XCHRX TANG WING LOY v. CHAN TAI AND OTHERS

HCA 2208/1991

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2208 OF 1991

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J U D G M E N T

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Background

1. These proceedings concern the property registered at the Yuen Long District Lands Office as Lot No. 1 in Demarcation District No. 107 ("Lot No. 1"). Lot No. 1 was held in the name of Tang Kwong Yu Tong which is a t'ong within the meaning of s.15 of the New Territories Ordinance (Cap. 97). The plaintiffs are the managers of the t'ong.

2. On 4 November 1989 a portion of Lot No. 1 designated as Lot No. 1A was resumed by the Government. After that, the portion of Lot No. 1 that remained under the ownership of the t'ong became known as the Remaining Portion of Lot No. 1 in Demarcation District No. 107 ("Lot No. 1RP").

3. On the plaintiffs' case, Lot No. 1 was let out at all material times. It is alleged that Lot No. 1 was occupied by Chau Ngau, who was the 1st defendant, as tenant and that he held over after expiration of his tenancy with the plaintiffs. It is also alleged that by a notice of termination served on the 1st defendant the tenancy was terminated on 31 December 1988. Thus, on the plaintiffs' case Chau Ngau has been a trespasser at Lot No. 1 since that time and after resumption of a portion of Lot No. 1, he has been a trespasser at Lot No. 1RP.

4. Chau Ngau passed away on 28 December 1998. Chan Tai was appointed to represent his estate. He is now the 1st defendant. The plaintiffs' claim against the 1st defendant is for, inter alia, possession of Lot No. 1RP.

5. The claim against the other defendants is for possession of the structure and land occupied by them as trespassers and identified in the statement of claim and for mesne profits and/or damages to be assessed.

6. The appeal before me is in relation to the plaintiffs' claims against the 2nd defendant. Chan Sing ("Chan Senior") was the 2nd defendant but he passed away on 17 November 1992 in the Mainland and his youngest son has been appointed to represent his estate. He is now the 2nd defendant.

7. The writ was issued on 26 March 1991. Chan Senior filed an acknowledgement of service on 17 April 1991. He did not file a defence. Default judgment was entered against him on 21 May 1991 for possession of the structure and land occupied by him as shown in the plan and coloured red and for mesne profits and/or damages to be assessed and for costs to be taxed.

8. On 8 July 1991 a summons was issued to set aside that judgment. On 12 July 1991 Master Cannon made a consent order that the hearing of the summons to set aside the judgment be adjourned to a date to be fixed for argument. There was also an order by consent that there be a stay of execution of the said judgment obtained by the plaintiffs until further order and that there be liberty to apply.

9. For a very long time no steps were taken to fix a date for argument of the summons taken out on behalf of Chan Senior to set aside the judgment. In August 2000, over 9 years later, the plaintiffs gave notice of intention to proceed. On 2 January 2001 the plaintiffs issued a summons to dismiss the application to set aside the judgment against Chan Senior. Thereafter, Chan Kai Ning applied for and was granted an order that he be appointed to represent the estate of Chan Senior. He is the present 2nd defendant.

10. On 28 March 2001 Master Mary Yuen ordered that the plaintiffs' summons issued on 2 January 2001 be adjourned to a date to be fixed. On 12 June 2001 Master Mary Yuen dealt with the plaintiffs' said summons. She also dealt with the summons to set aside the judgment issued on 8 July 1991.

11. Having heard arguments, she dismissed the application to set aside the judgment. On the plaintiffs' summons, she ordered that the stay of execution granted by the consent order of Master Cannon dated 12 July 1991 be uplifted. She also granted a stay of execution for 28 days. The 2nd defendant appeals against her orders and seeks to set aside the judgment entered on 21 May 1991 and for leave to file a defence and counterclaim out of time.

The plaintiffs' summons

12. The plaintiffs' application by summons of 2 January 2001 was taken out because of the very long delay by the 2nd defendant to restore the application to set aside the judgment and to fix a date for argument.

13. The reason given by Chan Senior in his affirmation of 5 July 1991 for not filing a defence was that he had no knowledge that he should file a defence within the prescribed time limit as he had filed an acknowledgement of service making it clear that he intended to defend the action. After he learnt that judgment had been entered against him, he consulted solicitors who took out the application to set aside. Chan Senior died on 17 November 1992 in the Mainland. Chan Kai Ning in his second affirmation states that his father's former solicitors informed him at about the end of 1992 after his father's death that his father had lost in the proceedings. As he thought that his father had lost in the proceedings he had not thought of taking any further action. The former solicitors deny that they so informed Chan Kai Ning and it is, in my view, strange that the solicitors would have informed him that Chan Senior had lost in the proceedings when the application to set aside had not even been fixed for argument. The same solicitors also acted for the 3rd defendant and the proceedings against the 3rd defendant were not concluded until December 2000. I find the assertions difficult to believe.

