Chu Hoi (International) Ltd v. Chow Kwok Fong

CACV 395/2022, [2024] HKCA 788

On Appeal From [2021] HKLdT 32

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 395 OF 2022

(ON APPEAL FROM LDPD NO. 1033 OF 2020)

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REASONS FOR JUDGMENT
AND
DECISION ON COSTS

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Hon Cheung JA (giving the Reasons for Judgment and Decision on Costs of the Court) :

I.  The appeal

1.This is an appeal by the Respondent pursuant to leave granted by a single judge of this Court against the order dated 11 January 2021 (‘the Dismissal Order’) of Mr. Alex Ng (‘Mr. Ng’), Member of the Lands Tribunal, who dismissed the Respondent’s application to set aside a judgment dated 22 September 2020 (‘the Default Judgment’) obtained in default of the Respondent filing a Notice of Opposition to the Applicant’s claim for possession of the property known as Penthouse A (7^th Floor/Roof), 54 Leighton Road, Hong Kong (‘the Property’).

2.This Court had granted leave to the Respondent to adduce fresh evidence for this appeal in the form of an affirmation by the Respondent dated 5 February 2021 (‘the Respondent’s New Affirmation’). This affirmation was already filed by the Respondent in her application to Mr. Ng for leave to appeal against the Dismissal Order. That application was refused by Mr. Ng on 10 May 2021.

3.We allowed the appeal at the conclusion of the hearing. I now give the reasons for our judgment.

II.  Background

4.The Applicant has since 1987 been the registered owner of the Property. On 4 August 2020, the Applicant filed a Notice of Application (‘Form 22’) in the Lands Tribunal (LDPD 1033/2020) seeking to recover vacant possession of the Property. The Notice of Application stated that the Applicant is the owner of the Property. In 1987 the Applicant acquired the Property together with the tenancy at will of the Respondent. After the Applicant became the owner, it continued to let the Property by way of tenancy at will to the Respondent. On 20 September 2018 the Applicant through its solicitors issued a Notice to Quit (‘the 2018 Notice to Quit’) requiring the Respondent to deliver possession of the Property to the Applicant.

5.On 22 September 2020, the Applicant obtained the Default Judgment upon the Respondent failing to file the Notice of Opposition. In support of the Applicant’s application for default judgment, it produced, amongst other things, the 2018 Notice to Quit which revealed, amongst other things, that the Respondent’s tenancy at will in fact had been terminated as early as 2008 :

‘ We are instructed that the tenancy of the Property between our client and Madam Chau Kwok Fong was a tenancy at will and was in effect terminated by your failure to pay rent from 1^st August 2008, or alternatively by the notice to quit dated 7^th August 2008 addressing to you.

For the avoidance of doubt, our client treats the tenancy between our client and Madam Chau Kwok Fong as terminated and we hereby give notice on behalf of our client that, if you now occupy the Property, you are required to deliver up vacant possession of the Property on or before 31^st October 2018, failing which, legal proceedings will be commenced against you for the recovery of the Property without further notice, in which event, you shall be liable to pay all the costs thereby incurred.’

6.On 24 November 2020, the Respondent, acting in person, issued the summons to set aside the Default Judgment (‘the setting aside application’) with a short affirmation dated 24 November 2020 which stated that the building where the Property is situated is an uncompleted building built by the developer. An additional floor could be added onto the building. She, however, did not have the money to apply for a title of ownership of the Property. She had lived at the Property since 1972. The Buildings Department had registered the dimension of the Property. She had checked that the owner of the roof did not belong to the owner of the floor below. Therefore the Applicant had no right to recover possession. She said she occupied the Property with the permission of the developer. She asked for the dismissal of the claim.

7.On 10 December 2020, the Respondent engaged Au Yeung, Chan & Ho (‘AYCH’), solicitors, to represent her. At the hearing of the setting aside application on 14 December 2020, the Respondent was represented by counsel. Her counsel conceded that the judgment was a regular judgment but submitted that the Respondent might advance a defence of adverse possession, which stood to have a real prospect of success. By consent, the hearing was adjourned by Mr. Ng for the Respondent to file further evidence and for the application to be determined on the paper.

8.The Respondent did not comply with the directions given by Mr. Ng and did not file a supplemental affirmation within 14 days.

9.On 6 January 2021, the Applicant wrote to the Lands Tribunal requesting for a dismissal of the setting aside application.

