Secretary for Justice v. Kwan Kin Sang

DCCJ 5698/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5698 OF 2006

____________

BETWEEN

____________

Coram : Her Honour Judge H.C. Wong in Court

Dates of Hearing : 19^th – 20^th May 2008 and 3^rd June 2008

Date of Handing Down Judgment : 1^st August 2008

JUDGMENT

1.In this action the Secretary for Justice represent the Government in a claim against the Defendant Kwan Kin Sang (“Mr. Kwan”) for the return of housing benefits paid under a mistake between 15 September 2000 and 31 June 2006. 

Background

2.Mr. Kwan was employed as the Assistant Music Officer (Music Promotion) of the Hong Kong Government Music Office between 1984 and 1993 in the Government’s permanent establishment.  In 1993, he was promoted to the rank of Music Officer (Music Promotion) of the Urban Council and Regional Council Music office (formerly known as the Hong Kong Government Music Office).  He remained so employed until 1998 when he was promoted to the rank of Senior Music Officer (Music Promotion) of the Provisional Urban Council and Provisional Regional Council Music Office.  On 15 September 1998, Mr. Kwan entered into a contract of employment with the Provisional Urban Council and Provisional Regional Council under which he was employed as a Senior Music Officer, relinquishing his employment as a permanent and pensionable employee of the Hong Kong Government.  Under the 15 September 1998 employment contract, in addition to his monthly salary his entitlement included a non-accountable monthly housing allowance at the rate of 30% of his substantive monthly salary and a gratuity payment at the end of the contract period.  The 2 year contract commenced on 21 September 1998 up to 20 September 2000.  This contract was later extended to 14 December 2000. 

3.On 14 November 2000, the newly formed Leisure and Cultural Services Department (“LCSD”) gave notice to terminate the Urban Council appointment of Mr. Kwan and offered to appoint him in the same rank as SMO for a term of 2½ years from 15 December 2000.  On or about 17 November 2000, Mr. Kwan accepted the new contract offered to him as the Senior Music Officer on terms and conditions set out in the Memorandum on Conditions of Service for Officers Appointed on Non-Civil Service Terms for Contract Staff of the Former Municipal Councils (“MCS”) for the period 15 December 2000 to 14 June 2003. 

4.The Plaintiff relied on clause 9.5 of the MCS terms.  Clause 9 provides:-

“9.          Housing Benefits (only for those officers remunerated at salary equivalent to MPS Pt. 34 or above)

9.1         An officer may receive only one form of housing benefits at any one time, irrespective of whether or not it is provided by the Government.  If the officer is married, and both he and his spouse are not eligible for an allowance equivalent to the civil service Non-accountable Cash Allowance (NCA) set out in paragraphs 9.2 and 9.3 below, he must opt for either his own housing benefits or those provided under his spouse’s employment.  If the officer or his spouse has received any housing benefits from the Government or a publicly-funded organization, his entitlement to housing benefits may be reduced or otherwise limited.  Details of the rules and regulations on the prevention of double housing benefits are set out in CSR 809, the relevant Civil Service Bureau Circulars and Civil Service Bureau Circular Memoranda.

9.2         Officers with basic salary equivalent to Point 34 of the Master Pay Scale or above who meet the eligibility criteria and terms of the NCA Scheme will only be eligible for an allowance equivalent to the NCA.  Provisions governing the NCA Scheme are set out in CSRs 2000-2099.

9.3         Under the NCA Scheme, a non-accountable but taxable monthly allowance is payable to an eligible officer for a maximum aggregate period of 120 months during the officer’s service with the Government, irrespective of whether there is a break in service.  There will be no downpayment loan under the NCA Scheme.

9.4         For the purpose of receiving an allowance equivalent to the NCA under paragraphs 9.2-9.3 above, the maximum aggregate entitlement period of 120 months shall be reduced by the period for which the officer or his spouse has obtained any housing benefits from the Government or any publicly-funded organizations (including the cash allowance from the former Municipal Councils) and according to the rules on prevention of double benefits as set out in CSR 809.

9.5         Those who have received any cash allowance from the former Municipal Councils or any allowance equivalent to the civil service Home Financing Allowance (HFA) under the Home Financing Scheme (HFS) or the civil service Rent Allowance (RA) under the Rent Allowance Scheme (RAS) will not be eligible for an allowance equivalent to the NCA.  They may also receive an allowance equivalent to the HFA or the RA for the balance of their 120-month entitlement, if any, subject to their meeting the eligibility criteria of the HFS or the RAS respectively.  Provisions governing the HFS and the RAS are set out in CSRs 1600-1799 and 1900-1999 respectively.  Notwithstanding the provision on downpayment loan in CSR 1600-1799, all officers offered appointment under this Memorandum on Conditions of Service will be ineligible for the downpayment loan under the HFS.”

5.It is not disputed that Mr. Kwan renewed his contract with the LCSD under the same terms and conditions on 5 June 2003 (for the period 15 June 2003 to 31 December 2003), on 12 December 2003 (for the period 1 January 2004 to 30 June 2006) and 23 June 2006 (for the period 1 July 2006 to 31 December 2008).

6.It is the Plaintiff’s claim that because of the change of employment condition set out in the MCS (“MCS terms”), Mr. Kwan was bound by clause 9 of the MCS terms where it is specified that by 15 December 2000 he ceased to be entitled to a non-accountable monthly housing allowance of 30% of his substantive salary (“NCA”).

