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HCA 729/2011
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 729 OF 2011
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BETWEEN
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TANG TENG (or TING) HONG (or HON) TSO (鄧鼎康祖又名鼎康祖) with TANG HO SING (鄧河勝) alias TANG HO SHUN (鄧河信)
TANG WAI LAM (鄧偉林), TANG KOON FUK (鄧觀福) and TANG KEE SANG (鄧己生) as Managers |
Plaintiff |
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and
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CHEUNG TIN WAH ( 張天華) |
1st Defendant |
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RICH CONCORD HOLDINGS LIMITED |
2nd Defendant |
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| Before: Hon Au-Yeung J in Court |
| Dates of Hearing: 7 and 8 April 2014 |
| Date of Judgment: 14 April 2014 |
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J U D G M E N T
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1. The plaintiff seeks recovery of landed properties from the defendants under the principles of resulting trust.
The facts
2. The Tang Teng Hong Tso (“the Tso”) is an ancestral worship trust. The named plaintiffs are its current managers.
3. The 1st defendant (“D1”) was in the business of developing small houses in the New Territories and the 2nd defendant (“the company”) was and is his corporate vehicle.
4. Prior to 23 February 1998, the plaintiff was the registered owner of the Remaining Portion of Section A of Lot No. 1326 and the Remaining Portion of Lot No. 1322, both in Demarcation District No. 112 (collectively “the lands”).
5. On 26 June 1997, the plaintiff (acting through its then managers) and D1 entered into a 合作發展丁屋協議 (“the agreement”) to jointly develop small houses on the lands.
6. Under the agreement, the plaintiff was to provide the lands while D1 would provide the capital and all costs for development: clauses 1 and 3.1. D1 had to buy ting rights (買丁權), partition the lands, and apply for building licenses (丁牌) within 18 months, failing which the plaintiff may terminate the agreement and demand D1 to return the lands: clause 3.3. Within 60 days of the grant of building licenses, D1 had to commence construction of the houses and deliver them to the plaintiff within 18 months: clause 3.4. The plaintiff would be given 5 small houses whilst D1 would have the rest: clauses 4.1 and 4.2. The plaintiff could sell the 5 small houses to D1 for $3.3m each and D1 would be responsible for paying the land premium: clause 3.4. D1 would also be responsible for paying the land premium for the remaining houses: clause 3.4. If the District Lands Office confirmed it would not issue building licenses, D1 had to return the lands to the plaintiff within one year: clause 3.7.
7. The obligations of D1 under the agreement were subsequently taken over by the company under a 承諾保證書 (“the undertaking”) dated 23 February 1998. Clause 6 of the undertaking was similar to clause 3.7 of the agreement.
8. On 16 July 1997, the plaintiff applied to the District Lands Office for the sale/transfer of the lands at $3.88m for the purposes of:
(i) Paying for the costs of repair of the Tso’s properties;
(ii) Maintaining a reserve fund for worshipping ancestors; and
(iii) Sponsoring the education costs of the children of the Tso’s descendants.
The plaintiff’s witness, 鄧己生 (“Mr Tang”), stated in his oral evidence that those purposes were “made up” for the District Lands Office’s consideration (作D理由比地政處睇).
9. On 23 February 1998, with the approval of the District Lands Office, the plaintiff assigned the lands to the company. The assignment contained an acknowledgement made by the plaintiff’s then managers of receipt of the consideration of $3,880,000 (“the acknowledgment”). In fact, the plaintiff had only received $200,000 as deposit (“the deposit”) from the defendants.
10. The property market fell drastically in the year 1998. The development was put to a halt. No building licenses had been applied for in respect of the lands (contrary to what was stated in D1’s witness statement).
11. The parties then entered into a supplemental agreement dated 24 March 2000 to vary the agreement. One of the 2 variations was that 5 houses to be built on lot no. 1327 in DD 112 (“lot no. 1327”) were allocated to the plaintiff: clause 2. Subject to those 2 variations all other terms of the agreement remained valid. In the witness box, D1 stated, for the first time, that 5 tings had applied for building licenses in respect of lot no. 1327, but till now there has been no approval or rejection.