10.By a letter of the same date, AYCH informed the Lands Tribunal that they had received no further instruction from the Respondent and it was their understanding that the Respondent had already filed a Notice to Act in Person. In fact, it was only on 29 January 2021 that a Notice to Act in Person was filed. Until then, AYCH remained on record as the Respondent’s solicitors.

11.On 11 January 2021, Mr. Ng granted the Dismissal Order.

12.On 5 February 2021, the Respondent, acting in person, applied to the Lands Tribunal for leave to appeal the Dismissal Order out of time. Her application was supported by the Respondent’s New Affirmation, which was prepared with the assistance of the free legal advice scheme of the Faculty of Law of the University of Hong Kong.

13.Mr. Ng heard this application on 16 February 2021. By his decision dated 10 May 2021, he refused to grant leave.

III.  The Respondent’s New Affirmation

14.The Respondent’s New Affirmation stated that she was 71 years of age. She explained that she failed to file the Notice of Opposition within time because she was unwell and had to stay at home for a long time. She mistakenly thought that the Courts were closed during the COVID pandemic. After the hearing on 14 December 2020, she had exhausted all her limited legal funds, and had no knowledge nor ability to prepare the supplemental affirmation within the 14‑days deadline until receiving assistance from Hong Kong University Free Legal Advice Scheme. She stated that she started living in the Property since 1972 by the permission of the developer who had not completed the building. She built the Property and paid rent to her colleague Ms Lau who introduced her to the developer. In 1987, she started paying rent to the Applicant. She was told to do so by a Mr. Chow who claimed to be an agent of the Applicant. Mr. Chow said the Applicant had bought many units in the building including the Property. On 1 July 2008, she received a written notice to quit dated 1 July 2008 from the Applicant (‘2008 Notice to Quit’) terminating her tenancy and requiring her to vacate the Property by 31 July 2008, but she refused to comply and stopped paying rent. She received another letter from the Applicant dated 7 August 2008 informing her to vacate the Property quickly. Since 1 August 2008 to now, she has been in adverse possession of the Property. She produced receipts showing that she had been paying the rates of the Property from 1993 to 2016. She had acted as an appellant to appeal a building order in relation to the Property before the Building (Appeal) Tribunal. By the time the Applicant filed the Form 22 in Lands Tribunal on 4 August 2020, she had adversely possessed the Property for over 12 years, thereby extinguishing the Applicant’s title. It is only in October 2018 that she first realized that the payer of the demand for rates of the Property had been changed, and she immediately wrote to the relevant department as the owner of the Property and requested a change. She further stated that before the Default Judgment was obtained, the Applicant misled the Lands Tribunal by failing to disclose the 2008 Notice to Quit that had terminated the tenancy on 31 July 2008 and falsely alleging that it had all along been leasing the Property to her by way of a tenancy at will.

15.The Respondent exhibited 1) a letter dated 3 April 1987 from Lau, Chan & Ko, Solicitors informing the Respondent that they acted for the Applicant and requested her to make payment of rent to the Applicant; 2) The 2008 Notice to Quit stating the Applicant had received an order from the Buildings Department requiring it to clear all illegal structures on the roof top of the building. The Notice said that to comply with the order the Applicant had terminated with immediate effect her monthly tenancy and requested her to vacate the Property within 30 days; 3) The letter dated 7 August 2008 from the Applicant requiring her to deliver vacant possession of the Property quickly in order to carry out the demolition exercise.

IV.  Decision of Mr. Ng

1)  Dismissing the setting aside application

16.The Dismissal Order was made without any written reasons.

2)  Refusing to grant leave to appeal

17.Mr. Ng accepted that the Respondent’s affirmation of 5 February 2021 fulfilled the Ladd v Marshall conditions. He, however, refused leave because he held that there was no error of law being committed by him in making the Dismissal Order. He accepted the submission of the Applicant’s counsel that the Applicant’s application was on the basis that the Respondent is a tenant at will and that tenancy was terminated by the 2018 Notice to Quit. There was no material non‑disclosure. The 2018 Notice to Quit was produced in the Applicant’s application for Default Judgment which stated that the Respondent had failed to pay rent since 1 August 2008 and that her tenancy was terminated by the Notice of Termination dated 7 August 2008. Mr. Ng referred to the submission of the former counsel for the Respondent in the setting aside application that the basis for setting aside was that the Applicant is not the owner of the Property and the Respondent’s occupation was with the permission of the developer of the building in which the Property is situated. He stated that the Respondent had not relied on adverse possession as the basis for setting aside the Default Judgment.

