LEUNG WAI IP v. CHAN MING FAI

HCMP 2229/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2229 OF 2016

(ON AN INTENDED APPEAL FROM DCCJ NO. 677 OF 2014)

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JUDGMENT

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Hon Chu JA giving the Judgment of the Court:

Introduction

1.  The dispute between the parties concerns a residential property situated at Flat 6, 26^th Floor, Block B Kwong Lam Court, Nos.62-66 (No.62) Siu Lek Yuen Road, Shatin, New Territories (“the Property”).  

2.  The plaintiff is the registered owner of the Property, which was purchased from the Hong Kong Housing Authority on 25 August 1989 under the Home Ownership Scheme. The purchase was financed by a bank mortgage.

3.  In 1991, the Plaintiff and his family emigratedto Canada.  Shortly afterwards, the Defendant came to occupy the Property with the consent of the plaintiff.  The parties are in dispute as to the circumstances under which the defendant came to occupy the Property with the plaintiff’s consent.

4.  By two letters dated 17 November 2010 and 28 February 2011, the plaintiff through his former solicitors demanded the defendant to deliver up vacant possession of the Property.  The defendant refused to do so.

5.  On 24 February 2014, the plaintiff commenced proceedings in the District Court against the defendant claiming vacant possession of the Property and mesne profits for his occupation on the basis that the defendant’s licence to occupy the Property has been terminated. 

6.  The defendant denies the claim and counterclaims for declaratory relief, namely, the plaintiff holds the Property on trust for him, and alternatively he has acquired a possessory title in the Property by reason of adverse possession, and for an order that the plaintiff transfers the Property to the defendant.  

7.  After a three-day trial, Deputy District Judge Daniel Tang (“the Judge”) handed down his judgment on 9 May 2016, whereby he entered judgment for the plaintiff, dismissed the counterclaim, and ordered the defendant to pay the costs of the action.

8.  The defendant applied for leave to appeal to the Court of Appeal.  By his decision handed down on 15 August 2016, the Judge refused to grant leave.

9.  This is the defendant’s renewed application for leave to appeal.  It is opposed by the plaintiff.

10.  Having considered the papers and written submissions, we consider it is appropriate to dispose of the application on paper without an oral hearing. 

The parties’ case at the trial below

11.  The undisputed facts as found by the Judge are that:

(1) The plaintiff and Chan Ming Chung (“Chan”) are good friends. Chan is the defendant’s elder brother.

(2) The defendant occupied the Property sometime after the plaintiff and his family’s emigration.

(3) Since entering into possession of the Property, the defendant has been responsible for paying the monthly mortgage repayments, the management fee, the utility bills and the rates.

(4) The mortgage was discharged on about 5 December 2001.  A substantial portion of the mortgage repayment was made by the defendant. The last mortgage repayment made by the defendant was on 6 June 2001.

(5) There was no formal conveyance or transfer in respect of the Property between the plaintiff and the defendant.

(6) Under the Home Ownership Scheme, certain restrictions would apply to the Property, which include: (a) section 17B of the Housing Ordinance, Cap.283, pursuant to which any alienation of the Property is void unless certain requirements have been fulfilled; (b) The Property could not be sold within the restriction period imposed by the Housing Authority, which is ten years from the purchase; and (c) If the Property is sold after the restriction period, the Housing Authority may charge a premium on the purchaser.

12.  The plaintiff’s case is that when he left for Canada in 1991, he entrusted the care of the Property to Chan pending his brother’s return to Hong Kong. He gave to Chan the keys of the Property, the management payment card and the bank book of the mortgage repayment account.  Without his prior consent, Chan allowed the defendant to occupy the Property. On discovering this, the plaintiff confronted Chan.  Eventually, upon Chan’s request, the plaintiff agreed to allow the defendant to stay in the Property; in return the defendant was to paythe monthly mortgage repayments as rent, the management fee, utility bills and rates.  It was further agreed that the plaintiff could demand the defendant to vacate the Property at any time.  In or about 2004, the plaintiff returned to Hong Kong from Canada.  He asked Chan to tell the defendant to vacate the Property for he wanted it back for his own use.  Although Chan promised he would take care of the matter, the defendant has continued to occupy the Property.  The plaintiff therefore issued the two letters of demand and later commenced proceedings to recover possession.

