Li Lap Wai v. Lee Tin Choi also known as Li Tin Choi and Another

HCA 2287/2014

[2021] HKCFI 3923

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2287 OF 2014

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Before: Hon Au-Yeung J in Chambers

Dates of Hearing: 17-18, 20-21, 24-25 and 31 May 2021

Date of Judgment: 31 December 2021

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J U D G M E N T

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A.    INTRODUCTION

1.The Plaintiff is the nephew of the Defendant couple. The Plaintiff’s father is Li Tsuen (alias Lee Chuen),who is D1’s half-brother. Their dispute is over beneficial ownership to a small house (“the Property”) erected as a result of an illegal development of small houses in the New Territories.

2.Under the development agreement, D1 provided land. The developer provided capital, ting fees and building costs. The land was sub-divided into 7 lots and assigned to 7 tings, including the Plaintiff and 2 sons of D1. The tings, applied for building licenses which involved the making of false declarations, in exchange for a house and/or ting fees. The agreement provided for 3 houses to be allocated to D1’s side upon completion.

3.Upon completion of the development, 2 houses were given to D1’s sons, which were sold immediately to the developer. The keys to the third house, ie. the Property were given by the developer to the Plaintiff/Li Tsuen. However, the title deeds, including a General Power of Attorney purportedly signed by the Plaintiff with the donee’s particulars left blank (“Purported GPA”) and the Plaintiff’s will, were given by the developer’s solicitors to D1.

4.Seven years after the Plaintiff and his father have been in possession of the Property, without any formal demand, D1, as donee of the Purported GPA, transferred the Property to D2, his wife (“the Transfer”).

5.This is the Plaintiff’s claim for declarations as to beneficial ownership over the Property, to set aside the Transfer and for damages. The claim is denied by the Defendants. D2 seeks vacant possession and mesne profits.

6.Each party claims that he/she does not have to rely on the illegal development agreement to establish his/her entitlement to the Property. D2 accepts that her case stands and falls with that of D1.

7.The Plaintiff relies on his registered title to the sub-divided lot (“Lot 739E”) since 1997 till now and continuous possession of the Property from 2007 till now. Although no money consideration was provided to D1 for Lot 739E, Li Tsuen had provided consideration in the form of (i) giving up his 50% share in 2 land lots jointly owned with D1 and (ii) demolition of the Brick House (in which Li Tsuen used to reside and which stood on D1’s land) to pave way for the development.

8.Li Tsuen had made clear to the developer and D1 that Li Tsuen would only agree to the development if he/the Plaintiff would be allocated the small house to be erected on Lot 739E (“Pre-Condition”). D1 allegedly agreed. In the development agreement(s) (including cancelled, new and supplemental ones), D1 allegedly acted as agent for Li Tsuen.

9.In addition, Li Tsuen had applied $400,000 ting fees of his sons to purchase the Garden Land adjoining Lot 739E and better building materials for the Property. These were done with the knowledge of D1 and in part performance such that D1 was estopped from denying that Lot 739E was to be allocated to Li Tsuen.

10.The Plaintiff claims that the Purported GPA was forged and procured from him by misrepresentation. D1 had filled in details in the Purported GPA to effect the Transfer at nil consideration. It was in fraud of the Plaintiff, in breach of his duty as donee and a sham.

11.On the other hand, D1 relies on resulting trust because at the time of assignment of Lot 739E to the Plaintiff, the developer, the Plaintiff and Li Tsuen had not provided consideration to D1. Without beneficial ownership, the Plaintiff suffered no loss and his claim must fail.

12.Further, D1 submits that the Plaintiff has to rest his entitlement on the illegal development agreements. In any case, Li Tsuen/the Plaintiff was not a party to any of those agreements. Their entitlement to the Property would fail for want of writing. D1 denies being Li Tsuen’s agent and queries the Plaintiff’s locus.

13.D1 also claims that he was supposed to get 3 houses under the development. He never agreed to let Li Tsuen/the Plaintiff have one. The Plaintiff’s participation in the development was confined to ting fees. That explained D1’s possession of the title deeds and the Purported GPA, the sole purpose of which was to enable the Plaintiff’s bare legal title in Lot 739E to be disposed of upon completion of the house.

14.As donee of the General Power of Attorney, D1 was advised that he could not transfer the Property to himself, so he transferred it to D2.

15.D1 denies that estoppel or part performance applied. D1 claims to have no knowledge of expenses incurred on the Plaintiff’s side. The Garden Land was to improve the living environment of Li Tsuen and his family but did not constitute substantial improvement of the Property as would give rise to any interest in land or estoppel.

16.Upon completion of the Property in 2007 and upon request of Li Tsuen, D1, as beneficial owner, licensed Li Tsuen to reside there rent-free. That licence expired upon the death of Li Tsuen in 2016, or was revoked upon filing of D2’s counterclaim on 16 October 2017. D2 seeks an order for possession of the Property and damages.

17.By the time of closing submission, it was quite clear that the development was an illegal one in violation of the government’s Small House Policy. There was not a single document signed by Li Tsuen/the Plaintiff showing them to have beneficial interest in Lot 739E/the Property. There was nothing in writing to point to D1’s agency. The Purported GPA appeared to be consistent with a usual illegal scheme for development of small houses, even on the evidence of the Plaintiff’s witnesses. The Plaintiff did not heavily contest his signature on the Purported GPA and his focus was on the representation made to him by the solicitor’s clerk.

18.As the development had been wholly completed, there is not much question of “part” performance. The Plaintiff’s best case appears to rest on estoppel.

B.  ISSUES

19.The parties have given me an 8-page list of agreed issues with multiple references, which was like another set of pleadings. I have re-categorized the issues as follows:

(1)  Whether D1 had agreed to the Pre-Condition (“Pre-Condition Issue”);

(2)  Whether D1 acted on behalf of himself and Li Tsuen in entering into the development agreements (“Agency Issue”);

(3)  Whether the development agreement was an illegal agreement (“Illegal Agreement Issue”);

(4)  Whether the Purported GPA was procured by misrepresentation (“Purported GPA Issue”);

(5)  Whether the Plaintiff is entitled to the Property as a registered owner (“Registered Ownership Issue”);

(6)  Whether D1 is entitled to the Property on resulting trust principle (“Resulting Trust Issue”);

(7)  Whether the Plaintiff is entitled to the Property on the ground of part performance (“Part Performance Issue”);

(8)  Whether the Plaintiff is entitled to the Property on proprietary estoppel principles (“Estoppel Issue”);

(9)  Whether the Plaintiff is entitled to damages (“Plaintiff’s Damages Issue”); and

(10)  Whether D2 is entitled to damages (“Counterclaim”).

C.  CREDIBILITY OF WITNESSES

C(1). Legal principles

20.There was heavy dispute of facts, so witnesses’ credibility was important. The following legal principles on determining credibility can be distilled from the case of Sun Hoi Tat v Profectus Investment Group Limited , HCA 1366 of 2013, §§11 & 12, Chung J, 4 August 2016:

(1)  The court considers whether a witness’s testimony is inherently plausible or implausible and whether his testimony is, in a material way, contradicted by undisputed or indisputable evidence or contemporaneous documents.

(2)  Where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility.

(3)  Regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest.

(4)  A trial judge is not compelled to choose between two theories, where the evidence is unsatisfactory. It is not possible to proceed on the basis of eliminating the impossible and deciding that the remaining explanation, however improbable, must be the cause. The concept of proof on a balance of probabilities has to be applied with common sense.

21.The failure to disclose relevant documents may entitle the Court to draw adverse inference against that party: Telings International Hong Kong Ltd v John Ho, CACV 10 of 2010, 22 October 2010,§79, citing Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKC 713.

“… The failure to bring before the tribunal some circumstances, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so; and this fear is some evidence that the circumstances or document or witness, if brought, would have exposed facts unfavoruable to the party…”

C(2). Credibility of Plaintiff’s witnesses

22.The Plaintiff’s case rested heavily on oral evidence and oral agreements. Unfortunately, Li Tsuen, who could give material evidence, has passed away. Lee Moon, a material witness of the developer, was not willing to give evidence. In contrast, the Defendants’ case rested substantially on documents.

23.The Plaintiff himself, Lee Kwok Keung Man, Wong Kot Ki (“KK Wong”) and Chan Ching Chiu (“Chan”) gave evidence on behalf of the Plaintiff. D1, D2 and Wong Yuet Ying (“Madam Wong”) gave evidence for the Defendants. Regrettably, none of the witnesses were entirely reliable.

24.On the Plaintiff’s side, for the obvious reason of not wanting to incriminate themselves, all the witnesses were careful in avoiding any admission that Li Tsuen and/or his sons were involved in an illegal development scheme.

25.This was especially true of Chan who was project manager of the developer and son-in-law of Lee Moon at the material time. He claimed to have knowledge of the Small House Policy at the equivalent of PhD standard. He used to assist developers in developing land and had brought tings to make declarations at the District Land Office. He plainly knew the illegal nature of the subject development.