14. There is no doubt in my view that there has been inordinate and inexcusable delay on the part of the 2nd defendant or his solicitors in restoring the application for hearing. Mr Wong, counsel for the 2nd defendant, however, submitted that the delay did not give rise to a substantial risk that it was not possible to have a fair trial of the issues in the action and that the delay did not cause serious prejudice to the plaintiffs.

15. Miss Ho, for the Plaintiffs, submitted that it was not possible to have a fair trial and pointed out that the tenant Chau Ngau died on 28 December 1998. Chan Senior died on 17 November 1992. Three of the former plaintiffs, namely, Tang Yung Shau alias Dun Kau and Tang Yung Sau, Tang For Kwai and Tang Chik Lam alias Tang Tsik Lam died on 28 June 1991, 27 March 1993 and 29 January 1999 respectively. I would observe that the first of these three said plaintiffs died only about a month after the default judgment was entered. Tang Chik Lam, who was one of the managers who signed the 1940 tenancy agreement referred to in the evidence, died on 29 January 1999.

16. In my view it is important to bear in mind that the action against the 1st defendant is still proceeding and it will be necessary for the plaintiffs to prove their case against the 1st defendant at trial. One of the managers who signed both tenancy agreements with the tenant Chau Ngau is still alive and will be available to give evidence. He is Tang Pak Luk who has made an affirmation in these proceedings.

17. I also observe that although there has been a long delay on the part of the 2nd defendant or his former solicitors in restoring the application for hearing, the plaintiffs have been content to grant a long stay of execution of the judgment to the 2nd defendant by not seeking to uplift the stay granted by the consent order of Master Cannon of 12 July 1991 until they took out their application by summons dated 2 January 2001. The plaintiffs could have at any time sought to fix a date for argument of the 2nd defendant's summons but they did not do so.

18. I am not persuaded that there is a substantial risk that it is not possible to have a fair trial of the issues in the action and that the delay has caused serious prejudice to the plaintiffs although it must be recognized that some prejudice has been caused. That, however, is not sufficient in my view to dismiss the 2nd defendant's application to set aside the judgment on the plaintiffs' application by summons dated 2 January 2001. Apparently, that is the view taken by the Master and, in my view, she was correct to do so.

The 2nd defendant's application

19. There is no doubt that the judgment entered by the plaintiffs against Chan Senior was a regular judgment. Indeed this is not disputed. That being so, it is well settled that a defendant who was asking the Court to exercise its discretion in his favour by setting aside a regular judgment entered against him has to show that he has a defence which has a real prospect of success. Delay is, of course, a factor to be taken into account together with all relevant circumstances in considering the 2nd defendant's application to set aside the judgment. The primary consideration, however, is whether the 2nd defendant has a defence which has a real prospect of success.

20. The 2nd defendant claims that Chan Senior and his family have been in continuous adverse possession of the portion of Lot No. 1 coloured red on the plan annexed to the statement of claim for over 20 years before institution of these proceedings against Chan Senior in 1991. Therefore, it is said that the action against the 2nd defendant is statute barred under the Limitation Ordinance (Cap. 347), and that the title of the plaintiffs has been extinguished (s.7(2) and s.17).

21. However, it is well settled and it is common ground between the parties that if there has been a tenant on Lot No. 1 time does not begin to run in favour of the party claiming adverse possession against the plaintiffs as landlords so long as the tenancy remains. Thus the limitation period could not begin to run against the t'ong until expiry of the tenancy as it is only then that the t'ong became entitled to possession as the reversioner. It is only then that time begins to run against the t'ong. If Chau Ngau was a tenant of the whole of Lot No. 1 and Chan Senior trespassed on a portion of that Lot, his possession could only be adverse to the estate of the tenant not that of the t'ong as the reversioner. The squatter dispossessed the tenant not his landlord. (See the Privy Council case of Chung Ping Kwan & Others v Lam Island Development Co. Ltd. [1996] 2 HKC 447 @ 451G to 454A per Lord Nicholls).

