CHE YIM MEI v. LEI SIO PENG, in her personal capacity and as one of the Executrices of the estate of LEE MING YUEN, deceased AND ANOTHER

DCMP 3500/2020

[2021] HKDC 839

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 3500 OF 2020

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JUDGMENT

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1.  By the Amended Originating Summons filed on 12 January 2021, the plaintiff was applying for, amongst others:

a)  A declaration that the Notice of Severance dated 9 January 2019 and registered in the Land Registry by Memorial No. 19011501430017 (the “Notice”) against Flat 4, 15^th Floor, Block D, Yue Tin Court, No. 11 Ngan Shing Street, Shatin, New Territories (the “Property”) is void under section 17B of the Housing Ordinance Cap. 283;

b)  An order that the Notice be set aside; and

c)  A declaration that the plaintiff be vested with the entire legal and beneficial interest in the Property by virtue of the right of survivorship.

Background

2.  The background facts are not disputed.

3.  The plaintiff is the lawful wife of Lee Ming Yuen (the “Deceased”) since 4 February 1981.

4.  By an Assignment dated 20 January 1983 and registered in the Land Registry by Memorial No. ST223630 (the “Assignment”), the Deceased and the plaintiff became joint tenants of the Property.

5.  The Property is subject to the Home Ownership Scheme of the Hong Kong Housing Authority (“HOS”) and the Government Lease of Sha Tin Town Lot No. 115 (the “Government Lease”).

6.  On 9 January 2019, the Deceased executed the Notice and also made his last will which named the 1^st and 2^nd defendants as the executors and effectively left his estate, after the deduction of usual expenses, to the 1^st defendant. The 1^st defendant is the sister of the Deceased.

7.  The Deceased died on 12 September 2019 and a Grant of Probate was issued to the defendants on 20 March 2020.

Section 17B of the Housing Ordinance

8.  Section 17B of Housing Ordinance Cap 283 (“HO”) provides that:

“Void alienations, etc.

(1) Where-

(a)(i) land in an estate is sold under section 17A; or

(ii) land in respect of which the Authority is authorised to nominate purchasers is sold and the person selling the land acts without the written permission of the Authority; and

(b) the person to whom the land is sold purports to mortgage or otherwise charge the land or to assign or otherwise alienate it; and

(c) that person acts in breach of:-

(i) any term or condition of the agreement for sale and purchase or any covenant in the deed of assignment relating to the land; or

(ii) in the case of such a mortgage or other charge, any terms authorised under paragraph 4(a) of the Schedule as regards the mortgage or other charge, the purported mortgage, other charge, assignment or other alienation, together with any agreement so to mortgage, charge, assign or otherwise alienate, shall be void.

The legal principles

9.  The plaintiff’s case is that the execution of the Notice constitutes an act of “alienation” under section 17B of the HO, and was therefore in breach of the terms and condition of the sales agreement or covenant in the deed of assignment of the Property and should therefore be void.

10.  As for the proper meaning of the word “alienation” under section 17B, both parties refer to the CFA case of Cheuk Shu Yin v Yip So Wan [2013] 1 HKLRD 656.

11.  The background and purpose of the HOS was explained by Lord Hoffmann NPJ in paragraphs 17 and 18 of the judgment:

“17....The Government then took the imaginative step of establishing the Home Ownership Scheme...by which the public authority was given the power to sell the flats in its ownership at a substantial discount to person of modest means...”

“18. As the primary purpose of the scheme was to provide qualified purchasers with a permanent home, the HOS contained restrictions on alienation or parting with possession, intended to prevent the purchasers from realizing an immediate profit by the sale of the flat or an income from letting it to someone else. The objective was both to prevent the purchasers from making a cash profit from having received a discount at the public expense...”

12.  In the same judgment, Chan PJ stated that:

“3. The meaning of “alienation” ...must be construed in the context of the...HOS...and having regard to the language of the relevant provisions.”

“4. The Scheme was introduced...to serve the social purpose of assisting eligible persons to acquire a home when cannot otherwise afford to do so. An applicant is required to disclose in his...application the persons with whom he...would occupy the flat and the total income and assets of the applicant and these occupants which must not exceed a certain limit. The disclosure...together with the restrictions imposed under...ss 17B...are aimed at ensuring that after acquisition, the flat will actually be occupied as a home for the applicant and his or her family members...”

“6. The purchase price at which an owner acquires a HOS flat is fixed at a discount of the market price or at cost without including the value of the land. The restrictions in...ss. 17B...are intended to prevent the owner from taking advantage of this discount and making a quick profit by any unauthorised re-sale or transfer or parting with possession of the flat after acquisition.”

