TANG MAN KIT AND ANOTHER v. CHONG KEE TING VICWOOD alias CHONG KAM HING t/a VICTORY PLYWOOD DOOR MANUFACTURING CO

HCA 1222/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1222 OF 2010

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BETWEEN

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J U D G M E N T

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Applications before the Court

1.  By a summons dated 22 November 2010, the Plaintiffs seek summary judgment in this action against the Defendant pursuant to Order 14 rule 1 of the Rules of the High Court, the determination of 2 issues of law identified in the Schedule to the summons pursuant to Order 14A rule 1 of the Rules of the High Court, and the striking out of the Defence and Counterclaim pursuant to Order 18 rule 19 of the Rules of the High Court and/or the inherent jurisdiction of the Court.

Background facts

2.  For the purpose of these applications, the relevant facts can be shortly stated.

3.  The Plaintiffs are the managers of a Chinese business t’ong known as “Wah Yan Mo Fan Heung (華人模範鄉)” (hereinafter called the “Heung”) registered under s. 15 of the New Territories Ordinance.

4.  A number of agricultural land lots known as Lots 139SC, 140, 141, 142, 143, 144, 144 (portion), 145, 146, 159B, 160C, 161C, 303, 304, 305B, 323 and 324 in Demarcation District No. 107, Yuen Long, New Territories (hereinafter called the “Lots”) are registered and held in the name of the Heung (with stated managers) under s. 15 of the New Territories Ordinance.

5.  According to the Plaintiff, the Lots were licensed by the former and/or current managers of the Heung to the Defendant for his use on a gratuitous basis, but the Defendant abandoned the use and occupation of the Lots at the latest by mid 2009.  In October 2009, when servants or agents of the Heung sought to carry out certain maintenance or repair works on the Lots, they were wrongfully prevented, obstructed or prohibited from carrying out such works by the Defendant.  Accordingly, by a notice in writing dated 17 March 2010, the Plaintiffs gave notice of termination of the licence to the Defendant through his former solicitors (Messrs Wong & Poon) upon the expiry of 1 month from the date of the notice.

6.  By this action, which was commenced on 11 August 2010, the Plaintiffs claim against the Defendant for, inter alia, a declaration that the Defendant’s licence for the use and occupation of the Lots has been terminated, an injunction to restrain the Defendant from entering into or accessing the Lots or any part thereof or otherwise interfering with the use and enjoyment of the Lots by the Heung, and damages for trespass.

7.  The Defendant, on the other hand, says that he was a yearly tenant of the Lots starting in about 1963, and the yearly tenancy continued up to 1988, after which no one from the Heung turned up to collect rent from him.  The Defendant further says that since about 1989, he has been in adverse possession of the Lots to the exclusion of the Heung or its managers, including the Plaintiffs, or anyone from the Heung.  Accordingly, the Plaintiffs’ claim herein is barred by s. 7 of the Limitation Ordinance, and the Defendant has raised a counterclaim against the Plaintiffs for a declaration that he has acquired a possessory title to the Lots.  Pausing here (and subject to the Plaintiffs’ “minority” argument below), if the Defendant’s contention is correct, he would have acquired a title to the Lots by adverse possession in or about 2009, the relevant limitation period being 20 years in view of the fact that the cause of action to recover the Lots first accrued before 1 July 1991 (see s. 38A of the Limitation Ordinance).

8.  For the purpose of the present applications, I shall assume that the facts pleaded by the Defendant in his Defence and Counterclaim can be established at the trial.  I shall also assume that, subject to the Plaintiffs’ “minority” argument mentioned below, the Defendant has raised a triable defence based on adverse possession of the Lots.

