LAU TING TAI v. CHUNG CHUN KWONG AND OTHERS

HCA 2052/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2052 OF 2006

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BETWEEN

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J U D G M E N T

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INTRODUCTION

1.  Ms Lau sues the 2^nd to 5^th Defendants for the return of Lands B, C, D and E respectively. Lands B to E are more precisely identified in the Amended Statement of Claim. For convenience, in this Judgment I shall refer to the 2^nd to 5^th Defendants collectively as “the Defendants”.

2.  Ms Lau contends that Lands B to E are held for her by the Defendants on trust. In these proceedings, I am asked summarily to determine under Order 14A whether Ms Lau is right in law.

3.  Ms Lau makes a similar claim in relation to the 1st Defendant and Land A. But in that situation, Ms Lau accepts that there are disputes of fact which render her claim to Land A unsuitable for summary determination.

II. BACKGROUND

4.  The Defendants are indigenous villagers with rights to the grant of a small house under the Government’s Small House Policy.

5.  The Buildings Ordinance (Application to the New Territories) Ordinance (Cap.121) (BOANTO) regulates the manner in which small houses may be built. For instance, a small house must be no more than 3-storeys or 27 ft in height and must have a maximum roofed-over area of 700 sq ft. But BOANTO also confers privileges on those entitled to have a small house. For instance, it exempts small houses from having to comply with certain requirements of the Buildings Ordinance (Cap.123).

6.  An indigenous villager wishing to build a small house may apply for a free building licence or for a private grant of land from the Government at a concessionary rate. Indigenous villagers wishing so to apply must complete a standard Small House Application form. That form requires an indigenous villager to make the following declaration: “I have never made and have no intention of making any private arrangements for my rights under the Small House Policy to be sold to other individual/a developer.”

7.  Simstar is a company of which the 1^st Defendant is a director. On 14 May 1997 Ms Lau and Simstar signed a Deed of Joint Development (the Joint Deed). By that document Simstar agreed to develop certain lots (including the parcels of land where Lands B to E are situated) jointly with Ms Lau. The lots would be provided by Ms Lau (who at the time was the registered owner thereof).

8.  The Joint Deed envisaged that the subject lots would be sub-divided into sub-lots on which small houses would be built. Simstar would find eligible indigenous villagers to apply for permission to build small houses on the sub-lots under Government’s Small House Policy. Simstar would then be responsible for the cost of constructing the small houses. Upon the completion of construction by Simstar and the issue by the Government of requisite Letters of Compliance, Simstar would allocate 2 small houses to Ms Lau without payment as a reward for her contribution of the Land.

9.  The Joint Deed also provided that in the event that changes in Government regulation or circumstances beyond the parties’ control made it impossible to obtain grants for small houses in connection with the subject lots, the proposed development would be terminated. The Joint Deed would then automatically become void and the subject lots would be re-assigned by Simstar to Ms Lau.

10.  Pursuant to the Joint Deed, Simstar entered into Joint Development Agreements with each of the Defendants between 14 May 1997 and 1 May 1998. Each Joint Development Agreement recited that Simstar owned “development rights for indigenous villager-type houses” and identified the Defendants as “indigenous villagers ... who claimed to have never sold [their] Ting right [that is, the right to a small house] or used it for the purposes of entering into a joint development agreement with any parties”.

11.  Each Joint Development Agreement further provided that Simstar would at some stage assign or cause to be assigned a sub-lot to a relevant Defendant for purposes of “joint development”. Upon execution of the assignment, the Defendant would apply to the Government as an indigenous villager for the grant of a small house on the assigned sub-lot. All construction costs would be borne by Simstar. Following construction by Simstar of a small house on a Defendant’s assigned land, the Defendant would re-assign the small house and the sub-lot on which it was built to Simstar or its nominee. Simstar would bear assignment fees, payments of premium and stamp duty. If a Defendant’s application for a small house was unsuccessful, the Defendant would unconditionally re-assign the sub-lot back to Simstar or its nominee. In return for a Defendant’s participation in the scheme, Simstar agreed to pay a Defendant $160,000. Finally, the Joint Development Agreements authorised Simstar to act as the Defendants’ agent “for signing and executing all related documents for the selling and leasing of the ... land and the house constructed on it”.

12.  For her part, likewise pursuant to the Joint Deed, Ms Lau assigned Lands B to E to the Defendants respectively by various Deeds of Assignment (the Assignments) all dated 20 January 1999. But on the same day that she executed the Assignments, the Defendants executed Deeds of Re-Assignment (Re-Assignments) in relation to Lands B to E in favour of Ms Lau. These Re-Assignments (which have not been exhibited to the Court) are held by Simstar’s solicitors.

