Chau Ka Chik Tso and Others v. Secretary for Justice

CACV 26/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 26 OF 2010

(ON APPEAL FROM HCA NO. 10670 OF 2000)

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BETWEEN

Before: Hon Rogers VP, Le Pichon and Kwan JJA in Court

Dates of Hearing: 14 – 15 December 2010 and 26 January 2011

Date of Handing Down Judgment: 14 February 2011

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Hon Rogers VP:

1.This was an appeal from a judgment of Deputy High Court Judge L. Chan given on 30 December 2009. The action had commenced almost exactly 9 years previously and was a claim by the plaintiffs in respect of Lot 1212 in D.D. 115 (“the Lot”). The plaintiffs’ claim was that the proper boundary of the Lot includes what has been referred to as the discrepant area. The basis upon which that was put initially in the plaintiffs’ claim was that the boundaries of the Lot had always included the discrepant area. The alternative way in which the matter was put was that the various owners of the Lot had encroached upon the discrepant area and that, as a result, the discrepant area had become part of the Lot as regards the rights and liabilities between the plaintiffs and their lessor, the Government. In consequence it was said that the plaintiffs were entitled to treat the discrepant area as part of their tenancies of the various parts of Lot 1212 until the determination of their interest in the Lot in 2047. On the plaintiffs’ alternative case, although the original lease terms would give an area of the Lot as 18 acres, with the inclusion of the discrepant area the total area is some 24.67 acres. Initially the plaintiffs had also sought to rely on adverse possession. However, it was conceded that the argument was mutually exclusive with the argument based on encroachment and was soon abandoned, in practice if not explicitly.

2.The Government, represented by the Secretary for Justice, contended that the plaintiffs were not entitled to treat the discrepant area as part of the Lot because the period necessary for the use and occupation of the discrepant area had not been sufficiently long prior to the renewal of the original lease in 1973 to constitute that use and occupation as, in law, encroachment.

3.The judge held in favour of the Government and dismissed the plaintiffs’ claims.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

4.The Lot is situated between the Shan Pui and Kam Tin rivers near what appears to be their confluence.  The Lot was described at the time of the original grant in 1916 as “marshy land” and “a piece of Foreshore and Seabed and Crown Land covered with water”.  Lam Wun Chi, as trustee of Wing Wa Tong, purchased the Lot at auction on 6 July 1916.  The lease of the Lot was then granted to the Tong under the Foreshore and Seabed Ordinance.  On 21 May 1924, the Lot was then divided into five sections and sold by the Tong.  There is no dispute between the parties that the plaintiffs are the successors in title in respect of the various sections and it is unnecessary, therefore, to trace the various conveyances.

5.It was a requirement that the Lot should be used for agricultural purposes.  It is clear that the Lot had been used for fish farming from a very early stage.  There is no doubt that bunds were constructed and aerial photographs, dating from as early as 1924, show that the discrepant area was included within the area of the fishponds.  It would appear that fish farming was carried on the Lot until the 1980s.  The construction of the fishponds and the bunds which surrounded them was a highly labour-intensive and costly exercise.

6.The judge came to the conclusion that whoever built the fishponds and constructed the bunds knew that they extended beyond the area of the Lot into the discrepant area.  The judge also held, at paragraph 170 of the judgment, that the defendant, by that he must have meant the relevant Government servants at the time, was not aware of the occupation of the discrepant area until the 1980s.  It is clear, however, that the relevant Government servants must have been aware that there were fishponds; it was simply that no steps had been taken to measure precisely the extent of the fishponds and the judge accepted that all the Government records and plans had been inaccurate.  It can, perhaps, be understood that it was probably of little consequence to the Government that the fishponds extended further north than the area of the Lot because it would appear that Lot 1347, which was to the north of the fishponds and lay between the fishponds and the apex of the confluence of the two rivers, was not rented out until 1960.

7.Land in the New Territories has been governed by the New Territories Ordinance Cap. 97.  Section 8 provided that all land in the New Territories was deemed from 23 July 1900 to have belonged to the Government and occupiers of the Land would be deemed to be trespassers unless the occupation had been authorized by Government grant.  The lease granted to the Tong in 1916 was in the form usual at the time namely for 75 years from 1 July 1898 and it contained a right of renewal for a further term of 24 years less three days.

8.The Lot was, of course, subject to the New Territories (Renewable Government Leases) Ordinance, Cap. 152 (“the Renewal Ordinance”).  The effect of the Renewal Ordinance was considered in the case of Chung Ping Kwan & Ors v Lam Island Development Ltd [1997] AC 38, which has been the subject of considerable discussion in the present appeal.  The lease of the Lot has also been the subject of the extension of rights under the New Territories Leases (Extension) Ordinance, Cap. 150 (“the Extension Ordinance”).

