Introduction

Our article entitled “Development Schemes for Ding Houses in the New Territories” published in June 2014 discussed, in the context of contractual disputes, the legal position in relation to development schemes (“Schemes”) i.e. the practice where developers approach indigenous villagers to buy their small house rights (“Ding Rights”) by using their eligibilities to apply for concessionary building licences from the Lands Department pursuant to the New Territories Small House Policy and erect small houses on developers’ land. Case law shows that agreements for the Schemes are illegal and contractual parties are denied the right to resolve their contractual disputes in courtroom. However, the parties involved in the Schemes have never been criminally prosecuted until the recent case of HKSAR v李欽培 David DCCC 25/2015. In this case, a developer as the 1st Defendant (“D1”) and 11 indigenous villagers (out of the 22 indigenous villagers involved) as the 2nd to 12th Defendants (“D2 – D12”) were charged with conspiracy to defraud the Lands Department for their involvement in the Schemes.

Facts
According to the New Territories Small House Policy, male indigenous villagers of 18 years old or above are eligible to the Ding Rights. Once they possess their own land, they can apply to the Lands Department for concessionary building licences to erect small houses on their own land.

In this case, D1 (with land but without any Ding Rights) paid money to D2 – D12 to purchase their Ding Rights. D2 to D12 were, in return, required to apply to the Lands Department for concessionary building licences to build small houses on D1’s land. The Defendants executed legal documents to assign D1’s land to each of D2 – D12 (the “Assignments”). The Assignments stated that D2 – D12 shall each pay HK$150,000 to D1 but none of them were actually required to do the same. They then executed powers of attorney to authorize D1 to handle the subsequent matters in relation to the erections of small houses on D1’s land. They also signed secret agreements (“Secret Agreements”) with D1 that they shall transfer the erected small houses back to D1, or they shall pay 9 million to D1 to obtain their respective small houses.

Each of them then made a declaration before a Lands Department officer that he was the sole legal and registered owner of the land on which he wished to erect a small house. The application form filed by each of them to the Lands Department also contained a note that the applicant should not enter into any arrangement with any person to transfer his rights in the land; and in case of any breach of this condition by the grantee / licensee, lease enforcement action would be taken by the District Lands Office.

The two legal issues before the Court were:-

1.         Whether the statements made by D2 – D12 that they possessed both the Ding Rights and the land constituted false representations; and

2.         Whether it was dishonest for D2 – D12 to obtain sale proceeds (to which they should not be entitled) of their Ding Rights by executing documents contrary to the true intention of the parties.

The Prosecution’s case
The Prosecution alleged that the Defendants committed conspiracy to defraud the Lands Department because D2 – D12 made false representations to the Lands Department that they possessed the land so that they were eligible to apply for concessionary building licences to erect small houses. D1 executed the Assignments and Secret Agreements with D2 – D12 to assist them to deceive the Lands Department. Their conduct was dishonest.

The Defendants’ case
The Defendants admitted most of the facts in this case but denied that their conduct in the Schemes constituted conspiracy to defraud and was dishonest.

Legal Principles
Conspiracy to defraud is a serious offence at common law.  A person who is convicted of the offence is liable to imprisonment for 14 years pursuant to section 159C(6) of the Crimes Ordinance. The offence refers to an agreement between two or more people, by dishonesty, to deprive a person of his proprietary right.

In terms of the element of conduct, the Court in DPP v Ray [1974] A.C. 370 stated that silence may constitute an express statement. In terms of the element of intention, to determine if a person is dishonest, the Court should apply the test in R v Ghosh [1982] QB 1053 and determine:-

a.      whether the Defendants’ conduct was dishonest by the standards of reasonable and honest people; and

b.      if so, whether the Defendants realized that their conduct was, by those standards, dishonest.

Causing a detriment to the victim is not limited to economic loss but also includes deceiving a person holding a public office into acting contrary to his public duty.

Discussion
The Court held that D2 – D12 understood that they must possess land before they were eligible to apply for concessionary building licences to erect small houses. They would hide from the Lands Department officials their lack of title in the land under their secret arrangements with D1. Otherwise their applications would be disapproved. Therefore, since they filed the application forms, their silence had created impressions to the Lands Department officials that they were eligible to apply for concessionary building licences to erect small houses. Their silence constituted false representations accordingly.

The Court applied the Ghosh test and held that reasonable and honest people would consider their conduct as dishonest. But for their false representations by way of silence and execution of false documents, they would not have become eligible to apply for concessionary building licences to erect small houses.  They would not have obtained sale proceeds (to which they should not be entitled) of their Ding Rights. Obtaining profits from the Ding Rights was inconsistent with the original intention of the government policy to grant land to indigenous villagers for their own living purposes. The Court also held that the Defendants must have realized that reasonable and honest people would consider their conduct as dishonest because they understood that the transaction documents did not reflect the true intention of the parties. As D1 executed the Assignments and Secret Agreements with D2 – D12, the Court found that the Defendants deceived the Lands Department officials into granting concessionary building licences to erect small houses. They were guilty of conspiracy to defraud.

Conclusion
It has long been understood that the Schemes are illegal but the present case establishes that developers and indigenous villagers are likely to attract criminal liability of conspiracy to defraud under the Schemes.  However, as this is a District Court case, it is expected that the Defendants would appeal against their convictions. We wait to see the final decision from a higher court.

For enquiries, please contact our Property Department:

E: property@onc.hk

T: (852) 2810 1212

W: www.onc.hk

F: (852) 2804 6311

19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.