13.  Although the Assignments each recite that the relevant Land was conveyed for $250,000 to a Defendant, no consideration was ever paid (or ever intended to be paid) to Ms Lau by any of the Defendants.

14.  Ms Lau says that the Assignments were simply made to further an illegal purpose. More specifically, the Assignments were made to enable the Defendants to apply to the Government for small houses to be built on the sub-lots assigned to them. In making such applications, the Defendants would (as mentioned above) have to declare that they had not made (and had no intention of making) any private arrangement with a developer for the sale of their small house rights. But such declaration (Ms Lau says) would here amount to a fraudulent (and so unlawful) misrepresentation. This is because (Ms Lau points out) by the Joint Development Agreements the Defendants have entered into private arrangements with Simstar as developer for the exploitation of their small house rights.

15.  Applications have been made to the Government by Simstar acting on behalf of the Defendants for small houses to be built on Lands B to E. As of the date hereof, those applications are still under consideration.

III. DISCUSSION

16.  The arrangements among Ms Lau, Simstar and the Defendants is not substantially different from that which was found to be illegal and unenforceable by the Court of Appeal in Chung Mui Teck v. Hang Tak Buddhist Hall Association [2001] 2 HKLRD 471. The arrangement in the latter case was held to be contrary to public policy because it necessarily involved indigenous villagers falsely declaring that they had made no arrangement with a developer for the sale of their small house rights.

17.  Here, as Mr Robin McLeish (appearing for Ms Lau) observes, the Joint Development Agreements are in effect arrangements for the sale of the Defendants’ small house rights at $160,000. The Joint Development Agreements are precisely the type of arrangements which the Defendants would have had to deny (and must have denied) in their small house applications to Government.

18.  The applications have not been produced to this Court. I assume that this is because, having been prepared and lodged by Simstar on behalf of the Defendants, they are not in Ms Lau’s possession. But it is hard to see how one can escape an inference that false declarations were made in the applications. If they were not made, the Defendants’ applications to build small houses would all fail. The whole scheme could not proceed. Lands B to E would have to be re-assigned by the Defendants to Simstar or its nominee pursuant to the Joint Development Agreements and then by Simstar to Ms Lau pursuant to the Joint Deed.

19.  The Assignments are on their face conveyances of Lands B to E by Ms Lau as registered owner to the respective Defendants for money consideration. But no money has actually been paid by the Defendants and instead Re-Assignments in Ms Lau’s favour have been prepared. Plainly, the Defendants were never intended to become the beneficial owners of Lands B to E. The Assignments and Re-Assignments have here the same practical effect as declarations of trust by the Defendants in favour of Ms Lau.

20.  As is apparent from the Joint Development Agreements, the small houses to be built by Simstar on the sub-lots under any grant by the Government to the Defendants were never intended to be used for the Defendants’ habitation. Once constructed, the small houses were to be assigned to Simstar (or its nominee) presumably for on-sale to the public.

21.  The Assignments have to be read in the context of the Joint Deed between Simstar and Ms Lau and the Joint Development Agreements between Simstar and the Defendants. The Assignments were simply a way of furthering the development scheme, that is, to lend credibility to the Defendants’ claim for the grant of permission to build a small house on sub-lots (ostensibly belonging to them legally and beneficially) for the purposes of their habitation. The Assignments were self-evidently made as a sham support of the declaration required to be made in the Small House Application form.

22.  The Assignments having been made for an illusory consideration, there is a presumption that Lands B to E assigned thereby are held by the Defendants on resulting trusts for Ms Lau. Accordingly, Ms Lau should in the normal course of events be entitled to enforce her rights as beneficiary under the resulting trusts to require the Defendants to assign Lands B to E back to her.

23.  Does the element of illegality make any difference? The law does not usually enforce illegal contracts. But a party to an illegality can recover by virtue of a legal or equitable interest if, but only if, that party can establish title without relying on an underlying illegality. See Best Sheen Development Ltd. v. Official Receiver [2001] 1 HKLRD 866 (Yuen J) (at 874I), citing Lord Browne-Wilkinson in Tinsley v. Milligan [1994] 1 AC 340 (HL) (at 375).

24.  Here one has conveyances of land made for no consideration. That gives rise to a presumption of resulting trust by operation of equitable principle. It is thus possible for Ms Lau to claim a beneficial right to Lands B to E without reference to any illegality arising out of the scheme of the Defendants’ entering into private arrangements with Simstar while making a declaration to the contrary.