13.  In short, the plaintiff contends that the defendant’s occupation and use of the Property was pursuant to a licence, which has been revoked no later than 28 February 2011, being the date of the second letter of demand from the plaintiff’s former solicitors.

14.  The defendant, on the other hand, says that he entered into possession of the Property pursuant to an oral promise made by the plaintiff in 1991. It is said that the plaintiff orally promised to sell the Property to the defendant for a notional consideration of $400,000, to be satisfied by the defendant paying the monthly mortgage repayments.  Pursuant to the oral promise, the defendant was given the keys to the Property, the management fee payment card and the bank book.  Further in reliance of the plaintiff’s oral promise, the defendant has since July 1991 enjoyed exclusive possession of the Property, paid the mortgage repayments and other expenses as well as carried out maintenance and renovation of the Property. 

15.  The defendant’s primary case is that by reason of the plaintiff’s oral promise, he is the beneficial owner and the plaintiff is holding the Property on constructive and/or resulting trust for him.  If the primary caseof beneficial ownership fails, the defendant’s alternative case is that by reason of his being in exclusive possession and occupation of the Property since July 1991 under the mistaken belief that he is the owner, he has been in adverse possession for over 12 years, and has thereby acquired the possessory title in the Property.

The Judge’s findings

16.  The Judge found the evidence of the plaintiff and his witness credible and accepted his case. The Judge was not impressed with the evidence of the defendant and Chan.  He did not find them reliable and rejected their evidence.  He rejected the defendant’s case of an oral promise by the plaintiff to sell the Property to him, and that the defendant has beneficial interest in the Property by reason of constructive or resulting trust or proprietary estoppels.

17.  The Judge found on the facts that the plaintiff had permitted the defendant to stay in the Property temporarily and for an infinite period; in return the defendant was to pay the outstanding monthly mortgage repayments and other expenses of the Property.  The Judge also found that the plaintiff retained full right to demand the defendant to move out of the Property at any time.  

18.  The Judge held that the defendant took possession of the Property with the plaintiff’s permission and on the basis that he would pay the monthly mortgage repayments and other expenses relating to the Property; and that he would vacate the Property upon demand.  The judge further held that the plaintiff had orally revoked the permission in 2004.

19.  As to the plea of adverse possession, the Judge held that the defendant failed to prove he had the intention to possess or animus possidendi.  This is because the defendant entered into possession with the plaintiff’s permission.  Further, it is not the defendant’s pleaded case, and there is no evidence, that the defendant’s intention changed in June 2001 after the last mortgage repayment was paid.  Although the defendant did hold over after the plaintiff revoked the licence in 2004, the plaintiff has commenced action to recover possession action in February 2014, which was within the 12-year limitation period. 

Test for granting leave to appeal

20.  The threshold for granting leave to appeal under section 63A of the District Court Ordinance, Cap. 336, is trite. Leave will only be granted if the applicant satisfies the court that the intended appeal has a reasonable prospect of success, or there is some other reason in the interest of justice that the appeal should be heard.  Reasonable prospect of success involves the notion that the prospect of succeeding must be More than fanciful, without having to be probable: SMSE v. KL [2009] 4 HKLRD 125.

Intended ground of appeal

21.  The defendant does not challenge any of the factual findings made by the Judge.  The intended appeal is directed solely against the Judge’s holding on the facts as found that adverse possession for a continuous period of 12 or more years has not been made out.  In summary, the defendant’s arguments are that:

(1) The Judge ought to have held that the plaintiff had granted an oral periodic tenancy to the defendant since July 1991, which was terminated when the defendant stopped paying rent in June 2001. By reason of section 12(2) of Limitation Ordinance, Cap. 347, which deem possession to be adverse upon non-payment of rent, time started to run against the plaintiff one month after the defendant stopped paying rent, i.e. July 2001. 