“7. The natural and ordinary meaning of “alienation” refers to the transfer and divesting of any legal or equitable rights and interests in a property by the owner to another person. The cases cited by the parties regarding the meaning of this word...involved ascertaining its meaning in the document or statutory provision concerned read in the particular context and are not helpful in the present case. Apart from the context, one must also examine the language used in each case.”

“8. The language of the relevant provisions points to a construction which is much narrower than hat held by the Court of Appeal. In order to fall within..ss.17B...the alienation in question must be a transfer or divesting by the owner (the Judge’s emphasis) of his or her rights and interests in the flat and this supports the argument that a positive act by the owner is required. The statutory restrictions also prohibit an unauthorised mortgage, charge and conveyance which normally involve the execution of an instrument. This strongly suggests that the type of alienation contemplated by these provisions does not include the situation of a constructive or resulting trusts as alleged in the present cases...What is prohibited is an alienation which is in breach of the terms and conditions of the sale. And if what is involved is in effect some arrangement which would not defeat the purpose of the Scheme and which the Housing Authority would consider acceptable, it would not be caught by these provisions. In my view, the type of alienation which is caught is a transaction which is aimed at enabling the owner to take an unfair advantage of the benefit conferred on him or her by the Scheme to make a quick profit. It does not include the family arrangements alleged in the present two cases.”

The plaintiff’s argument

13.  The argument proposed by Counsel for the plaintiff, Mr. Bosco Cheng, is of two arms.

14.  Firstly, he placed a special emphasis on paragraphs 7 and 8 of the judgment, in particular, the use of the phrase “transfer and divesting” in the former and “transfer or divesting” in the latter.

15.  Mr. Cheng suggested that this was deliberate on part of Chan PJ indicating that in the context of Section 17B, just “divesting...by the owner of his rights and interests in the flat” would be enough to be considered “alienating”.

16.  The second arm of Mr. Cheng’s argument was that, since there was no statutory definition for the word “divesting”, he referred the court to the case of Michael Reid Scott v The Government of Hong Kong Special Administrative Region HCAL 188/2002. In that case, Hartmann J, in explaining the word “deprivation”, explained his opinion on the meaning of “divesting” as follows:

“Deprivation, in its ordinary sense, means the action of disposing or divesting; the word “divesting” itself meanings to strip or get rid of possessions, rights or attributes. The word therefore looks to an extinction rather than a restriction or limitation.”

17.  Applying these two arms together, Mr. Cheng argued that since a severance of joint tenancy was an act where the Deceased got rid of his right of survivorship and had at the same time deprived the Plaintiff of her rights of survivorship (Williams v. Hensman 70 E.R. 862 at 867), this would be an act of “alienation” under Section 17B.

My findings

18.  As attractive and imaginative this argument may be, I cannot agree to it.

19.  Firstly, I think Mr. Cheng was “quote mining” Chan PJ in the Cheuk case. I have quoted almost the entire paragraphs 7 and 8 of Chan PJ’s judgment to set this into context.

20.  It is important to note that the Cheuk case concerns whether “family arrangements” of family members contributing to the purchase price (and thus acquiring a beneficial interest in HOS flat by way of constructive or resulting trust) would be an “alienation” forbidden by Section 17B.

21.  In paragraph 7, Chan PJ stated the “natural and ordinary meaning” of alienation but emphasised that its meaning must be ascertained by reading into the context and language of the provision.

22.  And when such is exercised, Chan PJ (paragraph 8 of the judgment) found a “much narrower” meaning of alienation than those found in the lower court. He emphasised, as set in the context in that particular case, that “alienation” must be a positive act by the owner (his emphasis) which normally involved the execution of an instrument. He went on to find that since a constructive / resulting trust arose by operation of law and not a “positive act / execution of an instrument by the owner”, this was not “alienation” contemplated by Section 17B.

23.  However, this argument on “positive act by the owner” is not relevant in the present case: here, the Deceased clearly did a positive act by executing the Notice.

24.  What is relevant is what follows in the same paragraph. This concerns the view of Chan PJ of what is prohibited: an alienation which would defeat the purpose of the Scheme, that is, a transaction which was “aimed at enabling the owner to take an unfair advantage of the benefit conferred to him under the Scheme to make a quick profit.”

25.  More importantly, Chan PJ stated that arrangements which would not defeat such purpose and which the Housing Authority would consider acceptable (such as “family arrangements” like contribution to purchase price and constructive / resulting trusts as in that case) would not be caught by prohibitions of Section 17B.