V.  Grounds of appeal

18.In summary, the Respondent’s grounds of appeal are that :

1)  Mr. Ng erred in law in dismissing the setting aside application in that the Default Judgment was an irregular judgment, and that the Respondent has been in adverse possession of the Property and the Applicant’s title in the Property has been extinguished.

2)  Alternatively, the Default Judgment was irregular in that the Applicant had wilfully misled the Lands Tribunal as to the facts and circumstances relating to the Respondent’s occupation of the Property.

3)  Further and in the alternative, if the Default Judgment was a regular judgment, the Respondent has a meritorious defence in adverse possession and a satisfactory explanation for the default.

4)  In the further alternative, the Applicant should not, and could not, have relied on section 117 of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 to recover possession of the Property.

VI.  Our view

1)   Question of law

19.The starting point is that an appeal from the Lands Tribunal must be on the ground that the decision is ‘erroneous in point of law’ : section 11(2) of the Lands Tribunal Ordinance (Cap. 17). Bokhary PJ in Kwong Mile Services Limited v. Commissioner of Inland Revenue [2004] 3 HKLRD 168 has given an extensive exposition on the Court’s approach on an appeal based on an error of law committed by a lower court or tribunal. He referred to the judgment of Lord Millett in Runa Begum v. Tower Hamlets London Borough Council [2003] 2 AC 430 at page 462 G‑H which summarised the Edwards (Inspector of Taxes) v Bairstow basis of appellate intervention in this way :

‘ 32. … “A decision may be quashed if it is based on a finding of fact or inference from the facts which is perverse or irrational; or there was no evidence to support it; or it was made by reference to irrelevant factors or without regard to relevant factors. It is not necessary to identify a specific error of law; if the decision cannot be supported the court will infer that the decision-making authority misunderstood or overlooked relevant evidence or misdirected itself in law.”

33. … But, as it seems to me, taking irrelevant factors into account or leaving relevant ones out of account can lead a fact‑finding tribunal so far astray as to reach a conclusion contrary to the true and only reasonable one.’

20.Mr. Ngai for the Applicant argued that the Notice of Appeal did not specify any question of law as required by Order 60, rule 2(2) of the Rules of the High Court, Cap. 4A (‘RHC’) which provides :

‘ (2) A notice of appeal must specify the grounds of the appeal, together with the question of law to be decided by the Court of Appeal.’

21.In our view the fact that a notice of appeal did not specify the question of law is only a matter of irregularity and is not fatal to an appeal. In some cases the question of law is so crisp and precise that it can easily be specified. In other cases, one looks at the grounds of appeal as a whole to see what the question of law is. In this case our view is that the question of law is sufficiently clear, namely, whether the Lands Tribunal has erred in law in making the Dismissal Order by ignoring relevant facts produced by the Applicant in its application for Default Judgment that were contrary to its pleaded case for possession of the Property? The pleaded case of the Applicant in its Form 22 could not be more different from the content of the documents it produced. The basis for possession under the Form 22 is that the tenancy at will was terminated by the 2018 Notice to Quit. But that Notice to Quit showed that the tenancy was already terminated in 2008 by reason of the Respondent’s failure to pay rent from 1 August 2008 or by the Notice to Quit dated 7 August 2008. The 2008 Notice to Quit was issued by the Applicant. Clearly it was within its knowledge that the tenancy of the Respondent was terminated as early as 2008 and she had not paid rent since that time. The basis of the Applicant’s claim in its Form 22 is contrary to these material facts.

22.The application for Default Judgment under Rule 15(2) and (3) of the Lands Tribunal Rules is in the form of an ex parte application that imposes a duty on the Applicant to make full and frank disclosure to the Court as to the exact basis of its claim for possession. This duty has not been discharged in this case. No explanation was offered by the Applicant as to the different nature of its claim. The response by the Applicant that it had produced the 2018 Notice to Quit when applying for the Default Judgment is not a proper answer to the absence of full and frank disclosure. In fact it created more questions that were not answered.

2)  Meritorious Defence

(1)  Limitation

23.Now that the Respondent’s New Affirmation is admitted as afresh evidence, the correctness of the Dismissal Order must also be considered in the light of this evidence.

