Kwan Hung Shing, As Executor of the Estate of Ho Shuk Ming, Deceased v. Fong Kwok Shan, Christine and Others
Read the full judgment text of CACV 358/2019 on BabelCite. This Court of Appeal judgment was delivered on 30 August 2023 before Chu VP, Cheung JA, Yuen JA.
Civil law – unjust enrichment – illegality defence – Small House Policy – sham transactions – resulting trust – mesne profits – appeal – counterclaim. The plaintiff, as executor of the estate of the deceased Madam Ho Shuk Ming, brought an action arising from a development scheme to build small houses in Sai Kung, New Territories, under the Small House Policy ("SHP"). Under successive Chinese agreements (dated 1995, 2000 and 2004) with the developer (initially Green House, later the 1st defendant), the deceased agreed to transfer Lot 104 to indigenous villagers (the Ding defendants) who would apply to the Director of Lands for building licences, with the developer paying Ding fees, building costs and land premium and the deceased receiving two of the small houses. The development scheme necessarily involved the Ding defendants making false statutory declarations to the Director of Lands regarding their sole ownership of the land and non-alienation of their interests, contrary to the policy objectives of the SHP. After a 10-day trial, Wilson Chan J declared the 1995, 2000 and 2004 Development Agreements and the sale and purchase agreements with the Ding defendants void and liable to be set aside on grounds of illegality under Tinsley v Milligan; held that the beneficial interest in the properties remained vested in the plaintiff by resulting trust (the assignments being voluntary transfers without consideration); rejected the 1st defendant's estoppel defence; awarded mesne profits of HK$823,530 against the 1st and 15th defendants; and dismissed the 1st and 15th defendants' counterclaim for unjust enrichment. The 1st defendant (but not the 15th defendant) appealed, raising two grounds. On Ground 1, the Court of Appeal (Chu VP, Cheung and Yuen JJA) held that the counterclaim for unjust enrichment was barred by the illegality defence: the 1st defendant's claim was in substance a claim to recover expenses incurred in implementing the illegal development scheme, and her pleaded basis expressly relied on the unenforceability of the illegal agreements to establish the "unjust" factor of the claim. Chan Yau v Chan Calvin was held to be indistinguishable. Even applying the range of factors approach in Patel v Mirza (which was subsequently adopted in Hong Kong in Monat Investment Ltd v All Persons in Occupation of Part of No 16 Ma Po Tsuen), the claim would still be rejected, having regard to the underlying purpose of the statutory declaration requirement under the SHP, the policy against alienation, and the 1st defendant's pivotal role and full knowledge of the illegality, in stark contrast to the plaintiff's lack of knowledge. Allowing the claim would enable the 1st defendant to benefit from her own wrongdoings and would be contrary to public policy. On Ground 2, the Court held that the 1st defendant had failed to discharge her burden of proving the quantum of her counterclaim: expenditure on the illegal scheme could not be equated with the increased value of the properties; no valuation evidence was adduced; and the Table and supporting documents were unsatisfactory and unreliable (with figures not tallying, items not relating to the value of the properties, and only HK$3,270,338.90 of the claimed HK$11,912,838.50 supported even by counsel's selected 22 items). A new argument that the court was bound to consider the 1st defendant's improvements when assessing mesne profits (based on McGregor on Damages) was rejected as not raised below and without merit on the evidence. The appeal was dismissed, with costs to the plaintiff on a nisi basis with a certificate for two counsel.
Legal issues: Whether illegality defence bars unjust enrichment counterclaim for investment under illegal development scheme · Whether evidence supports quantum of unjust enrichment counterclaim
Outcome: Appeal dismissed. The 1st defendant's appeal against the dismissal of the counterclaim for unjust enrichment was dismissed.
Cited by 4 cases · Cites 24 cases
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CACV 358/2019, [2023] HKCA 1020 On appeal from [2019] HKCFI 1687 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 358 OF 2019 (ON APPEAL FROM HCA NO. 265 of 2012) ___________________
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____________________ JUDGMENT ____________________ Hon Chu VP: A. Introduction 1.After a trial that lasted ten days, Wilson Chan J (“the Judge”) handed down his judgment on 9 July 2019, which (1) allowed the plaintiff’s claim against the 1st to 20th defendants; (2) dismissed the plaintiff’s claim against the 21st defendant; and (3) dismissed the 1st and 15th defendants’ counterclaim against the plaintiff. The Judge also ordered the 1st to 20th defendants to pay the plaintiff’s costs of the action and the plaintiff to pay the 21st defendant’s costs of the action. 2.This is the 1st defendant’s appeal against the dismissal of her counterclaim. There is no appeal from the 15th defendant. 3.As a result of the General Adjournment Period in March 2022 due to the public health situation, the hearing of this appeal was vacated. With the agreement of the parties, this appeal is dealt with on paper without an oral hearing pursuant to Order 59 rule 2A(5)(a) of the Rules of the High Court Cap. 4A. B. The background 4.The action in the court below arose out of a development scheme to build small houses in Sai Kung, New Territories under the Small House Policy (“SHP”). The land plots involved in the project (collectively “the Properties”) are located within Demarcation District No. 252, and comprise (1) Lot 104, which was divided into Sections A to H and the Remaining Portion in 1994 (see §10(2) below), and (2) Lot 391 and Lot 396, which were exchanged for Lots 104F and 104A in 1998 and 2005 respectively (see §15 below).
