SUM, SIMON, the administrator of the Estate of SUM TIN SANG alias TIN SANG SUM, deceased AND ANOTHER v. SUM AH KIU

HCA 2029/2020

[2025] HKCFI 4428

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2029 OF 2020

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JUDGMENT

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Introduction

1.  The parties are related and their dispute in this action is about the beneficial interest of a 3-storey village house known as No. 10B, Shui Wo Tsuen, Lam Tsuen, Tai Po, New Territories (“the House”) erected on Section B of Lot No.206 in Demarcation District 8, Tai Po (“the Lot”).

2.  Mr Simon Sum (“Simon”) and Mr Raymond Sum (“Raymond”) are brothers (“the Brothers”) and they are the sons of the late Mr Sum Tin Sang alias Tin Sang Sum (“the Deceased”). The Deceased passed away intestate on 7 July 2019. Simon is the administrator of the estate of the Deceased (“the Estate”) with the grant of letters of administration dated 10 September 2020.

3.  Mr Shum Ah Kiu (“the Uncle”) is the younger brother of the Deceased and is presently the sole registered owner of the House. The Brothers contend that Raymond is the beneficial owner of the ground floor and the second floor together with the roof of the House (“the Relevant Floors”) and the Uncle holds the same on trust for Raymond by reason of a common intention constructive trust (“CICT”) or alternatively a resulting trust. The Estate, represented by Simon, is a co-plaintiff to enforce the CICT.

4.  The Brothers ask for the following reliefs in their Amended Statement of Claim (“ASOC”):

(1)  A declaration that the Uncle holds the Relevant Floors of the House on trust for and on behalf of Raymond;

(2)  An injunction restraining the Uncle whether by himself, his servants or agents or otherwise howsoever from assigning to any person or otherwise disposing or dealing with the Relevant Floors of the House;

(3)  An order compelling the Uncle to convey without payment the title of the Relevant Floors of the House to Raymond, including the execution of a Deed of Mutual Covenant to divide the Lot into 3 shares with one share attached to each level of the House;

(4)  An order that the Uncle do give a full and proper account of all benefit derived from the use of the Relevant Floors of the House, either directly or indirectly, such account under affidavit/affirmation to be sworn/affirmed by the Uncle and in accordance with the accepted accounting practice in Hong Kong with all supporting documents;

(5)  An enquiry into the account to be provided by the Uncle at the election of the Brothers; and

(6)  Costs.

5.  The Uncle denies the existence of any trust in respect of the beneficial interest of the House and insisted that he is the sole beneficial owner.

Factual background

6.  The following background facts are not in dispute and are largely derived from the Agreed Statement of Facts and Agreed Chronology.

7.  Mr Sum Loi Yau (“Yau”), the Deceased and the Uncle are brothers and were entitled to the estate of their late father Mr Sham Man Chung. By a Succession to Property dated 3 June 1981 and registered in the Land Registry, three of them became the registered owners of Lot Nos.763, 207 and 206 in Demarcation District 8 as tenants-in-common in equal shares.

8.  On or about 27 August 1982, by Deeds of Gift, the Deceased and Yau transferred their shares of Lot 206B to the Uncle and the Uncle and Yau transferred their shares of Lot 206A and 207A to the Deceased. As a result of this family arrangement, the Deceased became the sole registered owner of Section A of the Lot and Section A of Lot 207 (“Section A Lots”) and the Uncle became the sole registered owner of the Lot.

9.  On 18 October 2011, a building licence was granted for the House (“the Building Licence”). The Deceased and the Uncle reached an agreement in respect of the House.

10.  On or about 16 December 2012, the Deceased signed a construction contract (“Construction Contract”) with The Best One Construction Limited (“Best One”) for the construction of the House.

11.  The Deceased paid Best One HK$1,368,000 as construction costs (“Construction Costs”) pursuant to the Construction Contract.

12.  On or about 25 November 2014, the Uncle executed a Power of Attorney to appoint the Deceased (“the PoA”) to manage the House, including its leasing matters and its sale. Before his passing, on the strength of the PoA, the Deceased collected rent for the House.

13.  The construction of the House was completed in May 2015 and the Certificate of Compliance was issued on or about 5 January 2016.

Plaintiffs’ pleaded case

14.  The pleaded case of the Brothers can be outlined as follows.

15.  In or around 2011, the Deceased and the Uncle entered into an oral agreement (“the Agreement”) which indicates the parties’ following common intention (“the Common Intention”):

(a)  A 3-storey village house would be built on the Lot pursuant to the small house policy (the “Small House Policy”);

(b)  The Deceased would be responsible for all the construction costs and supervise the construction as the Uncle did not have the financial means to build a house himself;

(c)  In consideration of the payment for the construction of the House by the Deceased, Raymond would have a beneficial interest in the Lot in that after the construction of the House, Raymond would become beneficial owners of the Relevant Floors and that a Deed of Mutual Covenants (“DMC”) would be executed to divide and allot the relevant shares of the House in the name of Raymond and the Uncle would have the beneficial interest of the First Floor of the House (“the First Floor”).

(d)  The Uncle would take steps to transfer the shares of the Relevant Floors to Raymond once the non-alienation clause of the Building License lapsed.

16.  The Common Intention was demonstrated by the conduct of the Deceased and the Uncle including the Deceased’s payment of the Construction Costs and the execution of the PoA.

17.  The Deceased collected rent from both the Relevant Floors and the First Floor. The Deceased used a separate account open with ICBC to keep exclusively the rent collected from the First Floor (“the ICBC Account”).

18.  The Uncle executed his will dated 25 November 2014 (“the First Will”) and appointed the Deceased as the executor. By the First Will, the Uncle devised the Relevant Floors to Raymond for his use and benefits absolutely.

19.  By reason of the Common Intention, there is a CICT whereby the Uncle holds 2/3 of the interest of the House/Lot on trust of Raymond and hence the Uncle is liable to assign to Raymond the legal title of the Relevant Floors.

20.  Alternatively, the Plaintiffs aver that by reason of the Deceased’s payment of the Construction Costs, the Uncle holds the Relevant Floors on resulting trust for the Deceased.

21.  Since the demise of the Deceased, the Uncle has consistently refused to accept the CICT and claimed himself to be the sole beneficial owner of the House.

The Uncle’s defence

22.  The primary defence is that neither the Agreement nor the Common Intention ever exists.

23.  The Uncle has a different story in regard to what was agreed between the Deceased and him. He says in or around 2011 when the Building Licence were about to be issued, the Deceased invited the Uncle to develop the two small houses together on the Lot 206A and the Lot with a view to saving construction costs since the two small houses would share a common party wall.