9.The plaintiffs now accept that the construction of the fishponds on the Lot constituted an encroachment on Government land in respect of the discrepant area.  As noted above, it is the plaintiffs’ case that the consequence of that encroachment is that the discrepant area has become part of the Lot for the purposes of their rights and liabilities under the lease and that, as a result, the plaintiffs are entitled to occupation of the discrepant area as part of their occupation of the Lot until the expiration of the lease in 2047.

10.The defendant, on the other hand, contends that because the plaintiffs had not shown that they had occupied the discrepant area for 60 years prior to the time when the original 75-year period expired any inchoate rights which they may have acquired prior to the expiry of the first term of the lease in 1973 have ceased to exist.  It is the defendant’s case that the discrepant area reverted to the Government, as the landlord, on the expiry of that lease and the new lease, deemed to be granted in accordance with the Renewal Ordinance, did not include the discrepant area as such: the plaintiffs remained trespassers on the land comprised in the discrepant area.  On the respondent’s notice, the Government further contends that even if the plaintiffs were entitled to rely upon encroachment in respect of the discrepant area prior to 1 July 1997, the discrepant area ceased to be the subject of encroachment after 30 June 1997.

The law relating to encroachment

11.The doctrine of encroachment is clearly of ancient origin and it has not been possible to ascertain when it first arose. It is pertinent to point out, however, that it is part of the law as to title. Citing authorities such as Bracton, Blackstone’s Commentaries and Holmes on the Common Law, it is stated in Williams on Real Property, see e.g. p. 637 of the 23^rd Edition:

“In English law, all title to land is founded on possession. Thus a person, who is in possession of land, although wrongfully, has a title to the land, which is good against all except those who can show a better title; that is, can prove that they or their predecessors had earlier possession, of which they were wrongfully deprived.”

12.The law of encroachment appears to have originated when lessees annexed areas of what were manorial waste and used them as part of the property which they had leased.  An area encroached may be an area which belongs to the landlord but was not part of the leased premises, or it may be an area which was common area or it may be an area which belonged to some third party.  In each case there was a similarity in the application of the law, namely, that the area encroached was treated as part of the premises that had been leased.

13.Pennycuick V.-C. in the case of Smirk v Lyndale Developments Ltd [1975] 1 Ch. 317 described the law in relation to encroachment as being in “something of a tangle”.  When that case went to the Court of Appeal, Lawton LJ said that, although he agreed with that statement, he considered that Pennycuick V.-C. had untangled it in a way which met with the approval of the parties and that he accepted the statement of the law as being correct.  The first case to which Pennycuick V.-C. referred to was Kingsmill v Millard (1855) 11 Exch. 313.  The leading judgment in that case was given by Parke B.  Parke B said at the commencement of his judgment at page 318:

“The rule must be absolute for a new trial.  It is laid down in all the cases-whether the inclosed land is part of the waste, or belongs to the landlord or a third person-that the presumption is, that the tenant has inclosed it for the benefit of his landlord, unless he has done some act disclaiming the landlord’s title.  I am disposed to discard the definition, that the encroachment is made “for the benefit of the landlord,” and to adopt that of Lord Campbell, viz. that the encroachment must be considered as annexed to the holding, unless it clearly appears that the tenant made it for his own benefit.”

14.In so saying, Parke B. was referring to the direction which had been given to the jury in that case which had been said to have been in accordance with the ruling in the case of Doe on the Demise of Lewis v Rees (1834) 6 C. & P. 610 (see the argument at page 314 of the Kingsmill case).  The report of that earlier case is pithy but states in clear terms that encroachments were made for the benefit of the landlord.  The judgment of Lord Campbell to which Parke B. referred was Thomas Andrews v William Hailes (1853) 2 E. & B. 349.  In that caseLord Campbell had said at page 353:

“I think it must be considered that the encroachment in this case was held by the defendant as part of the demised premises; and, that being so, I think the defendant is not at liberty to deny that it was part of them. I proceed on what the civil law calls exceptio personalis, and the common law an estoppel, and say that the tenant cannot deny this. I do not adopt the doctrine that the tenant steals for his landlord, and that therefore the landlord, at the end of the demise, is entitled to claim the stolen property; but I think that, when the property is taken and used as part of the holding, the tenant can as little dispute the title to it as he can dispute the title to any other part of the premises. The strange doctrine, as to stealing for the benefit of the landlord, originated in those cases where the landlord was lord of the manor, and the tenant encroached upon the waste. In such cases it might well be presumed that the tenant approved for the benefit of the lord who had a right to approve: but the idea that he could steal the land of another for his landlord is revolting to me, as it was to my predecessor Lord Kenyon.”