5.Before 4 April 1995, Madam Ho Shuk Ming (“the Deceased”) was the legal and beneficial owner of Lot 104. She passed away before the trial of the action. The plaintiff is the executor of her estate. In this judgment, references to the plaintiff include the Deceased and her estate. 6.The 1st defendant was a shareholder and director of Kennis Ltd which traded as Green House Property Agency (“Green House”). Green House ceased operation in about 1997 and was dissolved in 1999. The 1st defendant is also a shareholder and director of the 15th defendant. Green House, the 1st and 15th defendants were the developers in the development scheme. 7.Each of the 2nd to 14th and 16th to 20th defendants (collectively “the Ding defendants”) is a male indigenous villager (“Ding”) of the Sai Kung District, and is eligible under the SHP to apply to the Director of Lands for permission to build a small house in the New Territories. 8.The Secretary for Justice (the 21st defendant) was joined for the purpose of obtaining relief against the government. For the reasons given at §§53 to 66 of the judgment, the Judge dismissed this part of the plaintiff’s claim. It is not necessary to refer to the issues between the plaintiff and the 21st defendant and the Judge’s decision on them as this appeal is not concerned with them.
9.The SHP has been implemented by the government since 1972. The policy and the procedure for an application for a building licence to build a small house as summarised by the 21st defendant, and accepted by the Judge[1], are as follows:
10.The development scheme involves a series of agreements that the Deceased entered into with initially Green House and later the 1st defendant. These agreements and the events leading to them may be summarised as follows:
11.Between 1995 and 2007, Green House and the 15th defendant had entered into various agreements and deeds with the Ding defendants, under which the Ding defendants would: (1) apply to the Director of Lands for permission under the SHP to build small houses on the Properties; (2) hold their respective section or lot of the Properties as trustees for Green House or the 15th defendant; and (3) be paid a fee in return. 12.Additionally, each of the 3rd, 7th, 9th, 11th, 13th, and 18th to 20th defendants had executed a will appointing the 15th defendant as the executor and devising to the 15th defendant his interest in the Properties. Further, each of the 3rd, 5th, 7th, 9th, 11th, 13th, and 18th to 20th defendants had executed a power of attorney appointing the 1st defendant as his attorney to handle his small house application. 13.Subsequent to the division of Lot 104 in 1995, the Deceased entered into various sale and purchase agreements and assignments with each of the Ding defendants in respect of Sections A to H and the Remaining Portion of Lot 104. 14.In consequence, the Deceased ceased to be the registered owner of Lot 104 whereas the Ding defendants became the registered owners of the Properties. 15.In 1998, the 13th defendant surrendered Lot 104F to the government to exchange for Lot 391. Similarly, in 2005, the 3rd defendant surrendered Lot 104A to exchange for Lot 396.
16.The construction of the two small houses allocated to the Deceased (i.e. on Lots 104B and 104C) was completed in 2008, but no certificate of compliance was issued for them which means they could not be lawfully occupied for residential purposes. However, in 2014, it was discovered that the 1st defendant had without the Deceased’s authority let out the two houses. 17.As to the other small houses, the 1st defendant was unable to complete their construction within the time stipulated under the 2004 Agreement. As a result, the Deceased started to withdraw a monthly sum of HK$20,000 from the surety money held by her then solicitors. By November 2005, the surety money was exhausted. 18.By a letter dated 29 November 2005, the Deceased through her solicitors demanded the 1st defendant to deliver up vacant possession of the Properties. Despite that and subsequent demands, the 1st defendant remained in possession of the Properties. The Ding defendants also continued to hold onto their title as the registered owner of their respective section or lot of the Properties. 19.On 26 October 2007, the Deceased commenced DCCJ 4739 of 2007 against the 1st to 20th defendants, which was subsequently transferred to the Court of First instance to become the action below (i.e. HCA 265 of 2012). C. The parties’ cases
20.In summary, the plaintiff’s case at trial[3] is that:
21.The plaintiff claims the following relief:
22.The 1st defendant did not dispute that she had remained in possession of the Properties after November 2005, but denied that it was wrongful[6]. She argued that the plaintiff was estopped from claiming loss occasioned by her possession of the Properties because she has acted to her detriment in reliance on the plaintiff’s representations and encouragement to proceed with the construction of the small houses[7].