7.However, by mistake of the LCSD staff, Mr. Kwan continued to receive NCA at 30% of his substantive salary each month between 15 December 2000 and 28 February 2005.  The total sum Mr. Kwan received in NCA wrongly paid to him amounted to $869,818.89.  This is the sum the Plaintiff is seeking recovery from Mr. Kwan in the present action. 

The Plaintiff’s case

8.The Plaintiff claims that Mr. Kwan was wrongly paid the sum of $869,818.89 (“the money claimed”).  It was not until 4 March 2005 that the LCSD upon verification of payments of NCA was wrongly made to Mr. Kwan that it ceased to pay further housing allowances to him.  Mr. Kwan was officially informed and notified by a letter dated 24 September 2004 of the mistaken payment of NCA.  He was further told that he should be entitled to “a HFA/RA equivalent allowance for the balance of a 120-month entitlement of housing benefit commencing on the first day of his receipt of NCA in 1998.”  At the time, Mr. Kwan was not asked to repay the money claimed.  He was informed that advice was being sought on the issue of his eligibility for HFA/RA and the recovery of extra housing allowance paid to him. 

9.By letter dated 4 March 2005, the LCSD notified Mr. Kwan he would be entitled to HFA/RA upon his proving his eligibility and no further payment of housing allowance would be made to him until he produced proof in support of housing finance assistance (“HFA”) or rental allowance (“RA”) for the relevant period. 

10.On 29 September 2005 and 5 October 2005, the LCSD wrote to Mr. Kwan reminding him to apply for HFA or RA.  To date Mr. Kwan has failed to lodge such an application.

11.By letter dated 25 November and 28 December 2005 and further letters dated 26 January, 6 February and 26 July 2006, the Plaintiff demanded Mr. Kwan to refund the overpayments.  Mr. Kwan has failed to do so. 

The Defence Case

12.Mr. Kwan acquired a diploma from the Hong Kong Conservatory of Music in 1983.  After pursuing further studies in 1987, he acquired a diploma in Management Studies from the then Hong Kong Polytechnic and Hong Kong Management Association.  In 1990, he was conferred a Bachelor of Arts in Music by the Chinese University of Hong Kong.  In 1994, he completed Graduate Studies in Ethnomusicology at the Chinese University of Hong Kong.  In 1995, he was conferred a Master degree in Library and Information Science by the University of Wisconsin – Milwaukee.  In 1996, he was elected to the Beta Phi Mu International Library Science Honor Society.

13.From 1979 to 1993, Mr. Kwan was a bandmaster of Hong Kong Philharmonia Winds Section and the Hong Kong Lutheran Youth Band.  He also became a music instructor of various colleges and schools, a trombone player of the Pan Asia Symphony Orchestra and Hong Kong Concert Orchestra.  He began his career with the Hong Kong Government in 1984 when he was appointed an Assistant Music Officer (Music Promotion) of the Hong Kong Government Music Office.  He remained in that post until 1993 when he was made a Music Officer (Music Promotion) of the Urban and Regional Councils Music Office.  He was promoted to the rank of Senior Music Officer (Music Promotion) in 1998.  On 15 September 1998, he signed a 2-year contract with the Municipal Councils as the Senior Music Officer for the period 21 September 1998 to 20 September 2000 on terms and conditions set out in the Memorandum of Conditions of Service (“MCS”).  The offer was made through an offer letter dated 15 September 1998 where it stated that the post was on a salary scale of 11 annual increment points, from $47,970 per month in the first year to $73,815 per month in the 11^th year.  Mr. Kwan was further offered on application on 30 September 1998, a non-accountable monthly housing allowance equivalent to 30% of his salary (“NCA”).  Under a departmental memorandum “(66) in MOKWAN/K/1” of 9 February 1999 from the Chief Music Officer, Mr. Kwan was informed that the NCA monthly housing allowance would be for a maximum period of 10 years payable from 21 September 1998 up to 17 February 2006.

14.Under the 15 September 1998 letter and the 9 February 1999 memorandum from the Chief Music Officer approving his application of 15 September 1999 made under clause 8 of the MCS terms of the Provisional Urban and Provisional Regional Councils attached to the 15 September 1998 offer letter (pages 2 to 22 of the Document Bundle), Mr. Kwan understood he would be entitled to the annual increment for the next 11 years and to an NCA equivalent to 30% of his salary for 120 months during his employment with the Music Office.  

15.Mr. Kwan claimed he had received a letter from the LCSD on 16 August 2000 informing him the Department was working on the revised terms for contract staff of the former municipal councils and he will be informed in due course upon the completion of the drafting of the terms of new contract.  However, he was never told his entitlements to housing allowance would cease under the revised terms.  It was on this basis, his appointment was extended on 21 September 2000.  By letter dated 15 November 2000, he was informed the non-civil service terms had been finalized and would be replacing the extended contract.  He was offered a contract of service for 2½ years from 15 December 2000 to 14 June 2003.  Enclosed with the 15 November 2000 letter was the Memorandum on Conditions of Service for Officers appointed on Non-Civil Service Terms for Contract Staff of the former Municipal Councils dated October 2000 (“MCS”) which formed the terms and conditions of Mr. Kwan’s employment contract with the LCSD after 15 December 2000 (pages 78 to 95 of the Document Bundle).  At the expiry of Mr. Kwan’s contract of service on 14 December 2000, he accepted an offer on similar terms on 5 June 2003 for the service period of 15 June 2003 to 31 December 2003.  On 12 December 2003, he accepted an offer for employment of 2½ years from 1 January 2004 to 30 June 2006.  On 23 June 2006, he entered into a further term of employment for 2½ years from 1 July 2006 to 31 December 2008.  Mr. Kwan continues to receive an annual increment.

