Trusts, ‘alienation’ and the Home Ownership Scheme

In Cheuk Shu Yin v Yip So Wan ([2012] HKEC 1554, CFA) the Court of Final Appeal had to consider whether the creation of a trust in respect of a flat purchased under the Home Ownership Scheme (‘HOS’) was an ‘alienation’ for the purposes of sections 17B and 27A of the Housing Ordinance. If so, the trust would be void and a criminal offence would have been committed. In the cases being considered, family members had joined together to contribute to the purchase price and mortgage instalments and it was understood that they would have a beneficial interest in the property as a result (by virtue of a resulting or constructive trust). The Court of Final Appeal decided unanimously that there was no alienation.

Chan PJ looked to the context of the HOS scheme and the language used to determine the relevant intention. The HOS scheme actually envisaged the possibility of a pooling of resources)([5]). It was concerned only to prevent speculative acquisition under the scheme with a view to resale (given the substantial discount enjoyed by first purchasers). The Ordinance did not seek to frustrate or outlaw the pooling of financial resources by family members ([6]). Turning to the language used, ‘alienation’ requires a positive act by the owner while resulting or constructive trusts arising by operation of law ([8]).

Lord Hoffmann’s analysis concentrated rather on the context or purpose of the prohibition. Although he was inclined to agree with Chan PJ on the language point he preferred not to rest his decision on it ([24]). The Court of Appeal had also looked to the purpose behind the scheme. It thought that unless the prohibition was given a wide ambit there would be scope to use the creation of an express trust or the possibility of an implied trust arising by operation of law as a way of sidestepping the policy of the act ([29]). Lord Hoffmann thought that these fears had been exaggerated and saw little scope for use of the trust as a way of creating commercially attractive investments in HOS flats ([30] – [32]). By contrast, allowing family members to pool their resources would promote the purpose of the scheme (to expand the pool of home-owners to include people of limited financial resources) ([33]):

‘[T]he fact that it would often be unjust to deny a beneficial interest to someone who paid the purchase price in the expectation that he would get one is a reason for not construing the statute so widely as to have this effect. Not only would he be denied a remedy, he would have committed a criminal offence for doing something which to most people in his position would seem normal and even generous.’ ([35])

This outcome did not depend on the fact that the trust in these cases arose by operation of law; on the contrary, the same approach applied to an express trust:

‘The reason why the creation of a beneficial interest does not come within s 17B is not because the trust arises by operation of law rather than by an intentional act but because the creation of an equitable interest is not in my opinion an alienation of the land assigned to the purchaser. It is the creation of a new interest in that land. It would in my opinion be very strange if the parties could create a constructive trust by their common intention but were required at all costs to avoid reducing this to an express declaration in writing.’ ([36])

Michael Lower

Advertisements

Tags: , , , ,

2 Responses to “Trusts, ‘alienation’ and the Home Ownership Scheme”

  1. Matthew Wong Says:

    Hi Michael,

    My general understanding surrounding buyers’ interests is that buyers obtain legal and equitable interests at the same time. Hence allowing family members to contribute may be an ‘alienation’, by the buyer, of the initial equitable interest?
    This question is based on an assumption that the buyers obtain both legal and equitable interests though. Please correct me if I’m wrong as I do not live in Hong Kong.
    Lord Hoffman’s reasoning that new equitable interest is created ([36]) can give rise to an argument that the buyer’s initial equitable interest (or portions of it) has been progressively ‘alienated’, or slowly wittled away, as the family members make repayments because (I believe) equitable interests cannot be created out of thin air.
    I would like to hear your thoughts on this matter. Apologies for digging up an old case as I was not a law student back in 2012. (In fact, I was still in high school back in 2012.)

    Kind regards,

    Matthew

    • Michael Lower Says:

      Hi Matthew,
      Many thanks for your contribution. When interpreting the word ‘alienation’ in this Ordinance, the CFA were heavily influenced by their understanding as to its purpose and the sorts of schemes that it was trying to prevent. It was obviously of the view that there was no intention to outlaw family members from pooing their resources to acquire a flat.
      The other major factor was the legal / linguistic analysis. Here, its reasoning was that ‘alienation’ involves some kind of dealing with a pre-existing interest rather than the creation of that interest for the first time. The idea is that there is no equitable interest at all until the trust is created.
      I understand your ‘whittling away’ idea. The approach to trusts like this (where shares are determined by reference to payments made over an extended period of time) is not that there is a long sequence of exchanges of equitable shares as proportionate contributions fluctuate. Rather, the idea is that the arrangement as to quantification is (usually) established once and for all at the outset even though the size of each party’s share will fluctuate over time.
      Best wishes,
      Michael

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: