LAM CHI KEUNG AND ANOTHER v. The personal representatives of CHOI CHUNG FUN, deceased

HCMP 1202/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1202 OF 2011

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J U D G M E N T

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1.  This action concerns the captioned residential property at Lai Chi Kok Road, Kowloon (“the Property”), which has already been resumed by the Government on 23 February 2008. By this action, the 1^st and the 2^nd plaintiffs seek declaration of their right and interest in the Property so as to enable them to claim entitlement to compensation for the resumption.

BACKGROUND

2.  Madam Li Hang Heung, deceased (“Madam Li”) had 6 children.  The 1^st plaintiff (“Keung”) and the 2^nd plaintiff (“Sun”) are respectively the eldest and the youngest son.  Keung is the administrator of his late mother’s estate.  Where appropriate, Keung and Sun will together be referred to as the plaintiffs.  The factual basis for the claim in these proceedings is set out in their affirmations.

3.  Since its purchase in 1957, the Property was registered in the name of Toy Bark Wen (or Choi Pak Wing) (“Toy”).  Choi Chung Fun (“Choi”) was the son of Toy; and was originally the defendant named.

4.  The evidence shows that Madam Li and Choi entered into a Chinese tenancy agreement dated 31 August 1973 (“the Tenancy Agreement”).  By the Tenancy Agreement, Choi as landlord let the Property to Madam Li as the tenant for a term of 10 years until the end of August 1983.  The monthly rent was HK$600 plus another sum of HK$7,000 as takeover fee (or頂讓費).  Madam Li was responsible for utilities and management fees.  Quiet enjoyment was expressly provided for.  Subletting was expressly prohibited.

5.  At the time of the Tenancy Agreement, Keung was 29 years old and Sun 18 years old.  According to Keung, Madam Li and some family members including one of their sisters (“the Sister”) started to reside at the Property.

6.  Less than 5 years into the term of the tenancy, Choi and Madam Li entered into another written agreement.  It was dated 5 January 1978 (“the 1^st Agreement”), which contained the following terms:

“我蔡仲芬現辦領承继我父親蔡百荣遺産。其中有壹層楼宇位於荔枝角道叁佰伍拾九號三楼。現本人蔡仲芬將該楼宇售於李杏香女士。售價港幣拾萬元正，如蔡仲芬不能承继之該楼宇，願意在壹個月内將港幣拾萬元正退回给李杏香女士。”

7.  Essentially Choi agreed to sell and Madam Li agreed to buy the Property, which then formed part of Toy’s estate pending administration, at HK$100,000.  It was agreed that if Choi failed to succeed to the Property, he would be willing to refund the purchase price to Madam Li within a month.  There was a receipt signed by Choi acknowledging receipt of Madam Li’s payment of the purchase price.

8.  According to Keung, his family continued to reside at the Property.  But as Madam Li treated herself as the lawful owner of the Property, she stopped paying rent to Choi pursuant to the Tenancy Agreement.  Madam Li went further and partitioned the Property so that part of it was let to various subtenants (as Keung described it), and from whom she collected the rent for her own purpose.

9.  A month later, Choi and Madam Li entered into another written agreement.  This time the agreement was prepared by solicitors, then Messrs H H Lau & Co (“HHL”), and dated 14 February 1978 (“the 2^nd Agreement”).  It contained the following terms:

“1. Part B [Madam Li] shall pay to Part A [Choi] FIVE THOUSAND DOLLARS as final and full settlement for the Agreement made between the same parties hereto and dated the 5^th day of January 1978 such payment be made within two months from the date hereof.

2. The legal expenses and other expenses incidental to the application for Letters of Administration of the deceased Choi Pak Wing (蔡百榮) be borne by [Madam Li].

3.       The beneficial interests arising from the said application of Letters of Administration, after deducting all expenses, shall be divided in the following manner, that is to say [Choi] shall take forty per cent of such interests and [Madam Li] shall take the remaining sixty per cent.”

10.  Whilst it was described as full and final settlement of the 1^st Agreement, the receipt dated 4 April 1978 (ie within 2 months of the 2^nd Agreement as agreed) recorded Madam Li’s payment of the amount pursuant to the 2^nd Agreement as the balance of the purchase price for the Property (or数尾).