26.Chan was evasive in answering questions on the Small House Policy. He would not listen to questions clearly, gave convoluted answers that went round in circles. He often criticized the questions of Mr Chong, counsel for the Defendants, as irrelevant when they were not. Often times, Mr Chong had to question him in 3 different days to get at an answer. An example was he insisted that the developer would “enjoy the fruits of cooperation with the tings” instead of admitting that the developer enjoyed benefits in the development for which they were not entitled to under the Small House Policy.

27.However, Chan volunteered to be the Plaintiff’s witness. He was the person who drafted and produced the Chinese Memorandum, Unsigned Supplemental Agreement and the Signed Supplemental Agreement. He has no interest in the outcome of this case. I accept that his motive was to let the Court know that Li Tsuen/the Plaintiff had interest in the Property and I accept the documents he produced to be genuine.

28.That aspect of their credibility concerning the illegality of the development aside, the evidence of the Plaintiff’s witnesses still carried some reliable truth as to Li Tsuen/the Plaintiff’s interest in the development when considered against the objective circumstances. I shall deal more on credibility of each witness under specific issues below.

C(3). Credibility of Defendants’ witnesses

29.D1’s credibility is worthy of special mention. It was disclosed by Mr Chong only on the 5^th day of trial, that D1 has been suffering from Alzheimer disease. The medical certificate of D1 dated 14 May 2021 stated him to have such disease since 3 years ago, ie 2018; that D1 had an MMSE score of 16/30; and, most importantly, that D1’s evidence might be unreliable.

30.The year 2018 was critical as it was in between the making of the two witness statements of D1. Such late and material non-disclosure of D1’s mental condition was poor litigation conduct and unjust to the Plaintiff, as there was no opportunity for the Plaintiff to investigate.

31.Mr Chong, without medical evidence, stated that D1’s concentration could only last for 20 minutes; and that he would lose memory of things said 20 minutes ago.

32.I have made detailed notes during the trial to aid my memory of witnesses’ credibility. My observation was that D1 could stay focussed even after 20 minutes. Rather, it was his answers in the witness box that were difficult to follow. He was not clear as to time. He had difficulty confirming the truth of his 2 witness statements. He even said that “whatever the barrister led him to say, he would say it.”

33.He could not remember if he had applied for building a small house in 1978. He said that he had wanted to allow Li Tsuen (instead of D1 himself) to apply for a licence for building a small house on D1’s land. He could not remember the Lot numbers of the land that would be involved in the development of the subject ting houses. He was not clear whether Li Tsuen had interest in those Lots. D1 said he could not analyze.

34.On at least 2 occasions under cross-examination, he admitted that Li Tsuen told him that Li Tsuen wanted the house at the location where Li Tsuen resided and D1 had not objected. He immediately refuted what he said and said that all 3 houses were his; or that he was not sure; or he could not remember.

35.In answer to the Court’s questions, D1 was adamant that he should get 3 houses under the old and new agreements. He did not know what Li Tsuen would get. He was also adamant that he only represented himself and not anybody else. However, he could not explain the amendments to the agreements. He could not follow how many meetings there were and whether Li Tsuen was present. He said the Hoover Fidelity Agreement did not meet his expectation (不大如我的意) but could not recall what it was. He nevertheless signed it. He agreed that the Million Ascent Agreement replaced the Hoover Fidelity Agreement and that everything was as previously agreed.

36.D1’s evidence as to whether Li Tsuen would get any house vacillated. His evidence as to the number of houses that Li Tsuen would get under the development scheme vacillated among none, 1 and 3. He said at one stage that since Li Tsuen was the elder brother, what he said should be followed, since D1 had not suffered any prejudice (既然你是大佬，你話咁就咁，我無蝕底過。) He also agreed at one stage that he would get 2 houses and Li Tsuen would get one, but later said he could not remember.

37.D1 agreed that since Lot 739E was allocated to Li Tsuen what Li Tsuen wanted to do with it was his business. When the Court asked who allocated Lot 739E to Li Tsuen, D1 said it was not clear; it was senior persons (長者); distributing assets (分家); and drew lots (抽簽).

38.In answer to the Court’s questions, D1 disclosed that he went to see a doctor because his own solicitor (or solicitor’s staff) found that he had given inconsistent versions of evidence. This was, in my view, the most credible piece of evidence from D1’s mouth.

39.Accordingly, given his unreliable evidence as shown in paragraphs 32-37 above, I shall not rely on D1’s evidence unless there is documentary proof or admission against his own interest.

40.D2’s evidence was unreliable also. Although she confirmed the contents of her witness statement to be true, she had not really read it before signing. Someone from the solicitor’s firm asked her to sign and she did so, without being clear as to whether the contents were true or not. In any case, her evidence was not of much use to the issues. I place no reliance on it.

41.In respect of Madam Wong, she was the clerk to Hagon Wai & Partners (“HWP”) who prepared documents on behalf of Million Ascent in the subject development. She brought the conveyancing file to Court. She has no interest in the present proceedings. She acted on the instructions of her principal, who in turn acted on the instructions given by Lee Moon or Chan. She had no reason to lie. HWP had been subject to disciplinary proceedings of the Law Society.

42.However, there were aspects in her evidence that were not satisfactory, which I shall explain further when I come to the Purported GPA Issue in Section H below.

D.  UNDISPUTED FACTS

43.The facts in this Section were either undisputed or indisputable as being supported by documentary evidence.

44.Li Tsuen (李全) and D1 are half-brothers. Their father is Li Tai Fu (李大富). D2 is D1’s wife.

45.Li Tsuen has 4 sons – the Plaintiff, Lee Kwok Keung Man, Lee Kwok Hung and Lee Yuet Wah. D1 has 2 - Lee Ken Wai (李健偉) and Lee Ken Lon (李健倫).

46.Li Tsuen and his family had been living on Lot 739 in Demarcation District No 11, owned by his father. The period of residence covered 1960 to January 1995 when Li Tsuen moved out to facilitate the subject development. For the initial period, Li Tsuen had been granted a Modification of Tenancy in respect of Lot 739 (“MOT”) on 22 July 1961. In 1973 he rebuilt the temporary structure into a Brick Housewithout the need to obtain permission from D1.

47.By a Succession to Property dated 19 September 1960, Li Tsuen and D1 succeeded to 28 lots of land from their father, as tenants-in-commons. By a document known as Divison of Property signed by Li Tsuen and D1, Lot 739, amongst others, fell under D1’s name.

48.Relying on the internal records of the Tai Po District Office dated 12 April 1960, the Plaintiff pleaded that Lot 739 was registered in the name of D1 for his “management” only, as if Li Tsuen had retained beneficial interest in Lot 739.

49.With respect, that was untenable because:

(1)  The Division of Property and internal records were unambiguous. Whilst the former stated the purpose of the division, the latter was a representation to the whole world as to ownership of the 28 lots.

(2)  Li Tsuen and D1’s conduct was inconsistent with the former retaining beneficial ownership in Lot 739. Both of them had separately disposed of land lots under their respective names in the Division of Property. At no time had either of them asserted beneficial interest in the rental income or sale proceeds of properties under the name of the other.

(3)  In a document dated 1 February 1978, Li Tsuen acknowledged D1 as land owner who authorized Li Tsuen to occupy the temporary structure on Lot 739. [C26]

50.I therefore find that since the Division of Property, D1 had been the sole owner of Lot 739.

51.Shortly after the Division of Property, in about 1963, D1 went to live and work in UK. He sold away his lots between 1961 and 1998.

52.A portion of Lot 739 had been surrendered to the government but Li Tsuen and his family continued to live on Lot 739 which became known as Lot 739RP.

53.By a Conveyance as Gift dated 8 November 1982, Lot Nos 693B and 1543A in DD 11 (“the Two Lots”) were assigned to Li Tsuen and D1 as tenants-in-common in equal shares.

54.In early 1997, Yim Tung Hoi (“Yim”) of Hoover Fidelity Ltd (“Hoover Fidelity”) expressed to Li Tsuen an interest in developing small houses on Lot 739RP and the Two Lots. Upon completion of the development, the small houses would be shared between Hoover Fidelity and the tings.

55.There could not be any dispute that Li Tsuen had played a significant role of liaison in that he was present at meetings with the developer and notified D1 and/or other tings abroad to come back to Hong Kong to sign relevant documents.

56.The Hoover Fidelity Agreement dated 11 April 1997 was the first development agreement entered into. It was signed between Hoover Fidelity and D1. The lands involved were Lot 739RP and the Two Lots. Notwithstanding Li Tsuen’s insistence on the disputed Pre-Condition, Li Tsuen was not a party and the Pre-Condition was not a term of the Hoover Fidelity Agreement.

57.Pursuant to the Hoover Fidelity Agreement, on 26 April 1997, Li Tsuen and D1 jointly assigned the Two Lots, and D1 assigned Lot 739RP, to Hoover Fidelity for free although the assignments stated that there was consideration.

