Court of Final Appeal gives landmark judgment abolishing the Milmo principle and construing section 3(2) of the Land Registration Ordinance

Land Law

On 17 April 2026, the Court of Final Appeal (“CFA”) handed down a landmark judgment ([2026] HKCFA 17) on two questions of law concerning (1) the Milmo principle, and (2) the true construction of section 3(2) of the Land Registration Ordinance, Cap 128 (“LRO”). The CFA answered both questions in favour of the Plaintiffs / 1st and 2nd Respondents (“Plaintiffs”). Anson Wong Yu Yat (led by Audrey Eu, SC and with Wong Cho Lik) acted for the Plaintiffs in successfully resisting the appeal by the 2nd Defendant / Appellant (“Appellant”). 

Lord Hoffmann NPJ, in giving the main judgment, departed from the long-established principle that “a sub-lease granted for a term equal to or exceeding the term of the head lease takes effect as an assignment of the head lease” (“the Milmo principle”). Lam PJ gave a concurring judgment in light of the great general or public importance of the construction of section 3 of the LRO. 

This is a rare occasion where the court departs from a common law principle that has been established in English law and applied in Hong Kong. The CFA’s judgment highlights the potential for the Hong Kong courts to develop the common law of Hong Kong.

Background  

In 1983, the owner of a piece of land in the New Territories, held under a Government lease for a term expiring on 27 June 1997, granted a sub-lease to her tenant for a term of 15 years – which, the Appellant argued, took effect as an assignment of the Government lease by virtue of the Milmo principle. The sub-lease was in writing but never registered. In 1986, the owner assigned the land to herself and her adopted son as joint tenants. In 1988, a law was passed extending the term of the Government lease to 30 June 2047. In 1990, the owner died. In 1997, the adopted son sold and assigned the land to a company. After dividing the land into various sub-plots, the company sold and assigned them to various purchasers, who registered their assignments. This case arises out of a dispute as to whether these purchasers can claim possession from the sub-lessee. 

The Milmo principle 

In relation to the Milmo principle, Lord Hoffmann NPJ held that: 

1. The Milmo principle has nothing but authority to recommend it. Its application is invariably the result of a mistake and it unnecessarily produces results which are not only unexpected but frequently unfair to one or the other parties. Not only is the Milmo principle always the result of a mistake but its theoretical foundations have been undermined by developments in the law of landlord and tenant.

2. A sub-tenancy for a term exceeding the residue of the head lease should be treated as a contract to grant such a tenancy for whatever is the term it purports to grant. As a conveyance, however, it will only be able to convey a leasehold proprietary interest for the rest of the term held by the head tenant. 

3. A rational system of dealing with leasehold transactions is particularly important in Hong Kong, where there is no freehold and all titles to property derive from Government leases. The court would therefore depart from the Milmo principle and hold that the 1983 sub-lease created a contractual relationship which was fully performed by the creation of proprietary interests. At the end of the term granted by the sub-lease, however, the sub-leasee’s interest in the property came to an end. 

In effect, Lord Hoffmann NPJ’s judgment (with which all other members of the CFA agreed) formally abolished the Milmo principle under Hong Kong law. 

Section 3(2) of the LRO 

In relation to section 3(2) of the LRO, the main thrust of the Appellant’s submission is that only a purchaser with a registrable instrument affecting land can rely on section 3(2). If a vendor had already conveyed the title of the land to an earlier purchaser by an unregistered instrument, the subsequent instrument could not pass any title to the subsequent purchaser (“the nemo dat rule”). As a result, such a subsequent instrument could not affect land and the subsequent purchaser could not rely upon section 3(2). 

In his concurring judgment (with which all other members of the CFA agreed), Lam PJ rejected the Appellant’s submission, holding that: 

1. The Appellant’s construction would substantially frustrate the legislative purpose of preventing secret conveyances and providing means whereby the title to land may be easily traced and ascertained. It would seriously undermine the effectiveness of the conveyancing regime which has been practised in Hong Kong for over a century.

2. It is a fallacy that section 3 of the LRO does not affect title. Since the common law title system is premised upon relativity of title, the LRO was enacted on the same premise. The concept of priority stems from this premise. The effect of section 3 is to modify the common law rule that legal interests created first in time prevail and, subject to the exception of a bona fide purchaser for value without notice, the priority of equitable interests also depends on the time of creation. 

3. Section 3(2) of the LRO provides clearly that an unregistered instrument shall, vis-à-vis any subsequent bona fide purchaser for valuable consideration, be absolutely null and void to all intents and purposes. “Null and void to all intents and purposes” means that the earlier unregistered instrument is invalid as far as such a subsequent purchaser is concerned. Thus there is no basis for suggesting that section 3(2) could not operate to confer a better title to the subsequent purchaser than his vendor. To that extent and to that extent only, the nemo dat rule is modified. 

4. If the vendor himself never had any title to the land, section 3(2) does not confer any title on a subsequent purchaser deriving interest from such a vendor. In that scenario, the invalidity of an earlier unregistered instrument could not fill the missing gap in the chain of title. Likewise, section 3(2) does not confer any title on a purchaser who derives title from a forged or otherwise ineffective document. The invalidity of his title is not because of the earlier disposal of interest to another purchaser under an unregistered instrument. Hence, the nemo dat rule would operate in full force without being affected by section 3(2). 

Accordingly, the CFA unanimously dismissed the appeal. 

 

Anson Wong Yu Yat

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Anson has appeared in more than 200 court judgments (including 20 cases in the Court of Final Appeal with 14 substantive appeals) over the mere span of 10 years’ call, reflecting the exceptional wealth of experience and exposure in civil litigation for his seniority.

Anson has developed a broad civil practice with particular interest in intellectual property and competition law matters. He is experienced in handling complex questions of law, including those of great general or public importance which reached the Court of Final Appeal. For example, he has recently appeared in (among others) three civil appeals before the Court of Final Appeal dealing with important questions concerning insolvency matters, land law and equity, service out of jurisdiction and statutory interpretation (see Re Hsin Chong Construction Co Ltd (2021) 24 HKCFAR 98, Cheung Lai Mui v Cheung Wai Shing (2021) 24 HKCFAR 116 and Fong Chak Kwan v Ascentic Ltd (2022) 25 HKCFAR 135 respectively). He also appeared in one of the first two enforcement actions before the Competition Tribunal, arguing issues relating to the burden and standard of proof as well as the proper approach for the determination of pecuniary penalties (see Competition Commission v W Hing Construction Co Ltd [2019] 3 HKLRD 46; [2020] 2 HKLRD 1229).

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This article was first published on 17 April 2026.

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 photographs which appear in this article are included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related. The views and opinions expressed in this article/material are solely those of the members authoring it and do not necessarily reflect the official policy or position of Denis Chang’s Chambers, or of any other member or members of Denis Chang’s Chambers.