16.There were no indications in these offer letters of 5 June 2005, 12 December 2003 and 23 June 2006, that his entitlement to housing benefits would cease or be terminated.  Indeed, he continued to receive the non-accountable monthly housing allowance equivalent to 30% of his monthly salary paid directly into his bank account together with his monthly salaries until March 2005.  He claimed therefore that the conduct of the representatives of the Government had led him to believe his housing allowance entitlement remained unchanged up to 17 February 2006 when the 120 months of entitlement to housing allowance would end.

17.Mr. Kwan claimed that he was unaware of any mistakes on the part of the Plaintiff regarding his housing benefit entitlements until he received the letter of 24 September 2004 from the LCSD referring to clause 9.5 of the Memorandum on Conditions of Service that instead of his entitlement to a housing benefit equivalent to 30% of his substantial salary he would only be entitled to the equivalent of either the Civil Service Home Financing Allowance (“HFA”) under the Home Financing Scheme or the Civil Service Rent Allowance (“RA”) under the Rent Allowance Scheme for the balance of the 120 months of his entitlement to housing benefits.

18.Under the 24 September 2004 (“the letter”), he was informed he was entitled to the HFA equivalent allowance of $17,330 per month for the period 1 September 2004 to 31 September 2005 and the sum of $19,650 per month for the period 1 October 2005 to 30 June 2006.  Further, the letter stated that the Operation and Costing Section would rectify the amount of monthly allowance with effect from 1 September 2004.  Mr. Kwan further claimed that at a meeting in September 2004 he was informed by Miss Karen Yu, the Executive Officer of the LCSD that he should not have been entitled to equivalent of 30% of his substantive salary but a housing allowance equivalent to HFA or RA under the Civil Service Home Financing Scheme or Civil Service Rent Allowance Scheme.  Miss Yu showed him at that meeting a table setting out the difference of payments amounted to $43,592.10 of overpayments for the period 15 December 2000 to 31 August 2004.  She further told him that the change involved only a slight adjustment in the amount of housing allowance and that the LCSD was considering the recovery of the relatively small sum.

19.Mr. Kwan further claimed that up to 23 November 2005, the Government had represented to him there would only be a minor adjustment to his housing allowance up to 17 February 2006.  It had never indicated to him his entitlement would cease altogether.  He was therefore surprised by the Plaintiff’s demand under the letter of 25 November 2005 for the refund of $869,818.89 representing the entire housing allowance paid to him between 15 December 2000 and 28 February 2005. 

20.Mr. Kwan claimed that in reliance to the representations made to him after September 1998 up to 28 February 2005 and by the continuous direct payment of housing allowance equivalent to 30% of his substantive salary, he had accepted it as part of his income and planned his spendings accordingly.  He claimed his belief was shared by his seniors and other officers at the Music Office throughout this period.  Consequently, he did not make any arrangement to qualify himself for either the HFA or RA.  As a consequence of which he would no longer be able to recover any part of the housing benefits offered under the HFA or RA as he had been living in a property own by his family members for which he was not required to pay any rental.  Even if he should start making arrangement to qualify himself for the HFA or RA, the duration of his eligibility under the HFA/RA Schemes would be limited by his age and his service at the Music Office of the LCSD in future.  Furthermore, he claimed that housing prices since 2000 has escalated.  He did not believe he would be able to procure the same quality housing now even with the funding obtained under HFA if he were to purchase a property now compared to 2000 and 2001. 

21.Mr. Kwan claimed that he could have look for other employment opportunities with his qualifications whether it be at the Music Office of the LCSD or outside the LCSD.  He gave the example of the post of Chief Music Officer which had been vacant since 2003 in spite of it being advertised in 2003, 2004, 2005 and 2006.  He did not consider applying for the post because the current Chief Music Officer position did not carry any housing allowance. 

22.Mr. Kwan had been assessed for tax for the housing allowance he had been receiving together with his salary and that he had been paying tax on the housing benefit received during this period.  He further claimed that he had also planned his spending according to his income with the housing allowance.  He referred to the extensive renovation work done on his home in January 2005 together with incidental expenses in a total sum of $472,286.  If not for the representations made by the Government he claimed he would not have paid the tax or the extensive renovation work done to the property in which he had been residing and could have bought a property before the market escalated.  Mr. Kwan claimed that the Government is estopped from claiming against him because of the representations made to him. 

The Issues

A.      Whether the payment of NCA at 30% of substantive salary to Mr. Kwan was a mistake?

24.It is the Plaintiff’s contention that overpayments made due to mistake are recoverable in law.  Miss Sit, Counsel for the Plaintiff, relied on the cases of Kelly v. Solari (1841) 9 M&W 54, Kleinwort Benson Ltd. v. Lincoln City Council [1999] 2 AC 349 and the case of Avon County Council v. Howlett [1983] 1 All ER 1073. 