24.  In consideration of the saving of construction costs and in view of the brotherhood love, the Deceased entered into a loan agreement with the Uncle (“the Loan Agreement”) so that the Uncle could begin to carry out construction of the House on the following terms:

(1)  by way of an interest-free loan to the Uncle (“the Loan”), the Deceased should pay for the construction costs of the House;

(2)  the Deceased would be allowed to collect the rental income from the Relevant floors to defray against repayment or in repayment of the Loan until the Loan was repaid in full;

(3)  At all material times, the Uncle was residing in the United States and so he could only entrust the Deceased to supervise the construction works, to conduct and manage the leasing matters relating to the House for him at the Deceased’s absolute discretion, to receive rental income from the Relevant Floors and to apply the same as repayment of the Loan and receiving and keeping the rental income of the First floor for the Uncle to be passed to the Uncle whenever he returned to Hong Kong; and

(4)  The Uncle should execute a will appointing the Deceased as the executor and devise the Relevant Floors to Raymond as a gesture of security for the Loan.

25.  The alternative case is that the Deceased made representations in terms of the Loan Agreement (“the Deceased’s Representations”) so as to induce the Uncle to authorize him to collect the rental income from the Relevant Floors, to supervise the construction works and to manage the House and cause him to execute the Will.

26.  Mr Yeung, for the Uncle, said nothing about this alternative case in his opening and closing submissions. I treat it as having been abandoned.

27.  In his Re-Re-Amended Defence (“RRAD”), the Uncle set out Conditions 4(d) and (e) of the Building Licence in the RRAD. They read,

Condition 4(d)

“Upon certification by the District Lands Officer that these Conditions have been complied with to his satisfaction the Licensee may, with the prior written consent of the District Lands Officer and on such conditions as may be imposed by him (including the payment of such fee as may be required by him), assign (but not partition), mortgage or charge the lots (as a whole only and not a part thereof) or, subject to sub-clause (f) of this Condition, any interest or undivided share therein or part with possession of the lots and the building thereon or part with possession of part of the building on the lots, or enter into any agreement so to do but only to:

(i) a male person at least 18 years of age who has satisfied the District Lands Officer that at the date of the application for such consent he is descended through the male line from a person who was in 1898 a resident of an established village in Hong Kong or

(ii) a person other than a person referred to in sub-clause (d)(i) of this Condition provided the Licensee shall have first paid to the Government a premium equivalent to an amount based on the difference between the full market values of the lot before and after the sub-clauses (a), (b), (c) and (d) of this Condition shall have become null and void and ceased to have effect, both values as at the date of the application to the District Lands Officer for such consent, such values to be determined by the District Lands Officer whose decision shall be final and binding upon the Licensee, whereupon, such premium having been paid and such consent having been obtained, sub-clauses (a), (b), (c), (d) and (e) of this Condition shall be null and void and shall cease to have effect.

Condition 4(e)

“After a period of five years has elapsed from the date of a letter issued by the District Lands Officer confirming that these Conditions have been complied with to his satisfaction, the Licensee without the consent of the District Lands Officer shall be at liberty subject to sub-clause (f) of this Condition and Condition No.6 hereof to assign, partition, mortgage, charge, demise, underlet, part with possession of or otherwise dispose of the lot or any part thereof or any interest or undivided share therein or any building or part of any building thereon or enter into any agreement so to do.”

28.  Curiously, his plea of illegality is based on two other provisions in the Building Licence, viz, Conditions 3(a)(iv) and (v) (“the Relevant Conditions”), which are not pleaded. It provides that the Licensee expressly warrants, represents and declares that he has never entered into any arrangements or agreements with any person or persons to transfer, alienate, dispose or otherwise deal with the lot or any part thereof or any interest therein or his rights in and over the lot, including but not limited to the right to develop the lot or any part thereof and that he has never made and has no intention of making any private arrangements for his rights under the Small House Policy to be sold to other individuals or a developer.

29.  The Uncle duly signed a document entitled “Warranty by the Applicant” dated 13 April 2011 (“the Warranty”) and submitted the same to the HKSAR Government to apply for the Building Licence. In the Warranty, the Uncle made the same warranties in terms of the Relevant Conditions.

30.  The Uncle avers that pursuant to the Small House Policy, he made a declaration by way of the Warranty in terms of the Relevant Conditions for his application for the Building Licence. Simon was the witness signing the Building Licence.

31.  The Uncle avers that the Deceased knew or ought to know that he made or would have made the Warranty which was untrue in light of the Agreement and the Common Intention.

32.  The plea of illegality is pleaded in a non-conventional manner (not by Mr Yeung) and I can only reproduce the relevant part of the RRAD as follows:

“It is averred that (the Agreement) and/or (the Common Intention) constitutes agreement to carry out (i) tort of misrepresentation to and/or deceit on the HKSAR Government and/or (ii) “conspiracy to defraud” and/or (iii) “civil wrong” and/or (iv) “criminal wrong” and/or (v) against public policy; and are thus illegal and/or tainted with the said illegality and/or wrongdoing;

(The Agreement) and/or (the Common Intention) is unenforceable, void and liable to be set aside; and

Further or alternatively, the plaintiffs are not entitled to rely on (the Agreement) and/or (the Common Intention) to claim against the defendant in the present proceedings.”

33.  The Uncle accepts that he voluntarily made the First Will to “provide for the eventually that the Loan was not repaid in full when he executed in performance of the Loan Agreement and in reliance of the Deceased’s Representations”. I cannot understand this plea.

34.  There is another plea of estoppel based on the Deceased’s Representations. Mr Yeung confirms that he would not pursue this defence on the second day of the trial.

35.  The Uncle also has a claim of set-off in the RRAD and this is not pursued either.

Issues to be tried

36.  Thus, the core issues are whether the Agreement and the Common Intention were formed by the Deceased and the Uncle (“the Agreement/Common Intention Issue”). Their existence, if proved, would necessarily negative the Uncle’s allegation of the Loan Agreement and it is essential element of a CICT.

37.  Another issue is the plea of illegality (“Illegality Issue”). It would determine the effect of the Agreement and the Common Intention even if they are established by the Brothers.

Witnesses and their evidence in summary

38.  For the Brothers, they themselves were the only live witnesses. Madam Gan, their step-mother and the surviving wife of the Deceased, made an affirmation dated 6 February 2024 (“the Affirmation”) in support of the Brothers’ claim. Madam Gan is a Mainlander not residing in the jurisdiction. In the Affirmation, she explained that due to her recent poor health, she might not be able to come to Hong Kong to testify at trial.

39.  Madam Gan did not appear to give live evidence eventually. Mr Chan, for the Brothers, does not make an application to adduce the Affirmation as hearsay evidence and asks this court to consider what weight, if any, should be placed on the Affirmation after trial.

40.  The contents of the Affirmation are controversial and Madam Gan has no cogent reasons for her non-availability to testify in person and be cross-examined on the Affirmation. No medical evidence has been provided. It would be unfair to the Uncle to have no chance to challenge her evidence by way of cross-examination. I should give no weight on the Affirmation.

41.  For the Uncle, he called Mr Tse who is his niece as his witness. The Uncle himself also gave viva voce evidence.

Simon’s evidence

42.  Simon is the eldest son of the Deceased. He is an IT technician by occupation and was brought up in England. He has long been residing in England with his family.

