Posts Tagged ‘Home Ownership Scheme’

Trusts, ‘alienation’ and the Home Ownership Scheme

December 19, 2012

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

The meaning of ‘alienation’

November 30, 2011

(Overturned by the CFA). An agreement giving rise to a common intention constructive trust is an alienation (eg for the purposes of section 17B(1) of the Housing Ordinance) even if entered into before the relevant property had been acquired.

In Ling Wing Fai Billy v Ling Shui Fai ([2010] 6 HKC 434, CA) the defendants were a married couple. They agreed with the husband’s mother (and brother and sister-in-law) that if their application for a flat from the Hong Kong Housing Authority were successful then they would all contribute to the mortgage installments and the mother would provide the deposit. In return, the beneficial ownership of the flat would be shared between them. The principal question was whether this was an unlawful ‘alienation’ for the purposes of section 17B(1) of the Housing Ordinance.

It was argued that an alienation requires a positive act while the beneficial interests here arose by operation of law. This was rejected. The defendants had engaged in positive acts (the agreement itself, using the money received to make the relevant payments and allowing the other family members to live in the flat and make contributions as agreed). The fact that the interests had arisen by operation of law did not mean that they were not the result of these positive acts (para. 26). The Court of Appeal referred to the description of ‘alienation’ in Re A Solicitor ([2000] HKCU 1003, CA): an alienation was described as the creation and grant of rights over property impinging upon the most important features of ownership.

This was an alienation. It did not matter that the arrangement was entered into before the flat had been acquired (para. 30). The fact that the arrangement was one made between family members was irrelevant (para. 32).