23.The 1st and 15th defendants counterclaimed against the plaintiff for unjust enrichment, in the event that the plaintiff succeeded in recovering the Properties on the ground of illegality. Paragraphs 47 and 48 of the 1st defendant’s Re-Re-Amended Defence and Counterclaim plead that:
24.It is the 1st defendant’s case that the value of the Properties had increased by reason of the substantial investment she and the 15th defendant had made on the land. It was claimed that their investment and expenditure, which totalled HK$11,912,838.50, should be taken as the “increased value” of the Properties. The only relief sought by the 1st and 15th defendants in the counterclaim is[8]:
25.The plaintiff disputed the counterclaim on two bases[9]:
D. The Judge’s decision 26.At the trial, the 1st defendant was unrepresented while the 2nd to 20th defendants were absent. The Judge identified seven issues for determination as follows (respectively “Issue 1” to “Issue 7”):
27.On the illegality issue (i.e. Issues 1 and 2)[10], the Judge held that it is indisputable that the implementation of the development scheme necessarily involved the Ding defendants making false declarations and misrepresentations to the Director of Lands in their applications for building licence, and the statutory declarations made or to be made by the Ding defendants must be false. The falsity lay in the fact that:
28.Applying the legal principles established in the line of Hong Kong authorities[12] which applied Tinsley v Milligan [1994] 1 AC 340, the Judge concluded that the Development Agreements and the development scheme were illegal and liable to be set aside, and that the plaintiff is entitled to declarations that the Development Agreements as well as the sale and purchase agreements made with the Ding defendants were void and liable to be set aside. 29.On the trust issue (i.e. Issue 3)[13], the Judge held that: (1) as the 1st and 15th defendants had admitted that the Deceased did not receive any consideration for assigning the title in her land, this gave rise to the presumption of resulting trust; (2) consequently, despite the assignments, the beneficial interest in the Properties (including Lots 391 and 396 which were exchanged for Lots 104F and 104A) remained vested in the plaintiff; and (3) the 1st to 20th defendants could not dispute the existence of the resulting trust by relying on the illegal development scheme. 30.As for the plaintiff’s claim in trespass and the defence of estoppel (i.e. Issues 4 and 5)[14], the Judge held that: (1) the plaintiff had by letter dated 29 November 2005 demanded the 1st defendant to deliver up vacant possession; (2) admittedly the 1st defendant has remained in possession of the Properties; and (3) as the beneficial interest in the Properties remained vested in the plaintiff by the operation of resulting trust, the plaintiff’s title in the Properties, and in turn the trespass claim, is not tainted with illegality: Tinsley v Milligan at 374D-E and 476C-F and Kan Wai Chung & Ors v Hau Win Fai & Ors at §§7.3 to 7.7. 31.On the defence of estoppel, the Judge rejected the 1st defendant’s evidence and found as a fact that: (1) neither the Deceased nor the plaintiff was aware that the development scheme involved the Ding defendants making false declarations to the Director of Lands; and (2) the plaintiff did not make any promise not to recover the Properties nor had encouraged the 1st defendant to proceed with the construction work or to incur expenses in relation to the Properties. 32.The Judge held that the 1st defendant had failed to prove on the evidence that the plaintiff had made any clear and unequivocal promise that he would not seek the return of the Properties. 33.The Judge accordingly rejected the defence of estoppel and held that the 1st defendant had been in wrongful possession of the Properties, including the two houses built on Lots 104B and 104C, and the plaintiff is entitled to claim mesne profits as from November 2005. 34.As to the amount of mesne profits (i.e. Issue 6), the Judge accepted the undisputed expert evidence of the plaintiff’s surveyor on the rental value of those lots on which no small houses had been built. In the case of Lots 104B and 104C, the Judge assessed their rental value without regard to the two houses built on them (for which no certificate of compliance had been issued), as he was of the view that “otherwise it would put the plaintiff in the position as if the illegal contract had been carried out”[15]. The Judge assessed the total mesne profit to be paid by the 1st and 15th defendants to the plaintiff in the sum of HK$823,530[16]. 35.Finally, on Issue 7 which concerns the counterclaim for unjust enrichment, the Judge dismissed it for the reasons he gave at §§50-52 of the Judgment as follows:
36.Accordingly, the Judge entered judgment for the plaintiff for the declaratory and injunctive relief claimed against the 1st to 20th defendants and also mesne profits against the 1st defendant in the sum of HK$823,530 together with interest, and dismissed the 1st and 15th defendants’ counterclaim. E. The 1st defendant’s grounds of appeal 37.The present appeal is brought by the 1st defendant on her own behalf. There is no appeal from any of the Ding defendants or the 15th defendant. We will accordingly disregard those parts of the 1st defendant’s submissions that seek to make representations or claim relief on behalf of the 15th defendant, which is not a party to the appeal (see §§38 and 39 below). 38.The 1st defendant issued the Notice of Appeal and filed two Supplemental Notices of Appeal while acting in person. She has since instructed solicitors and counsel, who had re-formulated the grounds of the appeal and indicated that they would only argue the issues set out in the first written submission[17]. In summary, her appeal, which is directed solely at the Judge’s dismissal of the counterclaim, raises two broad grounds as follows:
39.The 1st defendant seeks the following relief in this appeal[20]:
F. Reasons for decision
40.Under Ground 1, the principal arguments advanced by Mr Chong, together with Mr Tsang for the 1st defendant, are that:
41.In response, Mr Shum, together with Mr Tai for the plaintiff, submit that:
F.2 Ground 1: Discussion 42.The primary argument of the 1st defendant under this ground is that the Judge misapplied the law on unjust enrichment and that illegality is irrelevant to the counterclaim as she is not seeking to enforce her contractual entitlements under the illegal agreements. 43.In considering a claim of unjust enrichment, four questions have to be asked: (1) was the plaintiff enriched; (2) was the enrichment at the defendant’s expense; (3) was the enrichment unjust; and (4) are there any applicable defences: Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, at §67. 44.Illegality is one of the defences that may be invoked to defend a claim of unjust enrichment[30]. In Tinsley v Milligan, the majority of the House of Lord held that a claimant to an interest in property which had been acquired in the course of an illegal transaction may recover if he is not forced to plead or rely on the illegality: at 376E. The rationale underlying the reliance rule is that the court will not assist a claimant who formed his cause of action under an illegal contract because to do so would involve the Court lending its aid to the performance of the illegal contract, which is contrary to public policy: Best Sheen Development Ltd v Official Receiver. 45.In HKSAR v Lau Kam Ying at §§20-21, the Court of Final Appeal approved the decision in Best Sheen Development Ltd while considering it was unnecessary to come to a concluded view on Tinsley v Milligan. In this Court’s decision in Kan Wai Chung & Ors v Hau Wun Fai & Ors at §8.7, Cheung JA noted that the Hong Kong court had in a number of cases adopted the Tinsley v Milligan approach[31] and considered it was bound by the decision of the Court of Final Appeal’s decision. The UK Supreme Court’s decision in Patel v Mirza, being handed down just two days ago, was not referred to in the judgment. Subsequently, in Arrow ECS Norway AS v M Yang Trading Ltd [2019] HKCA 176 at §5.4, which concerns a security for costs application, Cheung JA, when addressing the defendants’ submission that they had a strong ground of appeal because Tinsley v Milligan had been overruled by Patel v Mirza, observed that:
46.In the present case, the Judge (at §22) took note that Tinsley v Milligan was overruled in Patel v Mirza, but was of the view that Hong Kong courts were bound by the Court of Final Appeal’s decision and would apply Tinsley v Milligan. The Judge’s view is consistent with that expressed in a number of Court of First Instance decisions[32]. 47.Subsequent to the Judge’s decision, in the judgment given by Yuen JA in Monat Investment Ltd v All Persons in Occupation of Part of No 16 Ma Po Tsuen [2023] 2 HKLRD 1311 at §§42 to 57, a case that concerns adverse possession, this Court considered that the approach in Patel v Mirza should be adopted in Hong Kong. Given the 1st defendant’s stated position that illegality is irrelevant to her counterclaim (see §40(1) above), the question of whether to follow the reliance rule in Tinsley v Milligan or to adopt the range of factors approach in Patel v Mirza is not engaged in the discussion of her primary argument. We shall return to this when considering her alternative argument under this ground. 48.The 1st defendant’s primary challenge is directed at the Judge’s holdings that any expenses incurred by her (resulting in improvement to the Properties) were made in the implementation of the illegal development scheme and the illegal agreements, and the court should not assist to give effect to them. Mr Chong stresses that the 1st defendant is not seeking to share the “fruit of the development”. He argues that the counterclaim is a classic claim of unjust enrichment in that (1) the plaintiff has obtained substantial financial benefit from the investment made by the 1st defendant (and the 15th defendant), which has turned the plaintiff’s land into land capable of being developed and built upon (and in the case of Lots 104B and 104C two houses had been completed); (2) the enrichment is unjust because the 1st defendant cannot recover her contractual entitlements due to the illegality of the agreements; and (3) accordingly, the 1st defendant is entitled to claim the increased value of the Properties which is represented by the amount of investment or expenses spent on the plaintiff’s land. 49.These arguments are fraught with a number of difficulties. First, on the Judge’s findings, the pleaded basis of the unjust enrichment claim is simply not made out. The counterclaim, as pleaded, is premised on (1) the plaintiff succeeding in recovering the Properties on the basis of illegality; and (2) the plaintiff has knowledge of the illegality: §47 of the Re-Re-Amended Defence and Counterclaim, see also §23 above. 50.However, at the trial the plaintiff did not rely on illegality as the basis for his claim against the Ding defendants[33]. Right at the start of the trial, Mr Shum made it clear that the plaintiff’s claim against the Ding defendants was based on resulting trust and founded on the fact that the conveyance from the plaintiff or the subsequent assignments to the Ding defendants were voluntary transfers without consideration such that the beneficial interest in the Properties had remained vested in the plaintiff. 