Sub-divisions and compulsory sale thresholds

In Lead Traders Ltd v Lucky Land Enterprise Ltd ([2012] HKEC 1103, CA) LT owned 83.33% of the undivided shares in a building and until March 2010 LL owned the third floor of the building and the remaining 16.67%. In March 2010 LL  entered into an assignment and sub-DMC with AT. As a result, the Land Registry records as at the end of March showed each of LL and AT as the owner of one of the sub-units and of 8.33% of the undivided shares. They contended that as a result, the lowering of the threshold from 90% to 80% for majority owners to be entitled to seek a compulsory sale did not apply (see the Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice, Cap. 545A). They sought a determination of the point of law as to whether the two units could be regarded as separate units for the purposes of the notice. If the answer was in the affirmative, the majority owner (LT) would not be entitled to apply for compulsory sale. There was an argument as to whether the physical sub-division of the units that also took place in March 2010 was in breach of the DMC and / or the Buildings Ordinance.

The Court of Appeal found, in favour of the minority owners, that the legal sub-division was effective for the purposes of the notice for the following reasons:

1. Section 4(2) of the Notice specified criteria that would be applied to distinguish effective from ineffective sub-divisions but it referred to sub-divisions that were made on or after 1 April 2010 and the legal sub-division took place before then ([31]);

2. The legal sub-division (whether or not accompanied by physical sub-division) was enough to be an effective sub-division for the purposes of the Notice ([33] – [34]).

3. The majority owners argued for a purposive interpretation and sought to rely on the Legislative Council Brief that explained the intention behind the notice but this was not a case where Pepper v Hart could be invoked. In any event, the brief referred to things that happened on or after 1 April 2010. It did not make physical sub-division a criterion but rather the question as to whether the sub-division altered the common area or a person’s liability in relation to the common area.

4. Even if physical sub-division were relevant and even if the works were in breach of the DMC / Buildings Ordinance these facts would be irrelevant to the application of the Notice ([43]).

5. A purposive approach to statutory interpretation does not allow one to ignore the plain meaning of the language used ([44]).

6. There was no basis for the suggestion that the sub-division was a sham in the sense explained by Diplock LJ in Snook v London and West Riding Investments Ltd.

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