KAN KAM CHO AND ANOTHER v. KAN CHIU NAM RAYMOND AND ANOTHER

FACV No. 33 of 2007

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 33 OF 2007 (CIVIL)

(ON APPEAL FROM CACV NO. 91 OF 2005)

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Court :    Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Mr Justice Litton NPJ and Lord Scott of Foscote NPJ

Dates of Hearing :    8 and 9 October 2008

Date of Judgment :    29 October 2008

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J U D G M E N T

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Mr Justice Bokhary PJ :

1.  This is a case of trespass to which the defence raised is limitation.  At the trial, the appellants now before us were the plaintiffs and the respondents now before us were the defendants.  It is convenient to refer to the parties as “the plaintiffs” and “the defendants”.  I will do so.  Shortly stated, the circumstances of the case are as follows.

Circumstances of the case

2.  The plaintiffs are the registered owners of Lot 3443 in Tai Tau Ling Village in Sheung Shui.  Their father had been the registered owner of this lot.  Following his death, they became the registered owners of it on 9 November 1999.  It is abutted along its west side by Lot 22 and along its east side by Lot 3590. 

3.  A tso named Kan Ng Wo Li (“the Tso”) is the registered owner of Lot 3590.  The defendants are the intended managers of this Tso.  Their father who died in 2000 had been its manager at the time when this litigation was commenced by the plaintiffs on 25 November 1999.  Suing him in his capacity as the manager of the Tso, the plaintiffs served their writ on him.  After he died, the defendants became the intended managers of the Tso, and took his place in the litigation.

4.  Lot 3443 had been purchased by the plaintiffs’ father in May 1958.  He built a single-storey house on it.  In so doing, he did not build any side walls.  Instead he made use of the side wall of the Lot 22 house immediately to his west and the side wall of the Lot 3590 house immediately to his east.  He built it lower than those two houses, which were also single-storey houses.  In 1959 he moved his family, including the plaintiffs, into the house which he built.  They lived there for a time.  Then the Lot 3443 house was let.  It was occupied by various tenants between 1 May 1965 and some time in 1982.

5.  In 1982 or 1983, Lots 22 and 3590 were each redeveloped by the erection of a 3-storey house.  Based on aerial photographs taken in November 1983, the trial judge, Deputy Judge Saunders (as he then was), found that the Lot 3443 house was without a roof during the redevelopment of Lots 22 and 3590.  He also found that after the new houses on Lots 22 and 3590 had been erected, the plaintiffs’ father built a new roof for the Lot 3443 house, making use of the side walls of those new houses.

Limitation defence

6.  The trespass sued upon takes the form of encroachment by the new Lot 3590 house upon Lot 3443.  Initially the defendants’ stance consisted of two limbs.  The first limb was a denial that the new Lot 3590 house encroached upon Lot 3443.  And the second limb, in the alternative to the first limb, was limitation.  It was pleaded under this limb that if the new Lot 3590 house did encroach upon Lot 3443, then the old Lot 3590 house had similarly encroached “for upwards of 20 years prior to the commencement of this action”.  At the material time, 20 years was the relevant period of limitation provided for by the Limitation Ordinance, Cap.347.  The defendants counterclaimed the following relief :-

“(1)    a declaration that the Plaintiffs’ title to the said part of the Land (if any) was prior to the commencement of this action extinguished by virtue of the Limitation Ordinance;

(2)    a declaration that the Tso is the owner in possession of the said part of the Land;

(3)    further or in the alternative to (2) above, a declaration that all the estate, right, title, interest, term and terms of years, claims and demands and all rights of way (if any), privileges, easements and appurtenances in and to the said part of the Land is vested in the Tso absolutely;

(4)    an order that the Tso be registered as owner of the said part of the Land in the North New Territories Land Registry;

(4A)   further or alternatively, a declaration that the Tso is entitled to exercise all rights of occupation and possession of the said part of the Land which the Plaintiffs would otherwise be entitled to exercise as the registered owners of the said part of the Land.”

7.  Towards the end of the trial, the defendants admitted that the new Lot 3590 house encroached upon Lot 3443.  The admission was, as the trial judge noted, that the new Lot 3590 house “encroached upon the eastern part of Lot 3443 by 0.554 metres on the northern boundary, and 0.638 metres on the southern boundary”.  So the defendants came to rely solely on limitation.