15.Coleridge J agreed with what Lord Campbell had said and added “the presumption is one depending on the inference to be drawn from the facts”.  He went on to say that he considered it was the tenant’s duty to preserve his landlord’s boundary and that if at the end of the term of the tenancy the boundary had been confused by enclosing adjacent ground a very strong presumption arose that the enclosed land was part of the holding.  Erle J. expressed himself thus:

“From the decided cases, I infer the law to be that, when the power to encroach is derived from the occupation of the premises held from a landlord, and the encroachment is occupied as if it was a part of the holding, then, at the end of the tenancy, the presumption, as between the landlord and tenant, is that it is part of the holding, and it belongs to the landlord. I think there are many reasons why this should be so; amongst others, I think the encroachment ought not to be permitted to belong to the tenant, a wrong-doer. It is true that, for technical reasons, stealing land is not larceny: but it is morally a theft; and it ought not to enure to the benefit of the thief.”

16.Lord Campbell added further:

“The result seems to be that, in the opinion of this Court, where the encroachment is on soil not the property of the landlord, the presumption should be stated to be that the encroachment is part of the holding: not that the tenant encroached for the landlord.”

17.Without, it is hoped, being too pedantic, it would appear that having cited from Parke B.’s judgment Pennycuick V.-C. appears at 324F of the report in the Smirk case to refer again to the presumption being that the tenant had enclosed for the benefit of the landlord.  It can only be presumed that the very distinction drawn by Parke B. in the passage which appeared immediately above that, was considered to be of no consequence in the Smirk case.  As the citation from the judgment of Willes J. in Whitmore v Humphries (1871) L.R. 7 C.P 1, which in Pennycuick V.-C.’s judgment followed immediately thereafter, makes clear, the encroachment is deemed to be made by the tenant as an addition to his holding and it is a consequence of that that it is for the benefit of the landlord. The conclusion to which Willes J. came at page 6 was that:

“For these reasons I come to the conclusion that the meaning of the word “encroachment” is quite apart from any question of assent or dissent on the part of the landlord, and signifies something taken in by the tenant by reason of his being tenant without anything to shew that it was so taken otherwise than for the benefit of the landlord, to be held as part of the demised premises, and given up accordingly at the end of the term.”

18.I would mention that in the case of Perrott (J.F.) & Co. Ltd. v Cohen [1951] 1 KB 705 Denning LJ, as he then was, referred to the principle underlying the cases on encroachment as not, perhaps, strictly being an estoppel but being akin to it.  In so saying he was not only echoing the sentiments previously expressed by Lord Campbell but was referring to statements such as that by Charles J in the case of Tabor and others v Godfrey (1895) 64 L.J.Q.B. 245 where at page 247 he had referred to the principle of encroachment applying in the case because the landlord and tenant had treated the particular part encroached as being part of the land demised.  He said:

“But I think twelve years have elapsed of occupation of this strip of land inconsistent with the user of it as a right of way; and I should, apart from the legal question here, have to hold, certainly as to the strip, that the defendant had acquired a right to the freehold under the statute. But that is not the true inference, nor do I think the Statute of Limitations has anything to do with the case. But I do think that in the events which have happened, both the landlord and tenant have treated this strip as part of the land demised. At the end of the lease the tenant could not have set up that the strip was his own, or said that it was not part of the land included in the lease. A tenant who enters under one title cannot turn round and say he entered under another.”

Is the 60 year period relevant?

19.The parties argued this appeal on the basis that a period of 60 years was relevant in considering the plaintiffs’ claims.  I found it difficult to understand the basis upon which the 60-year period was relevant to the issue of encroachment.  The way it seemed to be considered was that the statutory limitation period was applicable by way of analogy.  But application by analogy of a statutory provision is a somewhat precarious notion.  Usually a statutory provision is applicable or it is not.

20.The reference to 60 years could only come from section 7 of the Limitation Ordinance, Cap. 347 (“the Ordinance”) which reads:

“(1) No action shall be brought by the Government to recover any land after the expiration of 60 years from the date on which the right of action accrued to the Government or, if it first accrued to some person through whom the Government claims, to that person.

(2) No action shall be brought by any other person to recover any land after the expiration of 12 years from the date on which the right of action accrued to him or, if it first accrued to some person through whom he claims, to that person:

Provided that, if the right of action first accrued to the Government through whom the person bringing the action claims, the action may be brought at any time before the expiration of the period during which the action could have been brought by the Government, or of 12 years from the date on which the right of action accrued to some person other than the Government, whichever period first expires.”

21.The textbooks, specifically The Law of Real Property 7^th edition by Megarry & Wade (para 35-27) and Adverse Possession by Stephen Jourdan(Chapter 25) seemed to quote the conclusion that the limitation period was relevant without any full explanation as to why it was relevant.  It was for that reason that the parties were asked to make further submissions on this aspect.

