Hsbc Private Trust (Hong Kong) Ltd v. Au-yeung Chung

HCA 1662/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1662 OF 2001

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BETWEEN

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Before: Deputy High Court Judge Carlson in Court

Dates of Hearing: 17, 20, 21 and 23 November 2006

Date of Ruling: 23 November 2006

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R U L I N G

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Introduction

1.This is an application by the Plaintiff to amend its pleading so as to add a counterclaim to the Defendant’s counterclaim in order to seek compensation or damages for the loss of the Plaintiff’s land to the Defendant.  The matter comes about in this way.  This is an action for possession of land in the New Territories.  The Defendant says that she and her late husband and their family have been in possession of this land since 1953.  If that account were to be upheld at the trial then the Plaintiff’s possessory title would have been long extinguished and the Defendant would be able to continue in possession of the land.  There is a counterclaim to that effect by the Defendant.  The proposed amendments by the Plaintiff would only need to be considered if that were the outcome of the trial. 

2.This proposed plea to seek compensation and/or damages is a novel one based on Articles 6 and 105 of the Basic Law.

3.Article 6:

“The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law.”

Article 105:

“The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property.

Such compensation shall correspond to the real value of the property concerned at the time and shall be freely convertible and paid without undue delay …”

4.The notion that compensation may be available in private law as opposed to a public law right between the individual and the Government has recently been canvassed in two cases in Hong Kong.  In Lau Hing Wong & Ors v Wong Wor Hung & Anr, HCA 1454/2003 unreported (“Lau’s case”), Mr Recorder McCoy, SC having found that the Plaintiff had been dispossessed of his possessory title has directed that the issue whether the Plaintiff is, as a consequence, now entitled to compensation should be tried.  In view of the wide-ranging implications of such a plea succeeding, he has directed that the Secretary for Justice should be informed, so that he may intervene if he wishes to, and that an amicus curiae be appointed to assist the court.  The other is The Hong Kong Buddhist Association v Cheng, HCMP 4108/2003 unreported (“the Buddhist Association case”) a decision of Saunders DJ where obiter, he having dismissed the claim for adverse possession on the evidence before him, said that had he been put to it he would have been prepared to decline to enforce the limitation provisions as a means of defeating the claim for adverse possession in circumstances where under the law as it presently stands no compensation is payable to the losing owner of the land.

5.An article by Mr Frederick Chan, a member of the Bar, in the October 2006 issue of Hong Kong Lawyer provides an interesting perspective on the problem and how this has been addressed in England and in particular in a decision of the European Court of Human Rights (“ECHR”) involving an English case.  I will need to refer to these cases presently.

The Application to Amend

6.Before I do so I need to take stock of the situation in the trial before me.  The trial has been set down for 5 days.  This application has occupied three days and I have not sat on the fourth in order to prepare this ruling which I am now delivering on the fifth day.  Whatever the result of the ruling, new dates will have to be appointed for the matter to be tried.  At the outset, Mr Szeto for the Defendant, correctly submitted in my view that given the lateness of the application and its disruptive effect on the anticipated progress of the trial that I should exercise my discretion and, for this reason alone, dismiss the application to amend.  Now realistically, he accepts that where the case is bound to go over for some months hence, given the state of the lists, that I am unlikely to dismiss the application on this basis.  This being so he has really confined his opposition to submitting that the proposed amendment is bound to fail as a matter of law and that this being the case it would not be right to allow the matter to go to trial on this basis.  It is agreed between counsel, and I accept, that in this regard all that Mr Suen, who is making the application on behalf of the Plaintiff, needs to show is that such a plea is reasonably arguable.  Now is not the time to decide anything beyond that.  It must follow therefore that Mr Szeto, in opposing the amendments in this way, is taking on the heavy burden of having to show that the proposed plea is bound to fail. 

The Argument

7.I am very grateful to both counsel for two very helpful and persuasive submissions, especially to Mr Szeto who has had to prepare what he has had to say at very short notice.

8.It is convenient to take Mr Szeto’s analysis of the position first.  He has submitted under five headings which I will take slightly out of order:

(i)      The Basic Law does not give private law rights as between individuals generally and with particular reference to Article 105;

(ii)     The Defendant is therefore not the correct Defendant on such a claim — the Plaintiff has no cause of action against her and would have to join the HKSAR Government in order to maintain this plea.

(iii)     The real act of deprivation is not adverse possession but an alleged lack of a domestic compensatory regime therefore no fault can attach to the Defendant;

(iv)     In relation to the decision of the ECHR in J.A. Pye (Oxford) Ltd & Anr v United Kingdom (2005) 3 EGLR 1 (“the Pye case”), a decision to which I will need to make further reference, in which the court in dealing with a case of adverse possession from England of freehold land and which related to English domestic legislation which requires a compulsory transfer of property held under adverse possession by the owner to the trespasser, Mr Szeto submits that one of the mischiefs which the ECHR identified was the requirement for a transfer of the property whereas, in Hong Kong all that the owner loses is his possessory title.  Secondly, he points out that in the Pye case, the loss to the owner of the land was comprehensive involving as it did freehold land whereas, in Hong Kong it can only amount to the loss of a leasehold;

(v)     In any event the Plaintiff would have other remedies available to him which he can, but has not exercised against the Government.  Before 1997 an action against the Government under the Block Government Lease based on the doctrine of non-derogation of grant and since 1997, additionally, based on Article 105 of the Basic Law. 

I will take these in turn.

The Basic Law does not Confer Private Law Rights between Citizens and therefore the Defendant is not the Correct Defendant

9.These first two issues can be taken together.  Mr Szeto bases himself on the wording of Article 105 which places the obligations contained in the article on the HKSAR which he says, of itself, makes it plain that these protections regulate the conduct of the Government and of the laws that it is required to pass which should have that effect.  He supports this by saying that nowhere in the cases is there any instance of a situation such as this giving rise to a private law remedy for compensation which I believe he is right in saying.

10.The recent interest in this point, if I can so describe it, really comes from the Pye case in the ECHR.  That case was a consequence of the House of Lords decision in JA Pye (Oxford) Ltd v Graham [2002] UKHL 30 where in the usual way when adverse possession has been made out for the requisite period the provisions of the Limitation Act 1980 and of section 75 of the Land Registration Act 1925 engaged so that the owner’s title is held on trust by the owner for the squatter.  As to this outcome, Lord Bingham made these observations; [page 867g-j]:

“[2] The Grahams have acted honourably throughout.  They sought rights to graze or cut grass on the land after the summer of 1984, and were quite prepared to pay.  When Pye failed to respond they did what any other farmer in their position would have done: they continued to farm the land.  They were not at fault.  But the result of Pye’s inaction was that they enjoyed the full use of the land without payment for 12 years.  As if that were not gain enough, they are then rewarded by obtaining title to this considerable area of valuable land without any obligation to compensate the former owner in any way at all.  In the case of unregistered land, and in the days before registration became the norm, such a result could no doubt be justified as avoiding protracted uncertainty where the title to land lay.  But where land is registered it is difficult to see any justification for a legal rule which compels such an apparently unjust result, and even harder to see why the party gaining title should not be required to pay some compensation at least to the party losing it.  It is reassuring to learn that the Land Registration Act 2002 has addressed the risk that a registered owner may lose his title through inadvertence.  But the main provisions of that Act have not yet been brought into effect, and even if they had it would not assist Pye, whose title had been lost before the passing of the Act.  While I am satisfied that the appeal must be allowed for the reasons given by my noble and learned friend, this is a conclusion which I (like the judge ([2000] Ch 676 at 709, [2000] 2 WLR 242 at 271)) ‘arrive at with no enthusiasm’.”

11.The ECHR in its majority decision, the matter is currently under appeal in that court, held that the absence of laws providing for compensation was a breach of Article 1 of the First Protocol of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”).  At paragraph 47 of the judgment, the matter is expressed in this way:

“… the taking of property without payment of an amount reasonably related to its value will normally constitute a disproportionate interference that cannot be justified … ”

12.Mr Szeto observes that what was being criticised were the laws of the United Kingdom in not having such compensation provisions in place.  It had nothing to do with the rights of the private parties, the litigants in the English domestic action, but concerned the losing title holder suing his Government for not passing laws which gave him the minimum protections provided by the Convention.  Mr Szeto concludes therefore that there can be no private inter-litigant right of action conferred by the Basic Law.

13.Mr Suen’s reply to this is that any submission to the effect that the Plaintiff should be suing the Government is misconceived.  I am only concerned with a decision as to whether the Plaintiff has an arguable claim against the Defendant as it is proposed to be pleaded in the amendment.  Mr Suen is correct but, all that Mr Szeto is saying is that there is no cause of action against his client based on the Basic Law and if there is a cause of action it can only be against the Government.  This therefore is the vital question which needs to be answered.

14.The main issue raised by Mr Szeto is whether the Basic Law confers right of action between private citizens.  Mr Suen submits that the reference to any rights appearing in Article 105 of the Basic Law are neither here nor there in this regard.  He develops his submission in this way.  He has cited what in my judgment is the important case of Beaulane Properties Ltd v Palmer [2005] 4 All ER 461, a decision of Mr Nicholas Strauss, QC, sitting as a Deputy Judge of the High Court in England which was referred to with approval by the ECHR in Pye.  The judge in Beaulane held that an owner could properly bring a claim against the squatter in respect of the loss of value of the land acquired by the squatter.  In arriving at such a conclusion, the judge made reference to the provisions of Article 1 of the First Protocol to the convention.  Much the same reasoning was applied by Saunders DJ in The Buddhist Association case, he holding that when the effect of the Limitation Ordinance was to deprive the owner of his possesssory title without a parallel provision for compensation this made section 7 Limitation Ordinance inconsistent with the Basic Law.