The Law

25.In the case of Kelly v. Solari, Lord Abinger at page 58 of his judgment said:-

“if the party makes the payment with full knowledge of the facts, although under ignorance of the law, there being no fraud on the other side, he cannot recover it back again.  There may also be cases in which, although he might by investigation learn the state of facts more accurately, he declines to do so, and chooses to pay the money notwithstanding; in that case there can be no doubt that he is equally bound.  Then there is a third case, and the most difficult one, - where the party had once a full knowledge of the facts, but has since forgotten them.  I certainly laid down the rule too widely to the jury, when I told them that if the directors once knew the facts they must be taken still to know them, and could not recover by saying that they had since forgotten them.  I think the knowledge of the facts which disentitles the party from recovering, must mean a knowledge existing in the mind at the time of payment.”

26.In the case of Avon County Council v. Howlett where the defendant who was injured in the course of his employment with the plaintiffs, was absent from work for nearly two years, he was found to have been overpaid to the extent of £1,007. 

27.At page 1085 C to F, Slade LJ held:-

“Employers who pay their employees under a computerized system should not in my opinion assume from the decision of this court in the present case that, if they overpay their employees through some kind of mistake, they are entitled to recover it simply for the asking, provided only that they are not barred by estoppel or some other special defence.  The borderline between mistakes of law and mistakes of fact is not clearly defined in the cases.”

“The learned authors of Goff and Jones’s Law of Restitution (2^nd edn, 1978) p. 91 express the view that the principle in Bilbie v. Lumley (1802) 2 East 469, [1775-1802] All ER Rep. 425 should not preclude recovery of money which was paid in settlement of an honest claim and that any other payment made under a mistake of law should be recoverable, if it would have been recoverable had the mistake been one of fact.  Nevertheless the distinction still exists in English law.  I think the burden will still fall on an employer who seeks to recover an overpayment from an overpaid employee to satisfy the court that, on the balance of probabilities in all the circumstances of the case, it was a mistake of fact which gave rise to the overpayment.”

28.The House of Lords in the Kleinwort Benson Ltd. v. Lincoln City Council clarified the position in law at page 389 D to G of Lord Goff’s judgment.  He answered the questions referred to the House of Lords by the appellants:-

“Conclusion

In the result, I would answer the questions posed for your Lordships under the various issues as follows.

Issue (1).  The present rule, under which in general money is not recoverable in restitution on the ground that it has been paid under a mistake of law, should no longer be maintained as part of English law, from which it follows that the facts pleaded by the bank in each action disclose a cause of action in mistake.

Issue (1A).  There is no principle of English law that payments made under a settled understanding of the law which is subsequently departed from by judicial decision shall not be recoverable in restitution on the ground of mistake of law.

Issue (1B).  It is no defence to a claim in English law for restitution of money paid or property transferred under a mistake of law that the defendant honestly believed, when he learnt of the payment or transfer, that he was entitled to retain the money or property.

Issue (2).  There is no principle of English law that money paid under a void contract is not recoverable on the ground of mistake of law because the contract was fully performed.

Issue (3).  Section 32(1)(c) of the Limitation Act 1980 applies in the case of an action for the recovery of money paid under a mistake of law.”

Analysis

29.It is the Plaintiff’s case that Mr. Kwan was overpaid due to a mistake of fact because clause 9.5 of the MCS terms had clearly specified that Mr. Kwan having previously received NCA would no longer be entitled to it under the MCS terms.  He should apply for either HFA or RA subject to his fulfilling the eligibility criteria for these schemes.  Mr. Kwan, however, continued to receive NCA between 15 December 2000 and 31 August 2004.  It is the Plaintiff’s case that the mistake arose as a result of the failure or omission on the part of the Music Office staff to ascertain whether there were any changes to Mr. Kwan’s entitlement to housing benefits under the MCS terms.  It is therefore a mistake of fact when between 1 September 2004 and 28 February 2005 payments of the HFA/RA equivalent allowance were made to Mr. Kwan on a mistaken assumption that he was entitled to the same.  The Plaintiff again claimed it was a mistake of fact because Mr. Kwan was not eligible for either.  Though it had the means of knowledge of the fact, the Plaintiff claimed it would not have affected its right of recovery according the case of Kelly v. Solari.

30.Mr. Kwan however claimed that once his application for NCA was approved under the 9 February 1999 memorandum confirming he would receive “that item” of housing allowance for a maximum of 10 years payable from 21 September 1998 to 17 February 2006, he should be entitled to it for the whole of that period.  The events that followed included Mr. Kwan’s first SMO contract which expired on 20 September 2000 in spite of the municipal councils’ dissolution on 31 December 1999, and that Mr. Kwan’s employment being extended on the same terms of the 1^st SMO contract from 21 September 2000 to 14 December 2000 (the 2^nd SMO contract), he continued to receive housing benefits in the form of NCA had led him to believe he was so entitled.  Further, on 15 November 2000 Mr. Kwan was offered and accepted the 3^rd SMO contract under which his employment as SMO was renewed from 15 December 2000 to 14 June 2003 re-enforced his belief when NCA continued to be paid to him.  It is submitted by Mr. Cheung, Counsel for Mr. Kwan, that the 3^rd contract though drawing his attention to matters concerning the MPF scheme etc. was silent over any changes on the housing allowance or the NCA.  Mr. Kwan’s subsequent SMO contracts 4^th, 5^th and 6^th were more or less the same and they were attached with a copy of the MCS terms without specific mention of any changes in housing allowance of the NCA.  Mr. Kwan continued to receive NCA throughout this period without interruption.

31.Witnesses giving evidence on behalf of the Plaintiff included Mr. C.H. Au - the Senior Executive Officer (Music Office) in charge of Administration – he was only transferred to the Music Office of the LCSD on 15 March 2004 and Miss Lee Ngan Chau Martina, the Acting Senior Executive Officer (Culture), who was posted to the LCSD on 22 March 2004.  Neither had any first hand knowledge of the background leading to the payment by mistake of the Music Office to Mr. Kwan.  Both witnesses gave evidence from the records kept by the LCSD in the Music Office.  According to Mr. Au, the reason Mr. Kwan continued to receive NCA at a rate of 30% of his substantive salary was because the assistant clerical officer had wrongly prepared the LCSD Contract Staff Payroll System-Contract Record Form on Ex-Council Contract Staff which was then approved by the Executive Officer (Finance & Supplies).  This payroll form continued to be used in May 2003 and carried the same mistake as the previous 2000 payroll form that stated Mr. Kwan’s entitlement of NCA at 30% of his substantive monthly salary.  The 2003 payroll form was approved in June 2003 by the Executive Officer (Finance & Supplies) of the LCSD.  The same procedure was repeated in the 2004 payroll form which was also duly approved in December 2003 by the Executive Officer (Finance & Supplies) of the LCSD.  It was not until July 2004, that the Executive Officer (Personnel & General) of the LCSD, Miss Karen Pui-wah Yu, was notified by the Cultural Services Branch of the problems with the housing allowance granted to former Municipal Councils staff employed by the LCSD.  Mr. Au was then notified of the problem.  Mr. Au and the then Chief Music Officer Miss Pang Lo-mei decided to look into the problem of housing allowance to the staff of the former Municipal Councils employed by the LCSD.

32.Following investigations by Miss Yu, Mr. Kwan was found to be one of the officers who had been mistakenly paid NCA instead of a housing allowance equivalent to HFA or RA in early August 2004.  This was clearly set out in a memorandum dated 20 August 2004 from Mr. Au to Miss Yu.  Mr. Au had full knowledge that Mr. Kwan was living and had been living in a private property which was not mortgaged between 15 December 2000 and September 2004, and Mr. Kwan paid no rent.  It was clear to Mr. Au that Mr. Kwan did not meet the requirements of HFA or RA.  In the same memorandum, he asked Miss Yu for confirmation as to whether the two officers including Mr. Kwan were required to meet the requirements of HFA and whether they should cease receiving housing allowance with immediate effect.  Failing to receive a reply from her, on 4 September 2004, Mr. Au wrote again to Miss Yu referring to the 20 August 2004 memorandum and told Miss Yu, he had informed the Operation and Costing Section to rectify monthly housing allowance to the two officers according to the HFA equivalent allowance with effect from 1 September 2004. 

33.In the letter (of 24 September 2004) to Mr. Kwan from Miss Karen Yu on behalf of the Director of Leisure and Cultural Services, she confirmed that on 2 September 2004, instead of a rate of 30% of his substantive salary he should be entitled to HFA/RA equivalent allowance for the balance of his 120-month entitlement of housing benefits subject to his meeting the eligible criteria of HFS/RAS.  She wrote:-

“The HFA-equivalent allowance is HK$17,330 per month for the period from 1 September 2004 to 30 September 2005 inclusive and HK$19,650 per month for the period from 1 October 2005 to 30 June 2006 inclusive.  We have notified the Operation and Costing Section to rectify the amount of monthly housing allowance to you with effect from 1 September 2004.

Advice is being sought form CEO (PR) regarding other issues relating to the eligibility criteria of HFS/RAS and the recovery of extra housing allowance paid to you.”

(p. 140 of Document Bundle)

34.Almost six months later, however, there was a complete change of attitude.  In the letter dated 4 March 2005, Mr. Au, on behalf of the Director of Leisure and Cultural Services, informed Mr. Kwan after consulting the Department of Justice that he would have to prove his eligibility to HFA or RA before the Department would pay the appropriate amount of HFA or RA to him.  In the meantime, further payment of housing allowance had ceased from March 2005.

35.It is not disputed that in or about 2 September 2004, Mr. Au had communicated with Miss Yu of the LCSD regarding the resolution of Mr. Kwan’s case of mistaken NCA payments and calculations were done in the comparison table of the payment of housing allowance based on 30% of the substantive salary and drawings under HFA between 15 December 2000 and 31 July 2004.  The difference in payment was $43,346.60 (p. 116 of the pleadings and court documents bundle).  This document is exhibited with the witness statement of Mr. Au.  It is therefore consistent with Mr. Kwan’s evidence of what he was told in September 2004 at the meeting with Miss Karen Yu, that the discrepancy involved only a small adjustment and the LCSD was considering the recovery of the difference in the allowance.  Up to that stage, it is obvious that the Government was still representing to him he was entitled to housing allowance up to 17 February 2006 albeit with a slightly adjusted amount.  He was not told that the entitlement never existed or that it had ceased until he received the letter of 25 November 2005 demanding the refund of $869,818.89, the entire housing allowance paid to him between 15 December 2000 and 28 February 2005.

36.The Plaintiff in its reply pleaded that by the memorandum of 9 February 1999 from the Chief Music Officer to Mr. Kwan, Mr. Kwan was informed he was entitled to housing benefits for a maximum period of 10 years, it had not represented to Mr. Kwan that he would be entitled to NCA up to 17 February 2006.  It further pleaded that the Plaintiff had explained the changes to the contract staff of the former Urban Council (“UC”) including Mr. Kwan at a briefing session held on 20 December 1999.  And further by letter of notification of employment issued by the then Director of Urban Services on 21 December 1999, all staff including Mr. Kwan were informed the general fit-in arrangement and changes of the term of employment upon the dissolution of the former UC and the changes would include the replacement of the NCA scheme under the Urban Council conditions by new terms to be introduced by the LCSD.  By a letter dated 15 November 2000, Mr. Kwan was notified that the non-civil service terms were available to replace the UC terms and conditions.  The Plaintiff claimed that, consequently, sufficient notice had been given to Mr. Kwan of the termination of the UC contract.  Further, the offer letter dated 15 November 2000 to Mr. Kwan from the LCSD offering him the post of SMO for 2½ years commencing 15 December 2000 referred to the terms and conditions of the MCS which Mr. Kwan accepted by a written acknowledgment dated 17 November 2000.  Similar acceptances of the subsequent offers of appointment were submitted by Mr. Kwan.  The Plaintiff therefore claimed if there were representations made to Mr. Kwan, Mr. Kwan knew or ought to have known that the $869,818.89 paid to him between 15 December 2000 and 28 February 2005 were made under a mistake and that he was not entitled to those payments.

37.Based on the background of the payments of housing allowance to Mr. Kwan, I accept the mistake of payment by the staff of the Music Office based on the NCA was a mistake of fact.  The Music Office staff and the LCSD staff were obviously unaware of any changes to the housing benefits receivable by Mr. Kwan after the dissolution of the Municipal Councils and the new terms of employment under Mr. Kwan’s contract with the LCSD. 

B.      Whether there was a representation of fact by the Plaintiff which led Mr. Kwan to believe he was entitled to treat the housing benefits paid to him as his own?

38.Mr. Cheung argued that clauses 9.2 and 9.5 of the MCS terms relied on by the Leisure and Cultural Services Department of October 2000 were inconsistent. 

Clause 9.2 stated:-

“Officers with basic salary equivalent to Point 34 of the Master Pay Scale or above who meet the eligibility criteria and terms of the NCA Scheme will only be eligible for an allowance equivalent to the NCA.  Provisions governing the NCA Scheme are set out in CSRs2000-2099.” 

39.Mr. Cheung claimed that this clause alone set out the entitlement of Mr. Kwan to NCA and clause 9.3 further informed him he was entitled to NCA for an aggregate period of 120 months.  Therefore, Mr. Kwan should be entitled to NCA under clauses 9.2 and 9.3 for a period of 120 months.

40.However, reading on further, clause 9.5 provided that:-

“Those who have received any cash allowance from the former Municipal Councils will not be eligible for an allowance equivalent to the NCA.”

The following sentence is a little confusing, because it goes on to state:-

“They may also receive an allowance equivalent to the HFA or the RA for the balance of their 120-month entitlement, if any, subject to their meeting the eligibility criteria of the HFS or the RAS respectively.”    

Exactly how would someone who “will not” be eligible for an allowance equivalent to the NCA “may also” receive an allowance equivalent to the HFA or the RA.  If one interprets this clause in the way Miss Sit had presented the Plaintiff’s case, the word “also” should be deleted because the words “may also” imply an additional benefit or allowance.  There is apparently no additional benefit and the Plaintiff did not intend or ask the Court to ignore the word ‘also’ in clause 9.5.

Findings

41.I agreed with Mr. Cheung to the extent that clauses 9.2 and 9.5 are inconsistent and confusing.  Clause 9.5 is clearly poorly drafted.  I am not surprised that Mr. Kwan would find it difficult to understand exactly what were his housing benefits.  When he continued to receive NCA each month between December 2000 and February 2005, it is natural for him to believe he was entitled to it.  The continuous NCA payments for over 4¼ years re-enforced his belief that he was so entitled.  In spite of Miss Yu’s letter of 24 September 2004 informing him he was since December 2000 eligible only to an allowance equivalent to HFA or the RA, he was told there would only be a minor adjustment of his housing benefits in September 2004.  He was told by Miss Yu at that meeting he may have to pay back a sum of $45,000 odd.  Up to that stage, he was never told he would have to pay back all of the housing allowances that he received since December 2000.  Clearly Mr. Kwan was misled by the Plaintiff’s representations. 

C.      Whether Mr. Kwan had, bona fide and without notice of the Plaintiff’s claim, changed his position?

The Law

42.The legal position is set out in paragraphs 4-042 to 043 at page 218-9 of Goff & Jones’s Law of Restitution 7^th ed.:-

“Before the recognition of a general defence of change of position, a defendant had to rely on the defence of estoppel.  For a number of reasons, however, estoppel does not provide an adequate defence to a claim to money paid under a mistake.  The defendant has to show that the plaintiff had made a representation of fact on which the defendant relied; or he has to show that the payment was made in breach of a duty which he owed to the defendant.  A mere mistaken payment cannot be said to amount to a representation; and the plaintiff will rarely be in breach of duty.  With the recognition of the more generous defence of change of position, it would be improbable, so it might be thought, that a defendant who has received money paid under a mistake of fact would seek to rely on the defence of estoppel.  However, in one situation, he may be anxious to do so.  For in Avon County Council v. Howlett the Court of Appeal held that an estoppel by representation cannot operate pro tanto.  So, a defendant who has spent only some of the money paid under mistake has a complete defence.  In contrast, the House of Lords held in Lipkin Gorman (a firm) v. Karpnale Ltd. that the defence of change of position does operate pro tanto.  There is an evident tension between the two defences which the courts have recently sought to resolve.”

