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 5 cases · Cites 14 cases