26.   Thus, it is clear that the test of whether a transaction or arrangement is prohibited or not under Section 17B is not a simple interpretation of the “natural and ordinary meaning” of the word “alienation”. The test proposed by Chan PJ on “alienation” was, as I summarised it: whether there was a positive act by the owner resulting in a transaction or arrangement that would defeat the purpose of the Scheme, and if so, it would be prohibited.

27.  As such, the first arm of Mr. Cheng’s argument is irrelevant: whether the “alienation” might involve a “transfer and divesting” or a “transfer or divesting” of rights and interests is not relevant to the test, instead, any positive act of transaction or arrangement can be considered “alienation” if it defeats the purpose of the HOS. The purpose of Mr. Cheng’s emphasis of this distinction was to “distil” the word “divesting” out of the meaning of the word “alienation” in order to propagate the second arm of his argument.

28.  However, the second arm of Mr. Cheng’s argument is also problematic.

29.  In paragraph 7 of the judgment, Chan PJ gave the “natural and ordinary meaning” of the word “alienation” (as “transfer and divesting” etc.) but then cautioned the parties that the cases they cited to ascertain its meaning were not in the context of Section 17B and so were not helpful.

30.  But this was exactly what Mr. Cheng attempted to do in the second arm of his argument: to ascertain the meaning of the word “divesting” (and not the word “alienation” because he has “distilled” that word out of “alienation” from his reading of paragraphs 7 and 8 of Chan PJ’s judgment) from the case of Michael Reid Scott which has nothing to do with Section 17B of the HO.

31.  Just as Chan PJ found going down this path to ascertain the meaning of “alienation” unhelpful, I also find going down a similar path to ascertain the meaning of “divesting” unhelpful.

32.  Further, Mr. Cheng’s argument as to the meaning of the word “divesting” produced a much wider meaning for “alienation”. This clearly ran contrary to the decision of the Cheuk case where a “much narrower” meaning was found.

33.  In fact, if Mr. Cheng was right in this proposed meaning, the Court of Final Appeal should have found otherwise for the Cheuk case, because it could also be argued that a constructive / resulting trust operated to “get rid” of (some or all of) the beneficial right or interest of the legal owner under the HOS.

34.  As such, this approach for the test is clearly wrong. As stated above, the test is not about simply ascertaining the meaning of the words. The test is to look at the actual effect of any positive act by the owner. If the actual effect serves to defeat the purpose of the HOS (thus allowing the owner to take an unfair advantage of the benefit), then it is prohibited unless the owner pays the requisite premium etc. to obtain the permission by the Housing Authority.

35.  To this end, I have asked the counsels of both parties during the hearing whether they were aware of any policy by the Housing Authority to only allow co-owners under the HOS to be joint tenants instead of tenants-in-common. Both counsels admitted that they were not aware of such.

36.  I think this must be right. I cannot see any reason why the Housing Authority should be concerned whether a HOS flat should be held by joint tenants or tenants-in-common. These are private or “family arrangements” between the co-owners which, either way, do not affect (or defeat) the purpose of the HOS which is to enable qualified purchasers to occupy a permanent home at a reduced price. The co-owners are occupying the flat with the envisaged purpose in either case.

37.  Logically, it must then follow that the conversion of one form of co-ownership to another does not defeat the purpose of the HOS either.

38.  As such, any execution of a notice of severance of a joint tenancy cannot be an “alienation” prohibited under Section 17B according to the test proposed by Chan PJ, because “what is involved is in effect some arrangement which would not defeat the purpose of the Scheme and which the Housing Authority would consider acceptable” so “it would not be caught by these provisions”.

39.  Of course, as submitted by Mr. Andrew Lau, counsel for the defendants, the situation would be very different for the 1^st defendant’s assent of the Property to herself as a beneficiary of the Deceased’s will. This would constitute an “alienation” under Section 17B and prohibited unless she paid the requisite premium and obtained consent from the Housing Authority (Wong Mei Sin v Ng Wai Kin [2011] 4 HKLRD 109). This would similarly apply in case of the beneficiary of the will of the sole surviving joint tenant.

40.  For reasons stated above, I find that the execution of the Notice by the Deceased on 9 January 2019 did not constitute an act of “alienation” under Section 17B of the HO.

Order

41.  I would therefore order that the plaintiff’s case be dismissed with costs to the 1^st and 2^nd defendants with certificate for counsel to be taxed if not agreed.