58.By a Deed Poll dated 7 July 1997, Hoover Fidelity divided Lot 739RP into 7 sections (B-H).

(1)  A small triangular section (which became the Garden Land) adjacent to Lot 739E remained as Lot 739RP.

(2)  It became known that the Brick House fell between Lot 739B and Lot 739E. Lot 739E was eventually assigned by Hoover Fidelity to the Plaintiff on 15 October 1997.

(3)  Lots 739 G and H were assigned to the 2 sons of D1.

(4)  The rest of 4 sections on Lot 739 were assigned to 4 tings, including 2 sons of Li Tsuen (Lee Kwok Keung and Lee Kwok Hung).

59.Owing to financial difficulties, Hoover Fidelity gave notice to D1 to cancel the development on 13 May 2001.

60.Million Ascent International Development Ltd (“Million Ascent”) took over as developer. On 23 June 2004, a Cancellation Agreement was signed between D1 and Hoover Fidelity. On the same day, the Million Ascent Agreement was signed, with Lee Moon acting on behalf of Million Ascent and D1 as land owner. Again, Li Tsuen was not a party and the Pre-Condition was not a term to this Agreement.

61.In response to Li Tsuen’s written application, the District Lands Office of Tai Po informed Li Tsuen that the MOT would be cancelled on 30 November 2004 and that he shall demolish the Brick House on or before that date. Li Tsuen eventually moved out and had the Brick House demolished in January 2005.

62.On 15 June 2005, the government issued a building licence which entitled the Plaintiff to erect a small house on Lot 739E. Similar building licenses were also granted in respect of other Lots.

63.The houses were completed in about 2007. Li Tsuen/the Plaintiff was given the keys to the Property on Lot 739E together with the Garden Land. Li Tsuen (before his passing) and his family members have since been living at the Property till now. The title deeds but not keys to the Property were given to D1 by Madam Wong.

64.Houses on Lots 739G and H were given to D1’s sons, who sold them to Million Ascent at a total consideration of $8,400,000.

65.Without prior notice to Li Tsuen/the Plaintiff, nor demand for possession, D1 appointed himself donee and dated the Purported GPA 12 December 2006. As donee, he executed, purportedly on behalf of the Plaintiff, an Agreement for Sale and Purchase and an Assignment, both dated 30 May 2014, in favour of D2. The purported consideration of $7,800,000, had never been paid and was at an undervalue. The purported Assignment, but not the purported Agreement for Sale and Purchase, was registered at the Land Registry. In both of those documents, the Plaintiff (as vendor) was stated to be “the beneficial owner” of the Property and the Transfer was to be with vacant possession when it was not.

66.On about 18 October 2014, Li Tsuen and the Plaintiff became aware of the Transfer upon receipt of a letter dated 10 October 2014 from TK Tsui & Co (solicitor for D2 in the Transfer), addressed to D2 at Lot 739E. Enclosed with the letter was a copy of a letter dated 7 October 2014 from the Rating and Valuation Department to TK Tsui & Co, stating the full value of the Property to be $11.5 million as at the date of the Agreement for Sale and Purchase.

67.On 12 November 2014, the Plaintiff issued the writ.

68.Li Tsuen passed away on 20 September 2016, aged 88.

69.Insofar as the Two Lots were concerned, the land search records showed that there had been a number of change of owners since 15 October 1997 and the current owners appeared to have nothing to do with Million Ascent or Lee Moon.

E.  ISSUE 1 – PRE-CONDITION ISSUE

70.According to the Plaintiff, Li Tsuen expressly told Yim and D1 of the Pre-Condition. Yim replied that how the 3 houses would be allocated between Li Tsuen and D1 would be a matter between the 2 brothers. D1 agreed, both in telephone conversations and subsequent meetings with the developer. These were denied by D1.

71.In my view:

(1)  It was hardly conceivable that Hoover Fidelity would have wanted Li Tsuen to stand in the way of the development by not surrendering his 50% interest in the Two Lots and his residence in the Brick House.

(2)  Likewise, Li Tsuen would not have wanted to give up the Brick House, which he regarded as of good fengshui, for nothing.

72.Under the Hoover Fidelity Agreement, Party A (D1) would be allocated 3 houses, of which one would be under the name of Li Tsuen’s son (Lee Kwok Keung) and 2 would be under the names of D1’s sons. Party A was obliged to provide 4 other tings. The 4 tings were eventually provided by Li Tsuen and they were not allocated houses. I also note that under the subsequent Million Ascent Agreement, the Plaintiff’s name replaced Lee Kwok Keung’s. This was strong proof that Li Tsuen’s interest was not just in ting fees but one house in his son’s name.

73.I have alluded to the vacillating versions of D1 in Section C(3) on credibility above. There were admissions in D1’s evidence here and there that Li Tsuen would be entitled to one house.

74.D1’s case was that even before the Hoover Fidelity Agreement was entered into, the message he got was that he would be given 3 houses. He claimed to have been told by Li Tsuen that if Hoover Fidelity could purchase more lands from the government, 2 more houses would be built on the 2 Lots and 2 floors would be given to D1 and Li Tsuen; if only one house could be built, one house would be given to them. Such terms did not appear anywhere. In any case he could not explain why Li Tsuen’s 50% interest in the 2 Lots would be involved. Likewise, he had no basis to think that Li Tsuen’s house would come from the houses allocated to the developer.

75.Considering the evidence on both sides, I find it more likely than not that Li Tsuen’s side would be entitled to one house. Li Tsuen insisted on the Pre-Condition and D1 had agreed to it.

F.  ISSUE 2 – AGENCY ISSUE

76.The Plaintiff’s case is that D1 acted on behalf of himself and Li Tsuen in entering into the development agreements. D1 denied any agency and claimed to be entitled to 3 houses all along.

77.Neither the Hoover Fidelity Agreement nor Million Ascent Agreement (together with its amended versions) mentioned the Plaintiff as a party. KK Wong never advised Li Tsuen to sign something. Li Tsuen never requested D1 to acknowledge Li Tsuen’s rights in writing. Even when Chan asked Li Tsuen if it was necessary to add his name to the Million Ascent Agreement, Li Tsuen replied in the negative.

78.One therefore needs to go a little into the background to see what had been agreed. The issue as to agency is also closely tied to the question of whether the Million Ascent Agreement had been amended. Given D1’s unreliable evidence, I give more weight to evidence of the Plaintiff’s witnesses, save where otherwise specified.

F(1). Agency under the Hoover Fidelity Agreement

79.Given my finding in paragraph 75 above, notwithstanding that Li Tsuen/the Plaintiff’s name did not appear in the Hoover Fidelity Agreement, it was likely that D1 also represented Li Tsuen’s interest.

F(2). Signing of the Million Ascent Agreement

80.On 23 June 2004 at the Kwong Fuk Restaurant in Tai Po (“Kwong Fuk Meeting”), the Hoover Fidelity Agreement was cancelled and the Million Ascent Agreement was signed.

81.The Kwong Fuk Meeting was attended by, amongst others, Li Tsuen, Lee Kwok Keung Man, D1, Yim, Lee Moon and Chan. D1 claimed that it was Lee Kwok Hung and not Lee Kwok Keung Man who accompanied Li Tsuen. D1 did not explain why he could remember that. However, I do not see why Lee Kwok Keung Man had to lie on this. I find that he was the one accompanying Li Tsuen on that occasion and that he had accurately stated the persons present in the seating plan.

82.Yim announced that Lee Moon of Million Ascent would take over the development and, as admitted by D1, all the terms under the Hoover Fidelity Agreement would remain unchanged.

83.It cannot be disputed that, as a matter of law, upon such cancellation, ownership of the Two Lots reverted to Li Tsuen and D1, and Lot 739RP to D1, either under resulting trust principle or for total failure of consideration. However, I am quite sure that those present at the meeting had not given their thoughts to this legal issue.

84.Accordingly, the inference that I draw from paragraph 82 above is that Million Ascent, D1, Li Tsuen/the Plaintiff and other tings would carry out their respective obligations as those under the Hoover Fidelity Agreement. On completion, one house would be allocated to Li Tsuen’s side whilst 2 would be to D1’s side.

85.The Million Ascent Agreement:

(1)  Continued to mention the Two Lots in the preamble although, as admitted by D1, Lee Moon said that he would develop the Two Lots later (§44 of D1’s witness statement);

(2)  Required D1’s side to provide 7 tings’ building licences; and

(3)  Stated that 8 small houses would be built and D1’s side would be assigned 3 of them on completion. Lot 739E was not stated as one of the 3 houses.

86.The Pre-Condition was not mentioned. However, D1 could not have held any view that the development could proceed with Li Tsuen’s Brick House standing on D1’s land.

87.What happened next and the subsequent amendments were seriously disputed. 

F(3).  Dispute relating to the Million Ascent Agreement and subsequent amendments

88.At the Kwong Fuk Meeting, Li Tsuen noticed that the signed Million Ascent Agreement did not meet the Pre-Condition.  Li Tsuen insisted on the Pre-Condition, otherwise he would not move out. D1 supported Li Tsuen by saying, “One house would belong to him (meaning Li Tsuen) anyway; it really should not matter which.”