12. For 17 years since the agreement, the lands have been left vacant. The plaintiff took out this action in 2011.
13. The above facts are largely not disputed and I accept them to be true.
The parties’ cases
14. It is not disputed that the agreement, the supplemental agreement and the undertaking (collectively “the agreements”) were illegal. The plaintiff’s case is that since the illegal purpose had not been carried into effect, the lands should be returned to the plaintiff under the doctrine of locus poenitentiae. Alternatively, the transfer of the lands to the company was a voluntary assignment and hence the company is holding the lands on resulting trust for the plaintiff.
15. The defendants contend that they had provided consideration in the amount of $2,447,900 (including the deposit). They say that the plaintiff is estopped by deed from denying the defendants’ provision of consideration. Further, the common intention of the parties at the time of the assignment was not for a trust to be created but for an outright transfer of the lands to the defendants.
16. The issues are therefore:
(A) Whether the doctrine of locus poenitentiae is applicable;
(B) Whether the defendants had provided consideration for the assignment;
(C) Whether the plaintiff is estopped by deed from denying receipt of the consideration; and
(D) Whether there was an outright transfer of the lands to the defendants so that no resulting trust could arise.
Credibility of witnesses
17. Only Mr Tang and D1 gave evidence for the plaintiff and the defendant respectively. Both of them were evasive witnesses. Upon given warnings against self-incrimination, they avoided answering questions relating to legality of the agreements.
18. By way of example, Mr Tang elected not to answer the question as to whether or not the purposes for the sale of the lands were true. D1 elected not to answer the questions as to:
(i) whether or not a ting had to make a false declaration in order to apply for a building license;
(ii) whether a ting had to pay the developer for transfer of the land to the ting;
(iii) whether a 回頭契 (a document signed in advance by a ting to transfer houses back to the developer) would still be useful after a small house is built;
(iv) how a developer would protect itself against the contingency of a ting selling a small house instead of assigning it to the developer.
19. I find their evasive attitude to be a reflection that they personally knew about the illegality of the arrangement under the agreements and elected not to answer to avoid incriminating themselves.
Documentary evidence
20. Given the evasive attitude of the witnesses, this court places great emphasis on the documentary evidence, except for 2 items:
(a) a report of the Audit Commission dated 15 October 2002 on Small House Grants in the New Territories; and
(b) a paper known as Rethinking the Small House Policy.
They contained opinion evidence on how the government policy on small houses was abused and has no place in a case like the present. I disregard those 2 documents.
Applicable legal principles
21. The principles distilled from the authorities are as follows:
(1) Where an agreement is entered into for an illegal purpose, the court will not enforce it. Best Sheen Development Ltd v Official Receiver [2001] 1 HKLRD 866, Yuen J (as she then was); Cheerbond Development Ltd v Tung Kwok Yu [2010] 2 HKLRD 546.
(2) A development scheme that takes advantage of the Small House Policy under which an applicant ting would have to represent himself as the legal and beneficial owner of a piece of land even though he would merely be holding it as a nominee is illegal, as it would necessarily involve making of a false declaration and hence commission of the tort of misrepresentation to the government. See Best Sheen’s case at 874B-C; affirmed in Chung Mui Teck & ors v Hang Tak Buddhist Hall Association Ltd & anor [2001] 2 HKLRD 471 at 477F-H.
(3) It is no answer that no false statutory declaration has yet been made if the implementation of the scheme necessarily involves the making of such a declaration: Chung Mui Teck’s caseat 477H.
(4) However, a party to an illegality can recover by virtue of a legal or equitable property interest if he did not need to rely on the illegal contract for any purpose other than providing the basis of his claim to the property right: the Best Sheen case at page 874D-E.
“… a declaration that the plaintiff is the beneficial owner of the Land does not amount to enforcement of the illegal contract.
This is because the plaintiff is not forced to rely on the illegal contract for the declarations sought as to its property interests, even though the illegal contract explains why it came about that the bankrupt was registered as the owner of the land.” (page 874C-E)
(5) A classic example was the claimant’s reliance on resulting trust where he provided the consideration for the acquisition of a property and was not the named purchaser or where a voluntary transfer was involved. See the Cheerbond case at para 9(b); Best Sheen caseat page 874F-875A.
(6) In respect of an assignment containing a clause acknowledging receipt of the consideration when it was not paid, even if pursuant to section 17 of the Conveyancing and Property Ordinance, Cap 219, the effect was that the plaintiff did not retain a beneficial interest in the land, the plaintiff could recover the land under the doctrine of locus poenitentiae. Under the doctrine, a party...
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