Contract law – illegality – agreement to develop house on land under Small House Policy – statutory declaration by applicant, who was mere nominee, that he was “sole owner” of land – Government would understand “sole owner” to mean both legal and beneficial sole owner – agreement unenforceable on ground of illegality as necessarily involved making false declaration to Government without honest belief in its truth
P brought this action against D1 and D2 for breach of contract, arising from their agreement for the development of a small village house on a lot of land (Lot 660E1) in the New Territories, which involved using D2’s entitlement to build a house under the Government’s Small House Policy. P contended that it was agreed that a series of agreements previously entered into by P and Ds concerning the joint development of a portion of land (Lot 660E) (the “First to Third Agreements”) which was later subdivided into two lots of land, including Lot 660E1, were to continue with respect to Lot 660E1, so that the house to be erected thereon would remain a joint development between P and D1 on the terms previously agreed and for D2 to be paid a sum of money for a village house to be built in his name. In contrast, D1 contended that it was agreed that the First to Third Agreements came to an end under a final agreement between the parties such that P had no further part to play in developing the land and D1 would be solely entitled to the small village house to be built on Lot 660E1. Ds further contended that even if the agreement contended for by P existed, it was unenforceable on the ground of illegality, because its implementation necessarily involved the making of a false statutory declaration by D2 to the District Lands Office for the purpose of applying for permission to build the small village house. The critical part of the declaration was that D2 was the “sole owner” of Lot 660E. However, it did not contain a statement by D2 that he had made no private arrangements to sell his rights under the Small House Policy to other parties. Lot 660E had been assigned by D1 to D2 as a nominee for the sole purpose of making the application in his name under the Small House Policy and P argued that the declaration was not false because D2 was the sole registered owner of the land, albeit he was not the beneficial owner.
Held, dismissing P’s action, that:
- P’s version of the facts was accepted, and it was found that the parties’ agreement was that the joint development agreement enshrined in the First to Third Agreements would continue to apply to Lot 660E1.
- In ascertaining the meaning of a particular statement, the purpose or aim of that exercise must be kept in mind. Here, the purpose of construing the declaration was to determine whether it constituted a false declaration and the practice of deceit on the Government. In this context, two aspects of the proper legal approach in relation to deceit were relevant: (a) it had to be shown that the party making the representation intended it to be, or knew that it would be, understood in its untrue sense; and (b) there was no fraud if the representee in fact took the representation in a sense in which it was true. Concerning aspect (a), since the whole purpose of the declaration was to obtain the necessary approval and enable the development to proceed, the proper inference was that D2 intended it to have the meaning relevant to the Government’s consideration of the application. Concerning aspect (b), it was more likely than not that the Government understood D2’s declaration to mean that he was the unqualified sole owner of the land in question, ie, both legal and beneficial sole owner. It followed that the declaration was necessarily false by reference to both aspects. The parties all knew that although the application would be made in the name of D2 as the sole owner of the land, he was in fact not the sole owner but a mere nominee. It followed that the agreements would, to the knowledge of the parties, necessarily involve D2 making a false declaration to the Government without an honest belief in its truth and were therefore unenforceable on the ground of illegality. P could not escape from the consequence of illegality by saying that Ds would in any event have performed the illegal act themselves, when that act was required for the performance of the contract with P.