51.Further, and importantly, the salient facts found by the Judge, which are not challenged on appeal, are that: (1) the development scheme, which was initiated by the 1st defendant, and the Development Agreements as well as the agreements that Green House and the 15th defendant made with the Ding defendants were all illegal; (2) neither the Deceased nor the plaintiff had knowledge that the development scheme would involve the Ding defendants making false declarations to the Director of Lands; (3) the interest in the Properties remain vested in the plaintiff by reason of resulting trust; and (4) under the illegal agreements the 1st and 15th defendants were to develop and build small houses on the Properties. 52.The pleaded basis of the unjust enrichment claim is therefore not made out because, firstly, the beneficial interest in the Properties was held to have remained vested in the Deceased by the operation of resulting trust. Secondly and importantly, the Judge found the plaintiff did not have knowledge of the illegality of the development scheme. 53.Second, on the Judge’s above findings, all the works carried out by the 1st and 15th defendants on the Properties, including the construction of the two houses, were an integral part of the implementation of the illegal development scheme and illegal agreements. Although it is argued that the 1st defendant is only claiming the increased value of the Properties and not seeking to share “the fruit of the development”, it is just a matter of semantics. The counterclaim is in truth and in fact a claim to recover what had been spent on carrying out the illegal agreements. It follows that the Judge did not err in holding that any expenses for improving the Properties, rendering the land fit for building houses or building the two small houses were incurred in the course of, and formed part of the implementation of, the illegal scheme and the illegal Development Agreements. 54.Third, the submission that the 1st defendant does not need to rely on the illegal agreements for her counterclaim is untenable. On Mr Chong’s argument, the plaintiff’s enrichment is unjust because the agreements were illegal as a result of which the 1st defendant cannot obtain her contractual entitlements. Plainly, the 1st defendant is relying on the illegality of the agreements to satisfy the “unjust” factor of her counterclaim. 55.Fourth, there is no real distinction between seeking to recover investment in the land made in the implementation of an illegal scheme (which is the plaintiff’s alternative claim in Chan Yau v Calvin Chan) and claiming the expenses incurred in implementing an illegal development scheme but presented as the increased value in the land (which is the counterclaim here). The argument that the 1st defendant is only seeking the effect of her investment does not hold up to scrutiny when the very effect that she is after is the payments and expenses for implementing the development scheme. 56.The 1st defendant also argues that when assessing mesne profits, the court is under an automatic and inherent duty to take into account the investment or improvement that the 1st defendant (and the 15th defendant) had brought to the Properties. This argument was raised for the first time in the supplemental reply submission and has gone beyond the scope of the grounds of appeal in the Notice of Appeal and the two Supplemental Notices of Appeal. This argument was also not raised before the Judge. It is trite that an appeal is not the proper occasion for canvassing new points which have not been raised in the court below: China Gold Finance Ltd v CIL Holdings Ltd CACV 11/2015, 27 November 2015 at §48. On this basis alone, this argument should be rejected. 57.In any event, this new argument has no merit. The 1st defendant relies on McGregor on Damages (21st ed) at §39-049 which states that:
58.The last sentence on which the 1st defendant places much reliance should, however, be read together with its footnote (footnote 367) which states that:
59.At the trial, the 1st defendant did not adduce any evidence on the market rental value (or the increased value) of the Properties. The only valuation evidence of the Properties came from the plaintiff’s surveyor whose evidence was accepted by the Judge[34]. As stated in his valuation report dated 15 September 2016 (at p.13), the plaintiff’s surveyor assessed the market rental value of the Properties “on the basis of letting with immediate vacant possession disregarding all its authorized structures and free from all legal encumbrances”. The Judge assessed the mesne profits of the Properties (except Lots 104Bs and 104C) on the basis of the market rental value given in the surveyor’s report. In relation to Lots 104B and 104C, the Judge disregarded the two houses built on them in assessing the market rental value[35]. 60.In the circumstances, having regard to the plaintiff’s expert evidence which was accepted by the Judge and the absence of evidence from the 1st defendant on what might be the unimproved rental value of the land, even if we were to allow the 1st defendant to run this argument, she simply cannot demonstrate that the Judge was wrong in his assessment of the mesne profits. 61.I turn next to Mr Chong’s alternative argument under this ground, which is that the counterclaim of unjust enrichment is not tainted with illegality. This argument was also only raised in the supplemental reply submission. At the trial, the 1st defendant had argued that the Judge should apply Patel v Mirza instead of Tinsley v Milligan, which the Judge did not accept. The argument was initially repeated in the Notice of Appeal filed when the 1st defendant was acting in person. In the first written submission lodged by counsel after she became legally represented in this appeal, it was expressly stated that the 1st defendant would only argue the issues set out in §1 of the submission (see §38 above). The argument that the approach in Patel v Mirza should have been adopted instead of that in Tinsley v Milligan was not pursued. The belated alternative argument in the supplemental reply which in essence is seeking to revive the abandoned argument is therefore a surprising turn. In any event, it does not advance the 1st defendant’s case for the reasons discussed below. 