Basis of the Plaintiffs’ applications: the “minority” argument

9.  For the purpose of the present applications, essentially the Plaintiffs take only one point which, as I understand it, is as follows.  The Heung has a number of members.  One of the members is Yu Luk Shun Tong (余六順堂), which is a another Chinese customary t’ong within s. 15 of the New Territories Ordinance.  Yu Luk Shun Tong has been a member of the Heung ever since the founding of the Heung in 1928 and remains a member as at present.  During the period from 1997 and 2005, there were three new born members of Yu Luk Shun Tong coming into existence.  Each of them, although still a minor, has an equitable interest in the properties of the Heung, including the Lots.  Their rights to recover the Lots have not been barred by the Limitation Ordinance as at the date of the Writ herein (11 August 2010).  Hence the Plaintiffs’ right to recover the Lots as managers (or trustees) has also not been barred by virtue of s. 10(2) and (3) of the Limitation Ordinance.  Accordingly, the Defendant’s claim that he is entitled to the Lots by adverse possession is bound to fail as a matter of law.

The status of the Heung as a Chinese customary t’ong

10.  The current and/or former managers of the Heung have been involved in a number of legal actions in Hong Kong.  The history and purpose of the Heung was set out in detail in the judgment of the Court of Appeal in Tang Man Kit and Foo Tak Ching (suing as Managers of WAH YAN MO FAN HEUNG (華人模範鄉)) v HIP HING TIMBER COMPANY LIMITED (協興木業有限公司), CACV 137/2002, 13 May 2005.  At paragraphs 17 to 26 of that judgment, Cheung JA stated as follows:-

“17.   In 1924, two gentlemen by the names of Wong Yuet Chiu and Lui Lap Ka (‘Mr. Lui’) formed an unincorporated company known as Chap Shing Company (‘Chap Shing’) with a view to inviting investors to participate in an investment project in Yuen Long, New Territories for the purpose of providing mutual benefits to its investors.  The investment project was named Wah Yan Mo Fan Heung (“華人模範鄉”) which means model village for the Chinese.  Chap Shing was a management company which provided management service to the Heung in return for a management fee.

18.   The original idea of the investment was for the Heung to acquire land in the Yuen Long region.  A very small portion of the land would then be carved out into individual ‘house lots’ and then transferred into the names of the individual members in accordance with their share of interest.  This would enable these members to build their own dwelling houses on the land.

19.   The remaining but majority part of the land of the Heung would be put under the management of Chap Shing for the purpose of letting them out for farming in return for rent.  The rent derived from letting out the land would then be distributed amongst the members of the Heung in accordance with their share of interest in the Heung.

20.   Between 1924 and 1928 Chap Shing through Mr. Wong Yuet Chiu and Mr. Lui, collected money from intended investors who were willing to invest in the Heung.  Against such payment, certificates were issued to the investors.  The certificates certified the names of the investors and their share of interest of the Heung.

21.   During this period Mr. Wong Yuet Chiu and Mr. Lui used the money collected from the investors and acquired various agricultural land in the New Territories.  They then caused the land to be registered in the name of “Wah Yan Mo Fan Heung by its managers Wong Yuet Chiu and Lui Lap Ka”.

22.   In 1932 Mr. Wong Yuet Chiu and Mr. Lui caused part of the land of the Heung to be carved out so that the house lots could be allotted to the individual investors.  After the house lots were allotted to these individual investors they were registered as owners of these house lots.  The remaining part of the land were let out by Mr. Wong Yuet Chiu and Mr. Lui for and on behalf of the Heung in return for rental income. 

23.   Due to the turbulent history of China starting from 1937 onwards, no house was ever built by the Heung or members on the land.  Because of World War II and the Japanese occupation of Hong Kong the only activities undertaken by the Heung was to let the agricultural land to farmers in return for rent…

25.   According to the memorial registered in the District Office of Tai Po, Mr. Wong Yuet Chiu and Mr. Lui had acquired land in two ways.  The first was as trustees of Chap Shing.  The second was in their personal names.  However on 30 December 1929, these lands were transferred to “Wah Yan Mo Fan Heung trustees Lui Lap Ka and Wong Yuet Chiu”.  Prior to the transfer, notice of the intended transfer was posted by the District Office.

26.   As to the division of the land, according to the memorial dated 2 December 1932, it was recorded that ‘The property of Wah Yan Mo Fan Heung with Wong Yuet Chiu and Lui Lap Ka as trustees of 45 Wing Lok Street Hong Kong is hereby divided into the portions as in the attached list’.”

11.  The Court of Appeal further held that the Heung was a t’ong under s. 15 of the New Territories Ordinance, a conclusion which could not be challenged by an outsider such as the defendant in that case (see paragraph 42 of the judgment of Cheung JA).

Yu Luk Shun Tong is a member of the Heung

12.  There is no doubt that Yu Luk Shun Tong was a founding member of the Heung, as evidenced by two Membership Certificates of the Heung dated 22 June 1928.  There is no evidence that Yu Luk Shun Tong has ever sold or transferred its memberships to any other parties.

13.  Further, both the current managers of the Heung (ie the Plaintiffs) and a current manager of Yu Luk Shun Tong have confirmed on oath that Yu Luk Shun Tong is currently a member of the Heung.

14.  Accordingly, for the purpose of the present applications, I shall proceed on the basis that Yu Luk Shun Tong is, and was at all material times, a member of the Heung.

A minor beneficiary has a right to recover land held in the name of a Chinese customary tso or t’ong at any time before the expiration of 6 years from the date on which he reaches the age of majority

15.  The nature of a beneficiary’s interest in a Chinese customary tso was considered by Deputy Judge Lam (as he then was) in Leung Kuen Fai v Tang Kwong Yu (or U) T’ong or Tang Kwong Yu Tso [2002] 2 HKLRD 706.  At paragraph 24 of his judgment, the learned judge stated his conclusions as follows:-

“(a) In respect of land in the New Territories within the scope of Section 13 of the New Territories Ordinance, Tso is recognized as a form of Chinese customary landholding.

(b) In the context of Hong Kong law, it has been established that the concept of trust is applicable to Tso with the managers as trustees and the members as beneficiaries. It is to be noted that this is an application of concepts of English law to a Chinese customary institution. However, by reason of the local circumstances, certain concepts in English trust law were held to be inapplicable, e.g. the rule as to perpetuity.

(c) The members of a Tso are the living male descendants of the focal ancestor from time to time. They have the beneficial interest in the property. The managers could not dispose of the property against the wishes of the members.

(d) In practice, with unanimous consent of all the members, the Tso property could be sold, partitioned or distributed. The members could also decide on the use of the surplus income generated from Tso property. However, as noted by Deputy Judge R Tang QC, Chinese customary law did not provide for that. Rather, it was allowed to happen because no-one would raise objection given the unanimous consent of the members.

(e) In the absence of a sale or partition or distribution, each member only has a life interest in the Tso property.  As observed by Mills-Owens J, the interest of a member arose automatically by birth.  Likewise, it extinguished automatically upon death of the member.  Since the interest would not form part of the estate of a deceased member, there is no question of succession.  The extent of the life interest at any point in time depends on the number of living members in the Tso.”

16.  It also seems clear, from paragraph 1 of his judgment, that Deputy Judge Lam did not consider that there was any relevant distinction between a tso or t’ong for the purpose of his judgment.

17.  Deputy Judge Lam went on to hold that a minor beneficiary has a right to recover land held in the name of a tso (or t’ong) at any time before the expiration of 6 years from the date on which he reaches the age of majority, and thus the estate of the trustee (or manager) in respect of such land is not extinguished and his right of action would not be barred if and so long as the right of action to recover the land by any minor beneficiary has not accrued or has not been barred, by virtue of s. 10(2) and (3) of the Limitation Ordinance.  The reasoning of the learned judge is clearly stated in the following paragraphs of his judgment and I can do no better than set them out here:-