8.  The trial judge found that the old Lot 3590 house had encroached upon Lot 3443 for “a period in excess of 20 years without challenge”.  In giving judgment on the claim (for relief to be agreed or else determined at a further hearing) and in dismissing the counterclaim, the trial judge did so solely on the basis that he was bound by the decision of the Court of Appeal in Chan Tin Shi v. Li Tin Sung [2005] 1 HKC 1.  That decision was to the effect that the New Territories Leases (Extension) Ordinance, Cap.150, created new legal estates in leaseholders under Government leases in the New Territories.

9.  By the time the present case reached the Court of Appeal, its decision in Chan’s case had been reversed by us in Chan Tin Shi v. Li Tin Sung (2006) 9 HKCFAR 29.  We held that the effect of the New Territories Leases (Extension) Ordinance was to extend the terms of existing leases rather than create new leases.  So the basis on which the trial judge took the course of giving judgment on the claim and dismissing the counterclaim could not stand.  Was there any other basis for taking that course?  The Court of Appeal (Rogers VP, Le Pichon JA and Sakhrani J) found none.  But they were far from happy not to have found any.  The Vice President, with whose judgment the other members of the Court of Appeal agreed, concluded his judgment thus :

“In the light of the foregoing, I regret I have to conclude that this appeal should be allowed and the respondent’s notice dismissed.  There should be an order nisi of costs in favour of the defendants.  The result of this appeal gives me little satisfaction.  Not only has the defendant illegitimately appropriated to itself part of the plaintiffs’ land but it has done so in circumstances where if their original defence was straightforward it did not consider that it had encroached.  The result leaves the plaintiffs having to pay rent for the land so encroached.  This result is achieved on the basis of evidence which was far from ideal.”

Although, as we have seen, the relief counterclaimed includes alternatives, what the formal order of the Court of Appeal says in regard to the counterclaim is simply that “judgment be entered for the Defendants on the Defendants’ counterclaim”.

10.  I should explain why the Vice President spoke in terms of the respondent’s notice being “dismissed”.  It was because that notice was not confined to putting forward other grounds for affirming the trial judge’s decision to give judgment on the claim and dismiss the counterclaim.  In addition to putting forward such grounds, that notice asked that an order for delivery of vacant possession of the land encroached upon be substituted for the trial judge’s order leaving relief to be agreed or else determined at a further hearing.

Failure to prove the facts necessary for the limitation defence

11.  On the issue of whether the old Lot 3590 house had encroached upon Lot 3443, a number of witnesses on each side gave evidence of what they had observed at the material time.  The trial judge considered it unsafe to rely on any of that evidence.  So on what evidence did he find that the old Lot 3590 house, which had been demolished 22 years before the trial, had encroached upon Lot 3443?

12.  The defendants called an expert in photogrammetry, a discipline which consists of or involves the examination and interpretation of aerial photographs.  This expert examined aerial photographs of the houses on Lots 22, 3443 and 3590 taken in 1964 from an altitude of some 4,000 feet.  The roof of each of those houses had overhangs on every side.  So no examination or interpretation of aerial photographs, even if otherwise reliable, could provide the ground measurements of any of those houses unless there was evidence of the dimensions of its overhangs.  There was no evidence on which to find that the overhangs of the old Lot 3590 house were insignificant.  The trial judge so found on the assumption that those overhangs were of the same dimensions as those of another house in the village.  But there is simply no basis for any such assumption.  Whether there is any evidence on which a finding of fact can be made is a question of law.  Making a finding in the absence of evidence is an error of law, and so is affirming such a finding on appeal.

13.  Mr Gerard McCoy SC for the plaintiffs took a number of other points on the overhangs.  But there is no need to examine those other points.  For the reasons just given, the appeal must succeed on the simple basis that the defence of limitation fails because the alleged encroachment on which it depends has not been proved.

Letting does not stop the running of the limitation period

14.  Accordingly the defence of limitation fails however one decides the question of whether the letting of land to a tenant stops the running of a limitation period which had started to run against the paper owner prior to such letting.  Even so, I will decide the question since (i) it has been fully argued and (ii) how it is decided is relevant to the stance which each side has adopted on costs.

15.  I would not exclude the possibility of a tenancy which included land encroached upon.  But in circumstances like the present, the plaintiffs’ point on the effect of a tenancy must fail at once on the simple basis that what was let could only have been of the Lot 3443 house as it stood.  In other words, the tenancy would not have included any part of the lot on which another house stood.  That said, I propose to indicate why I think that the plaintiffs’ point on the effect of a tenancy must fail even leaving aside that simple answer to it on facts like those of the present case.