43.  The following background facts narrated by him in his witness statements were not challenged.

44.  The Deceased was an indigenous villager of Shui Wo Village (“the Village”), Lam Tsuen, New Territories. In the early 1960s, the Deceased emigrated to England. After retirement from his catering business in 1999, he spent more time in Hong Kong.

45.  Being male descendants of an indigenous villager of the Village, each of the Deceased and his two brothers including the Uncle, having inherited village lands from their father, was entitled to exercise his Ding right to build a village house in the Village pursuant to the Small House Policy.

46.  The Uncle left Hong Kong in the 80s and he has long been a resident in the United States with his wife and two daughters. He rarely visited Hong Kong. He did nothing to manage or use the Lot. Prior to the application for the Building Licence, there were metal huts erected by unknown trespassers on the Lot and Section A Lots and the Uncle took no action against those trespasses committed on the Lot.

47.  The Deceased wanted to acquire the Lot so that he could exercise the Ding right of the Uncle and his own Ding right to build two adjourning houses on Section A Lots and the Lot. The two houses would be semi-detached type sharing a party wall and the permitted floor area of 700 square feet for a village house could be used to its maximum.

48.  In early 2005, the Deceased told Simon that he had reached an agreement with the Uncle so that the Uncle could use his Ding right to apply for a building licence to build a small house on the Lot.

49.  The application of Simon for a building licence to the District Lands Office (“the DLO”) was made at the same time with that of the Uncle after Section A Lots were assigned to Simon by the Deed of Gift.

50.  After their applications were granted and they obtained the Building Licences in October 2011, the building works of two semi-detached houses on Section A Lots and the Lot were carried out.

51.  Simon then recounted what the Deceased told him about the Agreement and his evidence in this respect was challenged. According to Simon, the Agreement was in the following terms:

(a)  The House would be built on the Lot and the Deceased would solely finance the construction costs and supervise the construction;

(b)  In consideration of the Deceased’s payment for the construction costs of the House, Raymond would have a beneficial interest of the First Floor and the Second Floor of the House and that a DMC would be executed to divide and allot the relevant shares of the House in the name of Raymond;

(c)  In November 2014, when the Uncle saw the completed frame of the House, he told the Deceased that he did not want the Ground Floor and preferred the First Floor instead. The Uncle did not like the sliding door entrance of the unit on the Ground Floor. The Deceased acceded to his suggestion.

(d)  the Uncle would take steps to transfer the Relevant Floors to Raymond once the non-alienation clause of the Building License had lapsed;

(e)  the Uncle himself would keep the First Floor for his own use and be its sole beneficial owner.

52.  Simon relies on the following matters to show that the Deceased and the Uncle had acted in accordance with the Agreement manifesting the Common Intention:

(a)  The Deceased caused him and the Uncle to apply for their respective building licences for the construction of a house on Section A Lots and the House on the Lot to be undertaken simultaneously;

(b)  The Deceased engaged Best One and executed a construction contract dated 16 December 2012 as the property owner. The Deceased paid the entire amount of the Construction Costs without any contribution from the Uncle. Simon assisted the Deceased in supervising the construction of the houses and he once went to Shenzhen to choose the building materials. The Uncle had no involvement at all;

(c)  The Uncle executed the PoA in November 2014 authorising the Deceased to, among other matters, handle all the leasing matters of the House including entering into tenancy agreements and receiving rents pursuant thereto;

(d)  The Deceased did lease out the House for rental profits. He paid those rents received from the Relevant Floors to his bank account with Bank of China and those rents received from the First Floor to the ICBC Account. During his occasional visits to Hong Kong, the Uncle would collect such rental income in the ICBC Account with the assistance of the Deceased.

(e)  The Uncle executed the First Will to ensure that the Relevant Floors would be transferred to Raymond upon his demise if they had not been transferred to Raymond during the Uncle’s lifetime.

53.  In early 2019, the Deceased told Simon that the Uncle was unhappy with the Agreement and that the Uncle had once claimed that it was customary that a Ding should be entitled to two floors and not one floor after exercising his Ding right to apply for a building licence even when he made no financial contribution to the construction costs.

54.  The Deceased also told Simon that he was very upset about the accusations of the Uncle and Mr Tse that he had cheated the Uncle. Simon also heard from Madam Gan that the Deceased and the Uncle had heated arguments over the phone.

55.  In December 2020, after the passing of the Deceased, Simon and the Uncle spoke over the phone a few times. Simon made a written record of their conversations taking place on 23 December 2020 (“the Record”). Simon confirmed the accuracy of the Record and he recalled that the Uncle indicated to him that he was willing to return the two flats of the House to him. The Uncle even asked him to explain to him the non-alienation clause. Simon told him that if there was any change of ownership in the first 5 years, penalty would be payable even if the transferee was his daughter. The Uncle further asked Simon whether her daughter would be liable to pay heavy stamp duty if she did not have an ID card.

56.  Simon then suggested the Uncle that he should gift Raymond the Relevant Floors to avoid tax or stamp duty.

57.  Simon explained that he had made the Record after the telephone conversations so as to ensure that he could relate accurately to Raymond his dealings with the Uncle.

58.  Shortly after the death of the Deceased, Mr Tse and the Uncle told the tenants of the House including those occupying the Relevant Floors to pay rents to Mr Tse’s account without the consent of the Brothers. Thereafter, they have taken over all the leasing matters relating to the House.

Raymond’s evidence

59.  Raymond was born and bred in England and is now a charted accountant by profession. He is a resident in England.

60.  Raymond recalled that in the early 2000s, the Deceased told him that the Uncle wanted to sell the Lot and he was in the course of negotiation with the Uncle with a view to purchasing the Lot for him. Raymond had a Ding right and with the Lot, he could apply for a building licence.

61.  Subsequently, the late mother of Raymond told him that the Uncle could not agree on the sale price of the Lot and thus, there could be no sale.

62.  The Deceased then indicated to Raymond that he did not want the Lot to be sold to any third party since it was inherited from his late father. He said that he had made an agreement with the Uncle largely in terms of the Agreement.

63.  When Raymond visited Hong Kong in December 2017 for the Tai Ping Ching Jiu Festival in Lam Tsuen, he met the Uncle. Raymond asked him if he wanted to sell the First Floor to him and the Uncle told him that it was a good idea but he could not sell the same until after the expiry of the 5-year non-alienation period. However, the Uncle proposed to Raymond that he could make payment of the purchase price to him then and after the alienation period had lapsed, he would transfer the title to Raymond (“the Uncle’s Proposal”). Before the transfer, Raymond’s payment would be treated as a personal loan to the Uncle. He had yet to talk about the amount of purchase price.

64.  Raymond felt sceptical about the Uncle’s Proposal and he did not agree to it. He continued his discussion with the Uncle concerning the sale of the First Floor to him though.