89.Yim and Lee Moon confirmed the existence of the Pre-Condition and Lee Moon agreed that Lot 739E should be assigned to the Plaintiff. Chan then suggested that since Li Tsuen was allowed to insist on a preferred site, Million Ascent should also be entitled to make one change of houses.  Chan decided that D1’s son Lee Ken Lon should get Lot 739D instead of G. D1 did not object but simply reiterated his intention to sell his 2 houses as soon as he was able to do so.

90.Chan there and then took out a plan showing the location of the 7 small houses to be built and marked up the changes (“Chinese Memorandum”, at C114). This was the first mention of the Plaintiff’s name as house owner on a document. One copy of the Chinese Memorandum was kept by each of D1, Li Tsuen and Lee Moon. (I pause to note that at one stage this Court mistook Chan’s evidence and asked a leading question of whether the names of persons were already there on the Lot numbers when the Chinese Memorandum was produced, to which Chan said yes in a haste.  I place no weight on that answer.)

91.Lee Moon reminded Li Tsuen to cancel the MOT. He assured Li Tsuen that when the small house on Lot 739E was built, Li Tsuen would be given the keys.

92.A month after the Million Ascent Agreement was executed, by 2 Confirmation Agreements in Chinese dated 20 July 2004 signed by Li Tsuen and Yim, (i) Li Tsuen agreed to pay $200,000 as consideration for the provision of better building materials for Lot 739E; and (ii) another $200,000 to purchase the Garden Land.

93.The total amount of $400,000 was to be deducted from the ting fees payable to the 4 sons of Li Tsuen, as evidenced by documents signed by the 4 sons dated 20 May 2006.

94.After all these, Li Tsuen wrote to the District Lands Office of Tai Po (“DLOTP”) on 5 August 2004 requesting to cancel the MOT. DLOTP informed him that the MOT would be cancelled on 30 November 2004 and that he shall demolish the Brick House on or before that date.

95.Li Tsuen had doubts about the development due to deletion of Lot 739E in the Million Ascent Agreement and hence did not move out of the Brick House. Lee Moon was worried and he asked Chan to arrange a meeting. The meeting was held in about December 2004 at Maxim’s Restaurant at Tai Wo (“Maxim’s Meeting”), attended by the same 8 persons who attended the Kwong Fuk Meeting.

96.At the Maxim’s Meeting, in reply to an enquiry by Chan, D1 openly confirmed that the house to be erected on Lot 739E would belong to Li Tsuen. Chan then told Li Tsuen, “[D1] in his own words said that E belonged to you. He would not go back on his words.  If he does, everyone will be a witness.  I for myself will definitely testify to this.”

97.Li Tsuen was put at ease after the Maxim’s Meeting. He and his family moved out in about January 2005, after which the Brick House was demolished. Five months later, the building license was issued.

98.Chan prepared an Unsigned Supplemental Agreement in Chinese (修訂及補充合作發展丁屋協議書) dated 22 July 2005. It was stated to be “pursuant to the owner’s request and as agreed by the developer”. The parties agreed that the original allocation of the 3 small houses on Lots 739F, G and H to D1 and Li Tsuen be re-allocated to Lots 739D, E and H, of which Lot 739E would be under the Plaintiff’s name. (see table below in paragraph 108.)

99.Chan also prepared a Signed Supplemental Agreement with a plan annexed also entitled 修訂及補充合作發展丁屋協議書, dated 25 July 2005 signed by D1 and Million Ascent. It revised the Unsigned Supplemental Agreement, amongst others, as follows (see table in paragraph 108):

(1)  The Lots to be allocated to the owners shall be Lots 739E, 739G and 739H; according to Chan, Lee Moon changed his mind and decided to have Lot 739D back (with a backyard and potentially higher price) instead of 739G.

(2)  The Lots to be allocated to Million Ascent shall be Lots 739B, 739C, 739D, 739F, 739RP, 1543A and 693B (ie the Two Lots but one was wrongly typed as “638B”).

100.D1 disputed paragraphs 88-99. He claimed to have only the Unsigned Agreement[1] but not the Signed version. He had no recollection of coming to Hong Kong in July 2005. He was not concerned with which small house would be allotted to him so long as he could get 3. He could not explain the change in house numbers in the 2 Supplemental Agreements.

F(4). Analyses of the dispute

101.Lee Kwok Keung Man and Chan’s evidence of the Meetings was first-hand.

102.Chan’s evidence was crucial although it was confusing and not totally reliable. At one time, he said that the Million Ascent Agreement was drafted by him. At another, he said it was not. He even stated that he did not know the agreement between Li Tsuen and D1; it was a matter between the 2 brothers.

103.However, this part of Chan’s evidence had nothing to do with the illegality issue. I cannot see why Chan would come to give evidence except to tell about Li Tsuen/the Plaintiff’s interest. He was a first-hand witness who could testify as to the Chinese Memorandum, the Unsigned Supplemental Agreement and the Signed Supplemental Agreement.

104.D1 denied that there was a Signed Supplemental Agreement. His challenges were:

(1)  The 2 Meetings were to protect Li Tsuen’s interest and yet nothing was signed to acknowledge Li Tsuen/the Plaintiff’s interest.

(2)  The Chinese Memorandum was not signed by anyone. It stated twice that the amendments to allocation of Lots were at the request of D1 instead of Li Tsuen, indicating that Li Tsuen had no interest in the development. There were no corresponding amendments to the Million Ascent Agreement at the Kwong Fuk Meeting. All that Chan could say was that Li Tsuen had no capacity because Million Ascent only dealt with D1. Chan knew that Li Tsuen was the “key man” but whether he had a deal with D1, Chan did not care; but if D1 did not follow Li Tsuen’s request, the development could not go ahead.

(3)  Indisputably, the Chinese Memorandum never ended up in the file of HWP, but Chan was never asked to explain why when cross-examined.

(4)  Chan could not explain who asked him to draft the Unsigned Supplemental Agreement in that way. After several questions and answers, he finally admitted that he overlooked the Chinese Memorandum when drafting the Unsigned Supplemental Agreement.

105.Further, D1 denied the existence of the Maxim’s Meeting.  December was the busiest month in the year for his restaurant. He would not have left his restaurant just to come for a meeting to reassure Li Tsuen of what had been agreed to in June of the same year.

106.As Mr Chong points out, by 5 August 2004, Li Tsuen had already told the DLOTP that he would move out. See the letter of DLOTP dated 12 November 2004. The Maxim’s Meeting could not have met the alleged purpose of Li Tsuen.

107.Despite the contentions of D1, there are 3 major reasons why I accept the Plaintiff’s case.

108.Firstly, one should not lose sight of the bigger picture as disclosed by a comparison of the Million Ascent Agreement and all the alleged amendments:

Date	Agreement	Lot numbers to be given to D1 as a party
23.6.2004 [C111-2]	Million Ascent Agreement	Original draft: E, F, G Amended to F, G, H (E was deleted)
Undated [C114]	Chinese Memorandum (handwritten parts by Chan at Kwong Fuk Meeting)	“Original owner requested F, G H.” “Finally [D1] requested for D, E, H.” “Because [D1] requested for exchange, therefore we [Million Ascent] also requested for exchange once.” (from D to G) Result: E, G, H should go to D1 as a party
22.7.2005 [C166]	Unsigned Supplemental Agreement (prepared by Chan)	Recital: original owner requested for F, G, H. Amendment was that D1’s side would get D, E, H. Result: E would be to Plaintiff; D to Cheung Kwok Lung and H to Lee Ken Wai; G in the name of Lee Ken Lon would belong to developer
25.7.2005 [C167]	Signed Supplemental Agreement (prepared by Chan)	Recital: original owner requested for F, G, H. Amendment was that D1’s side would get E, G, H. Result: E would be to Plaintiff; G & H to D1’s sons

109.Madam Wong’s file had a copy of the Signed Supplemental Agreement. The final allocation of houses upon completion of the development was in accordance with this Agreement and not the Million Ascent Agreement.

110.Secondly, Mr Chong asked Chan why the Unsigned Supplemental Agreement was drafted as if the Chinese Memorandum did not exist. That question was, without disrespect, misleading as Mr Chong overlooked the exchange of Lot 739D and G in the Chinese Memorandum. In fact, the preambles to the Unsigned and Signed Supplemental Agreements correctly reflected, the position under the Million Ascent Agreement and the Chinese Memorandum.