24.The Respondent’s defence that the Applicant was not entitled to claim possession because of the Respondent’s adverse possession of the Property for 12 years which defeats the paper title of the Applicant by reason of section 7(2) of the Limitation Ordinance (Cap. 347). As Mr. But (together with Mr. Tang for the Respondent) submitted the objective evidence and records clearly show that 1) the Applicant had issued the 2008 Notice to Quit to the Respondent to request her to leave by 31 July 2008; 2) the Respondent had refused to leave for a continuous period of 12 years; 3) since 1 August 2008 the Respondent had been exclusively possessing the Property without paying rent; 4) the Respondent had been paying rates up to 2016; and 5) the Respondent assumed her rights as an owner and appealed against a building order issued by the Building Authority. The Respondent has demonstrated that she has a real prospect of success in her adverse possession defence.

25.Mr. Ngai argued that the defence has no real prospect of success because of illegality and referred to Monat Investment Ltd v. All Person(s) in Occupation of Part of No 16 Ma Po Tsuen [2023] HKCA 479 ([2023] HKLRD 1311) where Yuen JA, giving the judgment of this Court adopted the range of factors approach in Patel v. Mirza [2017] AC 467 to consider the defence of illegality. The Court should consider the following to determine whether it would be harmful to the integrity of the legal system to allow a claim involving an illegal act: 1) the underlying purpose of the prohibition which had been transgressed; 2) any other relevant public policies which might be rendered ineffective or less effective by denial of the claim; and 3) the possibility of overkill unless the law was applied with a due sense of proportionality [36.4] and [51‑53.3].

26.In that case the defendants occupied a house not approved under the Buildings Ordinance by way of adverse possession against the paper title owner. Yuen JA held :

‘ 62.2 The Judge did not articulate what he considered to be the underlying purpose of section 14 of Buildings Ordinance (the first consideration in Patel). I tend to agree with the 2^nd defendant’s submission that it was to ensure public safety in the construction of buildings by ensuring that plans are submitted and approved before building takes place. In our case, the brick house was built by the father, not by the mother or by the 2^nd defendant. The plaintiff has not proved that mere occupation by the mother and the 2^nd defendant would be in breach of section 14 of the Buildings Ordinance. In any event, implicit in the Judge’s focus on the lack of enforcement action over the past 40 years is the concept that the underlying purpose of the Buildings Ordinance was not to penalise squatters. A person can of course be in adverse possession of property without erecting a building on it. Erecting or maintaining a fence would be sufficient. The underlying purpose of adverse possession (the second consideration) is plain and has been articulated by the Judge in [62] of the Judgment. In light of the first two considerations, he was clearly entitled to hold in favour of the 2^nd defendant on the third consideration.’

‘ 61.2 In other words, the Court can only decide whether the ex turpi causa maxim has, or has no, application to a claim of adverse possession in any particular case after examining all the relevant factors set out in the ‘range of factors approach’ based on the trio of necessary considerations in Patel.’

27.Mr. Ngai argued that 1) a notice under section 24C(1) of the Buildings Ordinance was issued in May 2008 against the Applicant in respect of the Property; 2) a building order under section 24(1) of the Buildings Ordinance was issued in May 2013 against the Applicant; 3) from both building orders, the Property is said to be in contravention of section 14 of the Buildings Ordinance; 4) the Respondent appealed against the May 2013 building order, but her appeal was dismissed; and 5) in June 2020, the Applicant was prosecuted for failing to comply with the 2013 building order, which is an offence under section 40(1BA) of the Buildings Ordinance.

28.Mr. Ngai submitted that applying the ‘trio of necessary considerations’ 1) the prohibitions which have been transgressed are not only section 14 of the Buildings Ordinance, but also section 24C and section 24; 2) the underlying purpose of section 14 is to ensure public safety in the construction of buildings (see [62.2] of Monat). A section 24C notice and a section 24 order are enforcement actions by the Buildings Department, the purpose of which must be to see that any unauthorised building works are demolished; 3) at least from May 2013 onwards, the Respondent’s alleged adverse possession of the Property must have been a direct result of non‑compliance of the May 2013 building order; 4) the nature and circumstances of the illegal conduct by the Respondent is so blatant that if the Respondent’s adverse possession defence is allowed, it would be harmful to the integrity of the legal system (see [36.3] and [36.5] of Monet); 5) in the circumstances, the Respondent’s defence of adverse possession does not have a real prospect of success; and 6) it would not be disproportionate to deny the Respondent’s alleged claim for adverse possession, for the reason that the Applicant would not have made a gain by taking possession of the Property. It has all along been the Applicant’s intention to comply with the building order and demolish the Property.

29.Mr. But submitted that there was no evidence that the Respondent is guilty of a criminal act. He submitted that no harm was caused by the small structure that the Respondent had resided for decades. Ironically, the Applicant himself owns and still retains many other illegal structures erected on the roof too. The illegality point is particularly weak in the context of a setting aside application where the defendant is only required to show a defence with real prospect of success.

30.In our view, whether illegality defeats the claim for adverse possession could only be decided after the fact finding tribunal, i.e. the Lands Tribunal has examined all the relevant factors set out in the range of factors approach. We are not prepared to say at this stage of the proceedings and without the benefit of findings by the Lands Tribunal that the Respondent’s claim for adverse possession would necessarily be defeated by the issue of illegality. We hold that the defence has real prospect of success for the purpose of setting aside the Default Judgment.

31.Mr. Ngai further argued that the Respondent’s appeal is in effect an appeal against finding of fact made by the Member. We disagree. The appeal is at all times an appeal on a question of law that we had identified. Order 60A, rule 5 of RHC expressly allows Order 59, rules 9 and 10 to be applied. Order 59, rule 9 deals with the lodging of documents for the appeal while rule 10 provides for the general powers of the Court in an appeal that includes the power to receive further evidence on questions of fact (rule 10(2)) and the power to draw inferences of fact (rule 10(3)). The Respondent’s New Affirmation and the documents we had referred to provide the context in which the question of law is to be adjudicated.

(2)  Irregular and regular judgment

32.Mr. But has submitted that the Default Judgment was irregularly obtained by reason of material non‑disclosure and by falsely representing that the case as a termination of a tenancy at will by the 2018 Notice to Quit when the facts revealed that the Respondent’s tenancy had actually been terminated on 31 July 2008 by the 2008 Notice to Quit and there was no subsisting tenancy between the parties.

33.In our view the recognized categories of judgment irregularly obtained are the following : bad or effective service of the originating process, premature judgment, judgment entered for too much, judgment obtained by fraud and judgment entered against a minor or patient: see Hong Kong Civil Procedure 2024 [13/9/5‑13/9/9]. The present Default Judgment does not fall into any of these categories. Mr. But also conceded that his case grounded on non‑disclosure does not come within any of the recognized categories. We do not regard the present case to be an irregular judgment although we are of the view that there was material non‑disclosure on the part of the Applicant when applying for the Default Judgment.

(3)  Other arguments

34.Other arguments had been raised that are not germane to the issue that we have to decide. We only need to deal with the following argument. Mr. Ngai argued that with the new evidence, the proper procedure is for the Respondent to seek a review of the Dismissal Order. We disagree. For an explanation of the difference between review and appeal under the Lands Tribunal Ordinance: see Incorporated Owners of Sea View Estate (Watson Road) v. Christina Chung Tak Tsing (HCMP 1885/2008 22 October 2008 per Yuen JA at [15‑18]).

VII.  Conclusion

35.The answer to the question of law as identified in [21] is yes.

36.Accordingly we have allowed the appeal, set aside the Dismissal Order and the Default Judgment. We also set aside the writ of possession and directed the parties to submit agreed directions for the future conduct of the case within 14 days. The parties by letter dated 13 August 2024 informed the Court that they have agreed to stay the Lands Tribunal proceedings pending the determination of the Respondent’s claim for adverse possession of the property against the Applicant in the District Court (DCCJ No. 4420 of 2024) that she had commenced on 2 August 2024. Accordingly, we will not make any further order on the matter except to direct the parties to file in the Lands Tribunal the consent summons for stay of the proceedings.

VIII. Decision on costs

37.The Respondent is entitled to the costs of the appeal and the costs in respect of the applications in the court below and in CAMP 189/2021 for leave to appeal. As to the costs of the application to set aside the Default Judgment in the court below and the application to adduce new evidence in this appeal, we make no order as to the costs. The Respondent’s own costs are to be taxed according to the Legal Aid Regulations.

Mr. Adrian But and Mr. Felix H. Y. Tang (on pro bono basis), instructed by Sit, Fung, Kwong & Shum, assigned by Director of Legal Aid, for the Respondent

Mr. Lawrence L. K. Ngai, instructed by S. H. Chou & Co, for the Applicant