XCHRX NEW DUKE LTD. v. LI LIN KWO and Another

1993, Nos.A5269-5273
(Consolidated)

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H E A D N O T E

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Adverse possession - New Territories (Renewable Crown Leases) Ordinance - effect of Privy Council judgment in Lai Moon Hung v. Lam Island Development Co. Ltd.

Whether part performance applies to section 3 of the Statute of Frauds.

Squatters - aggregation of successive and continuous periods of occupation to establish adverse possession - whether consistent with principle in Fairweather v. St. Marylebone Property Co. Ltd. - whether resolution of difficult questions of law appropriate in appeal against Master's Order setting aside judgment in default of notice of intention to defend.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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1993, No.A5269

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D E C I S I O N

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1. This is an appeal from the Order of Master Jones dated 10 May 1996 which set aside judgments obtained by the Plaintiffs against the 1st Defendant in default of notice of intention to defend by the 1st Defendant and, inter alia, ordered that Chan Chim Kao be joined as the 2nd Defendant.

2. These five actions are identical in nature and have been consolidated. In each case, the Plaintiff, as the registered owner of land in the New Territories, seeks an order for possession, damages and injunctions against the Defendants. The writs were issued on 23 June 1993 and served in November 1993. In December 1993, judgments were obtained against the 1st Defendant in default of notice of intention to defend. Two years later, in December 1995, the Plaintiffs served notices of intention to proceed. In March 1996, the Plaintiffs obtained orders to issue writs of possession. On 30 March 1996, the 1st Defendant applied for leave to set aside the default judgments and for a stay of execution. An order was made on the same day for a stay of execution. The application for leave to set aside the default judgments was heard by the learned Master on 10 May 1996 and it is against that order that this appeal has been brought.

The Facts

3. For the purposes of the present appeal, the following facts are accepted by both parties.

4. In 1949, Chan Lun Yum ("Madam Chan") took possession of and cultivated the land which is the subject matter of the five actions. In 1967, Madam Chan employed the 2nd Defendant and her husband to work on the land. In 1969, Madam Chan retired and sold the land to the 2nd Defendant and her husband for $10 ("the 1969 transfer").

5. The 1st Defendant is the son of the 2nd Defendant. He and his wife and children came to Hong Kong from China in 1978 and have lived and worked on the land ever since.

The Defence

6. The defence raised is that of adverse possession. The Plaintiffs submitted that none of the only three possible alternative means of establishing that defence can possibly succeed as a matter of law so that the default judgments ought not to have been set aside.

(1) The 2nd Defendant's own possession since the 1969 transfer

7. The writ for possession was issued on 23 June 1993. The New Territories (Renewable Crown Leases) Ordinance came into effect on 1 July 1973. When the appeal was heard, as the law then stood, the Defendants' possession since the 1973 Ordinance came into effect is one week short of the requisite period of 20 years for adverse possession under the Limitation Ordinance as the effect of the Court of Appeal's decision in Lai Moon Hung v. Lam Island Development Co. Ltd. [1994] 2 HKC 11 was that a person in adverse possession may not aggregate periods of possession that fall on either side of 1 July 1973 in order to make up the requisite period of possession. He has either to make out a 20 year period prior to 1 July 1973 or a 20 year period since 1 July 1973.

8. On 8 July 1996, the Judicial Committee of the Privy Council delivered its judgment in Lam Island and reversed the Court of Appeal. So far as a post-1953 squatter is concerned, although by 1973 he had not barred the title of the lessee to the original lease, it was accepted by the Judicial Committee that to some extent the Limitation Ordinance had already started to operate in favour of a squatter on 30 June 1973 and under that Ordinance, the lessee's right of action had been deemed to accrue when the squatter moved in. It was accordingly of the view that these potential benefits can be regarded as a right within s.4(4)(c) of the 1973 Ordinance. But irrespective of s.4(4)(c), having regard to the underlying purpose of the Ordinance, it was held that when a squatter pleads a limitation defence, the lessee is unable to respond by relying upon the (deemed) new lease as a new title setting time running afresh from 1 July 1973. In short, the 20 year period may straddle the date the 1973 Ordinance came into force.

9. On the assumed facts, the Defendants are bound to succeed. On this ground alone, the appeal must fail.

10. I will nevertheless deal briefly with the other two points that arose.

(2) The 1969 transfer

11. The Plaintiffs' submission is that the 2nd Defendant cannot rely on the 1969 transfer because it was not made in writing. Section 3 of this Statute of Frauds 1677 which was applicable to Hong Kong by virtue of item 16 of the Schedule to the application of English Law Ordinance Cap.88 provides as the following :

"... no ... estates or interest ... of ... terms of years, or any uncertain interest of, in, to or out of any ... lands ... shall ... be assigned, granted ... unless it be by deed or note in writing ..."

12. It was submitted that the effect of non-compliance with s.3 renders the assignment void and not just unenforceable. It was further submitted that s.4 of the Statute of Frauds dealt only with the question of enforceability. It was contended that as a result, the doctrine of part performance has no application to situations within s.3 rather than s.4, part performance being relevant only where there is a contract between the parties.