111.Thirdly, although D1’s evidence was unreliable, there were piecemeal admissions of facts tending to corroborate the Plaintiff’s case. D1 could not remember whom he met before signing the Million Ascent Agreement, except Chan. D1 agreed that Li Tsuen was present when D1 signed. After signing, the Agreement was shown to Li Tsuen. Li Tsuen threw a temper when he saw the amendment from 739E to 739H. It was eventually decided that since one house had to be given to Li Tsuen, it did not matter which. D1 confirmed that he could remember Li Tsuen insisting on having 739E in the Million Ascent Agreement and that the land would be owned by the developer. D1 did not care what Li Tsuen would do because the most important thing was that D1’s share was secure (“最要緊是搞掂我果份”). D1 agreed that Chan produced a plan and wrote something on it. D1 said that the remark that it was D1 who requested for swap of properties was to “put me on the spot” (擺上枱), apparently meaning that someone else requested for a swap.

112.D1 also admitted knowing that if Li Tsuen did not move out, the development could not proceed. In about October 2004, Chan summoned a meeting at the Tai Wo Maxim’s Restaurant. D1 recalled that Chan, Li Tsuen, Lee Moon were present, together with other persons involved in the development. D1 agreed that in the middle of the meeting, Chan stood up and said that 793E would go to Li Tsuen and D1 said yes. He could not remember Chan saying that if anything happened, those present would come forth and give evidence.

113.The October date was not put to Chan. Anyhow, when one considers that the events had happened such a long time ago, whether the Maxim’s Meeting was held in October or December was irrelevant. Lee Kwok Keung Man himself had forgotten about this Meeting until he was reminded by Chan of it.

F(5). Finding on agency under the Million Ascent Agreement

114.Considering the evidence of both sides holistically, I find on balance of probabilities that paragraphs 88-99 were true. The fact that the Two Lots were once again mentioned in the Unsigned and Signed Supplemental Agreements indicated that Li Tsuen was to benefit from the development.  In the light of those facts, one could understand why Li Tsuen, with the assurance of D1 in the presence of Chan and others, did not consider it necessary to sign as a party to the Million Ascent Agreement and subsequent agreements. The Plaintiff is not seeking to enforce any of those Agreements anyway.

115.The conduct of Million Ascent in approaching Li Tsuen instead of D1 subsequently in relation to the Garden Land and better building materials was consistent with the consensus that the Plaintiff was to be allocated a house on Lot 739E. Otherwise the relevant costs would have been deducted from ting fees on D1’s side.

116.I find that D1 acted on behalf of himself and Li Tsuen under the Million Ascent Agreement and subsequent agreements.

G.  ISSUE 3 – ILLEGAL AGREEMENT ISSUE

117.A scheme that would involve landowners, a developer and tings participating in deceiving the government by, amongst others, making false declarations and false representations that would enable persons (such as the developers) otherwise not entitled to take benefits under the ‘Small House Policy’, to take benefit thereunder, is illegal:Best Sheen Development Ltd. v. Official Receiver [2001] 1 HKLRD 866, Yuen J (as she then was).

“26. It was clear that the assignment of the lands was the first step in the performance of the illegal agreement. It was to arm the [developer] with apparent ownership of the lands. The purposes given by the [landowner] for sale of the lands was to mislead the District Lands Office…D1 clearly knew that each ting (whose rights the [developer] bought) necessarily had to sign a false declaration to the effect that the ting was the sole legal and registered owner of the lands when the ting had no interest in the lands; and that the ting has never made any private arrangements for his rights under the Small House Policy to be sold to an individual/a developer when the ting had. The [developer] simply could not carry out the agreements without procuring the tings to commit the tort of deceit or misrepresentation to the Government in applying for building licences…”

118.In Madam Chung Mui Teck & ors v Hang Tak Buddhist Hall, CACV 20/2001, 22 May 2001, at pp 8-9, a ting who applied for a building licence had to make the following declaration:

“I have never made and have no intention at present to make any private arrangements for my rights under the Small House Policy to be sold to other individual/a developer.” (“the declaration”)

119.Le Pichon JA held that there was no scope for an application for building licence to be made by applicants to whom sections of the land were to be assigned without making the declaration. Since the deed between the land owner and the developer involved a “private arrangement”, the declaration to be made by the applicants would necessarily be false. That being so, it must follow that the deed could not be performed according to its terms without the commission of an illegal act.  It was no answer that no false statutory declaration had yet been made if the implementation of the deed necessarily involved the making of such a declaration (at pp 8-9).

120.I have outlined in paragraph 2 above the development scheme in this case, which was established through cross-examination of Chan and KK Wong. There was no proof as to whether the Plaintiff had made false declarations. The Defendants only made a belated request for disclosure of the declarations made by the Plaintiff 11 days before trial and the Plaintiff was unable to comply with that request. The Defendants produced the standard declarations in the relevant period, which contained a clause similar to the one in Madam Chung Mui Teck.

121.Chan claimed that certain parts of the declaration could be deleted but, of course, he could not give any precedent as to the grant of building licence if deletion did happen. In any case, it was not the Plaintiff’s case that any deletion had occurred.

122.Applying Madam Chung Mui Teck, I find that both the Hoover Fidelity Agreement, the Million Ascent Agreement and the Signed Supplemental Agreement were illegal, as the Plaintiff necessarily had to make false declarations.

H.  ISSUE 4 – PURPORTED GPA ISSUE

H(1). Pleaded case

123.Towards the end of the trial, the Plaintiff’s case no longer rested on forgery but misrepresentation.

124.The Defendants’ case is that the Plaintiff had executed the Purported GPA after Madam Wong had explained the contents and effect to the Plaintiff.

125.D1’s case on when and how the Purported GPA was executed had undergone significant changes.

126.D1 initially pleaded in §22(5) of his Defence that the Plaintiff executed the Purported GPA on 12 December 2006. That could not be right in view of the indisputable travel records that the Plaintiff left Hong Kong on 22 May 2006 and returned only on 28 October 2008. The Plaintiff’s travel records were disclosed by way of the Plaintiff’s list of documents filed on 5 January 2017.

127.D1 changed his pleas in the Re-Amended Defence. He deleted the plea of the Plaintiff’s execution on 12 December 2006 and pleaded, amongst others, in §20 that the Plaintiff with Li Tsuen (but not Lee Kwok Hung or Lee Kwok Keung Man) attended HWP when the Plaintiff was requested by Madam Wong to sign on a partially printed sheet of paper with English and some spaces (including the donee) left blank. Madam Wong printed the particulars of D1 and the date of the Power of Attorney on about 12 December 2006 after Li Tsuen had asked her to do so and after her principal had confirmed that D1 was the beneficial owner of the Property.

128.Madam Wong changed her evidence in the witness box, such that Li Tsuen did not appoint D1 as donee but asked about title deeds. This was not a small matter. The original defence would have totally refuted the Plaintiff’s claim of forgery and fraud and confirmed that Li Tsuen acknowledged D1’s title. The latest version would have corroborated the Plaintiff’s case that Li Tsuen had always wanted the title deeds back because Lot 739E was his/the Plaintiff’s. Madam Wong had no credible explanation for the inconsistency.

129.This change in pleas would not affect my decision concerning misrepresentation and fraud as analyzed below. However, it gave rise to adverse inference against D1 that he was trying to boost his case, well knowing that he was not entitled to the third small house. This would be relevant to the Estoppel Issue.

H(2). Was the Purported GPA procured by misrepresentation

130.In the closing submission of Mr Cheung, counsel for the Plaintiff, it was stated that on 20 May 2006, the Plaintiff and his brothers went to HWP to sign the receipts pertaining to the Garden Land and the better building materials. On the same day, they were also asked by Madam Wong to sign some partially printed sheets. Allegedly, Madam Wong told them that the documents would be used to apply for utility meters, drainage facilities and certificates of compliance, etc and that they were usual documents which must be signed in applications for small houses. The Plaintiff considered that, in retrospect, this must be where the Purported GPA had come from.

131.Madam Wong denied the allegation. She said she had explained the contents and effect to the Plaintiff before he signed. At the specific instructions of her principal, she told the Plaintiff that the donee of the Purported GPA was left blank, so that after development of the land, the properties could be assigned to other persons without troubling the Plaintiff to come and sign again; and that the Purported GPA would be dated when it would be used.

132.The burden of proof is on the Plaintiff. Mr Cheung submits that Madam Wong was not an independent witness. It was she who gave the title deeds to D1, who filled in the blanks of the Purported GPA, who advised or devised the sham Transfer.

133.In considering Madam Wong’s credibility, I note various unsatisfactory aspects in her evidence:

(1)  Her evidence was imprecise and the conveyancing file might have missing documents. She referred to an occasion when she met the Plaintiff personally in Edinburgh on an urgent day trip from London when the Plaintiff was requested to and did sign “some documents”. The Plaintiff denied meeting her there and asserted that it was his brother who signed the documents. Whilst Madam Wong could produce the air ticket in support, she could not produce the copy of the Plaintiff’s identity card (which she claimed to have taken a photo of) in support.  In any case, it was not clear what documents the Plaintiff (if it was him) was asked to sign in November 2004.

(2)  She admitted having mistaken Li Tsuen as acting for the developer in §4(a) of her witness statement. It was surprising that she would even be mistaken about her client’s representative.

