation back" is expressed, since the judges were dealing with different statutory schemes under which the doctrine was applied. For example, Driscoll v. Church Commissioners [1957] 1 QB 330 where the question was whether the Lands Tribunal had jurisdiction to entertain a tenant's application for relief when writs for forfeiture had earlier been issued by the landlord. The landlord's contention was that because of those writs the tenant had no locus standi to apply to the Tribunal for the modification of restrictions arising from covenants in the lease (s.84(1) of the Law of Property Act 1925 allowed the tenant to apply to discharge or modify such restrictions, in respect of leases of freehold land). The landlord's argument was that once it had made an unequivocal election to determine the lease, by the issue and service of the writ, the lease had gone and the covenants had gone : There was nothing left to modify. As to which Lord Denning LJ said at p.340 :

"Relation back"

29. In the passage quoted above, Lord Denning LJ referred to the covenants being potentially good and the lease being "re-established from the beginning" : In other words, the tenant's entitlement had gone upon the landlord's exercise of the right of forfeiture, but by the court's intervention it could be re-established from the beginning. This is a clear example of the application of the doctrine of "relation back" when, before the rights are finally determined by the court, the parties are in a "period of limbo" : see Liverpool Properties v. Oldbridge Investments [1985] 2 EGLR 111 at 112H.

30. Mr Denis Chang SC, counsel for the appellants, relies heavily on Lord Templeman's statement of the law in Billson v. Residential Apartments Ltd [1992] 1 AC 494 at 535 as follows :

31. This passage, clearly in support of Mr Chang's contention, has to be treated nonetheless with some caution. That was a case where the landlord had effected physical re-entry but the grounds for doing so were contested by the tenant, who sought relief against forfeiture. The landlord's argument was that he was no longer "proceeding" to assert his right of forfeiture (in terms of s.146(2) of the Law of Property Act 1925) since, by his physical re-entry, he had succeeded in enforcing them : Therefore, the argument went, the tenant could no longer claim relief. Lord Templeman sought, in the passage quoted above, to counter this argument by equating the position of the landlord before him with the landlord who employed the more "civilized method of determining the lease by issuing and serving a writ" (see p.536F) : In the case of the latter, he was plainly "proceeding" with enforcing forfeiture. In the passage quoted above, Lord Templeman was not saying that the mere issuance and service of the writ for forfeiture determined the lease for all purposes : see Sir John Vinelott's observations in Ivory Gate Ltd v. Spetale [1998] 2 EGLR 43 at 46 J-M to this effect.

32. Nevertheless, Lord Templeman's statement of the law is valuable for this reason : It expresses the position of the parties with clarity once the legality of the forfeiture has been determined by the court. If the landlord's election to forfeit the lease is upheld, it relates back to the original act. It boils down to this : Seen from the landlord's point of view the issue and service of the writ for forfeiture determines the tenant's interest once and for all : The tenant ceases from that point onwards to have any entitlement : As far as the landlord is concerned the tenant stays on as a trespasser : The claim thereafter is not for rent but for mesne profits : That is to say, for the value of the property to the former tenant for the period of his wrongful occupation : see Halsbury's Laws of Hong Kong vol.17 para. 235.224.

33. Seen from the tenant's point of view, the situation is more fluid. (1) He may deny the cause for forfeiture (as the sub-lessees have done in this case) in which event the legality of the forfeiture has to be determined by the court. (2) He may accept that the landlord had good cause for forfeiture, for instance, for non-payment for rent, and seek relief against forfeiture or (3) he may deny the cause for forfeiture and seek relief against forfeiture in the alternative. In each of these three instances, the intervention of the court is necessary.

34. How, then, do these principles apply in the present case?

35. As at 8 September 1995, the Tong had undoubtedly exercised its right of forfeiture. As far as the Tong was concerned Cheung Chau Kai Fong had no entitlement of any kind in relation to the land : Hence, in terms of the Cheung Chau Ordinance, s.4(1) had no effect and by the operation of s.6(1) the Tong held a fresh lease direct from the government as from that date. But the sub-lessees had, in the High Court action, lodged a defence denying the cause for forfeiture and, subject to the court's determination, Cheung Chau Kai Fong's position must be that they were entitled to continue in possession of the land : In other words, that s.4(1) applied and they held the land thereafter direct from the government.

36. How, then, is the matter to be resolved in relation to the Tong's claim for compensation against the government? In my judgment, the court can make no assumptions either way. The court cannot assume that the Tong is right - and proceed as if the sub-lessees had no entitlement of any kind as at 8 September 1995 - nor can the court assume that the sub-lessees are right, and treat the Tong's claimed entitlement to a fresh lease direct from the government under s.6(1) as illusory. The matter can only be determined, one way or the other, upon judgment being given in the High Court action.

37. How this might be resolved, and what impact the judgment of this Court might have on the High Court action, will be examined later. Subject to the "registration" point, the appeal must therefore be allowed.