62.In Patel v Mirza, an action to obtain restitution and recover money transferred under an illegal contract, the UK Supreme Court by a majority laid down a new “range of factors” (or “factors-based”[36]) approach in place of the reliance test in Tinsley v Millgan. Under this approach, the primary question is whether allowing recovery of the claim tainted with illegality would be harmful to the integrity of the legal system, and the court could not answer the question without regard to a trio of necessary considerations, namely (1) the underlying purpose of the prohibition that has been transgressed, (2) any other relevant public policies which may be rendered ineffective or less effective by denial of the claim, and (3) the possibility of overkill unless the law is applied with a due sense of proportionality[37]. 63.When considering illegality as a defence in unjust enrichment, the range of factors approach will entail the court making a flexible assessment of whether the public interest would be harmed by enforcement of the illegal contract, taking into account the underlying purpose of the prohibition which was illegally contravened, public interest, and whether denial of the claim would be proportionate, bearing in mind that punishment is not a concern of the civil courts[38]. 64.In the context of the present case, the illegality of the development scheme and the Development Agreements stems from the false declarations and misrepresentations made or which would be made by the Ding defendants to the Director of Lands in the course of applying for building licences under the SHP. On the first of the trio of considerations, the underlying purpose of the statutory declaration that each of the Ding defendants was required to make is to prevent misuse or abuse of the SHP by, inter alia, ensuring that the applicant is properly eligible and the application is a genuine one that meets the policy objectives. On the evidence before the Judge[39], the SHP set out to enable “indigenous villagers of the New Territories to build houses for themselves and to preserve the cohesion of indigenous communities”; under the policy an applicant is not permitted to alienate his interests in the small house; and in relation to an applicant who has alienated his interests or provided false information or made false declaration in the course of his application (as in the case of the Ding defendants) the Director of Lands would take lease enforcement action or revoke the building licence, and/or refer the matter to the relevant authority for consideration of criminal prosecution. 65.On the second consideration, there is no discernible public policy (and the 1st defendant has not identified any) that will be adversely affected by a denial of the 1st defendant’s claim. 66.As to the third consideration, it is relevant to consider the 1st defendant’s role in the illegal development scheme and her knowledge of it. It is clear from the evidence that she had assumed a pivotal role and had been heavily involved in organising and implementing the development scheme. She is the one who initiated the scheme, and is the developer, being the shareholder and director of the company that owned Green House and also a shareholder and director of the 15th defendant. She must be fully aware of the falsity of the declarations and representations made or to be made by the Ding defendants. She knew of the agreements and deeds made between the Ding defendants and Green House or the 15th defendant and the wills executed by some of the Ding defendants in favour of the 15th defendant. Additionally, some of the Ding defendants had executed powers of attorney in favour of her. She also signed as a witness on the Undertakings and Guarantee Forms in the applications submitted by the Ding defendants to the Director of Lands and had further signed as the lawful attorney on the building licences granted to the Ding defendants. In contrast, neither the Deceased nor the plaintiff was found to have knowledge that the development scheme involved the Ding defendants making false declarations or misrepresentations. 67.In these circumstances, having regard to the policy factors involved and the public interest underlying the SHP, the requirement for the statutory declaration and the restriction against alienation of interests in the small houses, the nature and circumstances of the illegal conduct in question and the role and conduct of the 1st defendant and her companies as well as the disparity between her culpability and that of the plaintiff, it is not a disproportionate response to disallow the 1st defendant to recover what had been expended in implementing the illegal development scheme. On the contrary, allowing her counterclaim would have the effect of enabling her to benefit from her own wrongdoings and would also be contrary to public policy consideration that the law should not be inconsistent and self-defeating. In short, applying the approach in Patel v Mirza would also lead to a rejection of the 1st defendant’s claim. 68.Under this alternative argument, Mr Chong has also sought to distinguish Chan Yau v Chan Calvin, and draw assistance from the case of Chung Tin Pui and the House of Lords’ decision in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669. As discussed above (see §55), I do not agree that Chan Yau v Chan Calvin is distinguishable. Further, in light of the above conclusion on the application of the approach in Patel v Mirza to the circumstances of this case, Louis Chan J’s decision in Chung Tin Pui and the House of Lords’ decision in Westdeutsche Landesbank Girozentrale do not assist the 1st defendant. 69.For the above reasons, Ground 1 fails.
70.The 1st defendant’s arguments under Ground 2 may be summarised as follows:
71.In response, the plaintiff argues that:
72.As the plaintiff rightly points out, with the rejection of Ground 1 which challenges the dismissal of the counterclaim, it will not be necessary to consider Ground 2 since it is directed at the Judge’s holding that there was no evidence on the particulars and quantum of the counterclaim as pleaded. Nevertheless, for the sake of completeness, I will deal briefly with the arguments under Ground 2. 73.To recap[42], the essence of this part of the Judge’s finding is that (1) the amount of investment or expenses said to be incurred by the 1st and the 15th defendants cannot be equated with the increased value of the Properties; (2) there is no valuation evidence to show what was the increased value of the Properties and in turn the enrichment to the plaintiff; and (3) the evidence of investment or expenses incurred by the 1st and 15th defendants is in any event unsatisfactory. 74.I deal firstly with the 1st defendant’s second argument under this ground, which relates to (1) and (2) of the Judge’s above findings. Mr Chong accepts that at the trial there was no valuation evidence to show the increased value of the Properties. He, however, argues that the Judge could have found on the evidence that the 1st and 15th defendants had developed the Properties, built two small houses and incurred development costs, and also the value of the Properties had increased. But even accepting all of these, it is far from discharging the burden of proving the counterclaim as pleaded and its quantum. 75.The counterclaim as pleaded is for the “increased value of the [Properties] after site formation works, and the value of the plaintiff’s houses” (see §24 above). To make good her claim, the 1st defendant has to prove by credible evidence: (1) the market value of the Properties; (2) there was an increase in the value of the Properties as a result of the works that she had caused to be done to the Properties; (3) the amount of increase in the value of the Properties; and (4) the market value of the two small houses built on Lots 104B and 104C. 76.Admittedly, no evidence of the sort was adduced at the trial and the counterclaim is therefore not made out. Whatever costs or expenses that were incurred in developing the Properties and building the two small houses cannot, without more, be likened to the increased value of the Properties and/or the market value of the two houses. It is also not for the court to speculate on the market value of the Properties and the two small houses. The Judge is eminently correct in finding that the amount of investment or expenses made or incurred by the 1st and 15th defendants could not be equated with the increased value of the Property, and to hold that there was no evidence to support the counterclaim as pleaded. 77.As to the other argument that the Judge erred in disregarding the Table and D1/D15 Documents and should have awarded to the 1st defendant the total amount stated in the Table after setting off the plaintiff’s claim for mesne profits, this is in substance a challenge to the Judges’ evaluation of the evidence and finding of fact. Quite apart from the fact that the total amount of the expenditure stated in the Table cannot be taken to be the increased value of the Properties and/or the value of the two small houses, this argument is further flawed for the reasons below. 78.First, the Table is, as described in its title (“Tai Mong Tsai DD 252 Lot 104 工作進度表”), a list of work progress that contains 152 entries, of which 81 of them carry an amount described as “行政費/ 建築費/ 丁屋合作費” (administrative fee/ building fee/ small house cooperation fee). The total amount comes up to HK$11,912,838.50. At the trial, no evidence was given on the identity of the person(s) who prepared the Table, the time and manner of its compilation or the primary source of the content. Nor had the 1st defendant referred to the D1/D15 Documents in her witness statement or oral evidence. 79.It is indisputable that the burden is on the 1st defendant to prove her counterclaim by credible and reliable evidence. The fact that the plaintiff did not cross-examine her on the Table does not mean that she has discharged her burden. The plaintiff, as he is entitled to, had in the closing submission commented adversely on the accuracy and reliability of the Table and the weight to be attached to it[43]. 80.Second, the fact that the D1/D15 Documents were included in the trial bundles only means that there is no dispute as to their authenticity and admissibility. It does not bar the plaintiff from taking issue with the correctness or reliability of their content or the weight to be given to the documents. It is open to the plaintiff, as he did, to deal with the documents in his submission instead of in the cross-examination of the 1st defendant. 81.Third, the Judge is likewise not bound to accept the Table. It was open to him to have regard to the fact that there was no evidence to explain or elaborate on the content of the Table and to find that there was no satisfactory evidence to support the items and amount stated in it. 82.Fourth, the Judge is also entitled to find that D1/D15 Documents only provided limited proof of the expenses claimed by the 1st and 15th defendants. Among other things, the figures in the Table do not tally with the bills, receipts and cheques in D1/D15 Documents. The total amount shown on those documents is less than half of the total amount stated in the Table. Further, some of the expenses do not even relate to the value of the Properties, such as the Ding fees, the administrative fees paid to Green House and the 15th defendant and the air fare of the trip made by the 1st defendant and her lawyer(s) to the United Kingdom. 83.Fifth, Mr Chong had included in his reply skeleton argument an Annex setting out 22 of the items in the Table which he submits are supported by documents in D1/D15 Documents. The 22 items come to a total amount of HK$3,270,338.90, which is less than one-third of the total amount stated in the Table. Mr Chong explains that the Annex has excluded items that are “arguably for recovery of money paid for an illegal purpose” such as payment of Ding fees[44]. The concession made by counsel and the fact that the amount of these 22 items is substantially less than the total costs stated in the Table further highlight the unsatisfactory nature and unreliability of the Table. They also demonstrate that the Judge was well justified in finding there was no satisfactory evidence to support the expenses claimed by the 1st defendant and that very limited documents had been produced to prove the expenses claimed in the Table. 84.In sum, without doing the bare minimum of proving her claim at the trial, the 1st defendant cannot wield a broad brush on appeal to justify the quantum of her unjust enrichment claim. She has simply failed to show that the Judge was wrong, let alone plainly wrong, in finding there is no satisfactory evidence to support the amount of her counterclaim. 85.For the above reasons, Ground 2 also fails. G. Conclusion and disposition 86.In conclusion, the appeal has no merits. I would make the following orders:
Hon Cheung JA: 87.I agree with the judgment of Chu VP. Hon Yuen JA: 88.I agree with the judgment of Chu VP.