(3)  At various parts of her witness statement, Madam Wong could only speak of an impression, or was not certain as to time of execution or documents signed (eg §§4(a), 7, 12 and 22). In §12 of her witness statement, Madam Wong referred to the date of “in about May 2006 (the date as alleged by the Plaintiff, but I cannot remember exactly)”. From memory, the documents that the Plaintiff signed included the General Power of Attorney and a will of the Plaintiff. One cannot exclude the possibility that Madam Wong’s reference to the date of the Purported GPA was not an independent memory but based on the travel documents of the Plaintiff which had been disclosed by then.

(4)  Madam Wong said she had filled in the name of D1 as donee and dated it at the request of Li Tsuen (§21 of her witness statement), which tallied with the re-amended defence. She changed her evidence in her evidence-in-chief to say that it was Lee Moon who had called and that Li Tsuen made a call a few days before 12 December 2006 to ask for the title deeds.

134.Despite the unsatisfactory aspects of her evidence, I cannot see why Madam Wong had to lie about the Plaintiff’s execution of the Purported GPA. Madam Wong had no interest in these proceedings and no motive to lie. She simply followed the directions of Chan and her principal to prepare documents to protect the developer’s rights. Madam Wong even testified that she had prepared general powers of attorney and wills for all 7 tings, including D1’s sons. That admission was consistent with the unchallenged evidence of Chan that those 2 types of documents had to be executed in usual ting house developments to enable the developer to deal with the land transferred to a ting. Madam Wong’s evidence that she would not just ask a client to sign without explaining what a document was, especially in the presence of a third party, Li Tsuen, on that occasion, was credible.

135.I find paragraph 131 to be true.

136.The Plaintiff may not have understood the full effect of the Purported GPA. However, he plainly knew (from his father) that he was to go to the solicitors’ firm to sign documents to enable the developer to dispose of the houses. Madam Wong did not act on his behalf. It was up to the Plaintiff to seek for clarification, for time to consider or to seek independent legal advice. He had not done so. I am not satisfied that there had been misrepresentation.

I.  ISSUE 5 – REGISTERED OWNERSHIP ISSUE

137.Following Tinsley v Milligan, the Hong Kong courts have held that a plaintiff’s claim will only be barred if the plaintiff has to plead or rely on illegality: Loyal Luck Trading Ltd v Tam Chun Wah [2008] 4 HKLRD 681; Kan Wai Chung v Hau Wun Fai [2016] 5 HKC 585, §7.3

138.Since Tinsley v Milligan, there have been 4 Supreme Court decisions which put forth different and conflicting approaches to an illegality issue, namely Hounga v Allen [2014] 1 WLR 2889, Les Laboratoire Servier v Apotex Inc [2015] AC 430, Bilta v Nazir [2016] AC 1 and Patel v Mirza [2017] AC 567.

139.The Court of Final Appeal has declined to resolve the conflict in the UK approach, as the appeal before it could have been and was determined on an alternative basis by reference to conflict of laws principles: Ryder Industries Ltd v Chan Shui Woo (2015) 18 HKCFAR 544 at §§1 and 35 (decided before Patel v Mirza).

140.Therefore, Tinsley v Milligan remains applicable in Hong Kong: Arrow ECS Norway v M Yang Trading [2018] 5 HKC 317 [P4#23] at §28 (Chow J, as he then was), [2019] HKCA 176 at §§5.3-5.4 (Cheung JA).

141.The Plaintiff has a prima facie case that does not need to rely on any illegal arrangement. He has been the registered owner of Lot 739E for 17 years and in continuous occupation of the Property for 7 years before this action was commenced. Beneficial ownership follows the title. The onus is on the party (in this case, D1) seeking to show that the beneficial ownership is different from the legal ownership: Mo Ying v Brillex Development Ltd [2014] 3 HKLRD 224, §34, DHCJ E Fung SC.

142.In relation to a power of attorney, the general principles have been laid down in Very Cheer Development Ltd. & anor v Bring All Ltd. [1995] 1 HKLR 213, DHCJ Kwok QC.

(1)  If the donee acted without authority, he did not bind the donor. If the donee purported to dispose of the donor’s properties without authority, no interest, whether legal or beneficial, would pass (at p218, lines 35-40).

(2)  The relationship between the donor and the donee under a power of attorney was one of principal and agent and the relationship of agency was of a fiduciary nature so that the donee owed the donor fiduciary duties (at p218, lines 40-45).

(3)  It would be surprising if the terms of an agent’s appointment were to be found susceptible of the construction that he was permitted to act otherwise than in the interests of his principal (p220, at lines 30-35).

143.The primary purpose of a power of attorney is to enable the donee to manage the donor's property and that it would need very clear words to authorise him to make a gift of it or part of it to himself or to others: Lo Hung Biu v Lo Shea Chung & Anor[1997] HKLRD 721 at 726G, Ching J.A. (as he then was).

144.Madam Wong told the Plaintiff that the Purported GPA would be dated when used. The appointment of D1 as donee was on 12 December 2006, when the Plaintiff was not in Hong Kong (as established by his travel records). The appointment was plainly without the knowledge and consent of the Plaintiff.

145.D1 acted against the Plaintiff’s interest. D1 was expressly told by Madam Wong that he could not assign the Property to himself as he was donee. D1 plainly understood the effect of Madam Wong’s advice as he “sold” to D2.

146.In the Transfer, D1 breached his fiduciary duty to the Plaintiff in “selling” the Property for nil consideration when the agreed market value then was $12,454,000. It was to the detriment of the Plaintiff as registered owner. D2 had knowledge and participated in that breach and was not a bona fide purchaser for value. There is a prima facie case that the Defendants have acted in fraud of the Plaintiff.

147.I pause to add that Madam Wong’s delivery of the title deeds to D1 could not be said to constitute fraud. She had received a call from Li Tsuen asking for the title deeds. She asked the developer, who told her to give the title deeds to “the field owner” (田主). She asked her principal, who told her to do as the developer told her to. She did not call back Li Tsuen but gave the title deeds to D1 as his name appeared as original owner of the land in the Million Ascent Agreement and the Signed Supplemental Agreement in her file. Chan has not been cross-examined as to why the Chinese Memorandum was not there. But even if the developer had given the wrong instructions to Madam Wong, there was no dishonesty on her part.

148.The Plaintiff further claimed that that Transfer was a sham, the test for establishing which is as follows:

“(1) the common intention of (2) both parties (3) that the document was not to create legal rights (4) but to give to 3rd parties the appearance of the document creating legal rights … (5) different from the actual legal rights between the parties.” See Poon Ka Man Jason v Cheng Wai To [2019] HKCFI 1141, at §100, Coleman J.

149.The Plaintiff simply could not establish that D1/D2 did not intend the Assignment to pass legal title to D2. The case on sham must fail.

J.  ISSUE 6 – RESULTING TRUST ISSUE

150.If land was assigned by the developer to a ting for no consideration, the ting could not, as a volunteer recipient, be constituted beneficial owner of the land. A resulting trust arises by operation of law, even in the absence of an express declaration of trust, such that the ting would be a mere nominee holding the legal title on trust for the developer. See Kan Wai Chung v Hau Wun Fai [2016] 1 HKLRD 632, To J (approved by the Court of Appeal, CACV 7/2016, Reasons for Judgment and Decision on Costs, 22 July 2016, by P. Cheung JA at §§6.2, 7.1-7.2).

151.Successive assignments, for which no consideration had been paid by persons participating in the illegal development of small houses would not give title to the eventual small house owner. The original owner can trace his land lot and enforce his equitable title to it. See Kwan Hung Shing v. Fong Kwok Shan, Christine [2019] HKCU 2576, §31, Wilson Chan J:

“31. The respective Properties were subsequently assigned to the remaining dings and the 15^th defendant at different stages because the 1^st defendant saw it necessary to do so in some cases. In law, if a trustee misapplies the claimant’s original asset and transfers the same to a third person, a beneficiary may follow the original asset (tracing) and enforce his equitable title to it, see: Snell’s Equity, 33^rd ed, at § 30-055. Hence, despite these subsequent assignments, the beneficial interest in the respective Properties has remained vested in the plaintiff, and the remaining dings and the 15^th defendant have been holding the respective Properties on trust for the plaintiff.” (underline added)

152.Applying Kan Wai Chung and Kwan Hung Shing, D1 need not rely on any illegal agreement but resulting trust principle to recover Lot 739E from the Plaintiff, as neither the developer nor the Plaintiff had provided consideration for Lot 739E. As the true beneficial owner, D1 could use the Purported GPA to transfer the Lot 739E from the Plaintiff as trustee to D1 or D1’s nominee.

153.To rebut the resulting trust, the Plaintiff has to rely on the illegal development to explain how he became the registered owner of Lot 739E. Even accepting that Li Tsuen had provided his 50% in the Two Lots as consideration, it was not consideration for D1’s land, but was for the illegal development agreements.

154.To defeat D1’s rights under resulting trust, the Plaintiff therefore has to resort to part performance or estoppel.