11.  Meanwhile, the 2^nd Agreement reflected that application for the grant of administration of Toy’s estate was still pending.  Madam Li agreed to fund the application for the grant.  In consideration of that, Madam Li would share 60% of the beneficial interest in the estate of Toy.

12.  As at the time of the 2^nd Agreement, the Property remained part of the estate of Toy pending administration.  Nevertheless it was suggested that the Property mentioned in clause 1 was intended to be separate from the beneficial interest in the rest of the estate that the parties now agreed to share under clauses 2 and 3.

13.  Indeed according to Keung, Madam Li entered into the 2^nd Agreement with a view to enabling Choi to become the administrator of his late father’s estate and to become capable of conveying the title to the Property (and now also 60% of the interest in the estate) to her.

14.  There were receipts issued by the solicitors for 2 payments of HK$300 each, one dated the date of the 2^nd Agreement and one dated afterwards.  They were described as consultation fee and costs on account.  Attempt by the solicitors for Keung to seek clarification from the solicitor of the then HHL responsible for this agreement has failed.  However whether any part of those payments was in fact Madam Li’s fund for the application for grant of administration of the estate of Toy, the fact was that there was never such grant and the Property remained registered in the name of Toy until its resumption.

15.  Then Madam Li passed away in September 1984.  Keung was the administrator of his late mother’s estate.

16.  According to Keung, he and Sun consented to the continued occupation of the Property by the Sister (who had been residing there) and the subtenants (again as Keung described them).  The subtenants moved out of the Property in or about 2003.  He and Sun then used the Property for storage purpose while the Sister also had some personal belongings kept there.  That continued until the resumption of the Property.

THE RESUMPTION

17.  Pursuant to the Lands Resumption Ordinance, Cap 124, the resumption was gazetted in November 2007.  At the midnight of 23 February 2008, ownership of the Property reverted to the Government; and all legal rights and interest were extinguished.

18.  Notices of the resumption had been sent by the Lands Department to the Property for the attention of the Sister as the occupier.  In November 2008, the Sister accepted the ex-gratia allowance offered by the Government and agreed to move out of the Property.  The Sister received the ex-gratia allowance (with interest) in early January 2009.

19.  The documents show that the Lands Department was first informed by Sun of the existence of the 1^st Agreement in early August 2008.  By letter dated 14 December 2009, Keung, as the administrator of the estate of Madam Li, through solicitors set out the above background; and claimed to be entitled to compensation for the resumption of the Property.  In its reply in January 2010, the Lands department explained that it could not process Keung’s claim unless and until he could establish his legal title to the Property by providing legal documentary proof.  This apparently prompted the commencement of the present proceedings.

20.  Keung and Sun produced the written acknowledgement signed by all 4 siblings, including the Sister, confirming their unconditional transfer of their right and interest in the Property to Keung and/or Sun.  They were not joined as parties in these proceedings.

21.  Discovering that Choi in fact passed away in September 2000 but no record of grant of administration of Choi’s estate, Keung and Sun, through solicitors, had requested and the Official Solicitors eventually agreed to represent the estate of Choi for the limited purpose of accepting service.  The defendant on the originating summon was thus amended with leave; and the Official Solicitors appointed for such purpose.  Hence the personal representative of Choi as the defendant.

22.  Though the defendant was absent, I found it necessary to adjourn the proceedings for full submission by the plaintiffs in open court.  Why I did so was partly explained by the following discussion.

DISCUSSION

23.  Keung and Sun commenced the present originating proceedings for the following relief:

(1)   Declaration that Keung as the administrator of Madam Li’s estate was entitled to specific performance of the 1^st Agreement whereby Choi had assigned to Madam Li the chose in action he had as the sole beneficiary of the estate of his late father, Toy, over the Property;

(2)   Declaration that since the 1^st Agreement there had been continuous and uninterrupted exclusive possession of the Property by Madam Li and her children during her life time and after her death by Keung and Sun jointly so that by reason of sections 38A, 7(2), 16 and 17 of the Limitation Ordinance, Cap 347 (“LO”), the title of Toy in the Property has been extinguished;

(3)   Declaration that by adverse possession, Keung and Sun have jointly acquired legal title to the Property.

Specific performance of the 1^st Agreement

24.  According to the assignment whereby Toy became the owner of the Property, his address was in the United States.  It is unknown when and where Toy died.  In the absence of contrary evidence, I am prepared to infer from the 1^st Agreement that Toy had passed away by the time of that agreement.  Regardless of where Toy died, there is no evidence of any application for the administration in respect of his assets in Hong Kong, including the Property.