“32.  In any event, on the authorities cited earlier, it is obvious that the existing members of the Tso have beneficial interests in the Tso property. In my judgment, such interests come within the meaning of equitable interests in land in Section 10(1) of the Limitation Ordinance.  The definition of “land” in the Limitation Ordinance includes, inter alia, rentcharges and any legal or equitable estate or interest therein.  The annual or periodic distribution that a Tso member is entitled to receive falls within the meaning of a rentcharge. According to Section 2, rentcharge means any annuity or periodical sum of money charged upon or payable out of land.  Under Section 2(3), a right of action to recover land includes a right to enter into possession of the land or, in the case of rentcharges, to distrain for arrears of rent (which includes the amount payable by way of rentcharges, see definition of “rent”).  Further Section 2(4) provides that regarding rentcharges, references to the possession of land shall be construed as references to the receipt of the rent.  Hence, it does not matter that in the normal course of event, a Tso member would not enter into possession of the Tso land.  His entitlement to receive a periodic distribution is sufficient, for the purpose of the Limitation Ordinance, to classify his interest as an interest in land.  His claim for such “rent” is a right of action to recover the land under Section 10(2) of the Ordinance.

33.   Moreover, given their position as beneficiaries, I see no reason why the members of the Tso could not claim for possession of the Tso land against stranger.  Usually the managers would have taken action and the members do not need to initiate such action.  However, if for certain reasons the managers failed to take action, the members should be entitled to commence an action for possession against a trespasser.  I reject Mr Lim’s submission that the member must sue through the managers of the Tso.  Of course, the managers as trustees would have to be joined as parties to the action.  But this does not mean that a member could not start an action.  He would be doing so for the benefit of all members of the Tso.  As between the members of the Tso and the trespasser, the equitable estate of the members in the property must prevail over the wrongful occupation of the property by the trespasser…

44.   It follows that on the question of limitation, the interests of the members have to be considered independently from the right of the managers.  Further, even amongst members of the Tso, limitation periods could be different for different members since one does not claim through another.  In Chung Ping Kwan v Lam Island [1997] AC 38 at 47 E, Lord Nicholls said,

“Adverse possession defeats the rights, whatever they may be, of the person against whom the possession is adverse. It does not defeat the rights of others.”

45.   Whenever a new member is born, a new equitable interest in the Tso property is created. A new limitation period under Sections 7(2) and 22 would start to run.  The new limitation period would not expire until 6 years after the member ceases to be an infant.

46.   By reason of Section 10(2) of the Limitation Ordinance, the title of the trustees would not extinguish so long as there is at least one beneficial owner whose right to recover the land is not barred.  In the present case, Tang Pak Hin, a member of the Defendant Tong, was born on 7 August 1991.  He has not even reached majority.  His right to recover the land is not yet time barred.  By operation of the Section 10(2), the title of the trustees has not been extinguished.  In this respect, my conclusion is supported by the views expressed by Deputy High Court Judge Muttrie in Shenzhen Luohu Runan Industrial Limited v Un Kau Kung Tso, HCMP 2320 of 2000, 17 December 2001.”

18.  The above judgment of Deputy Judge Lam was applied by the Court of Appeal in Wong Shing Chau v To Kwok Keung [2008] 5 HKC 372.

19.  Mr Mak (for the Defendant) submits that I am not strictly bound by the judgment of Deputy Judge Lam in Tang Kwong Yu (or U) T’ong or Tang Kwong Yu Tso, nor the judgment of the Court of Appeal in Wong Shing Chau because the correctness of Deputy Judge Lam’s judgment was assumed by counsel appearing before the Court of Appeal on that occasion. Whatever may be the strict legal position, in the interest of legal certainty, I consider that I ought to apply the established legal jurisprudence in Hong Kong for the purpose of the present applications.

20.  It follows that if the principles relating to adverse possession established in Tang Kwong Yu (or U) T’ong or Tang Kwong Yu Tso are applicable to facts of the present case, I would have no hesitation in applying them.