16.  Mr McCoy argues that any limitation period which has started to run against a paper owner ceases to run when the land concerned is let to a tenant.  He seeks to base this argument essentially on s.13(2) of the Limitation Ordinance and the decision of the Privy Council in Chung Ping Kwan v. Lam Island Development Co. Ltd [1977] AC 38.

17.  Section 13(2) reads :

“where a right of action to recover land has accrued and thereafter, before the right is barred, the land ceases to be in adverse possession, the right of action shall no longer be deemed to have accrued and no fresh right of action shall be deemed to accrue unless and until the land is again in adverse possession.” (Emphasis supplied)

This subsection cannot assist Mr McCoy’s argument unless the letting to a tenant of land in adverse possession has the effect of such land ceasing to be in adverse possession.  Neither this subsection nor any other provision of the Limitation Ordinance or any other Ordinance says that.  Mr McCoy submits that one gets that from the Lam Island case.

18.  I am unable to accept that submission.  The Lam Island case did not involve any question of whether the letting of land to a tenant stops the running a limitation period which had started to run against the paper owner prior to such letting.

19.  A case which did involve such question is Kennedy v. Woods (1868) IR 2 CL 436.  In that case the Irish Court of Exchequer Chamber held – consistently with principle, in my view – that the letting of land to a tenant does not stop the running of a limitation period which had started to run against the paper owner prior to such letting.

20.  Contrary to Mr McCoy’s contention, that does not mean that a paper owner against whom a limitation period had started to run would be helpless to prevent the acquisition of a squatter’s title if he then let the land to a tenant and the tenancy did not end before the expiration of the limitation period.  In support of that contention, Mr McCoy cited the decision of the Court of King’s Bench in Baxter v. Taylor (1832) 4 B & Ad 72.  The headnote of the report of that case reads : “A reversioner cannot maintain an action on the case against a stranger for merely entering upon his land held by a tenant on lease, though the entry be made in exercise of an alleged right of way; such an act during the tenancy not being necessarily injurious to the reversion”.  That situation is wholly different from the one with which we are now concerned.  The situation with which we are now concerned is the one where the period of limitation had started to run while the paper owner was in possession and his reversion would be extinguished if he could not sue the squatter while a tenancy, created after that period had started to run, was extant.  In such a situation, there is no reason why the paper owner cannot sue the squatter even while the tenancy is extant provided that he joins the tenant.  He can join the tenant and, doing so, he can sue the squatter.

21.  Like the Court of Appeal, I reject the argument that letting stops the running of the limitation period.  The letting of the land to a tenant does not stop the running of a limitation period which had started to run against the paper owner prior to such letting.  And the paper owner can sue the squatter even while the tenancy is extant provided that he joins the tenant, which he can do.

Result

22.  In the result, the plaintiffs succeed on the basis that the defence of limitation fails because – and simply because – the alleged encroachment on which it is based, namely by the old Lot 3590 house upon Lot 3443, has not been proved.  This is a result which the Court of Appeal may welcome since it was, as we have seen, with regret that they reached the opposite result.

23.  Realistically, the plaintiffs do not seek any injunction for the demolition of the new Lot 3590 house or any part of it.  That leaves them free to seek damages in substitution for such an injunction.  Section 17 of the High Court Ordinance, Cap.4, empowers the Court of First Instance and the Court of Appeal to award such damages.  And s.17(2) of our statute enables us to “exercise any powers of the courts from which the appeal lies”.

24.  In the normal way, that would leave us to indicate the basis on which such damages are to be assessed and then remit the matter to the trial court for assessment of those damages.  But the parties have very sensibly accepted the sage advice of their legal advisers to invite us to dispose of this case in a more expeditious and less expensive way.  They have indicated that if we were to hold against the defence of limitation and allow the appeal, then the defendants will undertake to purchase the land encroached upon and the plaintiffs will undertake to sell the same within one year (subject to agreed extensions) for the sum of $200,000.

25.  For the reasons which I have given, I hold against the defence of limitation and would allow the appeal accordingly.  I would order : (i) that there be no further proceedings in this matter save for the purposes of enforcing the terms set out in the following schedule; and (ii) that the parties be at liberty to apply to the Court of First Instance for such enforcement.

