The illegality defence under Hong Kong law clarified by Hong Kong Court of Appeal

Key takeaways

In a recent decision aligning the illegality defence under Hong Kong and English law, the Hong Kong Court of Appeal (“HKCA”) has followed the UK Supreme Court (“UKSC”) decision in Patel v Mirza [2016] UKSC 42: Monat Investment Limited v All persons in occupation [2023] HKCA 479.

Under Patel, in deciding whether to deny a plaintiff’s claim involving an illegal act, the Court will consider three factors directed at determining whether it would be harmful to the integrity of the legal system to allow the claim:

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.

Background

The case concerned a dispute between the owner and the occupier of a piece of land. The occupier and his family had occupied the land for a long time and had built a brick house on it. The owner sued to recover possession of the land. The occupier claimed he had acquired title to the land by adverse possession. The trial judge found for the occupier. 

An issue on appeal was whether the occupier’s claim for adverse possession was barred by the illegality defence. The owner argued that the occupier’s erection of a brick house on the land breached: (a) the agricultural user clause in the government lease; and (b) a requirement in the Building Ordinance requiring approval and consent of the Building Authority before commencement of building works.

Court’s judgment

The HKCA reviewed the two different approaches on illegality:

1. the “reliance approach”, which bars the plaintiff’s claim where they have to rely directly on unlawful conduct to succeed, as applied in the House of Lords case of Tinsley v Milligan [1993] UKHL 3. 
2. the “range of factors approach”, which is summarised above, and was adopted by the UK Supreme Court in Patel, overruling Tinsley.

The HKCA considered that, in light of Patel, and absent any Hong Kong Court of Final Appeal decision on the point, “it would only be logical that Patel is followed in the absence of any local circumstances that render it inappropriate”.

On the facts, the HKCA held that the occupier’s adverse possession claim was not barred by the illegality defence:

1. breaching the agricultural user clause in the government lease did not engage the illegality defence because it was not a criminal or quasi-criminal act;
2. breaching the requirement under the Buildings Ordinance did not bar the claim including because the underlying purpose of this requirement was to ensure public safety in the construction of buildings, rather than to penalise squatters.