Does it make any difference that the Heung is a business t’ong whose memberships are freely transferrable

21.  It seems clear that in Tang Kwong Yu (or U) T’ong or Tang Kwong Yu Tso, Deputy Judge Lam had before him a Chinese ancestral trust established for, or in connection with, the veneration of a common, or focal, ancestor.  The Heung is not such an institution but is a Chinese business t’ong.  It also seems clear from the evidence that the memberships of the Heung are freely transferrable, whereas the memberships of a Chinese ancestral trust are restricted to the male descendants of the focal ancestor and not freely transferrable.

22.  From these, Mr Mak argues that the Heung is only an “unincorporated association” which is not capable of holding property and being the subject of legal rights and duties.  Furthermore, Mr Mak says that the Lots are held for the purpose of investment for gain and not for perpetual succession.  According to Mr Mak, the managers of the Heung (ie the Plaintiffs) hold the Lots upon a trust for sale; they could sell the Lots without the consent of the members, and the members are entitled to the proceeds of sale only and have no right to claim possession of the land in question.

23.  Lastly, Mr Mak says that the new born members of Yu Luk Shun Tong are only members of a member of the Heung (as opposed to being direct members of the Heung).

24.  It is, in my view, clear from the judgment of the Court of Appeal in Tang Man Kit and Foo Tak Ching (suing as Managers of WAH YAN MO FAN HEUNG (華人模範鄉)) v HIP HING TIMBER COMPANY LIMITED (協興木業有限公司), CACV 137/2002, that the Heung cannot be regarded as a mere unincorporated association, but is a t’ong under s. 15 of the New Territories Ordinance.  It is, however, not a legal entity.  The legal estate in the Lots is held by the managers, but they are not the beneficial owners, or the only beneficial owners, of the Lots.  At any point in time, the members of the Heung would be the beneficial owners of the Lots or, to put it in the language of s. 10(1) of the Limitation Ordinance, the equitable estates of the Lots would be vested in the members of the Heung.

25.  Since Yu Luk Shun Tong is also not a legal entity, the members of Yu Luk Shun Tong should be regarded as having a beneficial interest, or an equitable estate, in the Lots.  It is true that no member of the Heung would, it seems, be entitled to claim physical possession of the Lots.  However, they would be entitled to share in the rents received from letting the Lots to third parties.

26.  As held by Deputy Judge Lam in Tang Kwong Yu (or U) T’ong or Tang Kwong Yu Tso, the definition of “land” in the Limitation Ordinance includes, inter alia, rentcharges and any legal or equitable estate or interest therein, and the annual or periodic distribution that a tso (or t’ong) member is entitled to receive falls within the meaning of a rentcharge.  Thus, his entitlement to receive a periodic distribution is sufficient, for the purpose of the Limitation Ordinance, to classify his interest as an interest in land, and his claim for such “rent” is a right of action to recover the land under s. 10(2) of the Limitation Ordinance.

27.  In so far as the managers of the Heung are to be regarded as holding the Lots upon a trust for sale, it should be noted that s. 10(1) of the Limitation Ordinance expressly applies to “interests in the proceeds of the sale of land held upon trust for sale”.

28.  I do not consider that the principles relating to adverse possession established in Tang Kwong Yu (or U) T’ong or Tang Kwong Yu Tso are not applicable to the present case merely because the Heung is a Chinese business t’ong whose memberships are freely transferrable, or because the new born members of Yu Luk Shun Tong are only members of a member of the Heung (as opposed to being direct members of the Heung).

29.  In the circumstances, I consider that the defence of adverse possession is not sustainable as a matter of law.  I therefore give summary judgment to the Plaintiffs against the Defendant in terms of paragraph 1(a) of the prayer for relief in the Statement of Claim (save that the reference to the “Heung” should be replaced by the “managers of the Heung”) and for damages for trespass to be assessed.  I would strike out the Counterclaim. It is not necessary for me to consider or make any order under the Plaintiffs’ Order 14A rule 1 application.  I would also make an order nisi that the Plaintiffs shall have the costs of this action, including the costs of the present applications, to be taxed if not agreed.

30.  Lastly, I wish to thank counsel for their assistance in this matter.