Should Adverse Possession Claim Involving Illegal Act be Allowed in Hong Kong?

Other Authors     Florence Li, Trainee Solicitor (Real Estate)

Summary

This Legal Update outlines a recent Hong Kong Court of Appeal (HKCA) decision regarding the maxim ex turpi causa non oritur action – the illegality doctrine, meaning no action arises from a disgraceful act – and how it should be applied in adverse possession claim.

It is of particular relevance to real estate developers and investors facing squatter issues when acquiring agricultural land and aged buildings.

The HKCA held that the ‘range of factors’ approach adopted by the UK Supreme Court under Patel v. Mirza (2016) – as opposed to the ‘reliance’ test under the English trusts law case of Tinsley v. Milligan (1993) – shall be adopted in determining whether an adverse possession claim involving an illegal act should be allowed.

Prior to Patel, Tinsley was regarded as establishing a general rule that a person shall not be granted a remedy where he has to rely directly on unlawful conduct to succeed.

The HKCA’s decision now clarifies the Hong Kong position post-Patel, and represents the latest authority on the law on the illegality defence in Hong Kong – unless and until otherwise decided by the Hong Kong Court of Final Appeal (HKCFA).

Background

In Monat Investment Ltd v. All Person(s) in Occupation of Part of The Remaining Portion of Lot No. 591 in Mui Wo D.D. 4 No.16 Ma Po Tsuen, Mui Wo, Lantau Island & Anor [2023] HKCA 479, the squatter and his family built a brick house on the land and occupied it for several decades.

When the owner sued to recover possession of the land, the squatter claimed title to it by adverse possession. The Court of First Instance found in favour of the squatter.

One of the arguments on appeal was that the judge was wrong to find that the maxim ex turpi causa – the illegality defence, meaning a person will not be able to pursue a cause of action if it arises from his own illegal act – did not apply to the adverse possession claim.

The squatter should not be allowed to rely on illegal conduct to establish a claim – including erection of a brick house on land which is in breach of (a) the agricultural user under the Government lease and (b) the Building Ordinance (BO) whereby approval and consent of the Building Authority before commencement of building works are required.[1]

Decision

(a)     Does the Maxim of Ex Turpi Causa Apply to the Law of Adverse Possession?

Ex turpi causa can apply to adverse possession claims, depending on the alleged breach of statutory provision.

The HKCA held that it was too sweeping for the Court of First Instance to rule that ex turpi causa does not apply in adverse possession cases, whatever the statutory provision which may have been transgressed. Ex turpi causa does not apply to the alleged breach of user under Government lease, because there is no criminal act, quasi criminal act or non-criminal act which engaged the public interest involved.

But adverse possession can involve breaches of different statutory provisions (such as breach of BO in this case), such that the first consideration under the ‘range of factors’ approach (see (b) below) will affect the analysis differently, depending on the alleged breach.[2]

(b)     If the Maxim Ex Turpi Causa Applied, Which Approach Should Be Adopted?

Applying the precedent doctrine of stare decisis, the UK Supreme Court’s decision in Patel should be followed in absence of any local circumstances that render it inappropriate. Adherence to an old rule, while remaining in abeyance for the HKCFA to decide on this point, would “lead to a disconnect with other common law jurisdictions, and misunderstanding or confusion of parties”.[3]

Adopting Patel, the essential rationale of the illegality doctrine is that it would be contrary to the public interest to enforce a claim if to do so would be harmful to the integrity of the legal system.

In determining whether it would be harmful to the integrity of the legal system, the Court should consider:

1. the underlying purpose of the prohibition which has been transgressed;
2. conversely, any other relevant public policies which may be rendered ineffective or less effective by denial of the claim; and
3. the possibility of overkill unless the law is applied with a due sense of proportionality.

(c)     On the Facts, Did the Maxim Apply?

The maxim did not apply.

1. The purpose of s.14 BO is to ensure public safety in the construction of buildings by ensuring that plans are submitted and approved before commencement of building works;
2. The public policy considerations in the law of adverse possession include putting idling land to good use and discouraging expired claims, and they are important so as to allow the illegality in trespass to override the property right of the registered owner; and
3. In light of the first two considerations, it is proportional to hold in favour of the squatter.[4]

Implications

This case concerning the illegality defence in the adverse possession context is relevant to real estate developers and investors interested in acquiring agricultural land in the New Territories and aged buildings in urban areas – who often face issue of squatters occupying premises in illegal structures with potential adverse potential claims.

The HKCA’s decision represents a forthcoming alignment of Hong Kong law and English law on the illegality defence. As the law now stands, Patel is considered good law in Hong Kong, subject to any future decision to the contrary by the HKCFA.

Moving forward, Hong Kong courts may start to adopt the ‘range of factors’ approach in adverse possession cases by taking into consideration (a) the underlying purpose of the statutory provision the squatter has allegedly breached, and (b) public policy considerations of adverse possession regarding underlying purpose – and attempting to strike a proportional balance between the two.

Given the decision of HKCA, it would probably be difficult to defend an adverse possession claim by invoking illegality defence solely relying on breach of user and unauthorised building works.

It would therefore be important to ensure resolving any squatter issue of adverse possession before completing the acquisition.