LI CHI KEUNG, ALVIN v. SECRETARY FOR THE CIVIL SERVICE AND ANOTHER

HCAL 14/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NO.14 OF 2004

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J U D G M E N T

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Introduction

1. The applicant in this matter, a serving officer in the Correctional Services Department, seeks orders of certiorari to quash decisions made at first instance by the Director of Accounting Services and on appeal by the Secretary for the Civil Service in terms of which he has been denied the opportunity to obtain certain residual benefits under a home purchase scheme managed by the Government and called the Home Financing Scheme ('the HFS').

2. The applicant contends that the decisions were unreasonable in that they failed to take into account a material factor; namely, the nature and purpose of the HFS. The applicant further contends that the decisions were vitiated by substantive unfairness and/or by the fact that the decisions acted to deal with him in a discriminatory manner, denying him advantages that remain open to others.

Background

3. The applicant joined the Correctional Services Department in 1978. He remains a serving officer. In 1996, the applicant applied in terms of the HFS for financial assistance to purchase a home. He was successful and was able to purchase a property in the joint names of himself and his wife. The property in question was in a development known as Kornhill in Quarry Bay.

4. In applying to join the HFS, the applicant agreed to be bound by the terms and conditions of the scheme. For example, an application form signed by the applicant (dated 20 May 1996) contains the following clause :

"I agree to abide by the provisions of the Home Financing Scheme set out in Civil Service Regulations. I undertake to execute a legal charge against the property in favour of the Financial Secretary Incorporated in the prescribed format at my expense for the Loan to be granted to me." [my emphasis]

5. In terms of the scheme, the applicant was granted a downpayment loan of just over one million dollars and a monthly allowance of $18,150 to repay his debt to the Po Sang Bank which held a first mortgage on the property, this allowance of $18,150 to be paid to the applicant for a maximum aggregate of 120 months : a period of ten years.

6. It is a fundamental condition of the HFS - part of the contract that, once a public servant has joined the scheme and has obtained benefits under it, he agrees to forfeit permanently any entitlement he may have to any other forms of housing benefits such as a private tenancy allowance or departmental quarters. A number of Civil Service Regulations ('the CSRs') speak to this. By way of illustration, CSR 809(6) states :

"(a) As from the date an officer :

(A) commences to receive Home Purchase Allowance under the Home Purchase Scheme, Home Financing Allowance under the Home Financing Scheme ...

(B) ...

(C) ...

his eligibility for the civil service housing benefits set out in CSR 809(1)(a)(A) and the following civil service housing related benefits is immediately and irrevocably forfeited -

(i) Furniture and domestic appliances, other than those supplied to post-tied quarters which is directed to occupy by his Head of Department; and

(ii) Furniture and Domestic Appliances Allowance ...

(b) Where an officer has forfeited his eligibility for the civil service housing benefits and civil service housing related benefits set out in CSR 809(6)(a) above, he will not be eligible for any such benefits during his remaining service, regardless of whether such service is broken, except where he is directed to occupy post-tied quarters by his Head of Department." [my emphasis]

7. In or about 1998, the applicant fell into financial difficulties. Leaving aside debts which he had incurred in order to purchase his property, the applicant owed creditors more than $9 million. In the result, the applicant was forced to petition for his bankruptcy. I am told the bankruptcy order was made in May 1999.

8. In respect of the property, the applicant still owed Government $870,000 for the loan it had advanced to him under the HFS and owed the Po Sang Bank a sum of approximately $2.4 million. The property was sold by public auction to meet debts.

9. Before the property was put up for auction, but in light of its imminent sale, the applicant advised the Director of Accounting Services ('the Director') that the monthly allowance of $18,150 due to him under the HFS (and paid each month to the Po Sang Bank) should cease. It appears that the last such payment was made in February 1999.

10. After the applicant had been made bankrupt, he discussed the possibility of purchasing a new property with his trustee. He was advised that consent would not be given for him to do so as it would involve incurring substantial new debt. As an undischarged bankrupt, therefore, the applicant was unable to purchase a new property for himself and his family.