22.The reality is that in nearly all the reported cases the period of occupation of the encroached land has not been of importance as regards the issues in the cases.  Hence there is little or no explanation as to why the specific period is relevant.

23.Having heard further argument and considered the cases, it seems to me that the start of the consideration must be the principle upon which the law relating to encroachment depends.  Reference has already been made to what Lord Campbell CJ said in Andrews v Hailes at page 353 and to what Lord Denning said in Perrot (J.F.) & Co. Ltd v Cohen at page 710 and to what Charles J said at page 247, the top of the right hand column in Tabor v Godfrey (1895) 64 L.J.Q.B. 245.  The start of the consideration of the principle lying behind the law relating to encroachment would thus appear to be that it is something akin to estoppel.  Because the encroacher has been able to trespass on the encroached land by reason of his lease and because he has used the encroached land as if it were part of the leased premises, he is debarred from treating the encroached land otherwise than as part of the leased premises.  If the lessor has tacitly or otherwise permitted the encroachment then questions of limitation do not arise.  In other circumstances the lessee is still entitled to be protected under the statutory provisions as to the limitation period, but the estoppel becomes relevant to the extent that the lessee/encroacher must still treat the encroached land as part of the demised premises.

24.It would seem that, perhaps, the most useful statement relating to the length of the period, where considerations of implied consent or permission do not apply, is that of Cohen LJ in the case of King v Smith [1950] 1 All E.R. 553 at 557B where he said:

“First, he says the presumption ceased to apply when the defendant purchased the reversion of Gunnislake. He says that the defendant then acquired all the rights of the landlord, including such rights as the landlord had in the disputed strip on which the defendant had encroached. ……I think counsel for the plaintiff supplied the right answer to this point when he said that the true effect of the presumption was that, from the time of the encroachment, the disputed strip became an accretion to the demised premises, and at the expiration of twelve years from the date of the encroachment, the defendant acquired a leasehold interest in the disputed strip and the landlord had the freehold reversion therein.”

25.The way that Cohen LJ seems to treat the matter is that the court treats the intention of a lessee who encroaches on other land of his lessor as being an intention to occupy the encroached land as part of the leased premises.  In some circumstances, of course, it has been acknowledged that the tenant may have used the encroached land for some purposes quite unconnected with the lease and he may be treated simply as a squatter and the law of encroachment would, in those circumstances, not apply.  But assuming that is not the case, the law of encroachment would apply.  That would bind both the lessee and the lessor.  They would both have to treat the encroached land as being part of the leased premises.  The effect would be, as Cohen LJ put it, that when the law of encroachment applies the lessee is treated as having acquired a leasehold interest and the landlord has the reversion therein.  The limitation period is relevant in that during the time when the period is accruing the landlord may be able to recover possession of the encroached land, that is assuming the landlord has not acted in a way that it has bound itself to treat the land as part of the leased premises.

26.The only other point, which I do not consider arises in the final analysis in the present case, is whether the Government should be treated as the Government under section 7(1) of the Ordinance or as a private landlord under section 7(2) of the Ordinance.

The application of the principle in the present case

27.Although there was no substantial dispute in the present case as to many aspects of the law relating to encroachment, I have found it useful to examine the concept since I consider it is too easy to elide the conclusion that at the termination of the tenancy the landlord is entitled to the land encroached with the reason therefor, namely that the encroachment during the period of the tenancy has been occasioned because of the tenancy and the encroached land has been used as and become, in effect, part of the tenancy.  As the judges in the past have been at pains to point out particularly where third party land is concerned the concept of encroachment is not based on any notion that what the tenant has done has been for the benefit of the landlord although, at the end of the day that may be the consequence.

28.The major dispute in the present appeal as it was argued initially turned upon whether on the plaintiffs’ case they were still entitled to treat the discrepant area as part of the leased premises or whether, on the Government’s case, the plaintiffs would not be able to claim any right in the discrepant area because they had not occupied and used the discrepant area for a period of 60 years.  Central to the Government’s case was the proposition that although the plaintiffs and their predecessors had occupied and used the discrepant area at least from 1924, the initial lease had expired in 1973 before a period of 60 years had elapsed and thus the discrepant area would have reverted to the Government in 1973 and although a new lease was granted it did not include the discrepant area, because the discrepant area had not been included in the new lease.

29.The plaintiffs’ answer to the Government’s proposition is that the effect of the Renewal Ordinance as explained by the Privy Council in the Lam Island decision meant that even if it were necessary for them to show that they had occupied the discrepant area for a period equivalent to the period necessary to establish adverse possession against the Government, they were entitled to rely on periods both before and after 1973.  In order to resolve this initial dispute it is necessary, therefore, to consider the decision in the Lam Island case.

