Adverse possession: the effect of being added as a party after expiry of the limitation period to proceedings begun within the limitation period

In Yu Fung Co Ltd v Olympic City Properties Ltd ([2015] HKEC 1523, CFI) L was party to a ‘Redevelopment Agreement’ with Full Country Development Limited (‘Full Country’). Under the terms of the agreement, and subsequent sale and purchase agreements, L assigned his flat to Full Country in return for a new flat once a redevelopment scheme had been completed. L moved into the new flat in June 1997 but title to the flat was never assigned to him. Around the same time, June 1997, Full Country assigned the title to a third party. Title ultimately came into the hands of Olympic. Olympic borrowed from Yu Fung and Yu Fung had a charge over the flat. Olympic defaulted and Yu Fung brought possession proceedings. L argued that the sale and purchase agreement gave him an equitable title to the property and he was joined as a party to the proceedings.

The claim to an equitable interest in the flat as a result of the sale and purchase agreement failed: the agreement did not specify the flat (or quantify L’s undivided share in the development) ([33] – [34] per Deputy Judge Simon Leung).

L also relied on adverse possession. Possession had originally been with Full Country’s consent and so not adverse. This changed, however, when Full Country assigned the title to the flat. There was no evidence to show that the new owners had consented to L’s possession: the limitation period, therefore, began to run around June 1997. The fact that L believed that he was entitled to be in possession under the terms of the agreement did not stop the limitation period from running if possession and intention to possess were present ([71]). Time begins to run once a purchaser goes into possession pursuant to a sale with the intention of excluding the whole world including the vendor ([72]).

The question was whether the limitation period had expired. Proceedings against Olympic were brought in June 2008. Lai was joined as a party a month later, in July 2008. The claim against Lai was first made in a Notice and affidavit in October 2011. If the relevant proceedings were brought against Lai in June / July 2008, the limitation period would not have expired. If October 2011 was the relevant date then the limitation period had expired by then (twelve years from June 1997). Deputy Judge Simon Leung pointed to section 35(1)(b) of the Limitation Ordinance: new claims (other than third party proceedings) are deemed to have been commenced on the same date as the original action. The addition of a new party is a ‘new claim’ (Limitation Ordinance, s. 35(2)(a)). Thus, the limitation defence failed and Yu Fung was entitled to possession. L should have applied to strike out the 2011 Notice and affidavit on the grounds that they were an abuse of process ([84]). This application would, it seems, rely on section 35(3) of the Limitation Ordinance which prohibits new claims after the expiry of the time limit which would affect a new action to enforce that claim.

Michael Lower

Advertisement

Common intention constructive trust arising on a family division

In Yip Chiu Fu v Ip Chiu Fat ([2015] HKEC 201, CFI) a family comprising three fongs owned a house in Shek O (‘the first house’). The family funds, beneficially owned by the entire family, were then used to buy another house in the village (‘the second house’) and a common intention was to be inferred from the source of the funds that the second house was held on trust for the entire family. There was a family division in the second world war. The first house was allocated to the first fong; the ground floor of the second house was allocated to the second fong and the first floor of the second house was allocated to the third fong. Legal title to the first house was now with representatives of the first fong. Legal title to the second house had been kept exclusively within the third fong.

Louis Chan J found that this family division gave rise to a common intention constructive trust that gave each fong beneficial ownership of the physical accommodation allocated to it ([223]). The detriment was the giving up by each fong of its claim to the area allocated to the other fongs ([224]).

Legal title to the second house passed from one generation to the next of the third fong with full knowledge of the beneficial entitlements so that they were not bona fide purchasers without notice ([226]). When the second fong complained, they were told that one of their representatives would be added to the legal title. This never happened but this failure had to be viewed against the background of the assurance of the third fong’s representative that the second fong’s rights would always be respected.

The second fong’s representative now sought a declaration that the third fong’s representatives held the ground floor of the second house on trust for them and that they had an exclusive right to the use and possession of it. She also sought an order vesting title to the property in her (as personal representative of the original head of the second fong). She obtained the orders that she sought.

The third fong argued that the claim was time-barred because of the failure to insist on compliance with the promise to include a representative of the second fong on the title deeds. This failed because this was not wrongful ([236]). In any event, s. 20(1)(b) of the Limitation Ordinance applies to constructive trustees and there is no period of limitation to recover trust property from a trustee ([239]).

