Property Law — District Court gives first-of-its-kind ruling that a notice of severance executed shortly before death does not constitute “alienation” forbidden under the Housing Ordinance
This is the first case of its kind to deal with a notice of severance executed by a deceased shortly before his death. The test of whether a transaction or arrangement is prohibited under section 17B of the Housing Ordinance (Cap. 283) is not just a simple interpretation of the word “alienation”.
Che Yim Mei v Lei Sio Peng & Anor
| Reference: | [2021] HKDC 839 |
| Court: | District Court |
| Before: | HHJ Harold Leong |
| Date of Decision: | 30 July 2021 |
| Appearance: | Andrew Lau, instructed by Messrs. Paul W. Tse, for the successful Defendants (as executrices of the Deceased’s last will) |
Overview
The Court held that the test of whether a transaction or arrangement is prohibited under section 17B of the Housing Ordinance (Cap. 283) is not a simple interpretation of the “natural and ordinary meaning” of the word “alienation”, but whether there was a positive act by the owner resulting in a transaction or arrangement that would defeat the purpose of the Home Ownership Scheme of the Housing Authority , and if so, it would be prohibited.
This case is the first of its kind as it concerns a notice of severance executed by a deceased shortly before his death.
Background
The Plaintiff had been the Deceased’s lawful wife since 4 February 1981.
By an Assignment dated 20 January 1983 and registered in the Land Registry, the Deceased and the Plaintiff became joint tenants of the subject property (“Property”). The Property is subject to the HOS (“Home Ownership Scheme“) and the Government Lease of Sha Tin Town Lot No. 115.
On 9 January 2019, the Deceased executed a notice of severance in relation to the Property (“Notice”) and made his last will which named the 1st and 2nd Defendants as the executrices and effectively left his estate, after the deduction of usual expenses, to the 1st Defendant. The 1st and 2nd Defendants are the sister and niece of the Deceased respectively.
The Deceased died on 12 September 2019 and Grant of Probate was issued to the Defendants on 20 March 2020.
By Originating Summons, the Plaintiff applied for, inter alia:
(1) A declaration that the Notice is void under section 17B of the Housing Ordinance, Cap. 283 (“HO“);
(2) An order that the Notice be set aside; and
(3) A declaration that the Plaintiff be vested with the entire legal and beneficial interest in the Property by virtue of the right of survivorship.
Section 17B of the HO
Section 17B of the 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 parties’ cases
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 sales agreement or covenant in the deed of assignment of the Property and should therefore be void.
The Defendants argue otherwise. Whilst the Property is subject to the HOS, it does not necessarily follow that any act of the Deceased operating upon his own share would amount to an “alienation” forbidden by section 17B of the HO. The meaning of “alienation” must depend on its context. Here, the Deceased was not effecting a transfer or divesting his rights and interests in the Property to a third party. Also, the Deceased did not gain any immediate profit after severance. Thus, the Notice does not (and cannot) amount to an “alienation” forbidden under section 17B of the HO.
The Court’s ruling
The Court drew extensive reference to the Court of Final Appeal case of Cheuk Shu Yin v Yip So Wan [2013] 1 HKLRD 656 (a case concerned with family members contributing to the purchase price of a HOS flat) and held that the test of whether a transaction or arrangement is prohibited or not under section 17B of the HO is not a simple interpretation of the “natural and ordinary meaning” of the word “alienation” (as the Plaintiff suggested). Instead, the test was whether there was a positive act by the owner resulting in a transaction or arrangement that would defeat the purpose of the HOS, and if so, it would be prohibited (Judgment §26).
Put simply, the test is to look at the actual effect of any positive act of 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 (Judgment §34).
Furthermore, there is no 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 of 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. Logically, it must then follow that the conversion of one form of co-ownership does not defeat the purpose of the HOS either (Judgment §§36-37).
That said, the situation would be very different for the 1st Defendant’s assent of the Property to herself as a beneficiary of the Deceased’s will. This would constitute an “alienation” under Section 17B of the HO and be prohibited unless she paid the requisite premium and obtained consent from the Housing Authority (Judgment §39).
For the reasons above, HHJ Harold Leong found that the execution of the Notice by the Deceased did not constitute an act of “alienation” under section 17B of the HO and the Plaintiff’s case was dismissed accordingly (Judgment §§40-41).
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Andrew Lau
Andrew is a Charles Ching Scholar who joined Chambers in 2018. He has experience in areas such as commercial disputes, company/insolvency, construction, equity/trusts, probate, personal injuries and public law. Andrew’s notable cases include Tse Dao Chuen v Cheung Wai Yan formerly known as Cheung Suet Ngor [2021] HKDC 399, where he acted for the Defendant in successfully resisting the Plaintiff’s claim for the entire beneficial interest in the property, and obtaining through counterclaim the Court’s order for the property’s sale. He also appeared in Tian Tian v Cao Ji [2019] HKDC 197, where he succeeded in obtaining a Mareva injunction in the cyber-fraud context. Court work aside, Andrew teaches administrative law at the Chinese University of Hong Kong and media law at the Hong Kong Baptist University. |
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photograph which appears in this article is included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related.