11. On 31 May 1999, the applicant wrote to the Director to inform him that he had been made bankrupt and that the property purchased in terms of the HFS had been sold by public auction. In his letter the applicant said :

"... the Home Financing Scheme states that I have to apply to use the Home Financing Scheme again within six months. During the bankruptcy period, I cannot buy a flat. How can I apply to the Scheme? May I know what is the arrangement of my remaining seven years of monthly entitlement under the Scheme?

...

Since my case is a special case and the Official Receiver allowed me some contribution from my monthly salary for rental expenses, I wish to defer the remaining HFA until my discharge from bankruptcy."

12. The Director replied in a memorandum dated 7 June 1999 :

"In accordance with CSR 1639(b) and CSR 1730(c), the break in period for change of property shall not exceed six months. I regret to inform you that your request to defer your Home Financing Allowance until your discharge from bankruptcy cannot be acceded to."

13. This, as I understand it, is the first decision challenged by the applicant.

14. To explain the context of the correspondence to which I have made reference, CSR 1639(b) states that if an officer has disposed of the property which he has purchased in terms of the HFS and wishes to purchase another property, he may apply to have the allowance which is due to him suspended for the period of time between the disposal of the one property and the acquisition of another. This period of suspension is, for some reason, called the 'break in' period. In this regard, the relevant portion of CSR 1639(b) is to the following effect :

"The break, limited to six months, shall not count towards the officer's 120-month entitlement period. If the officer does not submit a formal application for a down-payment loan, where appropriate, or a formal application for the Home Financing Allowance at the expiry of the six-month period, he is deemed to have left the Scheme and shall cease to be eligible for further assistance under the Scheme unless he has obtained the prior approval of the Director of Accounting Services for an extension." [my emphasis]

CSR 1730 (c) says the following :

"Where an officer has sold his existing property or redeemed the mortgage before purchasing another property, his allowance shall be suspended during the break in period. The break shall not count towards the officer's 121-month maximum entitlement period. Unless the officer has obtained prior approval from the Director of Accounting Services for an extension, the break shall not exceed six months." [my emphasis]

15. Accordingly, as the CSRs make plain, any suspension in the receipt of a monthly allowance under the HFS may not exceed six months unless a public servant who is a member of the scheme has obtained the prior approval of the Director.

16. In deciding whether to grant an approval, the Director has a broad discretion. In this regard, CSR 1741(d) and (e) states that the Director shall have 'the absolute right and discretion' to give 'exceptional' approvals and to attach any conditions he deems necessary to such approvals.

17. The applicant did not immediately answer the Director's memorandum dated 7 June 1999 refusing the extension of his break in period. However, in September 1999 he received a letter from the Director asking if his position had changed, presumably whether he had or had not been discharged from bankruptcy. In his response, in a letter dated 26 October 1999, the applicant wrote to the Director, saying :

"You have not replied to my application for Home Financing Allowance. It is the right and entitled benefit for me and my family. I submitted it within the six-month break in period as required in your letter of 7 June 1999 otherwise my future application will be rejected."

18. In response, in a memorandum of 10 December 1999, the Director of Accounting Services reminded the applicant that his request for extending his break in period had not been acceded to and suggested that the only way in which the applicant could hope to obtain further entitlements under the HFS was by purchasing a new property and submitting a formal application. This, of course, was not possible. The applicant at that time remained an undischarged bankrupt and was, in fact, to remain so for at least another two years. The Director concluded by saying that in accordance with CSR 809(6)(b), the applicant had forfeited his eligibility for any form of housing benefit.

19. The applicant then sought to appeal the Director's refusal. He did so in terms of a letter dated 13 July 1999.

20. The appeal was rejected. In a memorandum dated 1 December 1999, the Secretary for the Civil Service ('the Secretary') said :

"The provision of housing benefits under the HFS is subject to the terms of the Scheme. It is the responsibility of all HFS participants to acquaint themselves with the terms of the Scheme. The officer should be aware that he has forfeited his eligibility for all other Civil Service Housing Benefit when he joined the Scheme in 1996. The officer applied for bankruptcy and the property was then disposed of.

He should also know that he shall be regarded as having left the HFS permanently and is ineligible for further assistance under the Scheme if he does not submit a formal application for HFS benefits six months from the disposal of the property according to CSR 1639(b) when he applied for bankruptcy. Besides, the officer has actually received assistance under the HFS to finance the purchase of his own property. It is just because of his own financial arrangement that the results in his bankruptcy including the disposal of the property acquired with the assistance of HFS."

The final paragraph of the memorandum was to the following effect :

"We have carefully considered the case but regret there is no special ground in the present case which warrants exceptional approval for extending the break in period until his bankruptcy order is discharged."

21. This, as I understand, is the second decision challenged by the applicant.

The assertion that the decisions ignore the nature and purpose of the HFS

22. The applicant has asserted that the decisions challenged by him were unreasonable, in the public law sense, in that they failed to give due weight to the essential nature and purpose of the HFS. The essential nature and purpose, he has said, is to encourage home ownership by serving officers in the public service. It is not to exclude officers from the scheme, depriving them of a benefit due to other officers, a benefit which supports service morale, efficiency and loyalty. In this regard, the applicant referred to paragraph 13 of a Civil Service Circular dated 3 April 1995, this being one of the documents founding the applicant's desire to join the HFS. The circular was issued by the Secretary. The relevant paragraph reads :

"The main objective of the HFS is to assist eligible officers to achieve home-ownership through the purchase of a property with financial assistance from the Government. Officers are urged to consider opting for the HFS and joining the Scheme at the earliest opportunity and preferably before the relevant option deadline in order to benefit from the full value of the allowance."

23. To support his assertion, the applicant emphasised that he was not seeking a benefit that was in any way in addition to the benefits he would have obtained if he had not been declared a bankrupt. As he put it, he was not asking the Government to pay anything more than it had originally agreed to pay. All he was seeking, he said, was the ability to extend his break in period so that the balance of any monthly allowances due to him could be paid. If Government was not in any way prejudiced, said the applicant, the Director and the Secretary should have given greater consideration to the core purpose of the scheme; namely, the encouragement of home purchase by officers who otherwise, because of their modest salaries, may not be able to purchase a property.

24. Mr Chow SC, counsel for the Director and the Secretary, has denied that the essential purpose of the HFS was ignored. He has emphasised, however, that the scheme is governed, as all such schemes are, by terms and conditions which an applicant, who wishes to join the scheme, may accept or reject. Those terms and conditions define the nature of the scheme and also define its purpose. Mr Chow has referred me to the letter from the Secretary dated 1 December 1999 in which the applicant was informed that he had, in fact, benefited from the scheme but, in accepting his benefits under the scheme, he had agreed to be bound by its terms and conditions. In respect of these terms and conditions, Mr Chow made reference to CSR 1631 which reads :

"(a) The allowance shall be payable monthly for a maximum aggregate period of 120 months during and officer's service with the Government, irrespective of whether such service is broken, or until :

(ii) disposal of the property, completion of mortgage repayment, or redemption of mortgage on a property approved under the Scheme ...

or until :

(iv) he ceases to be eligible for the allowance for whatever reason."

Mr Chow has emphasised that the entitlement to an allowance for 120 months is not therefore an unqualified right. To the contrary, it is very much in the nature of the scheme that it is a qualified right.

25. Mr Chow has expanded his submissions by saying that the fundamental nature and purpose of the HFS does not incorporate any concern as to bankruptcy. The HFS is focused on the acquisition of property and the disposal of property. It was not, therefore, the applicant's bankruptcy which brought about the cessation of his entitlements, it was the fact that he disposed of his property and did not acquire another within the permitted time frame. The reasons why the property had to be disposed of are, while relevant to the exercise of discretion, not fundamental to the essential nature and purpose of the scheme.

26. Mr Chow has further emphasised that the HFS does not allow for prolonged suspension periods. There may be many reasons why individual officers would wish to have the scheme suspended for prolonged periods of time, he has said, to put it bluntly, so that they can hop in and out of the scheme over the period of a career in order to benefit themselves personally in some way or the other. But the scheme is not designed as an aid to speculation. It is designed for the acquisition and retention of family homes. Mr Chow has said that the scheme makes allowance for a reasonably short suspension period - only six months - because it is understood that there may be occasions when it is necessary to change one property in order to acquire another. In the present case, however, the applicant sought a prolonged period of suspension, something in the nature of three years. Such a prolonged period of suspension, Mr Chow has said, is not anticipated by the scheme; it is not part of the scheme's design.