65.  In June 2019, the Uncle visited the Deceased in Hong Kong. The Deceased asked the Uncle to fix the purchase price of the First Floor. Finally, the Uncle agreed to sell the First Floor to Raymond in consideration of HK$4 million (which later changed to HIK$5 million).

66.  In or about April 2019, the Uncle had a discussion with Raymond and raised the amount of the purchase price from HK$5 million to HK$5.5 million. Despite his frustration, Raymond agreed and told the Deceased about his agreement with the Uncle.

67.  Before long, the Deceased was admitted to hospital and passed away shortly afterwards.

68.  After the passing of the Deceased, Mr Tse and the Uncle invited Raymond and his wife to dinner for discussion about the sale of the First Floor. At the dinner on 12 August 2019 (“the Dinner”), Mr Tse asserted that the Agreement was unusual in that it was customary for a Ding to give one floor to his developer only in consideration of its provision of the construction costs. Raymond reminded the Uncle of the Agreement and the Common Intention. Raymond also reminded the Uncle that they had already agreed on the sale price of the First Floor. The Uncle, however, said that everything should be put on hold until the expiry of the 5-year alienation period.

69.  In cross-examination, Raymond agreed that before the Dinner, in the morning of the same day, there was a meeting arranged by Simon to meet the Uncle in the law firm in Tai Po. Mr Yap, who is Simon’s friend, was a solicitor of that law firm. The Uncle brought along Mr Tse to the law firm and they met Mr Yap. He knew that the purpose of the meeting was to explain to the Uncle that the First Will was rendered invalid due to the demise of the Deceased. He also asked Mr Yap to prepare a document for the purpose of a sale of the First Floor to him. Mr Yap did prepare a draft sale and purchase agreement for Raymond. However, at the outset of the meeting, Mr Tse told them that the Uncle wanted to hire his own lawyer to deal with the Brothers and then they left the law firm. Mr Yap did not have the chance to present anything for the Uncle to sign.

70.  On or about 19 September 2019, Raymond sent the Uncle a reminder letter (“the Reminder Letter”) from England to remind him of the Agreement. The Uncle did not reply to the letter.

71.  The leasing agent of the Deceased subsequently told Raymond that the Uncle had demanded the tenants in occupation of the Relevant Floors to pay rent to Mr Tse instead. The Uncle also issued written notices to those tenants. Those tenants terminated their tenancies and asked for the return of their rental deposits.

72.  Raymond found out that Mr Tse had asked the tenants of the Relevant Floors to sign new leases with him. On or about 13 September 2019, Raymond sent a message to Mr Tse to ask him why he had done so. He received no reply.

73.  Lastly, Raymond denies having any discussion with the Uncle about the Loan Agreement or the Loan. He first heard about this allegation after commencement of these proceedings only.

The Uncle’s evidence

74.  The Uncle was born in 1947 and he left Hong Kong and worked as a sailor when he was 18 years old. He became an illegal immigrant in the United States in the late 60s. He had worked as a kitchen worker in a Chinese restaurant in New York until he retired at the age of 67.

75.  In the 80s, he knew that he owned the Lot and that there were unauthorised structures in the form of metal huts erected on the Lot. He knew that he had to pay for the demolition works before anything could be constructed on the Lot. At the material times, he knew nothing about the Hong Kong property market. He had little idea of the demolition and construction cost. His financial condition did not allow him to exercise his Ding right and construct a house on the Lot. He could hardly raise any funds in Hong Kong. He never had a bank account in Hong Kong. Thus, he left the entire matter to the Deceased.

76.  The Uncle accepted that but for the Deceased’s efforts and financial assistance, the House would not have come into existence. He placed his trust in the Deceased for everything relating to the House.

77.  The Uncle insisted that he had entered into the Loan Agreement with the Deceased and the Loan was interest free. He maintains that part of the Loan had been repaid by the rental income from the Relevant Floors. He merely relies on the figures provided by the Further and Better Particulars provided by the Brothers’ solicitors dated 26 October 2021 for his calculation of the total amount of rent collected by the Deceased, which amounts to HK$874,700.

78.  The Uncle also gathered from the tenants of the Ground Floor that they had paid Raymond HK$23,000 for the rent of August and September 2019.

79.  The Uncle relies on the amount of the Construction Costs stated in the Construction Contract produced by the Brothers and their pleading. He confirms in his witness statement that the Deceased did not tell him about these payments and he only knew about after the commencement of this action.

80.  In cross-examination, he changed his evidence and claimed that he knew the amount of the Construction Costs after the completion of the construction works pursuant to the Construction Contract.

81.  With all these figures, the Uncle claims that he has already repaid the Deceased HK$897,700 and so the outstanding amount would be HK$471,300. He indicates that he is willing to repay this sum to the Estate immediately. He agrees that before this action was commenced, he did not make any offer to repay the outstanding amount of the Loan.

82.  Concerning the First Will, the Uncle accepts that he rarely saw Raymond and was never close to him. He made him his beneficiary because of the suggestion of the Deceased. Whilst his explanation for the First Will is incomprehensible in the RRAD, in his witness statement, the Uncle explained that since the Loan Agreement was made orally, the Deceased had no security for the Loan and in the event of his death, the Deceased would be left with no security. Thus, the Deceased asked the Uncle to execute the First Will.

83.  In cross-examination, the Uncle changed his version entirely. The Uncle asserted that he came back to Hong Kong to sign some documents in a law firm as arranged by the Deceased. He did not know what he had signed. He did not know the contents of the First Will. He just trusted the Deceased.

84.  The Uncle executed his second will dated 15 August 2019 (“the Second Will”). By the Second Will, the First Will was revoked and the Uncle appointed Mr Tse to be the executor of his estate. The Uncle bequeathed his entire estate to his wife absolutely and in the event that his wife predeceases him, his two daughters would be bequeathed his estate in equal shares. There is no provision for the Estate for Raymond.

85.  The Uncle explained that he made the Second Will because Mr Yap had told him that the First Will was invalid in the wake of the death of the Deceased. Thus, Mr Tse made all the arrangements for him to make the Second Will.

86.  As regards the Reminder Letter, in his witness statement, the Uncle accepted that he had received it but he did not agree to its contents and so he did not sign on the same and return it to Raymond. In cross-examination, the Uncle simply claimed that he had forgotten about the Reminder Letter because of the lapse of time.

Mr Tse’s evidence

87.  Mr Tse’s evidence is brief and of little relevance to the main issues.

88.  Mr Tse is a Hong Kong resident staying in Shatin with his family. Mr Tse is a retiree and he used to work for the Government as a garden worker.

89.  Mr Tse has meals with the Uncle in his trips to Hong Kong and he is close to the Uncle. The Uncle trusts him.

90.  Mr Tse has no personal knowledge of the dealings between the Deceased and the Uncle relating to the construction of the House. However, he recalled that during family gatherings, the Deceased had repeatedly said that he would lend money to the Uncle for the construction of the House.

