Archive for the ‘Small House Policy’ Category

The Small House Policy and the Basic Law

February 1, 2021


Hong Kong’s Small House Policy confers significant benefits on indigenous inhabitants of the New Territories (‘NTIIs’). NTIIs are male persons, at least 18 years old, descended through the male line from a resident in 1898 of a recognised village.

The Small House Policy confers the following rights (exercisable only once) on NTIIs:

  1. a free building licence (allowing the NTII to build a residential house on land owned by him in the village without paying the usual premium);
  2. the Private Treaty Grant (allowing the NTII to buy Government land in the village at a concessionary rate);
  3. land exchange (enabling the NTII to exchange land owned by him in the village for other Government-owned land more suitable for residential building in the same village).

These rights have substantial financial value. It is accepted that they discriminate against females and against Hong Kong residents other than NTIIs.

The question for the Court of Appeal in Kwok Cheuk Kin v Director of Lands ([2021] HKCA 54) was whether the Small House Policy infringes articles 25 and 39 of the Basic Law and article 22 of the Bill of Rights. Alternatively, are the rights conferred by the Small House Policy ‘lawful traditional interests of the indigenous inhabitants of the New Territories’? Article 40 of the Basic Law requires these interests to be protected by the Government of the Hong Kong SAR. This protection would, it was argued, legitimate the Small House Policy rights despite their discriminatory nature and effects.

Interpreting article 40

Poon CJHC delivered the judgment of the Court of Appeal. The courts are to take a ‘contextual and purposive’ approach ([33]). The relevant contextual features taken into account were:

  • the new Colonial Government’s stated intentions concerning land ownership and respect for customs ([35] – [38])
  • the history of land ownership arrangements in the New Territories ([40] – ([47]);
  • the history of special policies and practices for small houses in New Territories villages, both before and after the introduction of the Small House Policy in 1972 ([[48] – [67]);
  • the relationship between the Small House Policy and the policies and practices that preceded it ([68] – [70]);
  • the ways in which legislation (before and after 1972) took account of the Small House Policy ([71] – 76]);
  • the recognition and preservation of ownership rights arising under the Small House Policy in the Joint Declaration ([77] – [82]);
  • contemporaneous materials relevant to the issue of rights protected by article 40 ([83] – [85]) which seem to suggest a level of controversy as to whether the Small House Policy rights were covered by article 40; and
  • the fact that there was no prior legal challenge to NTII rights under the Small House Policy ([86]).

Poon CJHC went on to say that ‘[w]hether a right or interest is traditional for the purposes of BL40 is to be determined by reference to the state of affairs in April 1990’ ([90]). A right might be traditional if it is an evolved form of a pre-1898 right, ‘provided it retains its essential or core features’ ([91]).

He continued:

‘In our view, “lawful traditional rights and interests of the NTIIs” in BL40 mean those which are, as a matter of historical fact, recognized to be the NTIIs’ lawful traditional rights and interests in the Hong Kong legal system at the time of the promulgation of the Basic Law on 4 April 1990 .. BL40 continues and elevates the recognition and protection to a constitutional level for such lawful traditional rights and interests of NTIIs after 1 July 1997.’ ([93])

Poon CJHC’s review of the contextual features listed above led him to conclude that NTII rights under the Small House Policy were lawful and traditional for the purposes of article 40 of the Basic Law ([94]). They are protected despite their discriminatory nature ([95]). Thus, ‘the Small House Policy is constitutional in its entirety'([116]).

The Court of Appeal disagreed with the first instance approach of considering whether each of the rights conferred by the Small House Policy could be traced back to the time before the New Territories Lease. That said, the court thought that each of the rights conferred by the Small House Policy could satisfy a ‘traceable’ test.

The first instance judge thought that the building licence could satisfy the test while the private treaty grant could not. The Court of Appeal, however, thought that the private treaty grant ‘captures or satisfies the essential feature(s) of a right or interest that was enjoyed by the NTIIs before the commencement of the New Territories Lease’ ([119]).

The rights of the ‘topsoil tenants of the customary tenure’ ([120]) were replaced by various forms of sale at a concessionary rate to NTIIs ([121]).

Michael Lower

Tinsley v Milligan still applies in Hong Kong

August 17, 2019

In Patel v Mirza, the UK Supreme Court abandoned the Tinsley v Milligan reliance test in deciding whether or not to enforce agreements tainted by illegality.

In Hong Kong, this question has frequently arisen with regard to schemes for the exploitation of ding rights under the Small House Policy. In a number of cases, property owners have transferred land to dings who apply to build a small house on the land after claiming the benefits conferred on dings by the small house policy.