27. In my judgment, Mr Chow must be correct in his assertions. The HFS is only open to eligible officers. Not all officers are eligible. Eligible officers, in joining the HFS, must make a clear election. The election is simple. Do they join the HFS and accept its terms and conditions or do they refrain from joining and retain their existing housing benefits? If the election is made to join the HFS, it is clearly stated that, upon receipt of benefits under the scheme, all other housing benefits fall away and there can be no clawing back of those benefits.

28. The scheme, of course, encourages home ownership. It thereby acts to help the individual officer and the housing industry generally. I understand that it also relieves Government of the long-term burden of holding and maintaining an extensive stock of quarters. But what must be recognised is that the scheme is defined in financial terms. An eligible officer is given a loan and a monthly allowance for ten years. That officer may at any time chose to 'cash out' of the scheme. He is not bound to it for the full duration of ten years although, of course, there will ordinarily be strong reasons for doing so. What do I mean when I say that, as I comprehend the scheme, an officer may 'cash out'? I can illustrate it this way. If the property market flourishes and an officer determines that he could utilise the profits in his HFS property to advantage, for example, by investing in stocks and shares, he can chose to sell his property. In such circumstances, the invariable 'opportunity cost' would be the officer's departure from the scheme.

29. Accordingly, the scheme quite patently, in my view, is not designed, as Mr Chow has said, to enable members to 'hop in and out' speculating on the market, perhaps being out for several years and then coming back in when market conditions suit. That being the case, the break in period is of limited duration simply to allow for those occasions when one property has to be sold to purchase another. The terms of the scheme are specific. The break in period will be no longer than six months unless the prior approval of the Director is obtained. As to the powers of the Director to agree to any extension or to refuse it, CSR 1741 makes it plain that the Director has the absolute right and the unfettered discretion to give approvals when he considers circumstances exceptional and to attach such conditions as he deems necessary.

30. In the circumstances, I am unable to conclude that either the Director or the Secretary, in making their decisions, ignored the nature or purpose of the HFS, a scheme which, while it encourages home ownership, does so on specific terms and conditions.

The assertion that the decisions were discriminatory

31. The applicant has submitted that the decisions of the Director and the Secretary have discriminated against him. He has pointed to two sets of circumstances to support his submissions :

(a) Officers who are not members of the HFS but occupy departmental (or non-departmental) quarters, presumably paying 7.5% of their salary for that benefit, are entitled to remain in their quarters even though they are declared bankrupt. This, the applicant has said, is different from the manner of his treatment in terms of which he has been removed entirely from the HFS and prevented from obtaining any housing benefit.

(b) Officers who are not members of the HFS who are made bankrupt and then discharged from their bankruptcy thereafter become eligible to join the HFS. Their bankruptcies, by reason of fortuitous timing, do not prejudice them in the way he, the applicant, has been prejudiced.

32. The applicant has submitted that these circumstances, which are discriminatory in nature, should have been taken into account by the Director and the Secretary but clearly were not.

33. Mr Chow has answered the submission of discriminatory treatment by saying that the applicant has effectively attempted to compare apples with oranges. Benefits under the HFS, he has said, are of a fundamentally different nature to benefits obtained, for example, by being allowed to occupy departmental quarters. In this respect, Mr Chow has made reference to the affirmation of Mr Tai Shuk-yiu dated 29 April 2004, Mr Tai being the Principal Assistant Secretary for the Civil Service in which the following was said :

"The applicant has compared his case with that of an officer occupying a DQ. Such comparison is invalid given the difference and nature in terms of provision of these two types of housing benefits. In brief, DQ is a non time-limited housing benefit in kind provided either under Departmental policy or on operational grounds. HFA, on the other hand, is provided in cash as a condition of service and is payable up to a maximum period of 120 months, subject to compliance with the terms of the HFS."

34. I am again of the view that Mr Chow must be correct. The difference between the HFS and the benefit of being able to occupy departmental quarters is, for obvious reasons, profound. An officer who opts for the benefits of the HFS is seeking over a period of time not only to enjoy accommodation but to acquire a substantial financial interest in an asset, indeed ownership of that asset. An officer who opts to occupy departmental quarters acquires no more than the benefit of accommodation for the time of his service.