15.In this regard, Mr Suen submits that the courts of Hong Kong have a duty to enforce and interpret the Basic Law, this being a matter of obligation on the part of the court.  Section 2A of the Interpretation and General Clauses Ordinance provides that all laws previously in force shall be construed with such modifications, adaptations, limitations and exceptions as may be necessary so as not to contravene the Basic Law and to bring them into conformity with the status of Hong Kong as a SAR of the PRC. 

16.In my judgment, this is the real point to the argument and not whether the Basic Law as such gives causes of action as between individuals.  It is a matter of whether particular laws are consistent with the demands and aspirations of the Basic Law.  If they are not the court may feel constrained to disapply them in the way suggested in Buddhist Association and the way that was done in Beaulane by Deputy Judge Strauss, QC.  It is this approach that the Plaintiff would wish to engage if allowed to amend its pleading to enable it to do so.

17.The burden on Mr Szeto, requiring him to show that the proposed amendment is bound to fail, is not one that he is able to discharge despite his admirable attempts to do so.  It seems to me that the matter is reasonably arguable which, of course, is quite different from saying that ultimately it is going to succeed.  Nevertheless, there is here a perfectly respectable argument that can be made, either that the Limitation Ordinance should not be enforced without parallel provisions for compensation or that its provisions in this regard should be disapplied which perhaps, in substance, is very much the same thing.  Whichever way one looks at the matter there is a growing body of authority, limited at present in our courts, but impressive overseas concerning identical provisions which frown upon legislation such as section 7 of our Limitation Ordinance without parallel compensation provisions.  This argument should be allowed to go forward. 

18.This being my view, all other matters being equal, I propose to allow Mr Suen to make his amendment.  Before I do so and before I decide the terms under which this should be done, I ought to say something about Mr Szeto’s other grounds.

The Fault Lies with the Legislation not with this Defendant

19.Mr Szeto submits that it is not the Defendant’s fault that there is no provision for compensation with the consequence that she should not be penalised.  Whilst that may be so this does not really address the real issue which to my mind is whether, without reciprocal compensation provisions, the squatter ought to be able to take advantage of the Limitation Ordinance.  The lack of fault on the part of the squatter would fall to be considered under the amendments to the Plaintiff’s pleading as part of the argument at the trial and I do not believe that I need to say more about this having regard to what I have already set out in the previous sections.

Freehold/Leasehold and No Compulsory Transfer in Hong Kong Domestic Law

20.Mr Szeto has sought to distinguish Pye on the basis of the difference between that case, being freehold land, and the fact that there is no equivalent to the Land Registration Act 1925 in Hong Kong.  Whilst he is undoubtedly correct in identifying these differences, I do not believe this can detract from the general thrust of the complaint that the relevant Articles in the Basic Law and the lack of compensation consequent upon the effects of the Limitation Ordinance are incompatible and that the latter should therefore be disapplied.  The consequences for a leaseholder may be less than for a freeholder but still remain very serious indeed.  The lack of compulsory transfer, as in the Land Registration Act, is really a matter of form rather than substance and should not affect the outcome of this particular application.

Other Available Remedies

21.Mr Szeto has said that the Plaintiff should exercise these against the Government first under the Basic Law and on the provisions of the Block Lease by bringing a claim based on the doctrine of non-derogation of grant.  This would perhaps have been necessary before any public law remedy was sought but here the Plaintiff is perfectly entitled to go against the Defendant which is what it has decided to do.  Its case is arguable and that would be sufficient to conclude the matter at this stage.

Conclusion

22.For these reasons, I will therefore allow the amendments and I give the Plaintiff 14 days in which to file and serve the amended pleading.  It may be that Mr Suen will also need to amend other parts of the pleading to put in a claim for restitution as an alternative remedy, which Mr Szeto has been informed of and does not object to.  The Defendant will, of course, have leave to amend her pleadings consequentially.  As this trial will now have to be adjourned to some time in the future I will hear counsel on what further directions I should give and also deal with the costs of and occasioned by the amendments which must have regard to the fact that we have now lost all five days set aside for the trial of the action whilst this has had to be argued over.

Jenkin Suen, instructed by Messrs Deacons, for the Plaintiff

Patrick Szeto, instructed by Messrs Ho, Tse, Wai & Partners, for the Defendant