The schemes considered by the courts were tainted by illegality since they envisaged that the ding would make a false declaration to the Director of Lands that they were the legal and beneficial owners of the land.

In a number of the cases considered by the courts, property owners have transferred land to dings for no consideration as part of an unlawful development scheme. If the scheme does not proceed, the property owners then seek to recover the land alleging that the ding holds the property on resulting trust since there was a voluntary transfer to them.

The relevant principles for dealing with claims like this are contained in paragraph 21 of Hon Au-Yeung J. in Tang Teng Tso v Cheung Tin Wah ([2014] HKCFI 680). The property owner can enforce their property rights against the ding as long as they do not need to plead their illegality.

This reflects the Tinsley v Milligan reliance test and some may have wondered whether Hong Kong’s courts would change their approach after Patel v Mirza.

This was considered in Kwan Hung Shing v Fong Kwok Shan ([2019] HKCFI 1687). Wilson Chan J. confirmed that the principles in Tang Teng Tso (and the reliance test on which they are based) remain the law in Hong Kong.

In Kwan Hung Shing, the plaintiff had assigned land to dings introduced by a developer under an unlawful development scheme. The plan was for the dings to claim their rghts under the Small House Policy. The developer would assign two of the completed houses to the plaintiff.

When the developer failed to carry out the agreement, the plaintiff claimed that the dings held the land assigned to them on presumed resulting trust since they had not paid for the land.

The claim succeeded and the court declared that the dings held the property on resulting trust for the plaintiff.

Michael Lower

Recovering property transferred pursuant to an agreement tainted with illegality: Patel v Mirza in Hong Kong

December 2, 2017

In Chung Tin Pui v Li Pak Sau ([2017] HKEC 2103) P was the manager of a tso that owned two lots of land in the New Territories. The Tso entered into two contracts with D1. D1 was to build several houses on each of the two lots.

The tso would have the right to select three of these for itself and D1 would assign these to the tso. D1 would also rebuild the tso‘s ancestral hall. The tso and D1 entered into two deeds of development in pursuance of the two agreements.

The tso assigned its land to D1 and D2 for no consideration pursuant to the two contracts and deeds; the land was held on trust for the tso. D1 and D2 divided the land into smaller lots which were assigned to D3 – D13 who all had knowledge of the trust.

D1 and D2, in breach of contract and their duty as trustees, sold four of the sub-lots, failed to complete the development on time and failed to rebuild the ancestral hall.

P sought to re-amend its statement of claim to plead that:

  1. D3 – D13 were all subject to the trust since they knew of it;
  2. P should be allowed to set the contacts and deeds of development aside on the grounds that they were contrary to law and public policy (given that part of the scheme relied on D3 – D13 making false declarations to the government that they would be beneficial owners of the property) (‘the illegality point’);
  3. so that upon P’s withdrawal from the development the Ds would hold the land on resulting trust for P.

In considering the illegality point, the court (Louis Chan J) placed the UK Supreme Court decision in Patel v Mirza at the centre of his analysis; this was said to be ‘of very high persuasive authority’ ([51]).

Louis Chan J summarised the effect of Patel v Mirza thus:

’53. It is not necessary to discuss the question of locus poenitentiae (§116). A person who satisfies the ordinary requirements for a claim in unjust enrichment should be entitled to the return of his property; he should not be debarred from enforcing his claim
only because the property which he seeks to recover was transferred to the defendant for an unlawful purpose (§§116 and 121). There may be a particular reason for the court to refuse to assist an owner to enforce his title to property, but such cases are likely to be rare (§116).

54. In considering such a claim, the Court should consider whether the public interest like the integrity of the legal system (or certain aspects of public morality) would be harmed by the enforcement of the claim by taking into account:

  • the underlying purpose of the prohibition which has been transgressed, and whether the purpose would be enhanced by the denial of the claim;
  • any other relevant public policy on which the denial of the claim may have an impact; and
  • whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts (§120).’

It no longer mattered whether or not the illegal development had been wholly or substantially performed ([58]). Nor did it matter whether or not P’s manager had known of the illegality ([60]).

Rather, ‘[t]he question now is whether by allowing the 2nd defendant and her nominees to keep the rest of the lots is a proportionate response to the illegality that the plaintiff has hitherto subscribed’ ([59]).

P was given leave to re-amend the statement of claim and to consider whether he wanted to make any further re-amendments in the light of Patel v Mirza.

Michael Lower