The Lam Island decision

30.The Lam Island Development Company Limited (“Lam Island”) held land in the New Territories, as in the present case, under the terms of a Crown lease for 75 years from 1 July 1898 with the right to request a renewal of the lease for a further term of 24 years less three days.  The Renewal Ordinance provided that the right to renew contained in the Crown lease should be deemed to have been exercised and a new Crown lease for 24 years less three days (i.e. expiring in 1997) should be deemed to have been granted.  Lam Island issued possession proceedings against, amongst others, Chung Ping Kwan.

31.The defendants claimed to have been in adverse possession.  There were two cases.  In one case adverse possession began in 1953; in the other it began in 1959.  In each case, the relevant limitation period of 20 years had not been completed by the time of the renewal but the period of 20 years had been completed by the time that the case was heard in 1993.

32.Whereas a person who had established adverse possession against a lessee was entitled to enforce his right of possession against the lessee he could not enforce it against the landlord.  Hence when the tenancy determined the landlord could take possession of the premises and his rights were not affected by those of the person who had been in adverse possession.  The landlord could thus grant a new lease on the termination of the old lease that would be free from any rights acquired by the adverse possessor.

33.The question that thus arose in the case was whether, in a case where the original lease had contained a right or option to renew and that option had been exercised, an adverse possessor of premises was entitled to rely on periods both before and after the renewal to establish the requisite period under the Limitation Ordinance.  Lord Nicholls of Birkenhead phrased it at page 48B:

“Thus the question to be addressed is whether adverse possession bars the lessee from asserting against the squatter this specifically enforceable right, and the legal estate which flows from this right, as much as it bars the lessee from asserting against the squatter the other rights granted to him by the lease.”

34.The answer given by the Privy Council was in the affirmative.  Starting on the premise that the reversioner, that is the Government in the case of the New Territories, had no right as against any person occupying the land until his reversionary estate or interest fell into possession, Lord Nicholls then went on to consider the position where there was a right of renewal.  Because the right of renewal was a specifically enforceable right, the reversioner would have no right to enter and eject the trespasser because the landlord was bound to renew the lease.  As against the lessee, the reversioner had no right to possession. Lord Nicholls then carried on at page 48F:

“Conversely, and unlike the reversioner, the lessee has slept on his rights. There seems to be no compelling reason why, as between him and the trespasser, his rights under the renewal option in the lease should not be defeated just as much as his other rights under the lease. It is true that when he exercises the option the lessee obtains a new legal estate, but this is no more than implementation of a pre-existing contract. He acquires a new legal estate by virtue only of a right included in the lease whose title has been extinguished as against the trespasser. To ignore the legal source of the lessee’s entitlement to his new legal estate would be to exalt form (a new legal estate) over substance (a pre-existing right to the estate).”

35.Lord Nicholls then went on to consider whether the position was any different because of the Renewal Ordinance and considered that the Ordinance was essentially administrative machinery designed to facilitate and promote the existing rights and obligations under the then existing Crown leases.  He said at page 50F:

“The deemed new lease is to be regarded as having the like consequences in law as would have followed from an actual exercise of the renewal option and an actual grant of a new lease.”

36.Lord Nicholls then went on to consider the position under section 4(4)(c) of the Renewal Ordinance.  That new section now reads:

“4. Every new Government lease and the land thereby deemed to be demised shall be deemed to be subject to such of the following encumbrances and interests as the land and the existing Government lease relating thereto were subject to immediately before the 1st day of July 1973-

…….

(c) any other rights, easements, tenancies or other burdens or encumbrances of whatsoever kind or nature, except such as were created by an instrument and were not thereby expressed to continue after the 30th day of June 1973.

37.In respect of squatters who had not been in occupation for a sufficient period to be able to rely on the provisions of the Limitation Ordinance by the time that the administrative machinery set up by the Renewal Ordinance had taken effect in 1973, Lord Nicholls said (at page 51H-52E):

“Section 4(4)(c) has been much considered by the Hong Kong courts in connection with squatter cases. The view which has found most favour is that a squatter who had not been in adverse possession for 20 years by 30 June 1973 (a “post-1953 squatter”) does not have a “right” within the meaning of this subsection. A post-1953 squatter has no rights against the lessee at all. He is a trespasser, pure and simple, and can be ejected at any time.

Their Lordships would have considerable sympathy with this view if the legal position were that time would have run afresh from 1973 had there actually been a renewed Crown lease. If that were the legal position, no squatter however long in possession had a right which could survive the determination of the original lease. If that were so, there would bemuch force in this interpretation of the Ordinance. The context requires that rights in section 4(4)(c)should be given a wide and flexible meaning. So also does the language: “any … rights … or … burdens or encumbrances of whatsoever nature …” But this “carry forward” provision cannot have been intended to give a squatter, in respect of the deemed new lease, a right he would not have enjoyed in respect of an actual new lease.

