Introduction

It is well established law that a squatter can acquire possessory title over private land/property under the Limitation Ordinance (Cap. 347) if he or she is in adverse possession of the private land/property for the requisite period ¹, which will dispossess and extinguish the registered owner’s title over the private land/property.  Whilst these adverse possession claims will perspicuously not be precluded by their inherent illegality, i.e. the squatters had to commit the tort of trespass to occupy the private land/property, it is rather obscure whether adverse possession claims which are hinged upon other illegal acts of the squatters, such as breaches of user clauses in the Government Lease or non-compliance with statutory provisions, will be tainted by illegality.

In Monat Investment Limited v Lau Chi Kan Kenith & Ors [2023] HKCA 479, the Hong Kong Court of Appeal (“CA”) delivered unanimous judgment which revisited the illegality defence in the context of adverse possession and aligned the position in Hong Kong with that of the UK Supreme Court by following Patel v Mirza [2016] UKSC 42 and disapplying Tinsley v Milligan [1993] UKHL 3.  Having considered the relevant facts and legal issues, the CA upheld the ruling of the Court of First Instance (“CFI”) in favour of the squatter, Lau Chi Kan Kenith (“Lau”) against the registered owner, Monat Investment Limited (“Monat”).

This article will examine the two judgments in CFI and CA as well as exploring the potential implications arising therefrom in adverse possession cases.

Factual background

Monat instituted legal proceedings in 2015 to recover possession of a lot in Mui Wo, Lantau Island (“Lot”).  Monat has been the registered owner of the Lot since 11 July 1987.  Lau joined as a defendant contending that the Lot formed part of a larger piece of land consisting of a small hut and a pathed area (“Disputed Land”) which he already acquired through adverse possession, claiming that it was a gift from his deceased father through occupation by family members including his parents and siblings at different points in time.  None of them were parties to the proceedings and showed any interest in the Lot, save that Lau’s elder sister provided a written confirmation in support of Lau’s counterclaim against Monat.

CFI judgment

Deputy High Court Judge Anthony To (as he then was) allowed Lau’s counterclaim for a declaration that Monat’s title of the Lot was defeated by adverse possession of the Disputed Land and accordingly dismissed Monat’s claim in its entirety.

On the facts, the judge had no difficulty in finding that Lau has shown both factual possession and animus possidendi (intention to possess) of the Disputed Land.  Odd enough, Lau’s counterclaim for adverse possession was in fact fundamentally flawed.  Firstly, Lau’s original pleaded case of the Disputed Land being gifted to him from his father was wholly rejected by the Court as it did not sit well with the express conduct of Lau’s father and was also contradicted by contemporaneous documents.  Secondly, Lau was considered not a trustworthy witness as his testimony was found to be unreliable with elements of fabrication and exaggeration.  It was on a different set of facts that the Court found in favour of Lau.  The Judge held that Lau’s father came into possession and control of the wooden hut since at least 1975 until his demise in 1980, then Lau’s mother adversely possessed the wooden hut from 1980 and the paved area from 1996 until her demise in 1999, and lastly Lau and his elder sister took over possession and control of Disputed Land from 1999 to 2015, having paid the utility bills and in control of the hut by using his own lock to lock up the hut.  This was a straightforward conclusion by the Court, as it is trite law that a successive squatter can add the preceding squatter’s period of possession in computing the requisite period for adverse possession.

However, Lau’s counterclaim for adverse possession was complicated by elements of illegality.  Not only is adverse possession an illegal conduct as it constitutes the tort of trespass, but the usage and erection of the small hut also amounted to a breach of the agricultural user clause in the government lease as well as section 14 of the Buildings Ordinance (Cap.123) (“BO”).  The question is therefore: will such claim be tainted by illegality due to the maxim of ex turpi causa non oritur actio - namely, no action arises from a disgraceful cause (i.e. illegal act)?

As a starting point, the Judge accepted that the case law was not settled on whether the illegality defence would bar a claim in the context of adverse possession.  He compared the two different approaches historically applied by the English Courts to deal with the issue of illegality, namely the “reliance approach” expounded in the House of Lords’ decision of Tinsley and the “range of factors approach” (referred to by others as the “factors-based approach”, “multi-factorial approach” or “proportionality approach”) laid down in the Supreme Court’s decision in Patel in the UK.  Under the former approach, a right of action cannot succeed if a claimant has to rely directly on an act of illegality, whilst under the latter approach, the Court will determine whether it would harm the integrity of the legal system in allowing a right of action to succeed by considering a trio of factors including the underlying purpose of the prohibition, effectiveness of public policies by dismissal of the claim and the possibility of overkill by applying the law disproportionately.  It is worth mentioning that Patel has overruled Tinsley such that the “range of factors approach” represents the current UK position on the applicability of ex turpi causa.  The Judge then considered local case authorities, including Choy Kuen Chi v Tat Fung Enterprises Company Limited (unreported, HCA 915/2011, 20 July 2015) where the Court held in favour of a squatter despite breaches of the BO by effectively adopting the “range of factors approach” in the context of adverse possession, though no reference was expressly made to Patel.

Having analysed the authorities, the Judge held that ex turpi causa does not apply to cases of adverse possession and thus it is irrelevant to consider the two approaches in Tinsley and Patel.  The rationale behind is that the law on adverse possession is a separate regime based upon overriding policy considerations such as discouraging stale claims, avoiding land becoming useless, facilitating conveyancing in unregistered lands, etc.  To debar adverse possession on the basis of illegality will defeat the whole purpose of the doctrine and render any such claim impossible in future.  As regards illegality arising from the manner of possession such as breaches of statutory provisions, the Judge held in line with Choy Kuen Chi that the Court should in such cases balance public interest and public policy considerations to consider whether an adverse possession claim is tainted by illegality.  In the present case, as the relevant authorities have not taken enforcement action in relation to the breaches of the user clause and the BO, as in Choy Kuen Chi, the balance overwhelmingly tilts in favour of the squatter to protect his interest in the Disputed Land.

CA judgment

Monat lodged an appeal to the CA, arguing, inter alia, that the Judge erred in holding that ex turpi causa has no application in cases of adverse possession, and that the Judge should have adopted the “range of factor approach” in Patel over the “reliance approach” in Tinsley.  The appeal focused on the illegality involved in establishing the manner of possession but not on the inherent illegal nature of adverse possession.

The CA upheld the Judge’s decision and dismissed the appeal. 

In the judgment delivered, the Honourable Madam Justice Maria Yuen dealt with the stand-alone issue of whether breaches of the user clause will lead to the application of ex turpi causa.  She corrected the Judge’s finding that the maxim cannot assist Monat as it is only applicable to criminal acts, quasi-criminal acts, non-criminal acts which engaged the public interest, and infringement of rules which were enacted for the protection of the public (Les Laboratoires Servier v Apotex Inc [2015] AC 430).  It was held that the breach resulting from Lau’s occupation of the small hut in the Disputed Land for residential purpose instead of agricultural purpose clearly does not fall into the above-mentioned categories, and thus the maxim is not applicable.

The remaining issue for the appellate Court to address was whether the contravention of section 14 of the BO, which constitutes a criminal offence pursuant to section 40(1AA) of the BO, will lead to the application of ex turpi causa.  In short, the CA held that ex turpi causa may in principle apply to adverse possession cases and took the opportunity to clarify the position in Hong Kong on the illegality defence.

Yuen JA disagreed with the Judge’s finding that ex turpi causa has no application to the law of adverse possession.  Such conclusion was too “wide” and “sweeping” because adverse possession claims may potentially be tarnished with breaches of various Ordinances, including the BO, Town Planning Ordinance (Cap. 131), Land Drainage Ordinance (Cap. 446), etc., all of which have different underlying purposes. 

As regards which of the two approaches relating to the applicability of ex turpi causa should be adopted in Hong Kong, the CA reached an unsurprising finding that “the range of factors approach” in Patel should be followed and thus the “reliance approach” in Tinsley is no longer good law. 

Yuen JA recalled the stare decisis principle as laid down in the Court of Final Appeal’s landmark decision in A Solicitor (24/07) v Law Society of Hong Kong [2008] 11 HKCFAR 117 that decisions of the House of Lords (and its successor, the UK Supreme Court) should be “treated with great respect” and has a “persuasive effect … [depending] on all relevant circumstances, including the nature of the issue and the similarity of any relevant statutory or constitutional provision.”  Applying the test in A Solicitor, it was held that Patel “should be followed in the absence of any local circumstances that render it inappropriate”.  

Yuen JA remarked that it defies logic to abide by an outdated common law rule in Tinsley and not to follow Patel only because there was not a case on the point which reached the Court of Final Appeal.  Hence, unless the Court of Final Appeal decides otherwise, Patel represents the current position in Hong Kong and the applicability of ex turpi causa in a case of adverse possession will rest on the “range of factors approach” in Patel on a case-by-case basis.

On the facts, the CA held that the Judge below was entitled to find in favour of Lau that ex turpi causa will not operate to debar the adverse possession claim due to contravention of section 14 of the BO.  This is because the underlying purpose of section 14 of the BO is to safeguard public safety by requiring building plans to be submitted and approved before erection of buildings, and also the BO as a whole is not meant to penalise squatters.

Subsequent to this judgment, the lower Courts have recognised that Patel should be applied instead of Tinsley (e.g. Pacific Ace Finance Limited v Gilda Delay and Rosalina Villasfer [2023] HKDC 611, §25) and it should not only apply to adverse possession claims but also to all contexts involving the application of ex turpi causa (Chow Kwun Chung v Leung Yi Sze & Ors [2023] HKDC 528, §§31-34).  The Court of Appeal has recently reached the same conclusion that Patel represents the current law in Hong Kong and held that its application to the change of position defence will now be open to review by the Court (The Yerrid Law Firm v Qiansbaizi Trading Limited & Ors [2023] HKCA 788, §31-32).

Conclusion

The judgment of the Court of Appeal in Monat Investment Limited clarifies the Hong Kong position on the applicability of ex turpi causa insofar as the defence of illegality is concerned.  The correct and up-to-date test is the “range of factors approach” in Patel which provides that a Court should consider the trio of necessary considerations before determining whether a claim is vitiated by illegality.

The judgment also illustrates the Court’s pragmatism in applying the stare decisis principle such that lower Courts are not bound to follow common law precedents in other jurisdictions which may have already been overridden in that jurisdiction.  It is welcoming to note that the Court is inclined to follow the latest developments in other common law jurisdictions so as to avoid the common law system in Hong Kong from being hindered by overruled decisions from those jurisdictions merely because the point in question has not reached the Court of Final Appeal (and even if it does, there will unavoidably be a long delay).

In the specific context of adverse possession, the appellate Court’s judgment in Monat Investment Limited does not only affirm the doctrine of adverse possession that such claim will not intrinsically be caught by illegality for the very fact that the act of possession amounts to trespass, but it also clarifies the position in Hong Kong that breaches of statutory provisions arising from the manner of possession will not be an automatic bar to an adverse possession claim.  Otherwise, it would have carried the ironic consequences of rendering the doctrine of adverse possession futile or “putting the cart before the horse” by allowing registered owners of private lands/properties to benefit under the doctrine even when the doctrine was established to protect the entitlements of the squatters.

This offered a degree of reassurance for squatters as it has become increasingly difficult to establish adverse possession due to the high threshold in proving factual possession and animus possidendi to the private land/property in question.  

Be that as it may, a potential claimant for adverse possession should keep abreast with the development of the law on adverse possession in Hong Kong, having regard to the fact that there have been discussions to repeal or modify the provisions on adverse possession following the prospective implementation of the title registration system. 

Andrew Lee, Li Chung Nam, Kathleen Wong, Nicole Hon

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

¹ 12 years for private land/property (or 20 years if the right of action accrued before 1 July 1991) and 60 years for Government land