91.  Mr Tse recalled that the Uncle asked him to go to the law firm of Mr Yap in Tai Po. Mr Yap explained to them that the First Will had become invalid and asked the Uncle to sign some documents. They were unhappy with the unfriendly attitude of Mr Yap and without knowing what the Uncle was required to sign, they simply left the office.

92.  On 15 August 2019, the Uncle executed a power of attorney and the Second Will in the office of Messrs. Deannie Yew & Associates. This was arranged by Mr Tse and by virtue of these documents, he became the authorised person to handle all the affairs of the Uncle including the leasing matters of the House. He was appointed the executor of the Uncle’s estate in the Second Will too.

93.  Thereafter, he has dealt with the tenants of the House including the Relevant Floors and handled all the leasing transactions.

The Agreement/Common Intention Issue

94.  I shall first deal with the Agreement/Common Intention Issue, which is essentially a question of fact and the credibility of the Brothers and the Uncle’s credibility are of paramount importance.

95.  In his closing submission, Mr Chan pertinently reminds this court of the guidelines for the assessment of the credibility of witnesses given by DHCJ Eugene Fung SC (as he then was) in Hui Cheung Fai v Daiwa Development Ltd (unreported, HCA 1734/2009, 8.4.2014) at §§77-79,

(1)  Contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance (§77);

(2)  In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events (§78); and

(3)  Importance should be attached to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of a witness’s evidence (§79).

96.  On the issue of CICT, it would be helpful to review the relevant principle before my analysis of the evidence.

97.  Mr Chan helpfully refers to Lam Ka Kui v Choi Yuen Ling [2020] HKCFI 2647. There (at §§8-12), Coleman J gave a summary of the principles relating to CICT as follows:

(1)  Where a common intention constructive trust has arisen, ownership in the property is split into legal ownership and beneficial ownership. The trustee holds the legal title on trust for the beneficiary.

(2)  Where a constructive trust is alleged to arise on the basis of the parties' common intention, it is the intention commonly held by the property owner and the plaintiff regarding their shared beneficial interests in the property that matters. The trust is constituted by the three elements of (i) the common intention, (ii) the plaintiff's detrimental reliance on their common intention, and (iii) the unconscionability of the property owner departing from it.

(3)  The burden of proving each element of common intention, detrimental reliance and unconscionability is on the person seeking to show that the beneficial ownership is different from the legal ownership. The focus is on the intention of the parties at the time of acquisition of the asset. Contemporaneous conduct is inherently more likely to be a reliable indicator of intention, to be given greater weight, than are words and conduct after the event.

(4)  Common intention can be expressed or implied. It can be deduced or inferred objectively from the parties' conduct. As a matter of common sense, it is easier to infer such an intention prior to the acquisition of property which results in an obvious change in legal ownership (rather than after such an acquisition where there is no change in legal ownership and a change in beneficial ownership is not otherwise apparent).

(5)  In Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327 at §§2.3-2.4, Cheung JA identified two situations where a common intention constructive trust may arise. The first is where at any time prior to acquisition, or exceptionally at some later date, there is an agreement, arrangement or understanding reached between the parties on how the property is to be held beneficially. The finding of such an agreement or arrangement can only be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been. The second situation is where there is no evidence to support a finding of an agreement or arrangement on the beneficial ownership of the property, and the court must rely entirely on the conduct of the parties both as the basis from which to infer a common intention on the beneficial ownership of the property and as the conduct relied on to give rise to a constructive trust. In this situation, direct contributions to the purchase price by the party who is not the legal owner, whether initially or by mortgage instalment payments, will readily justify the inference necessary to the creation of a constructive trust.

(6)  A resulting trust arises by virtue of the plaintiff’s contribution in money or in some other way towards the property’s acquisition. Equity holds the legal owner to be a trustee of that property for the plaintiff in an appropriate share, giving effect to the parties presumed intention. Particularly in a domestic context, but also generally, if it is possible to resolve the matter by reference to common intention, there is no need to resort to resulting trust.

98.  With these principles in mind, I shall assess the credibility of the four witnesses in order to resolve the Agreement/Common Intention Issue.

99.  By way of preliminary observations, I am of the view that the Brothers were very impressive witnesses. Both Simon and Raymond were clear and straightforward and they gave answers spontaneously in cross-examination. They understood very well that their evidence relating to the formation of the Agreement and the Common Intention was merely based on what the Deceased had told them.

100.  Both Simon and Raymond are professionals and sounded intelligent in cross-examination. They were able to refer to material documentary evidence to support their evidence. Mr Yeung’s cross-examination of the Brothers did not cause me any concern about the veracity of their evidence.

101.  On the other hand, I do not find the Uncle to be an honest witness. When asked about peripheral matters in cross-examination, the Uncle was forthcoming. However, he was decidedly defensive when questions about important documents such as the First Will and the Reminder Letter were posed to him. He gave ambiguous answers and even simply made a bare denial of any knowledge of their contents showing scant regard for what he had previously stated in the RRAD and/or his witness statements.

102.  I have examined the evidence of Simon and the evidence of Raymond separately and I have no difficulties in accepting their evidence, which is logical and reasonable, mostly supported by contemporaneous documents. Wherever the evidence of the Uncle conflicts with that of the Brothers, I prefer the latter.

103.  Mr Tse fared no better than the Uncle. I do not have confidence in his evidence though it was largely of marginal relevance to the issues. As an example of the unreliability of his evidence, in his witness statement, he claims to have experience in the construction of small houses. In cross-examination, he admitted, not without reluctance, that he only had experience in the purchase of electrical appliances such as air-conditioners to be used in small houses.

104.  The starting point is that the Deceased paid all the construction costs of the House. The Uncle accepted that he would not have started thinking about erecting a house on the Lot but for the finance provided by the Deceased. There must be an agreement between the Deceased and the Uncle leading to the Uncle’s application for a building licence.

105.  Objectively speaking, the Deceased had a good reason to reach the Agreement with the Uncle. He wanted to keep the Lot adjourning Section A Lots within the family. He did not want the Lot to be owned by an outsider. With the Agreement, Raymond could own two floors of the House adjourning the house of Simon and the Lot and Section A Lots would be kept within the family.

106.  I do not believe that the Deceased decided to give an interest free loan to the Uncle to save the costs of a party wall. He did not have to pay the Construction Costs of the House and he could just leave the Lot vacant in the first place. There would be no structures adjoining the house of Simon. The Deceased did not have to be concerned about any party wall at all.

107.  On the other hand, it is improbable that the Uncle asked for a loan to build the House. He had no connection in Hong Kong. He did not have any financial means to fund the construction of the House. He had no idea how much it cost to remove the trespassers and demolish the structures erected on the Lot and to construct the House. It was the Deceased who chose Best One and accepted its quotation. He knew nothing about the property market in Hong Kong and how much monthly rental income the House could yield. There was no reason for him to incur an unknown and potentially enormous liability without knowing how it could be discharged.