25.  It is open to the Defendants to rebut the presumption of resulting trust. But, if they are to rebut the presumption and retain the sub-lots assigned to them, they in turn cannot rely on the underlying illegality to establish title. I am unable to see how the Defendants can establish title without reference to the underlying illegality. The Defendants would effectively have to say that they have some sort of title because they entered into an arrangement whereby the sub-lots were conveyed to them for the purpose of (and in consideration of their) making a false declaration to the Government. If the Court were to uphold the Defendants’ claim to title, the Court would be lending assistance to an illegality.

26.  MrPatrick Chong (on behalf of the Defendants) argues that there is no resulting trust upon which Ms Lau may rely. But I do not think that such suggestion is tenable. There is here a conveyance of property without proper consideration. That is the classic situation in which a resulting trust is presumed. MrChong relies on the fact that, contrary to a term in the Joint Deed, Simstar did not obtain from the Defendants declarations of trust of Lands B to E in Ms Lau’s favour. However, the Assignments and Re-Assignments taken together amount in effect to declarations of trust. One asks rhetorically: If the Defendants were intended to take Lands B to E beneficially from Ms Lau, why would they be re-assigning the same to her simultaneously with the Assignments to them?

27.  MrChong suggests that, if there is any trust of Lands B to E in the Defendants’ hands, it might be one in favour of Simstar as beneficiary. I am unable to accept this contention. The mere fact that the Defendants undertook by the Joint Development Agreements to re-assign their sub-lots to Simstar or its nominee in the event that the Defendants’ applications for small houses proved abortive, would not give Simstar a beneficial interest in Lands B to E. It is conceivable that Simstar might itself claim some sort of beneficial interest in Lands B to E. But it is difficult to see how Simstar could do this without reference to the whole scheme in the Joint Deed and the Joint Development Agreements, including the need to have the Defendants make false declarations to the Government. If so, the Court could not entertain Simstar’s explanation of an alleged beneficial interest as Simstar would have to rely on the illegality underlying the scheme.

28.  MrChong submits that there are triable issues as to the parties’ true intention at the time of the Assignments. But I do not agree. As in Chung Mui Teck the documents here (the Joint Deed, the Joint Development Agreements and the Assignments) speak for themselves. In particular, the scheme envisaged in the Joint Deed and the Joint Development Agreements would not be possible unless the Defendants made false declarations in their Small House Application forMs On the documents and on the undisputed facts, the legal conclusion in Ms Lau’s favour seems to me inevitable.

29.  MrChong argues that it is unclear that Ms Lau was aware of the illegality involved in carrying out the scheme under the Joint Deed. If so, Mr Chong says that Ms Lau may have intended truly to convey Lands B to E to the Defendants. It is therefore necessary (MrChong reasons) to have a trial as to Ms Lau’s true intentions and beliefs. I do not accept this. There seems to me to be no triable issue here. As I have noted, on the undisputed facts, there were Re-assignments of Lands B to E at the same time as the Assignments to the Defendants. There would not have been such if an outright gift of land was intended. MrChong’s suggestion of a triable dispute in relation to Ms Lau’s intention in making the Assignments does not square with the accepted facts. For what it is worth, MrMcLeish confirms that Ms Lau was aware that the scheme required the making of fraudulent declarations. Indeed, one of Ms Lau’s arguments is that she is entitled to the return of Lands B to E because of her repentance from the scheme.

30.  Finally, MrChong says that Ms Lau’s application is “belated”. The case is (MrChong notes) now ready to be set down for trial. It should be allowed to proceed and be heard in conjunction with the claim against the 1^st Defendant. Again I do not agree. Given that Ms Lau’s legal position is clear, I do not see why the Court should delay judgment at this stage. There is no benefit to be obtained. Mr Chong does not explain why giving judgment against the Defendants now and allowing the claim against the 1^st Defendant to proceed separately might lead to “inconsistent findings”.

31.  MrMcLeish submits in the alternative that Ms Lau should be entitled to the return of Lands B to E by reason of a constructive trust in her favour or by reason of the doctrine of locus poenitentiae (repentance). But, in light of my conclusion on resulting trust, it is unnecessary for me to deal with these alternative bases of argument.

IV. CONCLUSION

32.  Ms Lau succeeds against the 2^nd to 5^th Defendants. There will be final judgment against them in the form of:-

(1)  a Declaration that the 2nd to 5th Defendants hold Lands B to E on resulting trust for Ms Lau; and,

(2)  an Order that the 2nd to 5th Defendants give vacant possession of Lands B to E within 28 days.

33.  There will be liberty to apply.

34.  I shall hear the parties on costs and consequential orders.