13. Counsel for the Defendants submitted that s.4 overlapped with s.3 and that the doctrine of part performance applies to both sections. Lester v. Foxscroft (1701) Colles PC 108 was cited as firmly establishing the doctrine of part performance. As stated by Lord Cottenham LC in Mundy v. Jolliffe (1839) 5 My. & Cr. 167 at page 177,

"Courts of equity exercise their jurisdiction in decreeing specific performance of verbal agreements, where there has been part performance, for the purpose of preventing the great injustice which would arise from permitting a party to escape from the engagement he has entered into, upon the ground of the Statute of Frauds, after the other party to the contract has, upon the faith of such engagement, expended his money or otherwise acted in execution of the agreement. Under such circumstances, the court would struggle to prevent such injustice from being effected ..."

14. Mr Chan Q.C. for the Plaintiffs sought to distinguish these authorities on the basis that they related only to specific performance of agreements. He referred to a passage in Williams on the Law of Real Property 14th Edn. (at page 421) where it is stated that an assignment of land or an interest in the land is void unless made by deed. But that statement relates to a different statute, namely, the Real Property Act 1845 and not the 1677 Statute.

15. In order to ascertain whether or not the doctrine of part performance can operate in relation to an assignment as distinct from a contract to assign, it is necessary to examine the basis of the doctrine. As explained by Lord Cottenham, the doctrine came into existence "for the purpose of preventing the great injustice which would arise from permitting a party to escape from the engagement he has entered into". In other words, it is to prevent the use of a statute as an engine of fraud. So although the Court of Chancery was bound by statute, nevertheless they regarded themselves as having power to intervene where the strict application of the statute would actually promote the fraud it was intended to prevent.

16. Although the doctrine of part performance almost always arises in the context of a contract or agreement for the sale of land or the creation of a lease, there appears no reason in principle why it should be so restricted. Indeed, the view is expressed in Megarry & Wade 5th Edn. (at p.684) that in the context of the surrender of a lease which is required to be by deed, an oral surrender made for value and supported by sufficient evidence in writing or part performance would probably be effective in equity as a contract to surrender.

17. I am not satisfied that the doctrine of part performance can have no application to s.3. There is no discernible reason why had Madam Chan merely agreed to transfer her rights to the 2nd Defendant in consideration of $10, the doctrine of part performance would apply but not where, as here, what is alleged is a transfer as opposed to an agreement to transfer. In my judgment, the Defendants are not barred in limine from establishing the defence based on part performance : it cannot be said that the point is inarguable either because there is clear authority on it or the point is demonstrably flawed. The question of law which is whether part performance applies to s.3 and whether the acts alleged constituted part performance are issues that should clearly go to trial. Had the first alternative considered above not been available, I would have found that not only have the Defendants shown an arguable defence, their defence founded on the 1969 transfer has a real prospect of success.

(3) Successive periods of adverse possession

18. If I am wrong about the application of the doctrine of part performance to s.3 of the Statute of Frauds, can the Defendants rely on Madam Chan's period of adverse possession from 1949 to 1969? For this purpose it is assumed that Madam Chan herself did not complete the 20 year period of adverse possession.

19. It is stated in Megarry & Wade op. cit. (at p.1036) that

"... if a squatter is dispossessed, the second squatter can add the former period of occupation to his own as against the true owner. This is because time runs against the true owner from the time when adverse possession began, and so long as adverse possession continues unbroken, it makes little difference who continues it."

20. Mr Chan Q.C. argued that the only authority supporting this proposition is an obiter dictum of Kay L.J. in Willis v. Earl Howe [1893] 2 Ch 545 at p.553. He submitted that the dictum has to be re-examined in the light of the House of Lords' decision in Fairweather v. St. Marylebone Property Co. Ltd. [1963] AC 510. The Court was invited to hold that the dictum is inconsistent with the holding in Fairweather that upon the expiration of a full limitation period, it is only the dispossessed owner's rights and title as against the squatter that is destroyed : it does not affect the rights of third parties. On that basis, it was submitted that it is not possible to aggregate successive period of adverse possession even if continuous. In short, I was invited by Mr Chan Q.C., who presented a novel and interesting argument, to hold that the statement of law in Megarry & Wade quoted above is no longer correct.

21. This invitation, I decline. Plainly the legal principles involved are complex and difficult. I question whether it is appropriate for a judge hearing an interlocutory appeal to determine a highly controversial legal issue which involves overturning what appears to be a well-established legal principle. That reason alone would entitle the Defendants to have the matter fully addressed at trial rather than on the hearing of an appeal to set aside a default judgment. It is to be noted that the Judicial Committee did not consider it necessary in Lam Island to express a view on Fairweather which it regarded as a "controversial decision" : see per Lord Nicholls (at p.6 of the judgment). Moreover, I do not accept that the learned authors of Megarry & Wade could have overlooked the significance of Fairweather since Professor Wade has written what Lord Nicholls described as a "powerful critique" of that decision : see (1962) 78 L.Q.R.541. There have been three new editions of Megarry & Wade since Fairweather, but the learned authors have not seen the need to change the statement of law quoted above.

22. In these circumstances, it would not be right to deprive the Defendants from having such an important issue determined at trial.

Order

23. I would dismiss the appeal with costs.

24. At the hearing, counsel for the Defendants made an application that, if successful, the Defendants' costs of the appeal be taxed if not agreed and paid forthwith. In all the circumstances of this case, such an order would be appropriate and I make an order nisi to this effect.