Mr Erik Shum and Mr Jonathan Tai, instructed by Hau, Lau, Li & Yeung, for the plaintiff Mr K M Chong and Mr Felix H F Tsang, instructed by K C Ho & Fong, for the 1st defendant[1] Judgment, at §§16 to 18 [2] The English version was dated February 1993 and the Chinese version was dated May 1993 [3]As appeared by the Re-Re-Re-Re-Re-Amended Statement of Claim dated 18 January 2019 (“RRRRRASOC”). [4] RRRRRASOC, §§1 to 3, 5A and 5B of the Prayer for Relief [5] RRRRRASOC, §§7 to 70 of the Prayer for Relief [6] Judgment, §35(3) [7] Judgment, §37 [8] Re-Re-Amended Defence and Counterclaim, §1 of the Prayer for Relief [9] Re-Amended Reply and Defence to 1st and 15th Defendants’ Counterclaim, §§17 and 18 [10] Judgment, §§15 to 28 [11] Chan Yau v Chan Calvin at §§86, 89. [12] Best Sheen Development Ltd v Official Receiver [2001] 1 HKLRD 866 at 874A-875B; Chung Mui Teck & Others v Hang Tak Buddhist Hall Association Ltd & Another [2001] 2 HKLRD 471, at 477A-I, 478F-479D; Tang Teng Hong Tso v Cheung Tin Wah [2014] 2 HKLRD 1032, at §21; Chan Yau v Chan Calvin, supra; Kan Wai Chung & Ors v Hau Wun Fai & Ors [2016] 5 HKC 585, at §8.7; and Tse Chun Wai v Leung Kwok Kin Joseph [2017] 4 HKLRD 563, at §64. [13] Judgment, §§29 to 33 [14] Judgment, §§34 to 48 [15] Judgment, §47 [16] The plaintiff’s claim, including the rental value of the two houses on Lots 104B and 104C, was for HK$9,468,150: Plaintiff’s closing submissions, §33 [17] skeleton argument of the 1st defendant (“D1’s submission”), §1 [18] D1’s submission, §§1(b)(i) and (iii); and skeleton reply of the 1st defendant (“D1’s reply”), §1a [19] D1’s submission, §§1(a) and (b)(ii); D1’s reply, §1(b) [20] D1’s submission, §§27 to 29 [21] D1’s submission, §28. The reference to “D10” should be a reference to the 15th defendant. [22] D1’s reply, §§2 to 6; D1’s supplemental reply, §3 [23] D1’s reply, §§7 to 10; D1’s supplemental reply, §5(1) [24] D1’s submission, §§15 and 16 [25] D1’s supplemental reply, §§1 to 4 [26] D1’s supplemental reply, §5 [27] skeleton submissions of the plaintiff (“P’s submission”), §§4(1) & (2), 19 to 23; reply skeleton of the plaintiff (“P’s reply”), §§1 and 2 [28] P’s submission, §§24 and 25; P’s reply, §§3 and 4 [29] P’s submission, at §§27 and 28 [30] Patel v Mirza at §2 [31] Loyal Luck Trading Ltd v Tam Chun Wah [2008] 4 HKLRD 681; Wong Kwok Learn Baldwin v International Trading Co Ltd [2010] HKLRD 334; Tang Wai Cho v Tang Wai Leung [2011] 1 HKLRD 1; and Lau Kwai Kiu v Bian Xintian [2012] 2 HKLRD 954. [32] Tse Chun Wai v Leung Kwok Kin Joseph, supra, at §§22-65; Arrow ECS Norway AS v M Yang Trading Ltd [2018] HKCFI 975 at §§27-29; Dumayag Analyn Pedro v Leung Mei Ling [2020] HKCFI 276 at §§18 and 19; Idemitsu Chemicals (Hong Kong) co Ltd v Brilliant One Shipping Co Ltd [2021] HKCFI 1175 at §38; Leung Chin Sing Rabo v Ko Chung Hay Kelvin [2021] HKCFI 2242 at §112; Taching Petroleum Co Ltd v Meyer Aluminium Ltd [2021] HKCFI 3028 at §13; Li Lap Wai v Lee Tin Choi [2021] HKCFI 3923 at §§137-140; and She Ching Yan v Cai Yunxiang [2023] HKCFI 592 at §§78-81. [33] Judgment, §§13, 29 to 32; see also the plaintiff’s opening submissions, §§27 to 29 at Core Bundle E, p.1051 and the plaintiff’s closing submissions, §2 at Core Bundle E, p.1066 [34] Judgment, §46 [35] Judgment, §§47-48; see also the plaintiff’s supplemental closing submission at Core Bundle E, p.1096 [36] Chitty on Contracts (34th ed) vol 1 at §18-005 [37] at §§101 and 120 [38] Halsbury’s Laws of England (5th ed 2019) vol 88 at §574 [39] Witness statement of Wong Wing Sing filed by the 21st defendant, at §§6, 9, 20-22 [40] Core Bundle C, pp.678-691 [41] Core Bundle D, pp. 692-842 [42] Judgment, at §§51 and 52; see §35 above [43] Plaintiff’s closing submissions, §38, at Core Bundle E, p.1089 [44] D1’s reply, §§13 and 17 |
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