22. Mr Wong submitted that the evidence showed that there has been continuous occupation of a portion of Lot No. 1 by Chan Senior and his family for over 20 years before institution of proceedings and that such occupation was without the consent of the plaintiffs. Mr Wong referred to the birth certificates of some of the children of Chan Senior and to the evidence of the surveyor who produced aerial photographs to support the 2nd defendant's case that Chan Senior and his family have been in continuous adverse possession of a portion of Lot No. 1 since 1956. Mr Wong submitted that at least since 1969, if not before, Chan Senior and his family have been in continuous occupation.

23. The aerial photographs produced and the expert report of Henry Chan the surveyor does, in my view, provide some support that structures have been erected on part of the portion coloured red on the plan annexed to the statement of claim.

24. The evidence also shows that in 1969 Chan Senior signed as the permittee in the document headed 'Modification of Tenancy'. It has not been explained to me how someone in adverse possession was able to apply for a permit to erect structures on the land. Be that as it may, the evidence does show that approval was granted on 24 February 1969 by the District Officer, Yuen Long for the erection of a number of structures on Lot No. 1 including a chicken shed and a pig shed. The said letter dated 24 February 1969 was addressed to the managers of the t'ong. Mr Wong submitted that the modification of tenancy and the approval letter supported the view that the portion of Lot No. 1 where Chan Senior erected the structures and occupied the same was not an area which was let to the tenant Chau Ngau by the plaintiffs for the sole purpose of cultivating fish. Raising pigs and poultry would be use of the lot contrary to the stated purpose under the tenancy agreements with Chau Ngau and in breach of the same.

25. The crucial question is whether the whole of Lot No. 1 was let out to Chau Ngau as tenant or whether only a portion of it was let out to him as is the 2nd defendant's case. The two tenancy agreements with Chau Ngau have been produced in evidence. It is the plaintiffs' case that the whole of Lot No. 1 was let out to Chau Ngau. Both the agreements describe the property let out merely as "the fish pond now situate at Lot No. 1". It is a fact that there were two fish ponds, not just one, in Lot No. 1 as shown in the plan annexed to the statement of claim. Whether or not the whole Lot No. 1 was let to Chau Ngau as tenant is a matter of construction of the tenancy agreements in the light of the relevant factual matrix at the time.

26. Both Mr Wong and Miss Ho have drawn my attention to various clauses in the tenancy agreements to support their respective contentions. I consider that the 2nd defendant's contention that as a matter of construction of the tenancy agreements only one of the two fish ponds was let to Chau Ngau but not the whole of Lot No. 1 has a real prospect of success.

27. It is also pertinent and important, in my view, to see what has also been raised by the 1st defendant in these proceedings. The proceedings against the 1st defendant are still continuing.

28. In the re-amended defence and counterclaim of the 1st defendant filed on 16 July 1997, it is alleged that Chau Ngau was the tenant of the plaintiffs only for one of the two fish ponds on Lot No. 1. He was a tenant only for the fish pond B coloured blue on the plan annexed to his pleading. The other fish pond A and the adjoining land was not let out by the plaintiffs and was not the subject matter of any tenancy with the 1st defendant. The 2nd defendant's case is that Chan Senior and his family have been in adverse possession of the portion of Lot No. 1 coloured red on the plan annexed to the statement of claim. That portion is on the adjoining land surrounding fish pond A which the 1st defendant has also asserted was not the subject matter of the tenancy granted to Chau Ngau. This is a matter in issue between the plaintiffs and the 1st defendant and is a matter which will have to be resolved at trial.

29. I am satisfied that the 2nd defendant has established a defence with a real prospect of success. The evidence shows that at least since about 1969 Chan Senior and his family have been in continuous occupation of a portion of Lot No. 1 without the consent of the plaintiffs. In my view, the 2nd defendant's case that the portion of Lot No. 1 so occupied by Chan Senior and his family was not subject to any tenancy with Chau Ngau also has a real prospect of success.

30. I also bear in mind that if the 1st defendant should succeed against the plaintiffs at trial and establish that only fish pond B, but not fish pond A and the adjoining land surrounding fish pond A, was let to Chau Ngau under the tenancy agreements, then it would be unjust to the 2nd defendant if he were not allowed to defend the action relying on the same matters.

31. The appeal is allowed. The Master's order on the 2nd defendant's application is set aside. The judgment entered on 21 May 1991 is set aside. The 2nd defendant is to have leave to file and serve a defence and counterclaim within 14 days from today.