(2) The Judge further erred in law in holding that the permission to occupy the Property was only revoked in 2004.  The fact that in 2004 the plaintiff asked the defendant (through Chan) to quit the Property does not constitute an effective assertion of an owner’s right at law in that time would not stop running for the purpose of the Limitation Ordinance by a mere request to quit.

(3) The Judge erred in holding that the defendant had failed to establish an intention to possess in that being a holding-over tenant in exclusive possession, the defendant does not have to adduce separate evidence to show an intention to possess.  The Judge further erred in holding that the defendant has failed to plead an intention to possess and/or a change of intention since 2001; the defendant’s pleaded case is that he has throughout an intention to occupy the Property.

Discussion

22.  The central plank in the defendant’s arguments is that an oral monthly tenancy existed between the plaintiff and the defendant from July 1991 to June 2001.  When the defendant stopped paying rent in June 2001 (as the mortgage had been fully repaid), his possession of the Property was deemed adverse by section 12(2) of the Limitation Ordinance.  The fact that in 2004 the plaintiff through Chan asked the defendant to leave was insufficient to stop time from running against the plaintiff.  Further, as from June 2001, the defendant became a holding-over tenant.  Since he had exclusive possession of the Property, the defendant had the necessary intention to possess to support a plea of adverse possession.

23.  In our view, there are insurmountable obstacles in the defendant’s attempt to argue an oral monthly tenancy.  In the first place and fundamentally, this is never the defendant’s pleaded case.  The issue engaged on the pleadings is whether the defendant took possession in 1991 pursuant to a licence granted by the plaintiff (as pleaded by the plaintiff) or as a beneficial owner pursuant to an oral promise to sell (as pleaded by the defendant).  The defendant’s pleaded case on adverse possession is that if he was not the beneficial owner, then he has wrongfully trespassed upon the Property ever since July 1991[1]. While the plaintiff’s claim of a licence is denied, there is no positive averment in the Amended Defence and Counterclaim that the relationship between the parties has been one of an oral tenancy.  Plainly, an averment of tenancy would be factually incompatible with the defence case of an oral promise to sell.  We agree with the Judge that the defendant should not be permitted to change course and to advance a case which has not been pleaded.[2]

24.  We also do not accept the argument that the defendant did not have to plead his case on oral monthly periodic tenancy.  Whether the defendant took possession under a licence or a tenancy is not merely a question of law.  The parties’ intention and relationship is a mixed question of fact and question.  Contrary to the defendant’s submission, mere exclusive possession is not conclusive of the matter. An occupier who enjoys exclusive possession is not necessarily a tenant: Street v. Mountford [1985] 1 AC 809, 818E.  Hence, the defendant’s reliance on Re Vandervell’s Trust (No. 2) [1974] Ch 269, 321G-322B is inapt.  This is not a case of just putting the argument or case differently, or the pleading omitting a single averment of the legal effect flowing from pleaded facts.  The defendant is advancing a new case, and to ascertain its validity would require investigation of facts not gone into at the trial: see Lever Brothers Ltd v Bell [1931] 1 KB 557, 582-583 quoted in Re Vandervell’s Trust (No. 2) at 324F-G.  If the defendant was minded to run a positive case of an oral tenancy as an alternative to his case of an oral promise to sell the Property, he must fairly and precisely inform the plaintiff and the court through proper pleading that sets out the basis for it, so that the scope of evidence was properly defined and the issue fully investigated when the witnesses gave evidence.   

25.  Second, and importantly too, the reliance on an oral tenancy is directly at odd with the defendant’s pleaded case.  In paragraph 16(c) of the Amended Defence and Counterclaim, after denying the plaintiff’s claim of a licence, it went on to aver in subparagraph (xix) that the licence asserted by the plaintiff was unlawful, being in contravention of sections 17B, 27A and the Schedule to the Housing Ordinance, and was accordingly void and of no legal effect.  It would follow from this averment on the licence that the oral monthly tenancy now asserted by the defendant would be similarly void and of no effect.  