Schedule

The defendants undertake to purchase and the plaintiffs undertake to sell within one year from today (subject to agreed extensions) all the land marked pink on the survey plan annexed hereto, namely No. SRP/DN/2278/0104/D1 being a rectangular area of Lot No.3443 in Demarcation District 91 of 0.554 metres width at the northern edge of the lot and 0.638 metres width at the southern edge of the lot and being 29 feet in length, for the sum of HK$200,000.

That plan should of course be annexed to the formal order.

26.  As to costs, on which we have heard counsel, I would make the orders as to costs which Mr McCoy invited us to make in the event of the plaintiffs succeed on the basis – but only on the basis – that the alleged encroachment by the old Lot 3590 house upon Lot 3443 has not been proved.  This invitation involves a concession under which the plaintiffs would be awarded less than all their costs despite their overall success.  It is that the defendants pay the plaintiffs their costs of the action, 90% of their costs of the appeal to the Court of Appeal and 50% of their costs of this appeal, such costs to be taxed on a party and party basis if not agreed.  I would make those orders as to costs.

27.  In addition to thanking counsel on both sides for their assistance, I would pay tribute to their successful efforts in saving time and costs, for which efforts their respective clients should be grateful to them.

Mr Justice Chan PJ :

28.  I agree with the judgment of Mr Justice Bokhary PJ and the judgment of Lord Scott of Foscote NPJ.

Mr Justice Ribeiro PJ :

29.  I agree with the judgment of Mr Justice Bokhary PJ and the judgment of Lord Scott of Foscote NPJ.

Mr Justice Litton NPJ :

30.  I agree with the judgment of Mr Justice Bokhary PJ and the judgment of Lord Scott of Foscote NPJ.

Lord Scott of Foscote NPJ :

31.  I have had the advantage of reading the judgment of Mr Justice Bokhary PJ and am in full agreement with his conclusions, the reasons for them and the order that he proposes in para.24.  I want, however, to add just a few words of my own on the limitation period point raised by Mr Gerard McCoy SC and dealt with by Mr Justice Bokhary PJ in paras 14 to 20 of his judgment.

32.  Mr McCoy’s limitation period point is based on the premise that the encroachment on to the plaintiffs’ land, Lot 3443, by the new building on Lot 3590 erected in 1982 or 1983, an encroachment that is now admitted, was an encroachment that had been made also by the old building on Lot 3590, a building that had been erected in the 1950s and demolished in 1982/1983.  In other words, the premise is that the admittedly encroaching new building on Lot 3590 was erected more or less in the same position as that of the old building.  If that premise is right, the encroachment, first by the old building then by its successor building, would have continued for well over the 20 year period necessary for the acquisition of a title by adverse possession to have been obtained by the owners of Lot 3590.  And it is common ground that the period of adverse possession would have commenced at a time when the plaintiffs’ father, their predecessor-in-title to Lot 3443, was in possession. 

33.  It is common ground, also, that over the period from, say, 1965 to 1982, there were several occasions on which the house that had been built by the plaintiffs’ father on Lot 3443 was let.  The best evidence of the lettings is to be found in the witness statement of Kan Tim Oi made on 9 October 2003.  She was a daughter of Kan Kam Shui, the owner of Lot 3443, who had erected the house on Lot 3443.  She said the house had been let in 1965 for five years under a written tenancy but that the tenant had moved out in 1969, that her mother had then let the house for about three years under an oral tenancy and that in about 1973 her mother had let the house under an oral monthly tenancy that had in 1976 been turned into a five year tenancy under a written agreement.  The tenant had held over under a monthly tenancy until 1982 when the demolition of the house on the western side, and therefore of the western wall, of the Lot 3443 house, and in 1983 the demolition of the house on the eastern side, and therefore of the eastern wall, of the Lot 3443 house, made the Lot 3443 house uninhabitable.  There were, therefore, a succession of tenancies of the Lot 3443 house from 1965 to 1983.  But it is clear that the encroachment by the old Lot 3590 house on to Lot 3443, if encroachment there was, had predated 1965.

34.  Mr McCoy has submitted that where land is in adverse possession and the paper title owner who has been dispossessed grants a tenancy of the land to a tenant, the adverse possession continues as against the tenant but is interrupted as against the paper title owner, with the consequence that, on the expiration of the tenancy, the requisite limitation period, 20 years in the present case, must start afresh.  He submits, therefore, that even if there was an encroachment for over 20 years on to Lot 3443, first by the old house on Lot 3590, then by the new house on that Lot, the running of the requisite 20 year period was interrupted by every grant of a new tenancy of the Lot 3443 house.  So the 20 year period, he submits, had not expired by the date in 1999 when the writ in this action was issued and served.

