Tinsley v Milligan still applies in Hong Kong

In Patel v Mirza, the UK Supreme Court abandoned the Tinsley v Milligan reliance test in deciding whether or not to enforce agreements tainted by illegality.

In Hong Kong, this question has frequently arisen with regard to schemes for the exploitation of ding rights under the Small House Policy. In a number of cases, property owners have transferred land to dings who apply to build a small house on the land after claiming the benefits conferred on dings by the small house policy.

The schemes considered by the courts were tainted by illegality since they envisaged that the ding would make a false declaration to the Director of Lands that they were the legal and beneficial owners of the land.

In a number of the cases considered by the courts, property owners have transferred land to dings for no consideration as part of an unlawful development scheme. If the scheme does not proceed, the property owners then seek to recover the land alleging that the ding holds the property on resulting trust since there was a voluntary transfer to them.

The relevant principles for dealing with claims like this are contained in paragraph 21 of Hon Au-Yeung J. in Tang Teng Tso v Cheung Tin Wah ([2014] HKCFI 680). The property owner can enforce their property rights against the ding as long as they do not need to plead their illegality.

This reflects the Tinsley v Milligan reliance test and some may have wondered whether Hong Kong’s courts would change their approach after Patel v Mirza.

This was considered in Kwan Hung Shing v Fong Kwok Shan ([2019] HKCFI 1687). Wilson Chan J. confirmed that the principles in Tang Teng Tso (and the reliance test on which they are based) remain the law in Hong Kong.

In Kwan Hung Shing, the plaintiff had assigned land to dings introduced by a developer under an unlawful development scheme. The plan was for the dings to claim their rghts under the Small House Policy. The developer would assign two of the completed houses to the plaintiff.

When the developer failed to carry out the agreement, the plaintiff claimed that the dings held the land assigned to them on presumed resulting trust since they had not paid for the land.

The claim succeeded and the court declared that the dings held the property on resulting trust for the plaintiff.

Michael Lower

Illegal sale of ding rights: Tinsley v Milligan re-affirmed

In Kan Wai Chung v Hau Wan Fai ([2016] HKLRD 632, CFI) developers entered into cooperation agreements with the plaintiffs (villagers with ding rights). The developers transferred title to parcels of land in a village to the plaintiffs. The agreement provided that the villagers held the lots as nominees and on trust for the developers. The developers and villagers worked together to exploit the ding rights. It was accepted by all of the parties that this aspect of the agreement and the actions done in pursuance of it were illegal.The houses were built and the developers entered into sale contracts (‘the first contracts’) with third parties; the villagers were nominally the vendors in those agreements. The villagers then entered into their own contracts with another purchaser for the sale of the same lots (‘the second contracts’). The developers brought proceedings seeking an injunction to prevent the second contracts from being completed so as to interfere with performance of the first contracts. These proceedings were ultimately settled in such a way as to allow the developers to complete the first contracts and retain the proceeds of sale. The villagers now brought proceedings against the developers and the solicitors who had prepared the first contracts alleging that they amounted to an unlawful conspiracy. This had caused them loss in the form of their own legal costs in defending the injunction proceedings and the costs order made against them.

This was a trial of two preliminary issues. The first of these was whether the villagers had any equitable interest in the property. If they did not then they could not be said to have suffered any loss as a result of the outcome of the earlier proceedings ([33] per Anthony To J). The villagers had not given any consideration for the transfer of the land to them (though the  assignments to them stated otherwise). On the face of it, therefore, the developers could rely on the presumption of resulting trust. The villagers argued that the developers could not rely on the presumption because of the illegality of the agreement concerning the ding rights. This failed since the case fell squarely within the approach laid down by the House of Lords in Tinsley v Milligan ([39] to [48]). The developers could rely on the presumption to establish their proprietary interest and had no need to plead the illegality.

There was some discussion as to whether the High Court of Australia’s approach to illegality in Nelson v Nelson was to be preferred to Tinsley. Anthony To J. considered that he was bound by several Court of Appeal decisions to accept that Tinsley was the approach taken in Hong Kong. It would be for the Court of Final Appeal to reconsider this if asked to do so in some later proceedings ([45]).

Michael Lower