Even assuming the failure to honour the promise as to the title to the second house to be wrongful, mere standing by after the breach had been completed could not amount to acquiescence ([243])

Michael Lower

Trusts and the Limitation Ordinance

In Liu Wai Keung v Liu Wai Man ([2014] HKEC 2065, CA) title to a flat was in the name of a sister who held it on common intention constructive trust for her brother. The brother and his family were living in the property. He had made two demands for her to transfer title to him (in 1998/99 and in 2004/5) and these had not been complied with. The sister now sought to rely on section 20(2) of the Limitation Ordinance to defeat her brother’s claim. This failed, since the action fell within section 20(1)(b) of the Limitation Ordinance. It was an action ‘to recover from the trustee trust property or the proceeds thereof in the possession of the trustee’. The sister argued that ‘possession’ meant actual possession and that her brother was in possession. Kwan JA (giving the reasons for judgment of the court) explained that the trustee remained in possession ‘if the trustee has the power of control over the property and is in a position to obtain possession of it’. This was true in the present case because of the sister’s legal title ([21]). The sister’s legal title could not be said to be adverse to her brother’s beneficial interest but was entirely consistent with it ([26]). Lord Sumption JSC explained the underlying policy in Williams v Central Bank of Nigeria ([2014] AC 1189): trustees still in possession of the trust asset (here the legal title) should not be allowed to use the Limitation Ordinance to defeat the beneficiary’s claim and keep the trust property for themselves. This reasoning only applied to those who have assumed the responsibilities of a trustee, expressly or de facto. It did not apply to those ‘under a purely ancillary liability’ since their dealings with the assets were at all times adverse to those of the beneficiary.

Michael Lower

 

Article 122 of the Basic Law and inter vivos gift of land

In Secretary for Justice v Chung Kam Ho ([2013] HKEC 1667, CFI) a father assigned land to his son. Both father and son were indigenous villagers of the New Territories. The Government brought an action against the son to recover arrears of Government rent. The son relied on articles 40 and 122 of the Basic Law and contended that he was not liable to pay this rent. The court decided for the Government on the basis that it was bound by the decision of the Court of Appeal in Lai Hay On v Commissioner of Rating and Valuation and Director of Lands. That case had decided that succession (for the purposes of article 122) took place only on death and not as a result of an inter vivos gift.

Nor was the action time-barred by virtue of the Limitation Ordinance. The relevant provision is section 4(1)(d) of the Ordinance. The cause of action accrues when the demand note is issued ([24]).

The son’s contention that the matter raised a question of the interpretation of the Basic Law and that an interpretation by the NPCSC was needed was rejected. It amounted to a misreading of the second paragraph of article 158 of the Basic Law.

MichaelLower

Unregistered legal charge: void but still an encumbrance

In Siu Wing Yee Angeline v Earning Yield Ltd ([2013] HKEC 868, CFI) S had agreed to sell property to P. Both parties wanted to proceed. The question was, though, whether S’s title was subject to an encumbrance. S had been a shareholder and director of company H. She had granted a charge to company N, a fellow shareholder in H. H was struck off the register. N was later also struck off the register. There had been no release of the charge granted by S to N.

The District Court had ordered the vacation of the entry relating to the legal charge at the Land Registry so that the charge was now unregistered and so void, as between N and a later bona fide purchaser or mortgagee (Land Registration Ordinance s.3(2)). The shareholders of N had sworn statutory declarations purporting to acknowledge that any action to recover debts due to N from S would be time-barred, The statutory declarations stated that they had no intention of enforcing the charge and had no objection to the entry relating to it from being vacated from the Land Registry.

The Court held, nevertheless, that S’s title was bad. The court order dealt with registration but the legal estate remained in existence. The effect of the order was not (and could not be) to bring the legal estate to an end.  There was no evidence to show when the debts secured by the mortgage would fall due and so the Limitation Ordinance could not help. Although the charge could not be enforced against a subsequent purchaser or mortgagee, it was still in existence. Section 12A of the Conveyancing and Property Ordinance could, potentially, have been of use but there was no information to show what the appropriate payment into court would be.

The risk of enforcement may be low but this is irrelevant when the title is indisputably bad. S had agreed to sell the property free from encumbrances but could not do so.

Ousted tenants in common need to seek remedy promptly

In Ma Weineng v Ma Hook Kwan ([2013] HKEC 788, CFI) A and B were joint tenants and then (from 2007) tenants in common in equal shares of property. A and then A’s successor in title had been in exclusive possession since 1987 (both personally in possession and by retaining the entire rent derived from lettings of parts of the property). A’s successor was granted a declaration that B was now prevented by the Limitation Ordinance from bringing any action against A’s successor arising from his share in the property. A and A’s successor’s long ouster of B meant that B had lost his half share in the property. B’s title was extinguished.

Michael Lower