As already explained, however, this is not the legal position. Thus this is not a correct starting point. The true position is that had a new lease actually been granted in 1973, a pre-1953 squatter could not thereafter have been ejected by the lessee in reliance on the new lease. This being so, their Lordships consider that such a squatter has a right within section 4(4)(c).

The position of a post-1953 squatter is not so obvious.  By 1973 he had not barred the title of the lessee to the original lease.  But to some extent the Limitation Ordinance had already started to operate in favour of a squatter on 30 June 1973.  Under the Limitation Ordinance the lessee’s right of action had deemed to accrue on the date when the squatter moved in.  Further, an actual new lease granted pursuant to the right of renewal would not have affected this.  Their Lordships incline to the view that these potential benefits can be regarded as a right within paragraph (c).”

38.Turning to the present case, it would appear that, first of all, the reality of the situation is that the original lease granted to the plaintiffs was a lease for 99 years. It is not in dispute that it was expressed to be in two sections, the first being for 75 years and the second would take the lease up to the end of the 99-year period.  The plaintiffs had a specifically enforceable right to carry through to the end of the second period.  As was said by Lord Nicholls in the Privy Council, if one were to regard the matter as there being 2 leases, the first for a 75-year period and the second for a 24-year period, that would be elevating form over substance.

39.Another way of considering the matter would be that if the matter had to be looked at on the basis that the lessee of Government land is entitled to the protection of section 7 after 60 years encroachment onto adjacent Government land, just as an adverse possessor, so an encroacher acquires inchoate rights.  Whereas the adverse possessor acquires those rights against the lessee, the encroacher acquires those inchoate rights against his landlord, the Government.  In view of the fact that the lessee has a specifically enforceable right against the Government to require the grant of the further lease of 24 years, those inchoate rights, which the lessee has built up, would be acquired in respect of the right under the original lease to have a renewal of that.

40.On either basis the plaintiffs would be entitled to rely on the period after 1973 as well as before 1973 in calculating the 60-year period of encroachment.

41.The case, it seems to me, can be put very simply.  As referred to above, absent any tacit or implied consent by the lessor, the law of encroachment treats the encroacher as a squatter until the period of limitation expires.  Once the limitation period has expired, the landlord is treated as barred from bringing proceedings because of section 7 of the Ordinance, but can still claim the reversion.

42.On the respondent’s notice the Government sought to raise the question as to whether, on the basis that it should be presumed that the plaintiffs’ encroachment should prior to 1997 be regarded in law as having had the result that the discrepant area should be treated as part of the leased premises, the same situation would prevail after 30 June 1997 or whether the effect of the Extension Ordinance was that the period following 30 June 1997 should be treated as being a new lease.  The argument was put on a number of bases.  In my view it is untenable in view of the decision of the Court of Final Appeal in the case of Chan Tin Shi and others vLi Tin Sung and others (2006) 9 HKCFAR 29.  The basis of the argument that had succeeded in the Court of Appeal, namely, that there was a new grant was held to be inapplicable in the Court of Final Appeal.  The Court of Final Appeal made it quite clear that the Extension Ordinance provided the original lease was simply extended, the lease after 30 June 1997 was the same lease as that before 1 July 1997.  The Ordinance provided that there was a continuation of the existing state of affairs and not the creation of a new one.  In those circumstances the argument sought to be raised on the respondent’s notice cannot succeed, it was the argument that succeeded in the Court of Appeal and the losing argument in the Court of Final Appeal.  The references that are found in the Court of Final Appeal judgments to the anomaly that existed because a lessee would be deprived of his right to possession by an adverse possessor but still be liable for Government rent were references to observations that were made by this Court and in respect of which the Court of Final Appeal was unable to find a satisfactory solution.  The core of the dispute on that occasion was, however, as to whether there had been a new grant.

The broader consideration relating to the occupation of the discrepant area

43.Although the basis upon which the matter was argued initially was that if the plaintiffs had established occupation and use of the discrepant area for a period of 60 years they would be entitled to possession of that as part of the premises leased until 2047, at the adjourned hearing the question as to the broader consideration was raised.

44.In the present case, albeit acknowledging that the judge below rejected the case which had been put on the basis of estoppel, in part because any investments which the plaintiffs and their predecessors had made had been fully compensated by the period of occupation, I consider that the plaintiffs are entitled to rely upon the broader principles of encroachment.  The inaction by the Government in failing to ascertain the extent of the occupation of the plaintiffs and their predecessors from the time when the fishponds were built and allowing that situation to continue for 70 years demonstrates that the use of the discrepant area can have been of little or no concern to the Government during that period.  The Government’s inaction after it became fully aware that the fishponds were situated on unleased Government land demonstrates that the Government was content to let that situation continue.  That, in my view, constitutes an acceptance by the Government of what had been the existing state of affairs for a very long time.  That acceptance is confirmed, if anything, by the continued inaction even after the leased premises and the discrepant area ceased to be used as fishponds.  It may not amount to estoppel but, adopting the phraseology of Lord Denning in Perrot (J.F.) & Co. Ltd v Cohen at page 710, it is something akin to estoppel; in that regard see also Lord Campbell CJ in Andrews v Hailes at page 353; Charles J in Tabor v Godfrey expressed it at page 247 as being upon the basis that although the lease excluded the encroached area, it was an inference which the court drew from the way in which the landlord had permitted the tenant to occupy the land; Lord Russell CJ in Lord Hastings v Saddler (1898) 79 LTR 355 at page 356 approved of what Charles J had said and said it was a conclusion to be come to as being suggested by all the circumstances of the case.  Although Pennycuick V.-C. in the Smirk case pointed out that something was wrong with the report of the Lord Hastings case, I consider that what Lord Russell had said was sufficiently accurately reported as regards this aspect.

45.In the present case no doubt given the type of locality, the Government had not been disposed to make any use whatever of the area to the north of the Lot for 50 years or more from the date of the original lease.  Whilst the judge held that the Government was unaware of the encroachment until the 1980s, it is clear that the Government was not unaware of the existence of the fishponds probably from the time when they were built. In 1960 the Government made no attempt to rent out the discrepant area when it leased the land at the apex of the confluence of the 2 rivers namely Lot 1347.  Finally, in the 1980’s, when the Government unequivocally became aware that the fishponds were on unleased Government land, no objection to the plaintiffs’ occupation of the discrepant land was raised.  The only reasonable inference is that there was a tacit consensual arrangement between the parties, namely that it has been accepted that the discrepant area was occupied and used as part of the leased premises, namely, Lot 1212.  Indeed, in their pleadings, the Government rely upon the absence of any objection by the plaintiffs to the building of the access road as a ground for suggesting that it was accepted by the plaintiffs that they had no rights in respect thereof.  It was, if anything, an acknowledgement by the Government that the plaintiffs and their predecessors were occupying and evidently had occupied the discrepant area for upwards of 70 years.  Moreover, as Mr Chain pointed out at the adjourned hearing, the building of a road was of undoubted assistance to the plaintiffs who could then use the road for access.

46.Mr Mok also drew attention to paragraph 216 of the judgment and the finding of the judge that the various plans submitted by and on behalf of the plaintiffs over the years showed the boundary of the land according to the lease and excluded the discrepant areas.  That may be true, but it does not preclude the fact that the plaintiffs have always occupied the discrepant areas as part of the leased premises and the Government never objected right up until the commencement of these proceedings in 2000.

47.What is clear is that both parties considered that the discrepant area was part of Government land but that did not affect any rights which had accrued to the plaintiffs in respect of their occupation. Conversely, it can be added, that it also bound the plaintiffs who were bound to treat the discrepant area as part of the leased Lot 1212 in all respects.

Hon Le Pichon JA:

48.I agree with the judgments of Rogers VP and Kwan JA.

Hon Kwan JA:

49.I agree with the judgment of the Vice-President and would like to add a few remarks.

50.The principal issue in this appeal is the legal effect on the encroachment by a tenant of other land of the landlord not included in the demise upon the renewal of the lease pursuant to an option to renew contained in the old lease.  Apart from the first instance decision of Tam Mo Yin v. Attorney General [1996] 1 HKC 379, there would appear to be no reported decision on this issue.

51.Mr Mok relied on Tam Mo Yin, which applied the decision of the Court of Appeal in Lai Moon Hung v. Lam Island Development Co. Ltd. [1994] 2 HKC 11. Following that decision, Yam J held that the renewal took the form of a new Crown lease, that the person claiming adverse possession could not aggregate adverse possession before and after 1 July 1973, and that a possessory title in the course of being acquired was not an encumbrance or right within section 4(4)(c) of the Renewal Ordinance. Whatever right the Government lessee might have in encroaching on Government land had terminated with the old lease on 30 June 1973 and on 1 July 1973 the required period of 60 years would start to run again. The judge found the situation in that case “quite inequitable”, but the decision of the Court of Appeal in Lam Island was binding on him.

52.The Privy Council in Lam Island overturned the decision of the Court of Appeal. Mr Mok sought to persuade us that the Privy Council decision on the inchoate rights of an adverse possessor where a new lease is granted pursuant to an option to renew in the old lease should have no impact on the inchoate rights of an encroacher in the same situation. It was argued that under the law of encroachment, the tenant’s interest over the encroached land is coterminous with his lease so whatever rights the tenant acquired over the encroached land would end at the expiration of his tenancy. Hence the inchoate rights accrued by encroachment up to 30 June 1973 were not continued.