25.  It is unknown whether there was any person besides Choi who might be entitled to the estate of Toy.  But the fact was that no one has ever applied to administer Toy’s estate in Hong Kong over the years.  As mentioned, the solicitor responsible for the 2^nd Agreement could not be located.  But the preparation of the 2^nd Agreement, in the normal course of event, must have been preceded by the taking of instructions from the parties concerned.  I am therefore prepared to assume that Choi was the sole beneficiary of his late father’s estate for the present purpose.

26.  By the 1^st Agreement, Choi purported to sell to Madam Li the Property which was then part of the estate of Toy pending administration.  As a beneficiary of Toy’s estate, Choi did not have any proprietary interest in the assets of the unadministered estate.  What he had was a chose in action to require his late father’s estate to be duly and properly administered, whereby he could protect those rights to which he hoped to become entitled in possession in the due course of the administration of the estate.  Such interest was transmissible from or disposable by Choi: see Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694.

27.  In Re Leigh’s Will Trusts [1970] 1 Ch 277, Buckley J further explained (at 282C-F) that such transmission or assignment must carry with it the right to receive the fruits of the chose in action when they mature.  Though the assets of the estate fall into the hands of the administrator, it does not follow that a person entitled to participate in the estate, and in particular a person solely so entitled, has no interest of any recognisable kind in the specific assets of which the estate consists.

28.  In Re Leigh’s Will Trusts, the testatrix was both the sole administratrix and beneficiary of her late husband’s estate which consisted of the properties that fit the description of her specific bequest by her own will.  However she died without any formal assent in her own favour in respect of any part of her husband’s estate.  Buckley J found (at 284C-E) that as sole administratrix and sole beneficiary, the testatrix had, while she lived, complete dominion over the conduct of the administration of the estate.  In her lifetime she could have become absolutely and indefeasibly entitled to those assets.  She could transmit her own right to require the administrator of her husband’s estate, whoever he now turned out to be, to administer his estate in any manner she or her personal representative might require consistent with the rights of any other persons having rights against the estate.  This right could transmit to her executor, coupled with a duty to exercise it in a particular manner.  Her will was therefore effective to confer upon the legatee of her specific bequest the right to receive the assets.

29.  The circumstances of the present case seem to attract the application of the legal principles discussed above in determining the effect of the 1^st Agreement.  However, I find the claim for declaration of the right of the estate of Madam Li to specific performance of the 1^st Agreement in respect of the abovementioned chose in action to be problematic.

30.  As mentioned, the resumption of the Property took effect at the midnight of 23 February 2008.  Upon that, all the rights and interests in the Property were extinguished by operation of law.  Therefore specific performance of the 1^st Agreement, whereby Choi (and since his death his estate) would be bound to require the estate of Toy to convey its title to the Property to Madam Li’s estate, became impossible.

31.  Insofar as the estate of Madam Li is now seeking a declaration of the existence of such right prior to the resumption, it still does not sit well with the rest of its claim.  The reliefs sought in these proceedings are not claimed in the alternative.  In other words, the estate of Madam Li is claiming specific performance of the 1^st Agreement in respect of the right to require Toy’s estate to convey its title to the Property, whilst at the same time Keung and Sun are claiming that such title of the estate of Toy to the Property, as a result of adverse possession and the LO, has been extinguished by the time of the resumption of the Property.

32.  In view of the above observation, Miss Chan submitted that the claim on the basis of adverse possession and the LO would be her primary stance instead.

Limitation Ordinance and adverse possession

33.  Section 7(2) of the LO provides that:

"No action shall be brought by any other person to recover any land after the expiration of 12 years from the date on which the right of action accrued to him or, if it first accrued to some person through whom he claims, to that person."

34.  Section 8(1) provides that:

"Where the person bringing an action to recover land, or some person through whom he claims, has been in possession thereof, and has while entitled thereto been dispossessed or discontinued his possession, the right of action shall be deemed to have accrued on the date of the dispossession or discontinuance."

35.  Section 13(1) provides that:

"No right of action to recover land shall be deemed to accrue unless the land is in the possession of some person in whose favour the period of limitation can run (hereafter in this section referred to as adverse possession) and where under the foregoing provisions of this Ordinance any such right of action is deemed to accrue on a certain date and no person is in adverse possession on that date, the right of action shall not be deemed to accrue unless and until adverse possession is taken of the land."