K.  ISSUE 7 – PART PERFORMANCE ISSUE

155.The Plaintiff’s case on part performance is based on :

(1)  Assignment of Li Tsuen’s 50% interest in the 2 Lots to Hoover Fidelity for no consideration as part of the cooperation capital;

(2)  The Plaintiff taking up the assignment of Lot 739E from Hoover to which D1 raised no objection;

(3)  The Plaintiff’s execution of the Specific Power of Attorney dated 8 December 2003 in favour of Li Tsuen;

(4)  Li Tsuen’s payment of the $400,000 for better building materials and the Garden Land by set off against his sons’ ting fees with the sons’ agreement, Li Tsuen’s request to cancel the MOT and moving out of the Brick House;

(5)  Li Tsuen being given the keys to and possession of Lot 739E after the Property was erected and his moving in with his family since early 2007; and

(6)  Sale of small houses of D1’s sons to Million Ascent or third parties.

156.Mr Chong opposes these pleas both as a matter of pleading and on the merits.

K(1). Opposition on the ground of pleading

157.The plea on part performance was raised only in §19(2) of the last amended version of the Reply. Mr Chong submits that a plaintiff must not put forward in his reply a new cause of action which is not raised either in the writ or the statement of claim. If the plaintiff, after seeing the defence, finds it necessary to rely on a cause of action which has not been raised in the writ or statement of claim, normally the proper way is to amend the writ and the statement of claim. However, in such circumstances, considerations including whether the cause of action has accrued at the time of the writ should be taken into account. See Hong Kong Civil Procedure 2021, Vol 1, §18/3/2, at pp 472-473.

158.I agree with Mr Chong. Part performance is to enforce a contract and the contract must be identified in the Statement of Claim. In any case, the Plaintiff could not enforce the illegal development agreements.

L.  ISSUE 8 – ESTOPPEL

L(1). Legal principles on estoppel

159.The 3 elements of estoppel are: representation to the plaintiff, reliance and detriment suffered by him. There are 2 species of proprietary estoppel: proprietary estoppel by representation and proprietary estoppel by standing by. See Best Star Holdings Ltd v Lam Chung Hing, HCA 409/2008, 22 February 2012, Recorder H. Wong SC at §§135-6.

160.For proprietary estoppel by representation,

“If a man, under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without objection by him, lays out money upon the land, a court of equity will compel the landlord to give effect to such promise or expectation ...” (underline added) Best Star Holdings, at §135.

161.For proprietary estoppel by standing by,

“If a stranger begins to build on my land, supposing it to be his own, and I, perceiving his mistake abstain from setting him right and leave him to persevere in his error, a Court of Equity will not allow me afterwards to assert my title to the land on which he had expended money on the supposition that the land was his own. It considers that, when I saw the mistake into which he had fallen, it was my duty to be active and to state my adverse title; and that it would be dishonest in me to remain willfully passive on such an occasion, in order afterwards to profit by the mistake which I might have prevented.” (underline added) Best Star Holdings, at §136.

162.In Lee Bing Cheung v Secretary for Justice, HCA 1092/2010, 21 February 2013, §42, DHCJ M. Ng (as she then was) referred to the 5 probandas laid down by Fry J in Willmott v Barber (1880) 15 Ch D 96, 105 on the requirements to establish proprietary estoppel by standing by:

(1)  The plaintiff must have a mistaken belief as to his legal rights;

(2)  The plaintiff must have expended money or done some act on the faith of his mistaken belief (ie detrimental reliance);

(3)  The defendant must know of the existence of his own legal right which is inconsistent with the right claimed by the plaintiff;

(4)  The defendant must know of the plaintiff’s mistaken belief of his legal rights;

(5)  The defendant must have encouraged the plaintiff in his expenditure of money or in the acts which he has done, either directly or by abstaining from asserting his legal rights.

163.Her Ladyship stated that the true test is whether it will be unconscionable for the defendant to deny that which he has allowed or encouraged the plaintiff to assume to his detriment, although the more formalized test of Fry J remains a good starting point (at paragraph 43).

164.In many acquiescence cases any finding of an implied assurance would be wholly fictional as there is no requirement of any communication between landowner and stranger: Snell’s Equity, 334^th ed, §12-029.

L(2). The facts giving rise to proprietary estoppel

165.The Plaintiff claims that D1 is estopped from denying that Li Tsuen was to be allotted Lot 739E. The pleaded case, in substance, is that

(1)  The Representation was said to be a representation that Lee Chuen would be allocated a small house to be erected on the location where the Brick House was; D1’s confirmation of the Pre-Condition, reinforced by the Chinese Memorandum, the Unsigned and Signed Supplemental Agreements, and D1’s confirmation at the Maxim’s Meeting that Lot 739E would belong to Li Tsuen.

(2)  The Reliance to Li Tsuen’s Detriment was said to be Li Tsuen’s working on and agreeing to the Hoover Fidelity Agreement, assignment of his share in the 2 Lots as his cooperation capital, working on and agreeing to the Million Ascent Agreement, the Chinese Memorandum, the Unsigned and Signed Supplemental Agreement, payment of $400,000 for better building materials and the Garden Land, cancellation of the MOT, moving out of the Brick House, and refraining from objecting to the sale of the 2 houses by D2’s sons.

166.Mr Chong objects on the grounds of pleading, the Plaintiff’s locus to sue and on merits.

L(3). Objection on pleading ground

167.Mr Chong again relies on the matters in paragraphs 157 above. However, in my view, proprietary estoppel is a shield to fend off the resulting trust in favour of D1 in the circumstances of this case and it could be raised in the Reply.

168.In any case, when facing an argument like this on pleadings, the Court is ultimately guided by what is fair and just in the circumstances: Wing Hang Bank Ltd v Crystal Jet International Ltd [2005] 2 HKLRD 795, at 799-780:

“7.  What has just been set out is not to be construed as an encouragement to take ‘pleading points’ by which I mean pedantic, small or quite insignificant points of pleadings. Nor will objections as to pleadings have much force where the parties have chosen to disregard the pleadings and conduct the hearing on some unpleaded basis. As Isaacs and Rich JJ said in Gould v Mount Oxide Mines Limited (1916) 22 CLR 490, at 517:-

“But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly thought out, it is impossible for them to hark back to the pleadings and treat them as governing the area of contest.”

Ultimately, a court is to be guided by what is fair and just in the circumstances, not just to the party seeking to rely on the unpleaded case but to all the parties before it. The Court ought also to bear in mind the following passage at paragraph 18/12/1 of Hong Kong Civil Procedure 2004 Volume 1:-

“The purpose of pleadings is not to play a game at the expense of the litigants but to enable the opposing party to know the case against him”.

8.  What is set out above as representing acceptable practice will be all the more emphasized when the Civil Justice Reforms in Hong Kong take shape. The object is not to invite prolixity in pleadings but to achieve what has always been the position: to fairly inform the other side and the Court of a party’s case, identifying the issues and the true extent of the dispute between the parties.”

169.The evidence on estoppel was inseparable from the facts pleaded in the Statement of Claim and was adduced without objection from the Defendants at the trial. It is not fair and just to bar the Plaintiff’s reliance on this plea only in the Defendant’s closing submission.

L(4). Objection on the ground of locus

170.D1 is said to be estopped as against Li Tsuen. However, Li Tsuen’s executor (Lee Kwok Keung Man) is not a party to this action, but only a witness for the Plaintiff. Li Tsuen’s will, made 2 days before this writ was issued, showed that Li Tsuen considered the Property his.

171.However, I do not think the Plaintiff lacks locus.  It has been clear since the day the Chinese Memorandum was created that Li Tsuen had intended the Property to be put under the name of the Plaintiff. Whether one should label the Plaintiff as Li Tsuen’s trustee or nominee does not matter. How the Plaintiff would share the Property with his brothers under Li Tsuen’s will is of no concern to this Court either.

L(4). Merits of the case on proprietary estoppel

172.Insofar as proprietary estoppel by representation is concerned, the representation, though established, could not be divorced from the illegal development agreements. The Plaintiff is barred from relying on it.

173.Insofar as “proprietary estoppel by standing by” is concerned, this phrase was not used in the pleadings but all the facts have been pleaded and proved without the need to refer to illegal development agreements.

174.Firstly, “strangers” built on D1’s land, supposing it to be their own:

(1)  Million Ascent built 7 small houses.

(2)  Li Tsuen and his sons provided consideration for the Garden Land and possession was delivered to Li Tsuen/the Plaintiff.

(3)  In respect of better building materials, Li Tsuen/his sons were the persons incurring building costs on Lot 739E. D1 had not spent a cent. If one were to compare clause 2 under “Party B” of the Million Ascent Agreement, Million Ascent promised that not less than $900,000 would be spent on building each small house. Accordingly, the $200,000 spent on better building materials represented 18% ($200,000 ÷ $1,100,000) of the overall building cost of the Property, a significant amount. Even if only the Plaintiff’s payment was relevant, he had used $50,000.