35.  This submission cannot succeed on the facts and it cannot succeed in law.  As to the facts, the grant of each successive tenancy of the house on Lot 3443 could not conceivably be treated as a grant that included the strip of encroached-upon land that de facto was, and had been since the 1950s, part of the Lot 3590 house and that was inaccessible from the Lot 3443 house.  Neither the landlord nor the tenant of the Lot 3443 house could have intended such an absurdity.

36.  But in any event, in a case where adverse possession has commenced to run against the paper title owner, the grant by that owner of a tenancy of the land in question is no more an interruption of the adverse possession than would be a sale of the land.  The grantee, whether a lessee or a purchaser, takes the land and acquires the right to possession of it, subject to whatever possessory incidents may exist at the time.  If it is in adverse possession at the time, the adverse possession continues against landlord and tenant alike until there is a discontinuance of possession.  Possession proceedings may be commenced by the tenant, to whom has been granted the current right to possession, or by the landlord who would, of course, have to join the tenant in the proceedings, as co-plaintiff if the tenant were willing to be so joined or as defendant if he were not.  If the case were one in which the tenant had brought the proceedings but in which there was some doubt as to whether the recovery of possession would be practicable e.g. where, as here, recovery of possession would involve the demolition of a building, where the grant of a mandatory injunction for that purpose might be refused and where the court might prefer to award damages in lieu, it would be necessary for the landlord also to be joined, for the refusal of the injunction and the grant of the damages in lieu would, in effect, expropriate both the landlord and the tenant and the damages would need to be shared between them.

37.  Mr McCoy’s submission that the grant of a tenancy by the owner of land interrupts the running of a limitation period against the owner is heterodox and supported by no authority.  He claimed support from observations of Lord Nicholls of Birkenhead in Chung Ping Kwan v. Lam Island Development Co. Ltd [1997] AC 38 but that was a case in which the adverse possession had commenced during the currency of the tenancy.  It was held that time did not begin to run against the owner of the land until the expiry of the tenancy.  The reason for this, as explained by Lord Nicholls, was that the dispossession, from the date of which time began to run, was a dispossession of the tenant.  It was not a dispossession of the landlord.  A dispossession of the landlord could not take place until the expiry of the tenancy.  Until then the landlord had no right of possession and could not be dispossessed.  Lord Nicholls was not dealing with a case in which the dispossession of the owner of land has occurred before the grant of the tenancy and to treat his remarks as applicable to such a case is, in my opinion, an impermissible use of authority.

38.  The right of an owner of land to recover land to the possession of which he is entitled accrues as soon as the land is in the possession of some person in whose favour time can run (see Pye (Oxford) Ltd v. Graham [2003] 1 AC 419 at 435 and 445).  As Simon Brown LJ (as he then was) said in Markfield Investments Ltd v. Evans [2000] 1 WLR 1321 at 1324 :

“the true owners’ cause of action accrues once his land is in adverse possession, and continues to be treated as accrued unless and until the land ceases to be in adverse possession.”

The Lord Justice went on to say this :

“Adverse possession may cease (a) by the occupier vacating the premises, (b) by the occupier giving a written acknowledgment of the true owner’s title … (c) by the true owner’s grant of a tenancy or licence to the occupier … or (d) by the true owner physically re-entering upon the land.”

There is no mention of the grant by the true owner of a tenancy of the land to a third party.  The reason, as I have said, why that event does not bring about a cesser of the adverse possession is that the tenant is claiming through the landlord and the adverse possession, formerly against the landlord, becomes adverse against both landlord and tenant.  There is no cesser of the adverse possession.

39.  Mr McCoy accepted that, save for the remarks of Lord Nicholls in the Chung Ping Kwan case – a broken reed, in my opinion, so far as support for his submission is concerned – there was no authority in support that he could point to.  Given the frequency with which tenancies must have been granted over properties with ambiguous boundaries the absence of authority suggests that others would have thought Mr McCoy’s submission as heterodox as I do.  In any event there is, as Mr Justice Bokhary PJ has observed, authority the other way (see Kennedy v. Woods (1868) IR 2 CL 436 per George J at 443 and Monahan CJ at 459).  I would reject the submission.

Mr Justice Bokhary PJ :

40.  By the unanimous decision of the Court, the appeal is allowed in the terms set out in paragraph 25 of my judgment and with the order as to costs set out in paragraph 26 thereof.