36.  Section 17 provides that:

"Subject to the provisions of section 10, at the expiration of the period prescribed by this Ordinance for any person to bring an action to recover land (including a redemption action), the title of that person to the land shall be extinguished."

37.  Section 10 provides for the case of land held on trust:

“(1) ……

(2) Where any land is held upon trust, including a trust for sale, and the period prescribed by this Ordinance has expired for the bringing of an action to recover the land by trustees, the estate of the trustees shall not be extinguished if and so long as the right of action to recover the land of any person entitled to a beneficial interest in the land or in the proceeds of sale either has not accrued or has not been barred by this Ordinance, but if and when every such right of action has been so barred, the estate of the trustee shall be extinguished.

(3) Where land is held upon trust, including a trust for sale, an action to recover the land may be brought by the trustees on behalf of any person entitled to a beneficial interest in possession in the land or in the proceeds of sale whose right of action has not been barred by this Ordinance, notwithstanding that the right of action of the trustees would apart from this provision have been barred by this Ordinance.”

38.  A person claiming to be in adverse possession must be shown to have both factual possession and the requisite intention to possess animus possidendi: see Wong Tak Yue v. Kung Kwok Wai & Another (No. 2) [1998] 1 HKLRD 241, which approved the principles enunciated by Slade J in Powell v. McFarlane (1979) 38 P & CR 452 and adopted in Buckinghamshire County Council v. Moran [1990] Ch. 623.

39.  The intention to possess involves the intention, in one’s own name and on one’s own behalf, to exclude the world at large, including the owner with the paper title if he be not himself the possessor, so far as is reasonably practicable and so far as the process of law will allow: see Wong Tak Yue (at 250B adopting Powell at pp 471-472 per Slade J).  The question of intention to possess is one of fact.

40.  The adverse possession of the Property allegedly started from the date of the 1^st Agreement (31 August 1973).  As this predated 1 July 1991, pursuant to section 38A of the LO, Miss Chan for the plaintiffs accepted that the applicable limitation period was 20 years.

41.  As far as factual possession is concerned, Miss Chan referred to the history of occupation of the Property mentioned above.  Madam Li and her family entered into possession of the Property first pursuant to the Tenancy Agreement.  Since the 1^st Agreement, Madam Li and her children mentioned above possessed the Property through actual occupation without paying any rent and letting to tenants (or subtenants as Keung described them in his affirmation).

42.  After Madam Li’s death, the Property remained partly occupied by the Sister and partly let.  As between the plaintiffs, Sun had resided in the Property and part of his possession was by way of receipt of rent with Keung.  Keung had not resided in the Property but he possessed the Property through the receipt of rent with Sun.  All the tenants had moved out by 2003.  Keung and Sun continued to use the Property for storage.  So did the Sister.  The Sister was the named occupier and compensated as such by the Lands Department upon the resumption of the Property.

43.  As far as the alleged factual possession is concerned, in the absence of contrary evidence, I am prepared to accept that the possession of the Property by Madam Li and her family was continuous and exclusive for a period of not less than 20 years before the resumption of the Property.  The question is whether the necessary intention of adverse possession existed.

44.  Madam Li entered into possession of the Property in 1973 as a tenant and started to pay rent.  That was possession with Choi’s consent, regardless of whether he was in a position to do so when the estate of Toy was un-administered.  By the 1^st Agreement, the understanding of the parties was that Madam Li was buying the Property (though, as mentioned, it could at most be the right of Choi, as the sole beneficiary, to require Toy’s estate to convey the title to the Property).  She continued to occupy the Property and, regardless of the remaining term of the tenancy, ceased to pay any rent.  She had made full payment for the purchase of the Property.

45.  Miss Chan submitted that as a purchaser who paid the full contract price and took possession of the Property under a contract of sale but without the conveyance of title, Madam Li would be in adverse possession of the Property.  She relied on Bridges v Mee (1975) 1 Ch 476.

46.  In Bridges, the plaintiff purchased the land in question from the owner.  He paid part of the purchase price and went into possession.  The balance of the purchase price was paid in the following year.  The interest was not registered.  Some 19 years later, the owner sold the same land to the defendant.  In the contest between the competing rights to the land, the plaintiff (pursuant to the Land Registration Act 1925) asserted an overriding interest in the land acquired by virtue of the Limitation Act 1939 (“the Act”) (on which the LO here was based) or alternatively actual occupation (pursuant to the Land Registration Act).  Harman J found for the plaintiff on both grounds.