108.  More importantly, the First Will obviously reflected the Agreement and the Common Intention. In the absence of any affinity to Raymond, the Uncle had no reason to make the specific bequest to Raymond but for the Agreement. His explanations about this provision given in the RRAD and his witness statements do not make sense. The purported protection given to the Deceased was illusory. If the Deceased had wanted to make sure that there was documentary evidence of the Loan, a simple IOU evidencing the Loan Agreement would have served the purpose and there was no reason why he took all the trouble to arrange the First Will to be prepared by Mr Yap and the Uncle to come to Hong Kong from the United States to execute it in the office of Mr Yap. It should be noted that by the First Will, the Uncle in fact made other dispositions of his estate.

109.  Furthermore, if it had been the purpose of the First Will, the Uncle had no reason to omit the same protection in the Second Will. He agreed that he should not have fully repaid the Loan to the Deceased when he passed away and he agreed that he should continue to repay the Deceased. However, by the Second Will, the Relevant Floors being the estate of the Uncle would be bequeathed to the wife of the Uncle absolutely and there is nothing left for Raymond.

110.  Knowing the absurdity of his previous explanations, the Uncle in cross-examination disclaimed any knowledge of the contents of the First Will. He alleged that it was the Deceased who had made all the arrangements for the execution of the First Will and he had created its contents without the involvement of the Uncle. The Uncle claimed that he was just asked to go to the office of Mr Yap and sign the document. He even did not know that he was going to sign a will.

111.  I cannot accept his explanation. By the First Will, the Uncle also bequeathed the First Floor to his wife and in case his wife failed to survive him, his two daughters would be bequeathed the First Floor in equal shares. Their passport numbers were given in the First Will. This disposition and the personal information of his family members must be provided by the Uncle to the Deceased. The Deceased could not have made these up and he must have discussed the terms of the First Will with the Uncle. The Uncle must have assisted in the drafting of the First Will by giving the necessary information and instructions.

112.  The purpose of the specific legate to Raymond in the First Will is clear to me. The Deceased expected the Uncle to perform the Agreement and transferred the legal title of the Relevant Floors to Raymond in due course. In the event that the Uncle failed to do so in his lifetime, by the First Will, Raymond would still be bequeathed the Relevant Floors upon the death of the Uncle. The Deceased wanted to make sure that the Agreement would be performed by the Uncle after his payment of the Construction Costs.

113.  Another piece of cogent evidence supportive of the Agreement and the Common Intention (agreed by the Uncle) is that the Uncle was allowed to choose a floor of the House and enjoyed the rental income from the floor chosen by him. I find this to be strongly indicative of the division of the beneficial ownership of different floors of the House pursuant to the Agreement and the Common Intention. I accept the evidence of Simon about the choice of the First Floor by the Uncle. The Uncle chose the First Floor to be the only floor of the House beneficially owned by him pursuant to the Agreement and the Common Intention.

114.  I also find that the Deceased’s earmarking the ICBC Account for the rental income from the First Floor to be indicative of his performance of the Agreement. The First Floor, and not the Relevant Floors, was treated as the property of the Uncle and so the rental income from the First Floor was separated from that of the Relevant Floors. If the Deceased and the Uncle had agreed that the rental income from the Relevant Floors should be applied to repay the Loan, there would have been no need to use a separate account to receive such rental income. Full repayment of the Loan would be made and the account had to be closed one day.

115.  Indeed the Uncle was unable to explain why, if he had to repay the Loan by a set-off against the rental income from the House, the rental income of two floors, and not one or even all the floors, was carved out for repayment.

116.  Furthermore, if the Construction Costs only represented the Loan, there is no reason why the Uncle was not concerned about its actual amount and the rental income from the Relevant Floors before the death of the Deceased. He agreed that he only found this out in this action in cross-examination. This is utterly unreasonable.

117.  The Uncle should have asked the Deceased to give an account to him of the rental income from the Relevant Floors from time to time so that he would be kept abreast of his actual liability. He should be eager to find out when he could start receiving the rental income from the Relevant Floors after the Construction Costs were repaid in full. The Uncle repeatedly said he trusted the Deceased and so he did not ask for an account over the years. I do not accept his explanation. It was not really a matter of trust.

118.  Moreover, if the rental income from the Relevant Floors was meant to be repayment of the Loan, there is no reason why the Uncle did not explain this to Mr Tse so that Mr Tse should deal with it separately from the rents collected from the First Floor accordingly.

119.  There is no evidence that the Uncle had ever mentioned the Loan Agreement and the Loan to the Brothers before this action was commenced. The Uncle did not allege that he had done so. This is inexplicable especially when he was hard pressed by the Brothers to perform the Agreement.

120.  When the Uncle received the Reminder Letter, he should have set the record straight and told him about the Agreement. There is no reason why he chose to keep silent and did not make any response at all. In cross-examination, he even claimed that he did not remember the Reminder Letter at all. The truth is that he did not know how to explain his non-response.

121.  I accept the evidence of Simon that he had telephone conversation with the Uncle on 23 December 2020. Their calls are evidenced by Simon’s call records. I also accept that the Record truly shows their actual conversation in those calls as confirmed by Simon. Its accuracy was not effectively challenged in cross-examination at all.

122.  The Uncle’s indication of his willingness to transfer the Relevant Floors to the Brothers in those calls is solid proof of the Agreement and the Common Intention.

123.  In addition, I accept the evidence of Raymond that the Deceased and he had held negotiations with the Uncle about the sale of the First Floor to him. If the Uncle had been the sole beneficial owner of the House, such negotiations would not have taken place. There is no reason why he would offer to sell to Raymond just the middle floor of the House from which he had enjoyed rental income.

124.  Plainly, the allegation of the Loan Agreement and the Loan was only concocted by the Uncle to resist the claim of the Brothers in this action. In view of the overwhelming evidence of the existence of the Agreement and the Common Intention, I have no hesitation in concluding that both the Loan Agreement and the Loan were sheer fabrications.

125.  Mr Yeung highlights the fact that in the tenancy agreements relating to the Relevant Floors, the PoA and the Property Tax Return (2018/19), the owner of the House was stated to be the Uncle. Mr Yeung submits that the Deceased accepted that the Uncle was the true owner of the House and there was no Common Intention.

126.  I do not find merit in this submission. All these documents were to be presented to third parties and it is perfectly understandable that the Deceased and the Uncle did not find it necessary to disclose the true beneficial ownership of the Relevant Floors pursuant to the Agreement and the Common Intention.

127.  Mr Yeung also points out that the Uncle paid the property tax on 25 November 2019 and this shows that he is the beneficial owner of the House. I note that the Confirmation of Payment was sent to the home address of Mr Tse on 11 September 2023. This single payment made after the commencement of this action cannot really assist the Uncle.

128.  Mr Yeung submits that it is improbable that the Deceased and the Uncle, both without legal knowledge, would have agreed on the execution of a DMC in respect of the House. He also points out that in the Building Licence, the 5-year non-alienation clause arguably did not apply to an assignment of Raymond because of his Ding status.