53.I find it difficult to accept this argument. If this were correct, it should make no difference whether the rights accrued by encroachment were inchoate or matured when a new lease is granted pursuant to the option of renewal, as no matter how long the period of encroachment had been, the rights would terminate with the old lease. However, that was not the legal position found by the judge in paragraph 203 of the judgment.  The judge held that if the rights had matured before the expiry of the old lease, the encroached land would have been held as leasehold interest on the same terms as the lease of the Lot and those terms would include the option to renew which was exercised by the Renewal Ordinance.

54.Thus, where the encroachment right had matured, the new lease granted would not have affected the pre-existing right of renewal under the old lease, which precludes the landlord from ejecting the lessee. I fail to see why the grant of a new lease should affect such a pre-existing right in the situation where the potential benefits of encroachment right were inchoate, not having yet matured. I am not persuaded the inchoate rights of an encroacher should be treated differently from the inchoate rights of an adverse possessor.

55.I am fortified in this view by the decision of the English Court of Appeal in Tower Hamlets LBG v. Barrett [2006] 1 P&CR 132. The tenants in that case encroached on third party land adjoining the leased property and the rebuttable presumption that possessory title of the adjoining land encroached on by a tenant is acquired by the landlord (and deemed to be included in the tenancy) applied. The landlord and tenant thereafter agreed a sale of the freehold of the leased property. It was held where the adjoining land remains included in the tenancy, and the landlord and tenant thereafter agree a sale of the reversion or the grant of a new tenancy, there is a presumption that the sale or new tenancy should extend to the adjoining land. This was regarded as a logical and fair extension of the doctrine where circumstances give rise to a presumption that possessory title to adjoining land encroached on by a tenant is acquired by the landlord and deemed to be included in the tenancy, one is entitled to take account of subsequent acts to see whether the presumption applies or is rebutted (at paras. 108 to 112).

56.The encroachment in the present case is not third party land but other land of the landlord not included in the demise. In this situation, where a new lease is granted pursuant to a right of renewal, I see no reason why subsequent acts should not be taken into account to see whether the presumption that the tenant occupied the encroached land as part of the leased premises would still apply or be rebutted, as in the case of encroachment on third party land.

Hon Rogers VP:

57.The appeal will, therefore, be allowed.  The order below will be set aside.  There shall be orders in the following terms:

I. By virtue of the encroachment of the Discrepant Areas of Sections A and E of Lot 1212 in D.D. 115 by Wing Wa Tong trustee Lam Wun Chun, the predecessor-in-title of the 1^st plaintiff, it is declared that:

(1) the said Discrepant Areas became an accretion to the land (comprising the remainder of Sections A and E) leased by the Government to the 1^st plaintiff’s predecessor-in-title;

(2) the 1^st plaintiff is entitled to possession of the said Discrepant Areas as well as the remainder of Sections A and E until the expiry of the term of the Lot on 30 June 2047;

(3) the said Discrepant Areas are entitled to the same treatment as the remainder of Sections A and E in so far as any extension of the term of the Lot that may occur in the run-up to 30 June 2047 is concerned.

II. By virtue of the encroachment of the Discrepant Area of Section D of Lot 1212 in D.D. 115 by Wing Wa Tong trustee Lam Wun Chun, a predecessor-in-title of the 11^th to 15^th plaintiffs, it is declared that:

(1) the said Discrepant Area became an accretion to the land (comprising the remainder of Section D) leased by the Government to the predecessor-in-title of the 11^th to 15^th plaintiffs;

(2) the 11^th to 15^th plaintiffs are entitled to possession of the said Discrepant Area as well as the remainder of Section D until the expiry of the term of the Lot on 30 June 2047;

(3) the said Discrepant Area is entitled to the same treatment as the remainder of Section D insofar as any extension of the term of the Lot that may occur in the run-up to 30 June 2047 is concerned.

58.The court will hear the parties as to costs but with the indication that in the absence of any argument as to costs, it would be disposed to make an order that the defendant do pay the 1^st, 11^th, 12^th, 13^th, 14^th and 15^th plaintiffs their costs here and 80% of the costs below to be taxed if not agreed.

Mr Benjamin Chain, instructed by Messrs Y.S. Lau & Partners, for the 1^st, 11^th to 15^th Plaintiffs/Appellants

Mr George Chu, instructed by Messrs Leung Kin & Co., for the 2^nd to 10^th Plaintiffs/Respondents on 14 December 2010

Mr Mok Yuek Chi and Mr Anthony Chan, instructed by Department of Justice, for the Defendant/Respondent

Appeal by the Defendant to Court of Final Appeal dismissed. Please refer to FACV5/2011 dated 8 December 2011