47.  In respect of the limitation ground, Harman J held (at 484-485) that though possession, when originally taken, might be referred to the vendor’s leave and licence, the position was altered when the vendor’s lien disappeared upon the plaintiff’s full payment of the purchase price.  The vendor became a trustee of the legal estate upon the part payment of the purchase price; and a bare trustee upon full payment.  As no other beneficiary had any right to recover possession, the period of limitation could and did run in favour of the plaintiff as the beneficial owner against the vendor-trustee’s title.  Harman J was referring to section 7(3) of the Act, which is equivalent to section 10(2) of the LO (above).  Harman J rejected the defendant’s argument that the vendor had no valid right of action for possession against the plaintiff (being the beneficial owner having paid for the property in full) which could be barred.

48.  Miss Chan acknowledged that the case of Bridges was subject to criticism.  In S Jourdan, Adverse Possession (2^nd ed) (at 28-29), 6 points of criticism were set out.  Of them, a major criticism is that section 7(3) of the Act (or section 10(2) of the LO here (above)) is relevant only if the vendor-trustee had a right of action to recover possession of the property from the purchaser.  But any such claim would almost inevitably be struck out as an abuse of process.  The reason is that the purchaser, who has paid for the purchase of the property in full, is entitled in equity to possession of the property.  In the absence of any right of action, time could not have run against the vendor-trustee as held in Bridges.

49.  Having said that, S Jourdan (at 28-31 to 28-32) acknowledged the fact that the same conclusion as that in Bridges had apparently been reached by the courts in various other jurisdictions.

50.  The above discussion of Bridges was based on the context of an actual sale and purchase of property.  But the circumstances of the present case are not the same.

51.  As mentioned, what Madam Li in reality contracted for was Choi’s right to require the estate of Toy to convey title to the Property to her couple with possession of the Property.  The express proviso that Choi would return the purchase price in the event that he failed to succeed to the Property meant that the 1^st Agreement was subject to a condition subsequent.  Unlike the factual basis of Harman J’s judgment in Bridges and the criticism of that judgment by S Jourdan, Choi had a contractual right of action to recover the possession of the Property from Madam Li, provided that he returned the purchase price.

52.  Likewise, Madam Li had the contractual right to seek the return of the purchase price pursuant to the 1^st Agreement.  Madam Li’s estate was acutely aware of such contractual right.  Annexed to the letters of administration granted to Keung on 11 April 1988 was the provisional schedule of the property of Madam Li filed in 1986.  It was declared in the schedule that the estate of Madam Li consisted of assets including “Amount due by Choi Chung Fun – HK$100,000”; and “Claim for damages under two Agreements dated 5.1.78 and 14.2.78 – (amount) unknown”.

53.  Notwithstanding the apparent position of Madam Li’s estate reflected by the above schedule of assets filed in 1986, no action had been taken by either Choi (or subsequently his estate) or the estate of Madam Li in the years to come.  The family of Madam Li continued to possess the Property by occupation and letting for its own purpose.  The circumstances since then were such that an inference may be drawn that the estate of Madam Li simply continued its possession of the Property uninterrupted and apparently regardless of any right of the estate of Choi or Toy.

54.  In my judgment, time indeed ran against the estate of Choi or Toy in respect of its right to recover possession of the Property.  Such right of action had been time-barred by the time when the Property was resumed in 2008.

55.  In the premises, I find that the plaintiffs have established their entitlement to the declaration that since 5 January 1978 or alternatively since the passing of Madam Li, there had been continuous and uninterrupted exclusive possession of the Property by Madam Li and her children during her life time and after her death by the 1^st and the 2^nd plaintiffs jointly so that by reason of section 17 of the LO, the title of Choi and Toy in the Property has been extinguished.

56.  The plaintiffs also claim for a declaration that by adverse possession, they have jointly acquired legal title to the Property.  In my judgment, the claim on the basis of adverse possession does not go so far as conferring on the plaintiffs the legal title.  I refuse the claim for such relief.

ORDER

57.  I make a declaration in terms of paragraph 55 above.

58.  As requested, there will be no order as to costs.