“In Lipkin Gorman (a firm) v. Karpane Ltd. the House of Lords held that it is a defence, complete or pro tanto, to a restitutionary claim that, where “an innocent defendant’s position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution.”       

43.The authors of Goff & Jones on the Law of Restitution went further in para. 40-01 at p. 846-847:-

“But more recent years have seen the recognition of the importance of restitutionary claims founded upon a principle of unjust enrichment.  It was predictable that the House of Lords would follow the example of other common law jurisdictions which had recognised the defence.  In Lipkin Gorman (a firm) v. Karpnale Ltd. the House of Lords did so, and accepted change of position as a general defence to all restitutionary claims.

Their Lordships agreed that “it would be unwise to attempt to define its scope in abstract terms, but better to allow the law on the subject to develop on a case by case basis”.  It was Lord Goff who analysed in depth the nature and scope of the defence.  After noting the hitherto limited acceptance of the defence and the limitations of estoppel, he said:

“I am most anxious that, in recognizing this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way.  It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer.  These are matters which can, in due course, be considered in depth in cases where they arise for consideration.  They do not arise in the present case.  Here there is no doubt that the respondents have acted in good faith throughout, and the action is not founded upon any wrongdoing of the respondents.  It is not however appropriate in the present case to attempt to identify all those actions in restitution to which change of position may be a defence.  A prominent example will, no doubt, be found in those cases where the plaintiff is seeking repayment of money paid under a mistake of fact; but I can see no reason why the defence should not also be available in principle in a case such as the present, here the plaintiff’s money has been paid by a thief to an innocent donee, and the plaintiff then seeks repayment from the donee in an action for money had and received.  At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full.  I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things.  I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions.  In this connection I have particularly in mind the speech of Lord Simonds in Ministry of Health v. Simpson [1951] A.C. 251, 276.”

44.The learned authors then referred to Lord Simonds’ speech in Ministry of Health v. Simpson, a case where the House of Lord held the charities which were paid a legacy by mistake were straightly liable to make restitution.

45.In para. 40–003 on page 848, the authors said:-

“As has been seen, in Lipkin Gorman Lord Goff restrictively distinguished Lord Simonds’ speech, holding, perhaps generously, that it was authority only for the principle that the mere expenditure of money is not sufficient to establish the defence.  Even if it is accepted that the short passage in Lord Simonds’ speech, in which he commented on the general argument, is part of the ratio of Ministry of Health v. Simpson and is a rejection of the defence of change of position at least in the context of claims arising from the administration of an estate, then, faced with this conflict, that a court will follow the more recent decision of the House of Lords in Lipkin Gorman.”

46.At para. 40–008 on page 852 to 853, the authors commented:-

“Lord Goff did not wish to inhibit the development of the defence of change of position.   He realised that there were matters which would be “considered in depth in cases where they arise for consideration”. 

47.At p. 853-855, they went on to say:-

“The defence of change of position balances the claims of the claimant, against the defendant’s good-faith belief that the asset, generally money, which he received was his to keep.  Lord Goff did not commit himself to the principle adopted by other jurisdictions that the receipient could rely on the defence only if he has altered his position in reliance on the validity of the payment.  For example, his formulation of the defence is sufficiently generous to enable the innocent recipient of a payment, which was later stolen from him, successfully to plead it.  The Court of Appeal in Scottish Equitable plc v. Derby accepted as correct this so-called “wide view”.  It looked to “a change of position, causally linked to the mistaken receipt, which makes it inequitable for the recipient to be required to make restitution.  In determining whether the change of position was “causally linked”, the Court of Appeal appeared content to adopt a generous “but for” test.  Robert Walker L.J. readily accepted, as did Peter Gibson L.J. in the subsequent case of National Westminster Bank plc v. Somer International UK Ltd, that the defence “is not limited to specific identifiable items of expenditure” and that “it may be right for the court not to apply too demanding a standard of proof when an honest defendant says that he has spent an overpayment by improving his lifestyle, but cannot produce any detailed accounting”.

The defendant’s change of position may be, and often is, the consequence of his deliberate act, although the defence “adds further possibilities which do not depend on deliberate choices by the recipient”.  Receipt of a payment may lead him to give up a job when he is of an age when it would not be easy to get a new one or to take “a flat at a high rent on a ten-year lease which would not be easy to dispose of”.

48.The position in law therefore is for the Court to determine as a question of fact whether there had been a change of position which makes it inequitable for Mr. Kwan to make restitution.