38. This brings me then to the respondent's point (1) : The "registration" point.

"Registration" point

39. Counsel for the respondent submits that the object underlying the Cheung Chau Ordinance and the reason for making provisions for the sub-lessees to hold directly from the government was to resolve the long-standing disputes between the Tong and the numerous sub-lessees by statutory intervention. Assuming this to be so, it does not address the central issue : Is s.4(1) to be read as if it contained a qualification to this effect : "For the purposes of this section, sub-lessees are deemed to be entitled to the land under the respective sub-leases so long as they were registered and remained on the Land Register on the coming into operation of this Ordinance"? I find it impossible to reach this conclusion as a matter of grammar. Where s.2 defines a sub-lease as one granted by Wong Wai Tsak Tong "which has been registered in the Land Registry before the commencement of this Ordinance" all this means is that sub-leases which have not been registered are excluded : Hence a sub-lease like the present one (where the last registration is dated 18 June 1920) is brought within the statutory scheme : And, for the purposes of the Ordinance, it matters not whether it was renewed upon the expiry of the 5 year term or not, because of the words "whether renewed or not" in the definition section. But this has no impact upon the meaning of s.4(1). The statutory definition of sub-lease cannot invert the meaning of s.4(1), as if entitlement in the section meant "whether entitled or not".

40. Section 4 coupled with s.6 has the effect of adjusting property rights as between the Tong and the sub-lessees. Nothing suggests that the legislature, in enacting the Ordinance, intended to confer on sub-lessees or their descendants unexpected windfalls. Consider this supposition : A sub-lessee had, in the 1920s, surrendered the land to the Tong who, in the meanwhile, had made improvements upon it. Seventy years later - on the commencement date of the Ordinance - the descendants of the sub-lessee find themselves direct lessees of the government in respect of the same land, and the Tong is ousted : This would be the inevitable consequence, on the respondent's argument, so long as (i) the sub-lease had been registered and (ii) no deed of surrender superseded that registration in the Land Registry. This would be absurd.

CACV 107/2000

41. Reference has been made in the course of argument to Wong Wan Leung and others as managers of Wong Wai Tsak Tong v. Fu Sau Pan [CACV 107/2000, 13 June 2000, unreported] which concerned an action brought by the Tong against a sub-lessee for forfeiture of the sub-lease on account of non-payment of rent. This was a special sub-lease which was subject to a different regime under the Ordinance, but the principle involved is identical to that involved in the present case. The action was brought in October 1999, about one month before the term expired on 7 November 1999. The short point in the case was this : If, at the date of expiry of the term, the sub-lease was still subsisting, then by the operation of s.5(2) the sub-lessee was deemed to hold a direct lease from the government and the Tong's government lease was deemed to have been surrendered to the government. So the case turned on the legal effect of the Tong's forfeiture of the sub-lease by the issue and service of the writ. As to this Keith JA (with whom Godfrey VP agreed) said :

42. To support this conclusion, the Court of Appeal also relied upon its own judgment in the present case : That is to say, that the sub-lessee's entitlement depended upon registration and nothing else : Even though, as the Court of Appeal accepted, if judgment for possession were given in the Tong's favour it would relate back to the date of commencement of the legal proceedings. In my view, the logical conclusion from this must be that, as at 7 November 1999, the sub-lessee had no entitlement to the land in the eyes of the court.

43. Such an approach means that, until judgment, the rights of the parties under the Cheung Chau Ordinance are in suspense. It slows down the process of ascertainment of their rights but would not, as the Court of Appeal thought, make the Ordinance "unworkable". Courts are often faced with the situation where, until judgment is given, the rights and liabilities of the parties are unascertained and inchoate. In my judgment CACV 107/2000 was wrongly decided and must be over-ruled.

Conclusion

44. As I understand the position, the difficulty facing the Tong in relation to the High Court action was this : Once the Court of Appeal had given judgment in March 2000 (upholding the Land's Tribunal's judgment dated 17 September 1999) the Tong could no longer prosecute its claim since, in the eyes of the court, the Tong's interest in the land had been extinguished and Cheung Chau Kai Fong had become the direct lessee of the government with effect from 8 September 1995. Once this appeal is allowed and the orders of the Court of Appeal and the Lands Tribunal are discharged, the position will be that the rights of the Tong under s.6(1) and of Cheung Chau Kai Fong under s.4(1) remain indeterminate, pending judgment in the High Court action. The Tong will of course be free to prosecute its claim in the High Court action - which will, presumably, no longer be for possession as such but for a declaratory judgment. If the court gives judgment in the Tong's favour, it means that, as at 8 September 1995, the sub-lessees had no entitlement to the land and the Tong will be at liberty to go back to the Lands Tribunal for its claim to compensation.

45. In these circumstances, the only orders this Court needs to make are : (1) That the appeal be allowed and the orders of the Court of Appeal and the Lands Tribunal be discharged; (2) An order nisi that the respondent should pay the appellant's costs here and in the Court of Appeal, to be made absolute after 14 days unless the parties should submit otherwise in writing; (3) As a matter of caution, the parties should be given liberty to apply to this Court in writing for any orders consequential upon this judgment.

Sir Anthony Mason NPJ:

46. I agree with the judgment of Mr Justice Litton NPJ.

Chief Justice Li :

47. The Court unanimously makes the orders set out in the last paragraph of the judgment of Mr Justice Litton NPJ.