Recovery of land transferred pursuant to an unlawful contract

In Li (or Lei) Ting Kit Tso v Cheung Tin Wah ([2016] HKEC 2720) the managers of a Tso entered into an oral agreement with D1. Under the terms of the agreement, the Tso would transfer land to D1 or a party nominated by him. Thirteen houses would be built on the land and the Tso would receive three of these and a cash payment.

D1 had one year from the date of the agreement (in October 1996) to obtain the necessary approval for the development from the Lands Department in accordance with the Small House Policy; otherwise, P could call for the re-assignment of the land to it. D1 agreed that he would not transfer the land to third parties nor allow any nominee of his to do so.

D1 nominated a company, D2, as the party that would enter into the written agreement in line with the oral agreement with D1. The Tso entered into the written agreement with D2 and transferred the land to it. No consideration was paid by D2 to the Tso (although the assignment to D2 stated that D2 had provided consideration).

No development had taken place by 2011 and the Tso wrote to D2 purporting to accept its repudiatory breach in delaying the carrying out of the development and calling on D2 to transfer the land back to it.

D2 had already divided the legal title to the land into thirteen sections and assigned some of them to third parties. After receiving D2’s letter it assigned the remaining sections to third parties.

It was accepted by the Tso that its agreement with D2 was unlawful since it would inevitably involve indigenous villagers making false declarations to the Lands Department. As a result, the Tso could not sue for breach of the agreement.

The Tso was able to rely on the presumption of resulting trust as against D2. The unlawful agreement was not consideration for the assignment to D2. Nor was the Tso estopped by the deed from showing that no consideration had been paid to it.

The problem was that D2 no longer had the land, title to which was in the hands of the various assignees. Since there was nothing to show that the assignees were anything other than good faith purchasers, the Tso had no claim against them.

Instead, D2 was ordered to pay equitable compensation to the Tso (the market value of the land as at the date of the writ).

Michael Lower

Advertisements

Tags: , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: