Illegality – illegal agreement to develop houses under Small House Policy – whether doctrine of locus poenitentiae applied – claim for return of land would fail where legal title to property no longer with defendant
P, a tso, owned land in the New Territories. P orally agreed to assign the land to D1 and/or his nominated persons who possessed the right to build small houses. If D1 failed to complete the application procedure under the Small House Policy within one year, P had the option to terminate the agreement and the land would be re-assigned to P. P subsequently entered into a written agreement with, and assigned title to the land to, D2. Consideration for the assignment was HK$2.8 million which was never paid. The land was divided into 13 sections, and D2 was to assign each section to various nominees. However, D2 was unable to nominate enough persons who had the right to build small houses and development of the land did not proceed. P subsequently terminated the agreement due to the substantial delay in the development of the land and demanded the return of title to the land. Instead, D2 assigned the remaining sections such that all 13 sections were assigned. P secured the return of title to five sections from their current owners. P sought relief for the remaining eight sections “lost”: (a) for breach of contract; or (b) if the agreement was illegal, under the doctrine of locus poenitentiae; and (c) that the land was held on a resulting trust.
Held, ordering D2 to pay equitable compensation to P, that:
- The agreement was illegal and P was not entitled to sue for breach of contract. In the performance of the agreement, it was inevitable false representations were made by indigenous villagers to the Lands Department that they were legal and beneficial owners of land, when in fact they were merely nominees.
- The doctrine of locus poenitentiae was based on restitution of property only and did not apply. As all 13 sections of the land had been assigned, legal title was no longer with D2, and thus, P could not claim a return of the land.
- However, D2 held the land on a resulting trust. The transfer of land was for a specific purpose to develop the land within a deadline, the non-compliance of which would entitle P to the return of the land, and not an outright transfer. In addition, consideration was not provided. As D2 was no longer in a position to account for the land, or restore it to P, P was entitled to equitable compensation from D2 of the market value of the eight sections of the land “lost” as at the date of the writ.