26 July 2013
On 29 May 2013, the Court of Appeal delivered its judgment in the case Wong King Lim and The Incorporated Owners of Peony House (CACV 3/2012) dismissing an appeal lodged by the Incorporated Owners (IO) of Peony House from a judgment of the District Court which held that a strip of land forming part of the common areas of a multi-storey building has been adversely possessed by a squatter for over 12 years and that the IO ceased to have the right to recover possession of such common area.
Facts of the Case
The facts of the Wong King Lim case are summarised as follows:
- The strip of land in question is a scavenging lane (the "Lane") running the entire length of the back of Peony House and forms part of the common areas of Peony House.
- The squatter was found to have erected over a two-storey structure on part of the Lane since around 1987 and to have been operating a shop from that structure offering the services of plumber, electrician and locksmith. The squatter installed an iron door and an iron gate on either side of the entrance, thereby blocking off access to the Lane from the streets on both sides of Peony House.
- It is important to note that the squatter was not a co-owner of the building.
- In early 2008, the IO became aware that the Lane was situated within the boundary of the lot on which the building was erected.
- The squatter commenced legal proceedings in the District Court to claim adverse possession of the Lane.
- The defendant IO sought to recover possession of the Lane and argued that, even if the squatter has adversely possessed the Lane for over 20 years, the IO was still entitled to enforce its rights under the deed of mutual covenant (DMC) to evict the squatter (because the DMC specifically prohibits any owner from converting common areas for self use).
The District Court held that the squatter succeeded in his adverse possession claim. The IO appealed to the Court of Appeal.
IO's Arguments on Appeal
On appeal, the IO did not challenge the District Court's finding of adverse possession of the Lane. The IO's argument was that adverse possession was not a valid defence to an action started by an IO for an injunction. The IO relied on three judgments of the Court of Appeal to support its argument that, so long as the subject property form the common areas of a building, then there could not be adverse possession at all, irrespective of whether the squatter is a co-owner or a stranger to the DMC:
- Incorporated Owners of Man Hong Apartments v. Kwong Yuk Ching & Ors  3 HKC 116.
- Incorporated Owners of No.27A Chatham Road Kowloon v. Mr Lee or Unlawful Occupier (Lee Kai Kong) & Anor (CACV 2238/2001).
- The Incorporated Owners of Mountain View Mansion v. Heart Cuisine and Others  5 HKC 361.
Court of Appeal's Decision
The Court of Appeal unanimously dismissed the IO's appeal and confirmed the District Court's decision that the squatter was successful in its adverse possession claim of the Lane.
The Court of Appeal examined the above three cases and held that they are all irrelevant to the situation in which the squatter is not a co-owner of the building.
The principles established by the Court of Appeal in this case are as follows:
- If a squatter is a co-owner of a building, it is not possible for such squatter owner to have adverse possession of common parts of the building. This is because such squatter is already bound by the covenants under the DMC (including the restriction against conversion of common areas for the squatter). Accordingly, the IO of the building can take legal action to recover the relevant part of the common areas dispossessed by the squatter pursuant to the terms of the DMC even if the squatter has already adversely possessed such part of the common areas.
- However, if the squatter is a stranger (i.e., not a co-owner of the building), the squatter is not a party to the DMC and, accordingly, the squatter is not subject to the restrictions against conversion of common areas for its own use under the DMC. If the squatter has adversely possessed the relevant part of the common areas of the building for the sufficient period, then the IO cannot take legal action to recover the relevant part of the common areas dispossessed by the squatter.
There are two lines of authority on the adverse possession of common parts of a building:
- The first line of authority is that there cannot be adverse possession of the common areas of a building at all, irrespective of whether the squatter is a co-owner or a total stranger.
- The second line of authority is that there can be adverse possession of the common areas of a building if the squatter is not a co-owner of the building.
It remains to see whether the Court of Final Appeal would have an opportunity in future to clarify the position on whether a squatter who is not a co-owner of the building can adversely possess the common areas of a building.