26.  Third, there is no factual basis for the argument of oral monthly tenancy.  The Judge accepted the plaintiff’s evidence and found as a matter of fact that, out of his friendship with Chan, the plaintiff allowed the defendant to stay temporarily in the Property and for an indefinite period, but subject to the plaintiff’s right to demand him to leave at any time.  On these facts, it does not support an inference of an intention to create a tenancy: see Street v. Mountford at 824F-G.  Further, the nature of the defendant’s occupation of the Property, being temporary and for an indefinite period is inconsistent with a tenancy: see Street v. Mountford at 818E-F. 

27.  Fourth, the argument that the defendant did not make further monthly mortgage repayments after June 2001 amounts to a non-payment of rent is not borne out by the evidence.  On the plaintiff’s case, which the Judge accepted, in return for his stay in the Property, the defendant was to discharge the outstanding mortgage repayments as rent, in addition to discharging the other expenses relating to the Property.[3] On the evidence, there was no discussion or mention between the plaintiff and Chan of paying rent after the mortgage was fully repaid, which is consistent with the plaintiff’s case that the defendant’s stay was intended to be temporary.   The plaintiff’s case is that until 2004 when he spoke to Chan to ask the defendant to leave, the defendant was permitted to stay in the Property.  It is also to be noted that the plaintiff’s monetary claim is only for mesne profits after the termination of the licence.

28.  Fifth, it follows that there is no proper basis for invoking section 12(2) Limitation Ordinance. In any event, section 12(2) only deems an oral tenancy from year to year or other period to be determined at the expiration of the first year or other period, and where rent has subsequently been received, it further deems the right of action of the person entitled to the land subject to the tenancy to have accrued on the date of the last receipt of rent.  Being a deeming provision, it cannot be applied in disregard of the facts of the case.  As noted above, on the facts as found by the Judge, the plaintiff’s permission to the defendant to stay in the Property was not withdrawn until 2004 when he told Chan to ask the defendant to leave.  Hence, even assuming there was an oral periodic tenancy, section 12(2) would not operate to terminate it as from June 2001 and start time running against the plaintiff.      

29.  Sixth, it also follows from the above that there is no merits in the suggestion that the defendant became a holding-over tenant one month after June 2001.  On the facts as found, the only inference to be drawn is that the defendant acknowledged the plaintiff’s interest and ownership in the Property by agreeing to pay the monthly mortgage repayments as rent and other expenses, and to move out on the plaintiff’s demand.  It is also to be inferred that the defendant occupied the Property on the understanding that, until the plaintiff demanded him to leave, his occupation and possession of the Property was with the plaintiff’s permission. The Judge is therefore correct in holding that there is no evidence of the defendant changing his intention in June 2001 or thereafter, and the defendant did not have animus possidendi in law for the period between 1991 and 2004.

30.  For the reasons stated above, the intended appeal does not enjoy reasonable prospect of success.  There is also no other reason in the interest of justice for these grounds to be heard by the Court of Appeal.  We therefore refuse leave to appeal.

31.  As the intended appeal is totally without merit, we further order pursuant to Order 59 rule 2A(8) of The Rules of the High Court, that no party may request a reconsideration of our determination under rule 2A(7)  at an oral hearing inter partes.

32.  Applying the normal rule of costs follow event, the defendant should pay the plaintiff the costs of this application.  The plaintiff has provided a statement of costs for summary assessment.  Under item D2, a sum of $1,500 is claimed for general care and conduct.  This is not an allowable item under summary assessment.  Other than this, the amount claimed is reasonable.  We therefore assess the plaintiff’s costs at $37,310 (i.e. $38,810 - $1,500).   

Disposition

33.  Accordingly, we made the following orders:

(1) The defendant’s summons is dismissed.

(2) No party may request a reconsideration of the determination of the respondent’s summons under Order 59 rule 2A(7) of The Rules of the High Court at an oral hearing inter partes.

(3) The defendant pays the plaintiff the costs of this application summarily assessed at $37,310.

[1] Amended Defence and Counterclaim §§15 and 16(h).

[2] Judgment §55.

[3] What was said by Chan and agreed to by the plaintiff is” 我細佬同你供樓當係交租畀你”: see Amended Statement of Claim §3(3), plaintiff’s witness statement §7, and Judgment §2 and footnote 1.