35. In passing, I note that the applicant has not been able to point to any other HFS member who, in the same (or similar) circumstances to himself has been treated more favourably than him.

36. Concerning the applicant's submission that he has been discriminated against because a reliabilitated bankrupt is eligible to join the HFS if he has not previously been a member, Mr Chow has said that again the comparison is misplaced. The central issue is one of eligibility. If, therefore, a person who has been a bankrupt, but is now eligible to join the HFS, wishes to do so, that person will not be discriminated against because of his history. That, Mr Chow has said - and I must agree with him - is a very different matter from a person who is already in the scheme and who, for whatever reason, fails to meet the terms and conditions of the scheme and is, by reason of that failure, then excluded from it.

37. The applicant in the present case was denied the extension of the break in period because the Director determined that the applicant, having been allowed to acquire benefits under the scheme, had so arranged his financial affairs as to bring about the sale of his property and had therefore - by his own actions - opted out of the scheme. In the affirmation by Mr Tai, the following is said :

"It was the applicant's own financial arrangements that resulted in his bankruptcy and, as a consequence, the disposal of his Home Financing Scheme property."

38. In plain language, what is said is that an officer who is a member of the Scheme is entitled to arrange his finances as he wishes. Government, in managing the scheme, will not act as a financial chaperone. Accordingly, if an officer so manages his finances that, for whatever reason, it brings about the sale of his property, that is a matter for the individual officer. In this regard, Mr Tai said :

"The applicant had, as a matter of fact, obtained the benefits of the scheme to acquire the property and had remained in the property for an extended period of time. Accordingly, he had not been deprived of his entitlement to join the Scheme and had, in fact, joined it and enjoyed its benefits."

Mr Tai continued :

"The provision of the Scheme is subject to certain CSRs which apply to all members of the Scheme. It is the responsibility of all participants to acquaint themselves with these terms and to observe the terms at all times. The applicant agreed to abide by these terms when he joined the Scheme. In terms of CSR 1639(b), the applicant agreed, therefore, that he would be ineligible for further assistance if he disposed of his property without claiming HFS benefits in respect of another property within six months of that disposal."

As Mr Tai put it :

"The applicant would have been well aware, therefore, that the consequence of filing a bankruptcy petition on his own accord and the disposal of his property by reason of his own financial conduct, may have resulted in him being excluded from the Scheme."

As to the nub of the matter, Mr Tai said :

"The applicant had taken such a course of action of his own volition and should be held responsible for the consequence of that action. There is therefore no question of any discriminatory treatment against the applicant."

39. In my view, it is be self-evident that public servants who are eligible for, or may opt to join, a number of different housing schemes, by being treated in accordance with the rules of each separate scheme, must in consequence be treated differently from each other. That does not constitute discrimination in the manner advocated by the applicant.

The assertion as to general unreasonableness

40. The applicant has also said that the exercise of discretion by the Director and the Secretary was unreasonable because, among other things, they failed to take into account that the applicant had not removed himself from the scheme voluntarily. It had been forced upon him by his financial condition and, at all times, he had sought to remain in the scheme. In this regard, for example, the applicant has said he is different from an officer who decides to sell a property at the top of the market so that the profits could be used to go into a business enterprise and who then seeks to rejoin when the business enterprise fails.

41. The fact that the applicant had no desire to leave the HFS would, of course, have been evident to the Director and the Secretary. The entire context and colour of the relevant correspondence makes that plain. It cannot be said, therefore, that they failed to take it into consideration. What can be said is that the decision-makers, in the exercise of their discretion, gave far greater weight to other matters. That was a matter for them and is legitimate.

Conclusion

42. For the reasons given in the body of this judgment, while I sympathise with the applicant's evident frustration at being denied an allowance of $18,105 per month for another seven years or more, I am satisfied that neither the Director nor the Secretary have acted in an arbitrary or discrimatory manner. I am further satisfied that the decisions made by them, governed by the terms and conditions of the HFS, fall within the parameters of their lawful discretion. The application must therefore be dismissed.

43. As for costs, I can find no reason why costs should not follow the event. Mr Chow, on instructions, has sought costs and there will be an order in his favour.