129.  I can see the force of the argument of Mr Yeung in regard to the agreement on the execution of a DMC. The Deceased and the Uncle might not have gone that far to agree on the legal formalities to complete the transfer of the Relevant Floors to Raymond but I am sure that it was within their common intention that such a transfer would be an eventuality.

130.  I also accept that all the parties might have mistaken the application of the 5-year non-alienation clause. A transfer to Raymond should be exempted under Clause 4(1). They did not have to wait for 5 years to avoid premium payment. But this common mistake does not alter the crux of the Agreement and the Common Intention. The Uncle should transfer the legal title of the Relevant Floors to Raymond.

131.  I can conclude that the Agreement and the Common Intention are borne out by evidence. They were formed before the Uncle’s application for the Building Licence and can be deduced or inferred by the parties’ conduct. It is not necessary to identify the exact date of their formation.

132.  Pursuant to the Agreement and the Common Intention, the Deceased paid the Construction Costs and caused the House to be constructed on the Lot.

133.  Now I come to the second element of CICT. The payment of the Construction Costs on the part of the Deceased must suffice to be the detrimental reliance on the Common Intention. The Deceased also managed the First Floor and collected rent therefrom for the exclusive use of the Uncle.

134.  As regards the element of unconscionability of the Uncle departing from the Agreement and the Common Intention, it is plainly unconscionable for the Uncle to deny Raymond his beneficial interest of the Relevant Floors after the Deceased had acted to his detriment for his benefit over the years.

135.  It should be noted that the Uncle had no means to develop the Lot in the first place and the Lot would have remained a piece of deserted land but for the Agreement and the Common Intention to build the House thereon. His Ding right and the Lot, for which he had actually paid nothing, would have been wasted. The entire House, let alone the Relevant Floors, would not have come into existence. Without spending a cent, the Uncle now has the First Floor of the House and has received rental income without paying anything for the management of the First Floor by the Deceased. It is blatantly unconscionable for the Uncle to renege on the Agreement and the Common Intention in my view.

136.  I am convinced that all the elements of a CICT are present and the case of CICT is made out on balance of probabilities. This concludes my analysis of the Agreement/Common Intention Issue and I should proceed to determine the Illegality Issue.

Illegality Issue

137.  Simply put, the plea of illegality in the RRAD is based on the following key allegations:

(1)  A requirement in an application for a building licence that an applicant has to make a declaration to the effect that he has complied with the Relevant Conditions (“the Uncle’s Representations”);

(2)  In his application for the Building Licence, the Uncle submitted to the HKSAR Government his application form on or about 18 March 2005 enclosing therewith an unsigned statutory declaration form (“Unsigned SD”) and the Warranty;

(3)  All of the Unsigned SD, the Warranty and the Building Licence contain the Uncle’s Representations.

(4)  In light of the Agreement and the Common Intention, the Uncle’s Representations were untrue.

(5)  The Deceased knew or ought to have known that in his application for a building licence, the Uncle had to make the Uncle’s Representations, which, to his knowledge, were untrue.

138.  The Uncle says that the Agreement and the Common Intention are illegal and/or tainted with illegality and hence unenforceable, voidable and liable to be set aside.

139.  Mr Chan does not argue that the Uncle’s Representations were not untrue.

140.  Residing in Hong Kong, the Deceased played a pivotal role in both Simon’s and the Uncle’s respective applications for their building licences. I accept that, on balance of probabilities, he should know that in the Unsigned SD, the Warranty and the Building Licence, the Uncle’s Representations were made.

141.  The Unsigned SD was included in an application bundle, which was received by the Tai Po DLO on 18 March 2005. There was a stamp of the DLO on the final page of the application form which read “Applicant was interviewed and information herein contained was checked.”

142.  I accept that the Unsigned SD was considered by the DLO on balance of probabilities.

143.  There is no dispute that the Warranty and the Building Licence contained the Uncle’s Representations.

144.  Mr Chan and Mr Yeung agree that this court should adopt the new “range of facts” approach in Patel v Mirza instead of the reliance approach in Tingsley v Milligan in light of Monat Investment Limited v All Persons in Occupation of Part of No 16 Ma Po Tsuen [2023] 2 HKLRD 1311 per Yuen JA at §§42 to 57, followed in Kwan Hung Shing (關雄盛), as executor of the estate of Ho Shuk Ming (何淑明), deceased v Fong Kwok Shan, Christine and Ors. [2023] HKCA 1020.

145.  In Monat Investment Limited, Yuen JA referred to the speech of Lord Toulson in Patel v Mirza to explain the range of factors approach, which is based on a trio of necessary considerations. At §§36.3 to 36.4, Yuen JA stated this,

“36.3. At §120, he held:

‘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 ... .’

36.4. At §101, Lord Toulson held that, in place of a merely mechanistic process, a court should consider the following “trio of necessary considerations” found in case law to determine whether it would be harmful to the integrity of the legal system to allow a claim involving an illegal act:

(a) consider the underlying purpose of the prohibition which has been transgressed [e.g. in our case, s.14 BO];

(b) consider conversely any other relevant public policies which may be rendered ineffective or less effective by denial of the claim [e.g. in our case, the justification of adverse possession in the use of land as a natural resource, and in discouraging stale claims];

(c) keep in mind the possibility of overkill unless the law is applied with a due sense of proportionality.

36.5. At §109, he said:

‘The courts must obviously abide by the terms of any statute, but I conclude that it is right for a court which is considering the application of the common law doctrine of illegality to have regard to the policy factors involved and the nature and circumstances of the illegal conduct in determining whether the public interest in preserving the integrity of the justice system should result in denial of the relief claimed.’

36.6. At §113, he replied to criticism of the “range of factors approach” which included a fear that it would create unacceptable uncertainty. This reply was followed up at §120, where he held after repeating the trio of necessary considerations:

‘Within that framework, various factors may be relevant, but it would be a mistake to suggest that the court is free to decide a case in an undisciplined way. The public interest is best served by a principled and transparent assessment of the considerations identified, rather than by the application of a formal approach capable of producing results which may appear arbitrary, unjust or disproportionate’. (Emphasis added).

146.  Before assessing the defence of illegality taking into account the trio of necessary considerations, it is necessary to know more about the Small House Policy to understand the rationale of the Required Conditions.

147.  I shall start with a publication of the Research Office of the Information Services Division of Legislative Council Secretariat dated 28 January 2016 available in the website of the Legislative Council of the HKSAR. The following information about the Small House Policy is given in the publication.

148.  The Small House Policy was introduced in December 1972 with the objectives to improve the housing and sanitary standards in the rural areas of the New Territories.

149.  Under the Small House Policy, an indigenous male villager, who is aged 18 or above and descended through the male line from a resident in 1898 of a recognized village in the New Territories, may apply to the Lands Department once during his lifetime for permission to build for himself a small house of a regulated size on a suitable site within his own village. This is commonly known as a Ding right. The villager can apply for the small house grant in the form of either:

(a)  a building licence/land exchange. If the villager already owns private agricultural land, he can either apply for a building licence to build a small house on it at nil premium; or

(b)  a private treaty grant.