175.The agreement concerning the Garden Land and use of better building materials was extraneous to the Million Ascent Agreement. That agreement had been completely performed, with consideration coming from Li Tsuen/the Plaintiff’s side to purchase land from Million Ascent. Land includes all permanent improvements on the land: Kan Wai Chung, §35.

176.Secondly, D1 had knowledge of strangers building on his land. There was no question about knowledge of Million Ascent’s acts but D1 must also have known about Li Tsuen/the Plaintiff’s purchase of the Garden Land and better building materials as well. That was because, at one stage of his evidence, whilst denying such knowledge, D1 said that since 739E was given to Li Tsuen, Li Tsuen could do anything he wanted.

177.That aside, D1’s knowledge was evidenced by his possession of 4 Confirmation Receipts dated 20 May 2006 signed by the 4 sons of Li Tsuen at HWP, showing that they had set off a total of $400,000 ting fees against the necessary costs for the Garden Land and better building materials. Those documents were disclosed in D1’s list of documents filed on 13 January 2017.It was not clear when D1 first came into possession of those documents but the reasonable inference was that they were given to him by Madam Wong together with the title deeds on around 12 December 2006.

178.At the latest, D1 would have known about costs being incurred by Li Tsuen/the Plaintiff when D1 complained to Lee Moon about the Property being “built so nicely and in a better way than the other 2 small houses” of his sons (§56 of D1’s witness statement).

179.Thirdly D1 failed to set the strangers right and left them to persevere in their “error”. He plainly did not stop Million Ascent at all.

180.Nor did he stop Li Tsuen/the Plaintiff despite knowing that Li Tsuen thought he was entitled to the house on Lot 739E:

(1)  For 17 years before this action commenced, D1 allowed the Plaintiff to remain as registered owner of Lot 739E, without ever asserting beneficial interest or resulting trust even though D1 has had the title deeds.

(2)  For 7 years since completion of the Property until this action was commenced, D1 allowed Li Tsuen/the Plaintiff to have continuous occupation of the Property and even visited Li Tsuen there. D1 knew that Li Tsuen had moved from Sheung Shui (after leaving the Brick House) and then to the Property.

(3)  Allegedly, taking into account the age and health condition of Li Tsuen and the fact that he was his elder brother, D1 in his mind allowed Li Tsuen to reside there for his lifetime. D1 claimed to have asked Li Tsuen to sign a piece of paper to acknowledge D1’s title whilst promising not to evict Li Tsuen during his lifetime. However, Li Tsuen screwed it up. D1 picked up the paper and left. That piece of paper was never produced in evidence. As D1’s evidence was unreliable, I reject his evidence on this aspect. His assertion of there being a licence was legal fiction.

(4)  Allegedly, Li Tsuen had told D1 that D1 could change the name of Lot 739E after lapse of 6 years. D1’s response was that since Li Tsuen was living there fine, why would D1 have to change the name (§§55 and 64 of D1’s witness statement). I could see no logical reason why Li Tsuen would have said that if he had been a trespasser or had wanted to live there for life. In any case, after lapse of 6 years (in 2013), D1 had not demanded Li Tsuen to make the transfer. I reject D1’s evidence.

(5)  D1’s son (Lee Ken Wai) called D1 in UK that Li Tsuen/the Plaintiff held a house warming party at Lot 739E. D1 claimed that it was only then that he was aware that all the houses had been completed for possession. D1 called Chan from UK to ask about the development, whereupon Chan asked him to come back to collect the keys. D1 did not confront Chan nor Li Tsuen/the Plaintiff about the latter’s wrongful occupation, when D1 plainly knew that Li Tsuen/the Plaintiff thought that the house was theirs.

(6)  It had always been D1’s intention to sell the small houses allocated to him as soon as he got them because he was then residing in the UK. That was why he would not care about which house or incur extra money on building materials. He apparently did not need the 3^rd house as a residence as he has one in Ma Wan. D1 had specially come to Hong Kong to collect the keys. He made many complaints to Lee Moon, including the better outlook of the Property. Lee Moon told D1 that if he did not like it, D1 could sell the houses to him, which D1 did. At one stage, Lee Moon ditched his promise to buy and gave cheques for less than $8 million to D1. D1 insisted on collecting all the money for the 2 houses “because [he had] to go back to the UK, and [he] could not chase after the balance” (§59 of D1’s witness statement). Strangely, D1 had never demanded Lee Moon for the 3^rd house so that it could be sold at the same time as the other two or to have the 3^rd house assigned to him there and then. There was not even evidence that he had confronted Lee Moon as to why Li Tsuen/the Plaintiff had got the keys and why D1 hadn’t. The inference was that D1 plainly knew that he was not entitled to a 3^rd house.

(7)  It was telling that the Transfer was done secretively, with the Assignment wrongly stating to be with vacant possession; and D2 never demanded for vacant possession until she filed the counterclaim. Plainly, D1 knew he/D2 was not entitled and Li Tsuen/the Plaintiff would have objected to the Transfer. And yet D1’s original defence have tried to give a false picture that Li Tsuen acknowledged D1’s title to boost D1’ case (Section H(1) above).

181.Fourthly, it was dishonest for D1 to remain willfully passive in order to afterwards profit by the mistake which he might have prevented.

(1)  It is just common sense that the Garden Land adjoining the Property does not just improve the living environment (as Mr Chong submits) but would increase the value of the Property. Similarly, D1 was the best witness to prove that the better building materials have enhanced the value of the Property by its outlook. He would stand to gain on the Garden Land and the Property without having to pay a cent.

(2)  Mr Chong refers to the receipts which stated, “to return part of Lot 739RP in DD11 to its original owner to be used by the original owner of Lot 739E as a permanent garden (作為交還原地主D.D.11 Lot 739RP其中一部份…之永久使用權作為屬於原地主D.D.11 Lot 739E之永久花園地). The statement in the receipt was not grammatically correct but what was clear was that the Garden Land has never been returned to D1 on the basis that he was the original owner. D1 never claimed title over the Garden Land. In fact, he omitted to mention anything about the Garden Land in his first witness statement.

182.For the reasons given in this Sub-Section, it was unconscionable for D1 to deny that which he has allowed Li Tsuen to assume to his detriment. Proprietary estoppel by standing by is established. Justice would not be done except to order that the Property should be re-transferred to the Plaintiff.

M.  ISSUE 9 – PLAINTIFF’S DAMAGES ISSUE

183.Due to the wrongful Transfer, the Plaintiff suffered a loss in the Property and had to pay rates for the Garden Land and the Property from 30 May 2014, which he otherwise would not have to. D1 and D2 should jointly be responsible for this amount of damages to the Plaintiff.

N.  ISSUE 10 – D2’S COUNTERCLAIM

184.As I have found against D1, so the claim of D2 fails.

185.In case I am wrong, the quantum of mesne profits is not in dispute and have been set out in the schedule attached to Mr Chong’s written submission. The alleged licence to Li Tsuen was a fiction. Accordingly, any mesne profits should be computed only from the date D2 filed her counterclaim ie 16 October 2017 (§33(b) of D2’s defence). The amount from 17 October 2017 to 29 May 2021 shall be a total sum of $1,836,970; and thereafter accruing at a rate of $42,520 per month.

O.   CONCLUSION

186.In summary, I find that the development agreements were illegal and the Plaintiff had to rely on them to explain his registered title, part performance and proprietary estoppel by representation. However, he can defeat D1’s claim in resulting trust by establishing proprietary estoppel by standing by. D2’s counterclaim fails with D1’s defence.

187.The re-re-amended Statement of Claim seeks various declarations but the following orders should be sufficient to protect the Plaintiff’s interest:

(1)  There be a declaration that all instruments executed by the Defendants in respect of Lot 739E and the Property including the unregistered Agreement for Sale and Purchase and the Assignment both dated 30 May 2014 be null and void and of no legal effect;

(2)  That the Agreement for Sale and Purchase and the Assignment be set aside;

(3)  That registration of the Agreement for Sale and Purchase and the Assignment and any carbon copies thereof in the Land Registry be vacated and the Plaintiff be restored as owner;

(4)  There be a declaration that D1 and D2 had no and never had any right, title or interest whatsoever in or over the Property and are not entitled to possess the same;

(5)  D2 do forthwith assign and transfer the title of the Property to the Plaintiff free from encumbrances at her own costs;

(6)  D2 do forthwith deliver to the Plaintiff all title deeds and documents relating to the Property; and

(7)  Damages representing the rates that the Plaintiff had to pay from 30 May 2014 to be paid by D1 and D2 to the Plaintiff, together with interest at P+1% from the date of writ to the date of judgment and thereafter at judgment rate until payment.

P.  COSTS

188.On a nisi basis, costs should follow the event and be to the Plaintiff.

189.I thank counsel for their assistance.

Mr Anthony P.W. Cheung, instructed by Rene Hout & Co, for the Plaintiff

Mr K.M. Chong, Mr Alvin Chong and Mr Marco Tse, instructed by Jessica Wong & Co, for the 1^st and 2^nd Defendants