PARKMOST LTD v. WONG YEUNG ON AND ANOTHER

HCA 1193/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1193 OF 2006

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D E C I S I O N

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1.    This is an appeal by the defendants in the original action against an order of Master K H Hui made on 28 June 2007.  The Master dismissed the defendants’ application for summary judgment on the counterclaim and struck out their adverse possession claim from the re-amended defence and counterclaim.

2.    The plaintiff is the registered owner of a building in Happy Valley.  The 2^nd defendant was the tenant of a flat in the building.  He claims that his tenancy is still in force.  The 1^st defendant was the 2^nd defendant’s father who used to be the tenant of the premises before his death on 26 January 1979.  His estate is represented by the 2^nd defendant in this action.

3.    The plaintiff has pursuant to section 5(2) of the Landlord & Tenant (Consolidation) (Amendment) Ordinance, 2004 served a one-year transitional notice of termination on the 1^st/2^nd defendant on 23 February 2005 and posted the same at the main door/entrance of the premises on 23, 24 and 25 February 2005.  Prima facie, the tenancy was terminated on 1 March 2006.  The defendants did not deliver up vacant possession of the premises.  The plaintiff therefore claims possession and mesne profits.  The defendants deny the claim.

The Plaintiff’s Case on Title

4.    I set out the plaintiff’s case on title and then consider the defendants’ attack on it.  The flat is in a pre-war building.  The building was acquired by one Ng Hop Yick in the 1930s.  He died in 1941.  His executrix Ng Chan Shi was registered as the owner on 29 May 1947.  Ng Chan Shi assigned the building to Ng Cheuk Lau and Ng Cheuk Jing as tenants in common on 4 December 1968 and registered the assignment in the Land Registry by memorial No. 657063.

5.    One Chan Kwok Yun (“Chan”) began working for one Lee Chun Kong and his family as a chauffer since the 1950s.  Lee Chun Kong was the son of one Lee Sing Kwok who owned and controlled some companies operating in Hong Kong.  In mid-1978, Lee Chun Kong told Chan that Ng Chan Shi was indebted to him.  Lee Chun Kong further told Chan to collect rent from the tenants of the building (including the 1^st defendant).  All the tenants had been told to pay rent to Chan.  Chan could exercise the rights of a landlord and could issue rent receipts in his own name.  Lee Chun Kong also told Chan to discharge the rates, property tax and maintenance costs from the rent collected and to keep the balance for Chan’s own use.  Chan then started collecting rent from the tenants of the building including the 1^st defendant in May 1978.  In the mid-1980s Chan left the employ of Lee Chun Kong.

6.    On 10 August 1998, Chan issued proceedings in HCMP 3929 of 1998 against Ng Chan Shi, Ng Cheuk Lau and Ng Cheuk Jing for adverse possession of the building.  After exercising a lot of efforts to serve the proceedings on the Ngs but to no avail, the notice of the proceedings was served by substituted service pursuant to an order of this court.

7.    Eventually on 16 July 1999, Chan obtained from Deputy Judge Muttrie declarations under the Limitation Ordinance to the effect that the title of the Ngs to the building had been extinguished and Chan had acquired the interest of the building by adverse possession.  The sealed order was filed on 30 July 1999 and registered in the Land Registry on 3 August 1999.  On 4 August 1999, Chan sold the building to the plaintiff for $9 million dollars.  The plaintiff is a company owned and controlled by Lee Chun Kong’s father Lee Sing Kwok.  Lee Chun Kong and Chan have passed away respectively in 1987 and 2003.  The plaintiff then issued the transitional notice of termination to the 1^st and 2^nd defendants as referred to above in February 2005.

The Defendant’s Case on Title

8.    The 2^nd defendant who also acts for the estate of his father the 1^st defendant, has set out his case in a re-amended defence and counterclaim.  He supplemented the details by an affirmation filed on 18 July 2007.  He pleaded that the original owners of the building from 1935 onwards were Ng Hop Yick, Ng Chan Shi, Ng Cheuk Lau and Ng Cheuk Jing to whom he referred as the Ng Family.

9.    According to his parents, the flat was rented from the Ng Family in 1941.  However, during the 2^nd World War from 1942 to 1945, the Ng Family had fled to the Mainland.  The defendants remained behind taking care of the building for the Ng Family.  No rent was paid for that period.  When the Ng Family returned after the War, they promised to rent the premises to the defendants at a small rent to express their gratitude and further said that, provided the rent was paid, the tenancy would be lifelong without termination.  The 2^nd defendant characterized this arrangement as a gift.  At that time, Ng Chan Shi was living in a building on the opposite side of the street with her daughter who was a teacher.  They lived there until the 1960s.  Ng Cheuk Jing, the son of Ng Chan Shi, used to collect rent personally from the defendants for about 30 years since the late 1940s to 1970s.  They were friends.  There were times when they talked about the War, the hardship during that period and the life tenancy which could be a gift in gratitude.

