Features

Illegality – Contractual arrangements requiring false declaration to government to take advantage of small house policy – Whether enforceable – Buildings Ordinance (Application to the New Territories) Ordinance (Cap 121) – Buildings Ordinance (Cap 123)

Trusts – Resulting trusts – Conveyance of ownership – Small House Policy – Assignments and re-assignments executed without proper consideration – Alleged illegality of assignments – Whether held on resulting trust

Civil procedure – Summary disposal of case on point of law – Whether application should be refused as ‘belated’ – RHC Order 14A

LAU TING TAI v CHUNG CHUN KWONG [2010] 3 HKC 352

Court of First Instance
Action No 2052 of 2006
Reyes J
17 February 2010

Robin McLeish (Bough & Co) for the plaintiff.
Patrick Chong (Lam, Lee & Lai) for the 2nd to 5th defendants.

The 2nd to 5th defendants (the Defendants) were indigenous villagers with rights to the grant of a small house under the government’s Small House Policy. The Buildings Ordinance (Application to the New Territories) Ordinance (Cap 121) (BOANTO), which regulated the manner in which small houses may be built, conferred privileges on villagers entitled to have a small house such as exemption from compliance with certain requirements of the Buildings Ordinance (Cap 123), free building licence or concessionary rate on the private grant of land from the government.

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

The Joint Deed envisaged that the Lands 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 also 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 two small houses to Ms Lau without payment as a reward for her contribution of the Lands. 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 Lands, the proposed development would be terminated. The Joint Deed would then automatically become void and the Lands would be re-assigned by Simstar to Ms Lau. Pursuant to the Joint Deed, Simstar entered into Joint Development Agreements with each of the Defendants. 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’.

Ms Lau, pursuant to the Joint Deed, assigned the Lands to the Defendants respectively by various Deeds of Assignments (the Assignments). Meanwhile the Defendants executed Deeds of Re-Assignment (Re-Assignments) in relation to the Lands in favour of the Ms Lau. These Re-Assignments were held by Simstar’s solicitors.

Although the Assignments recited that the Lands were conveyed for $250,000 each to the Defendants, no consideration was ever paid (or ever intended to be paid) to Ms Lau by any of the Defendants.

Ms Lau alleged that the Assignments were made to further an illegal purpose to enable the Defendants to apply to the government for small houses to be built on the Lands assigned to them. The Defendants had to falsely declare that they had not made any private arrangement for the sale of their small house rights in their applications. Those applications were made by Simstar on the Defendants’ behalf and were still under consideration.

Ms Lau sued the Defendants for the return of the Lands. She applied for summary determination under O 14A to determine whether the Lands were held for her by the Defendants on resulting trust. The Defendants claimed that the application was ‘belated’ as the case was ready to be set down for trial with the claim against the 1st Defendant and this might lead to ‘inconsistent findings’.

Held, allowing the application, and entering final judgment against the Defendants:
The arrangements among Ms Lau, Simstar and the Defendants were contrary to public policy because they necessarily involved the Defendants’ false declarations that they had made no arrangement with a developer for the sale of their small house rights in their small house applications to the government.

The Assignments (read in the context of the Joint Deed between Simstar and Ms Lau and the Joint Development Agreements between Simstar and the Defendants) were simply a way of furthering the development scheme, ie to lend credibility to the Defendants’ claim for the grant of permission to build a small house on the Lands (ostensibly belonging to them legally and beneficially) for 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.

The Assignments having been made for an illusory consideration, there was a presumption that the Lands assigned thereby were held by the Defendants on resulting trusts for Ms Lau. Thus, 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 the Lands back to her.

The law did not usually enforce illegal contracts. But a party to an illegality could recover by virtue of a legal or equitable interest if, but only if, that party could establish title without relying on an underlying illegality.

The conveyances of the Lands were made for no consideration. That gave rise to a presumption of resulting trust by operation of equitable principles. It was thus possible for Ms Lau to claim a beneficial right to the Lands 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.

The Defendants failed to rebut the presumption of resulting trust because they could not rely on the underlying illegality to establish title. The arrangements of conveying the Lands to the Defendants without proper consideration were for the purpose of making 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.

There were no triable issues as to the parties’ true intention at the time of the Assignments. The scheme envisaged in the Joint Deed, the Joint Development Agreements, the Assignments and the Reassignments would not be possible unless the Defendants made false declaration in their Small House Application forms. The legal conclusion in favour of Ms Lau was inevitable.

The application was not ‘belated’ although the case was ready to be set down for trial with the claim against the 1st Defendant. There was no explanation why giving judgment against the Defendants and allowing the claim against the 1st Defendant to proceed separately might lead to ‘inconsistent findings’.