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