10.    The 2^nd defendant then produced a letter dated 15 January 1976 from Messrs C. P. Tsang & Co. to the 1st defendant.  The letter advised the 1^st defendant that the landlord’s representative Mr Pai Chan Yu would soon visit the premises to inspect its conditions.  The solicitors asked the 1st defendant to receive Mr Pai.  

11.    The 2^nd defendant then produced another letter from the same solicitors and dated 18 April 1978.  This letter advised the 1^st defendant that from 1 May 1978, all matters about rental and the tenancy of the premises would be handled by Chan, the landlord’s representative, and Chan was fully authorized to collect the rent and to handle all matters.  The letter also enclosed Chan’s name card to facilitate liaison.  The name card has not been produced in this action.

12.    The 2^nd defendant’s diligent research at the Companies Registry showed that Mr Pai had been a director of one American Harvester Investment Limited (“American Harvester”) since 31 December 1976.  Chan had also been a director of this company since 11 February 1980 to at least 31 December 1993.  This company was owned and controlled by Lee Sing Kwok and was wound up voluntarily by a members’ resolution dated 23 June 1994.  The 2^nd defendant also dug up documents of one Southern Harvester Finance Limited (hereinafter called “Southern Harvester”) which was also owned and controlled by Lee Sing Kwok.  Chan was also a director of this company between 28 September 1994 and 25 August 2000.

13.    After Chan had sold the building to the plaintiff on 4 August 1999, he continued to collect rent for the plaintiff but issued receipts in his own name.  The plaintiff’s chop mark only appeared in the rent receipts from July 2003 onwards.  The 2^nd defendant then referred to the rent receipts which he had kept for years.  He said the receipts for May to August 1978 bore Chan’s name and the chop mark of American Harvester.  On the back of the receipt for July 1978 was the Chinese name of Lee Chow Kee (Holdings) Limited (“Lee Chow Kee”) another company owned and controlled by the Lee Sing Kwok.

14.    The 2^nd defendant thus said that Chan was not collecting rent for the Ng Family, but was doing so for American Harvester.  He also said that there were other persons collecting rent in respect of the premises.  From 1 May 1980 to June 1981, the rent was collected by one Lai Sin Cheong and Lee Chun Kong.  Lai Sin Cheong was also a director of American Harvester and a member of the staff of Lee Chow Kee and Southern Harvester.  Hence the 2nd defendant said that Chan had only collected rent for 17 years.

The Defendants’ Accusations

15.    The 2^nd defendant then said that Chan and the companies he represented had falsely pretended to be the agent of the Ng Family and had not disclosed to him the disappearance of the Ng Family for 26 years since May 1978.  He only discovered this in 2006 when this dispute arose.  He also said that Lee Chun Kong had not been authorised by the Ng Family to collect rent in respect of the premises.  Though Lee Chun Kong died in 1987, his chop was still applied to rent receipts long after that.

The Plaintiff’s Response

16.    The plaintiff filed an affirmation by Lee Chun Kong’s brother Lee Chung Keung on 13 March 2007 to respond to the allegations in the Counterclaim.  He admitted that all the above companies were owned and controlled by his father, Lee Sing Kwok.  He was the general manager of the companies.  He said Lee Chun Kong and Chan had passed away in 1987 and 2003 respectively.  He deposed to his belief that the solicitors’ letters in 1976 and 1978 were issued pursuant to Lee Chun Kong’s instructions and Lee Chun Kong had asked Pai and subsequently Chan to collect rent from the tenants of the building.  He also confirmed that Lee Chun Kong had allowed Chan to pocket the rental subject to payment of expenses and American Harvester had not taken the rental.  Regarding some rent receipts which were issued by Lai Sin Cheong, he said it was because Chan was away in the Mainland and Lai just issued the receipts for him.  However, the rent as collected was still given to Chan upon his return.  For rent receipts which bore the chop of Lee Chun Kong, he believed that the chop was applied by Chan.  Lee Chun Kong had never collected any rent and all rent had been given to Chan.

Questions Raised in the 1^st Hearing

17.    When the matter was first before me on 7 September 2007, I asked counsel for the plaintiff to consider the question of whether Chan could be an adverse occupier when, despite his collecting rent from the tenants for his own benefit, the tenants only thought that he was the rent collecting agent of the landlord.  Furthermore, if Chan could not have acquired any interest in the building as an adverse occupier, what would be the position of the tenants?  I also raised the question of whether the tenants, upon discovering Chan’s lack of authority, could ask for refund of the rental.  If so, the tenants would have lived in the premises without paying rent.  There was thus the further question of whether the tenants would then become adverse occupiers.  I also thought that the allegation that Lee Chun Kong had purportedly told Chan to collect rent for Chan’s benefit was a matter of hearsay that should be tested at trial.  I therefore adjourned this appeal upon the 2^nd defendant’s undertaking to apply to intervene in HCMP 3929 of 1998 in which Chan had obtained the declarations of adverse possession.

The 2^nd Defendant’s Intervention in HCMP 3929 of 1998

18.    The 2^nd defendant duly applied to intervene in those proceedings.  He did so on behalf of the estates of his parents as well.  However, the applications on behalf of his parents’ estates were dismissed because he had not applied for letters of administration for their estates.  I am also told that his own application was not regarded as useful as the Master thought that any right of adverse possession only belonged to his parents or their estates.  The dismissal was without prejudice to a new application for intervention to be made in future.

19.    The plaintiff then applied to restore the Defendants’ appeal and sought to have it dismissed.

The Plaintiff’s Argument on the Appeal

20.    The plaintiff submitted that there is no likelihood of the 2^nd defendant succeeding in his application to intervene in HCMP 3929/1998.  The plaintiff further submitted that the dispute on the ownership of the building had been resolved between Chan and the Ng Family in HCMP 3929 of 1998 and the building had been sold to the plaintiff, which was an innocent party, for valuable consideration.  The Ng Family cannot be contacted and Chan has died.  The plaintiff would suffer great prejudice if the matter was further delayed.  The plaintiff also submitted that the defendants had no chance of success on adverse possession because they had paid rent to Chan willingly (see Wong Tak Yue v Kung Kwok Wai & Anor [1998] (CFA) 1 HKLRD 241 at 249-252).

Analysis and decision

21.    I have considered the defendants’ case again.  There is no doubt that in about January 1976, the rights and interests of and in the building should have changed hands from the Ng Family to Lee Chun Kong and/or American Harvester and/or some entity under the ownership and control of Lee Sing Kwok.  Otherwise, there would not have been the solicitors’ letter dated 15 January 1976 written on behalf of the landlord which requested the 1^st defendant to receive the landlord’s representative Mr Pai Chan Yu.

22.    This change of ownership must have been known to the Defendant Family as this family was on friendly terms with the Ng Family.  Ng Cheuk Jing also used to collect rent from the 1^st defendant personally.  If the Ng Family had to communicate with the defendants, they would have done so personally.  They would not have found it necessary to send a solicitors’ letter beforehand.  Nor would they have found it necessary to send along a representative.  So when the solicitors of the new landlord wrote the 1^st defendant on 15 January 1976 announcing that the landlord’s representative Mr Pai would come to inspect the premises, the 1^st defendant would have known that there was a change of landlord.

23.    In fact, if the Defendant Family was so familiar with the Ng Family and/or Ng Cheuk Jing, the defendants would have been told by the Ngs about the change of landlord as well. 

24.    Furthermore, since January 1976, the Ngs had disappeared.  Ng Cheuk Jing did not come to collect rent again.  It was at this time that the landlord introduced its representative Mr Pai by a solicitors’ letter.  All these show that there was a change of landlord.

25.    Even if the Defendants were not aware of the change of landlord at the time of the solicitors’ letter of 15 January 1976 and the Ngs had not told them about it, they would have known about it when the 1st defendant received the solicitors’ letter dated 18 April 1978 which advised that Chan was fully authorized by the landlord to collect rent and to handle all tenancy matters.  Chan’s name card was also enclosed in the letter.  Though the 2^nd defendant said that he had no clue as to the content of the name card, I believe it should contain Chan’s name, the name and address of his employer and the telephone number of his place of work.  Otherwise, the card could not have facilitated liaison. 

26.    I also do not think that Chan would have found it necessary to conceal the identity of his employer and falsely pretend that he was collecting rent for the Ngs.  When he issued rent receipts, he affixed the chop of American Harvester on them and made no attempt to conceal the identity of his employer.  The 1^st defendant could not have been ignorant about it.  All the rent receipts were issued on behalf of American Harvester and not the Ngs.  There is no evidence that Chan or any one else had pretended to be agent of the Ngs.  There is therefore no basis for the 2^nd defendant to allege now that Chan or any one else was an impostor.

27.    The 2^nd defendant said in court that Lee Sing Kwok and those working for him knew of the disappearance of the Ng Family in or before 1976 and then came along to collect rent from the tenants of the building on the pretended basis that they were the Ngs’ agent.  He said he (and supposedly his father the 1^st defendant and the other tenants of the building in 1976 also) had no idea that the Ngs had disappeared and they just paid rent to Chan thinking that he was collecting rent for the Ngs.  The 2^nd defendant said he only knew of the disappearance of the Ngs in 2005 (or 2006) when this dispute arose. 

28.    In the light of the contents of the contemporaneous documents, the professed familiarity between the Ng Family and the Defendant Family and the inherent improbability of the 2^nd defendant’s story, I do not think the 2^nd defendant’s story is believable at all.

29.    Chan of course was not authorised by the Ng Family to collect rent, but I find that that was known to the 1^st defendant.  The 1^st defendant paid rent to Chan knowing that he was collecting rent for a new landlord and not for the Ngs.  After the 1^st defendant had passed away on 26 January 1979, the 2^nd defendant continued to pay rent to Chan until 2006 when this dispute arose.  The defendants therefore could not have the animus possedendi for adverse possession against the landlord to whom they had paid rent.  They knew that their landlord was American Harvester or some entity as represented by Chan (see Wong Tak Yue at 249-252).  In these circumstances, I do not think that there is any basis for the defendants’ counterclaim of adverse possession.

30.    The 2^nd defendant said that the alleged sale of the building by Chan to the plaintiff for $9 million was a sham and no money should have been paid to Chan.  He also disputed that the plaintiff was a bona fide purchaser.  On the evidence in this case, it can be said by way of a reasonable conjecture that those who control the plaintiff might have encountered some problems in properly vesting the title from Ng Cheuk Lau and Ng Cheuk Jing unto the plaintiff despite having assumed the role of landlord since January 1976.  The difficulty might have been caused by the death of Lee Chun Keung in 1987 and/or the winding up of American Harvester in 1994 and/or the disappearance of the Ngs in 1976.  Whatever it was I know not.  In order to vest the title of the building unto the plaintiff, they then devised this scheme of adverse possession by Chan.

31.    If the truth of the matter is indeed as I conjectured, then I express my emphatic disapproval of it.  I do not think such is the right course to sort out title problems.  However, the misbehaviour, if any, of those in control of the plaintiff should not afford the 2nd defendant an opportunity to exploit the plaintiff by a false claim.  The 2^nd defendant’s attempt to exploit the plaintiff and those behind it by this false claim of adverse possession is nasty.  It is a bigger evil.  Master Hui was right in striking out the adverse possession claim from the defendants’ re-amended defence and counterclaim.  I therefore dismiss the defendants’ appeal to the extent that it relates to this part of Master Hui’s order.

32.   I now deal with the defendants’ appeal against the dismissal of their application for summary judgment on the counterclaim.  The defendants’ application for summary judgment encompassed more than the claim of adverse possession.  There is also the claim for adverse possession for a cockloft, a metal gate and a busbar riser which were built and maintained by the 2^nd defendant.

33.    Any fixture built by a tenant in the rented premises, which is attached to and has become part of the premises, would become a landlord’s fixture.  The tenant has to leave it behind at the expiry of the tenancy.  If the fitting is just a chattel and not a fixture, the tenant is at liberty to take it away (see para.13.131 to 13.141 of Woodfall, Landlord and Tenant).  The cockloft, the metal gate and the busbar riser all appear to be landlord’s fixtures.  Since I have held that the defendant’s counterclaim in relation to adverse possession has no merit, the defendants’ chance of success in these other claims needs to be investigated.  I do not think he is entitled to summary judgment for these claims.

34.    There is also a claim for a life tenancy.  Apart from the allegation by the 2^nd defendant, the defendants so far have produced no other evidence to support it.  If there was indeed such a tenancy granted by the Ng Family, one would expect that it should have been made in writing as it was a valuable tenancy.  Furthermore, the 1^st defendant would have raised it with the new landlord in 1976 or 1978.  In any event, when the plaintiff served the transitional notice of termination on the 2nd defendant in February 2005, the 2^nd defendant should have raised it with the plaintiff.  Nothing of the sort has happened.  This allegation of a life tenancy again needs to be investigated.  The application for summary judgment is inappropriate.

35.    Furthermore, even if there were such a life tenancy, it should have come to an end in January 1979 when the 1^st defendant passed away.  The 1^st defendant was the original tenant.  The tenancy as created between the 2^nd defendant and the landlord after the death of the 1st defendant could well be a monthly tenancy.  In the premises, I also uphold Master Hui’s dismissal of the defendants’ application for summary judgment. 

The defendants’ request for adjournment

36.    The defendants asked me not to hear the appeal but to adjourn it pending the outcome of the application by the estate of the 1st defendant to intervene in HCMP 3929 of 1998.  Since I do not think the defendants have any merit in this appeal, nor do I think the success or otherwise of the application to intervene would have made a difference, I therefore do not adjourn the hearing of this appeal.

Costs

37.    Finally, I make a costs order nisi that the defendants do pay the plaintiff the costs of this appeal.  Though the plaintiff is represented by leading counsel, I do not intend to certify this matter fit for leading counsel as this is not a complicated matter.  Any party which is not satisfied with this costs order nisi should apply within 14 days to have it varied.