Findings

49.Miss Sit, Counsel for the Plaintiff, invited the Court to reject Mr. Kwan’s assertion that Miss Karen Yu had represented to him in late September 2004 that the LCSD would be seeking to recover a small adjustment amount of overpayments from him in the sum of around $45,000.  Miss Sit submitted that since neither Miss Karen Yu nor Mr. Kwan had recorded it in writing the assertion should be rejected.  I cannot agree with this submission because Mr. Kwan had made the assertion in his witness statement filed some time before the trial.  Yet, the Plaintiff did not see fit to adduce evidence from Miss Karen Yu who was in charge of Mr. Kwan’s case and who had been communicating with Mr. Au, the Senior EO and the acting Chief Music Officer.  Miss Yu could have given evidence on the assertion of Mr. Kwan of the representation made by her to him in September 2004.  As Miss Yu did not give evidence, Mr. Kwan’s assertion was unchallenged.  Mr. Au had produced with his witness statement, appendix 11A on page 116, a similar comparison table setting out the difference in housing allowance paid to Mr. Kwan under NCA and the HFA between 15 December 2000 and 30 June 2006.  It is strong evidence in support of Mr. Kwan’s assertion that he and Miss Yu did discuss the difference of payments under the two schemes at a meeting in September 2004.  Whether this meeting took place before or after the 24 September 2004 letter is not of primary importance.  What is important is Mr. Kwan was personally informed by Miss Yu of the LCSD position in September 2004 after which he continued to receive monthly housing allowance until February 2005.  He was only formally informed that housing allowance payments would cease from March 2005 until he could prove his eligibility to HFA or RA by the 4 March 2005 letter.  In that letter, he was told “the Music Office was consulting the Finance Section regarding the accounting arrangements for the recovery of extra housing allowances paid to you”.  Clearly, from the wordings of this letter, even at that stage, the LCSD did not intend to recover from Mr. Kwan all of the housing allowances paid to him since 15 December 2000. 

50.I am satisfied Mr. Kwan had relied on the representations regarding the NCA housing allowance as part of his income.  I accept that even though the position of Chief Music Officer at the LCSD had been vacant in spite of it being advertised between 2003 and 2006, he did not apply for the position because the advertised position did not carry any housing allowance.  It is not disputed that the post of Chief Music Officer is still vacant and Mr. Au the Senior Executive Officer is currently still acting in that position.  I accept Mr. Kwan’s evidence that after taking into account the housing allowance entitlement as the Senior Music Officer, the remuneration was more attractive to him than the senior post of Chief Music Officer.

51.Not only had Mr. Kwan paid tax assessed on the basis that the housing allowance had formed part of his income, he had also spent the money as part of his income.  He gave the example of the extensive renovation work done at his home in January 2005 for which he had paid an aggregate sum of $472,286.  I am satisfied he would probably not have spent so much money on his home had he not regarded the NCA as part of his income in the period prior to March 2005.

52.I further accept that Mr. Kwan did not seek other positions even though he has a Master Degree in Library and Information Science and completed graduate studies in Ethnomusicology at the Chinese University of Hong Kong.  He could have sought employments in other fields. 

53.Had Mr. Kwan been informed at an early stage that his entitlement to housing allowance was subject to his obtaining a mortgage on a property purchased in his name or if he was living in rented accommodations supported by rental receipts in his housing allowance application, he would no doubt have purchased and lived in a self-owned property when the market was at a more affordable level between 2000 and 2006.  There were indeed opportunities between 2000 and 2006 when the property market favoured home purchasers than the present.  I further accept that there is a difference in Mr. Kwan’s career prospects in 2000 when he was in his mid-40s and today when he is in his early 50s, an age much closer to the usual retirement age for most people. 

D.      Whether the payment of NCA by mistake was primarily caused by Mr. Kwan?

54.I am satisfied Mr. Kwan had shown a defence of change of position and that he did in good faith believed he was entitled to the housing benefits paid to him, albeit under a mistake of the Music Office, it was not due to the fault of Mr. Kwan.  In reliance of the continuous payments and representations by the senior staff of the LCSD including Mr. Au and Miss Karen Yu, Mr. Kwan was induced to believe he was entitled to such payments with may be a minor adjustment.  As a result he gave up applying for the post of Chief Music Officer or exploring a career in the private factor.  He had further improved his home by spending over $470,000 on it.  He has shown he had changed his position in the way he spent and planned his career and retirement but for the conduct and representations made to him by the senior staff of the LCSD.

E.      Whether the defence of estoppel successfully operates pro tanto to enable the Plaintiff to recover the part of the overpayment for which no detriment can be shown?

55.For reasons set out above, I am satisfied Mr. Kwan has shown it would have a detrimental effect on him should be required to return the overpayment.  Applying the tests laid down in the authorities referred to above, I am satisfied that it would be unreasonable, inequitable and unconscionable to demand the return of the housing benefits paid to Mr. Kwan between 15 December 2000 and February 2005.  Mr. Kwan would suffer further detriment if he were required to return the sum of $869,818.89, the total of the amount paid since September 2000 as his housing benefits.  Had his employer informed him and explained the true position of the LCSD’s interpretation of clause 9.5 in December 2000, no doubt Mr. Kwan would have purchased a property and took out a mortgage in order to benefit from the HFA for which he was fully entitled to.  For the aforesaid reasons, I dismiss the Plaintiff’s claim against the Defendant.

Costs

56.Costs nisi – costs to follow the event.  The Plaintiff do pay the Defendant’s costs in these proceedings, to be taxed if not agreed with certificate for counsel. 

57.I thank counsel for their assistance in this case.

Miss Eva Sit instructed by Messrs. Department of Justice for the Plaintiff.

Mr. Anthony Cheung instructed by Messrs. P.C. Woo & Co. for the Defendant.