150.  In making an application to build a small house, the applicant is required to declare in the application form that he is the sole legal and registered owner of the land. To prohibit eligible indigenous villagers from transferring their Ding rights, there is a warranty clause stipulated in the small house grant document in respect of the land lease granted by way of building licence, land exchange or private treaty grant. At the time of signing the document, the applicant is required to warrant that he has never made any arrangements to dispose of his interest of developing small house or his eligibility to apply for a small house grant. According to the Lands Department, in case of any breach of this condition by the small house grantee/licensee, the District Lands Office will take lease enforcement action.

151.  In Kwan Hung Shing, as with the present case, the illegality in question arose from the false declarations and misrepresentations made or which would be made by the Ding defendants to the Director of Lands in the course of applying for building licences under the Small House Policy. Though the facts in that case are very different, what Chu VP said at §64 in her consideration of the first of the trio of considerations is pertinent,

“In the context of the present case, the illegality of the development scheme and the Development Agreements stems from the false declarations and misrepresentations made or which would be made by the Ding defendants to the Director of Lands in the course of applying for building licences under the SHP. On the first of the trio of considerations, the underlying purpose of the statutory declaration that each of the Ding defendants was required to make is to prevent misuse or abuse of the SHP by, inter alia, ensuring that the applicant is properly eligible and the application is a genuine one that meets the policy objectives. On the evidence before the Judge, the SHP set out to enable “indigenous villagers of the New Territories to build houses for themselves and to preserve the cohesion of indigenous communities”; under the policy an applicant is not permitted to alienate his interests in the small house; and in relation to an applicant who has alienated his interests or provided false information or made false declaration in the course of his application (as in the case of the Ding defendants) the Director of Lands would take lease enforcement action or revoke the building licence, and/or refer the matter to the relevant authority for consideration of criminal prosecution.”

152.  It can be seen that the underlying purpose of the Required Conditions is to prevent abuse of the Small House Policy by ensuring the applicant is properly eligible and the application is a genuine one that meets the policy objectives enabling indigenous villagers of the New Territories to build houses for themselves and to preserve the cohesion of indigenous communities.

153.  Unlike a number of other litigations involving breaches of the Small House Policy including Kwan Hung Shing, the dealings between the Deceased and the Uncle were not commercial in nature. The Deceased was not a developer. He did not capitalise on the Uncle’s Ding right to build the House for sale to the general public. The Uncle did not sell his Ding right for profit. The Agreement and the Common Intention enable both Raymond and the Uncle, both being Dings and indigenous villagers of the Village to properly exercise the Uncle’s Ding right and construct the House for themselves. This achieves the primary aim of the Small House Policy. It should be noted that selling a small house to a Ding is permissible with the written consent of a District Lands Officer without premium payment: Condition 4(d)(i) of the Building Licence and the Uncle could have sold the Relevant Floors without waiting for the expiry of the 5-year non-alienation period.

154.  I agree with Mr Chan that the Agreement was akin to a family arrangement to make the best use of the Lot and the Ding right of the Uncle. Without the financial support of the Deceased, the Uncle could not have exercised his Ding right and the Lot would have remained unused.

155.  The Deceased could simply have purchased the Lot from the Uncle and exercised his own Ding right to apply for a building licence to build the House on the Lot. Or he could have bought the Lot for Raymond and let him make the application by his Ding right. The Agreement took care of the welfare of both the Uncle and Raymond. The Deceased did not want the House to be sold to any outsider. Cohesion of indigenous communities could be enhanced by keeping the ownership of the House within the two male villagers.

156.  I opine that that in view of the peculiar facts of this case, the Agreement and the Common Intention do not constitute a serious abuse of the Small House Policy.

157.  On the second consideration, neither Mr Chan nor Mr Yeung assists me. I am unable to think of any public policy being rendered ineffective or less effective by the denial of the claim of the Deceased.

158.  Lastly, on the issue of proportionality, my foregoing analysis is apposite. If the Deceased and the Uncle had reached the Agreement only after the Building Licence was issued, the result would have been the same. It should be noted that by the Agreement, two indigenous villagers in the Village through the exercise of Ding right built a house in the Village. Both of them were eligible to apply for a building licence. I can see nothing against the aims of the Small House Policy to hold the parties to the Agreement.

159.  The Uncle made the Uncle’s Representations in the Warranty and the Unsigned SD and given the Agreement and the Common Intention, he must know their falsity or at least turn a blind eye to it. He is no less culpable than the Deceased. If the Uncle were to be allowed to go back on his words, he would be unjustly enriched.

160.  I am of the view that it would be disproportionate to deny the claim of the Deceased in equity.

161.  Applying the approach in Patel v Mirza and having regard to a trio of necessary considerations, I come to the conclusion that the Uncle cannot pray in aid the defence of illegality and the maxim ex turpi causa has no application in the present case.

162.  For completeness, I should make it clear that though I do not expressly deal with other arguments raised by Mr Yeung in this Judgment, I have considered them all and found no merit in them. His reliance on section 5(1) of the Conveyancing and Property Ordinance, Cap 219 without due regard to its exceptions in subsection (2) is misplaced.

Conclusion and order

163.  The Uncle inherited the Lot for zero consideration from his late father and was endowed with a Ding right merely because of his gender and his late father. With the generosity of the Deceased, the Uncle only needed to complete the necessary legal procedures to become the owner of the First Floor of the House and enjoy the rental income from the First Floor when he was thousand miles away with no ties in Hong Kong. Yet, he wants more. He claims that because of brotherly love, the Deceased extended the Loan without interest to him. Such brotherly love of the Deceased is unrequited and greed has got the better of him, however. Soon after the demise of the Deceased, he took the first step to renege on the Agreement and the Common Intention by making the Second Will with the assistance of Mr Tse. This is really sad.

164.  For the reasons given above, I conclude that the Deceased and the Uncle reached the Agreement and they had the Common Intention regarding the beneficial ownership of the House. Raymond, the nominee of the Deceased, should have the beneficial interest in the Relevant Floors and the Uncle has all along been the constructive trustee of Raymond holding them on trust for Raymond. A declaration to this effect should be granted.

165.  I shall make an order that the Uncle do take all necessary steps to transfer the title of the Relevant Floors to Raymond as soon as practicable. In the meantime, he should be injuncted from dealing with or disposing of the Relevant Floors.

166.  The Uncle has no right to treat the Relevant Floors as his own property and receive rental income from the Relevant Floors. He should give a full and proper account of all the benefit derived from the use of the Relevant Floors and Raymond should be entitled to an equiry.

167.  In other words, I am convinced that the reliefs sought in the ASOC should be granted.

168.  There is no reason why costs should not follow the event. I shall make an order nisi that the Uncle do pay costs of the action including all costs reserved to the Estate and Raymond, to be taxed if not agreed.

169.  Lastly, I thank Mr Chan and Mr Yeung for their assistance.