Shum Lap Chun and Another v. Au Mee Lang and Others

HCMP002845/1996

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS No.2845 OF 1996

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Coram : Pang, J. in Court

Date of hearing : 14 October 1996

Date of handing down judgment : 5 November 1996

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J U D G M E N T

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1. This is a vendor and purchaser summons. The Plaintiffs are the purchaser of the property known as Flat A-7, 7th Floor 15 Broadway, Mei Foo Sun Chuen, Kowloon. The Defendants are the vendors and they are the registered owners of the said property holding it as joint tenants. The present application arises out of a Sale and Purchase Agreement dated 27 July 1996.

2. In 1970 the 1st Defendant Madam Au Mee Lang and her late husband were the registered owners of the property and holding the same as joint tenants. In September 1989 upon the death of her late husband Madam Au became the sole surviving tenant. By a deed of gift dated 22 September 1990 and executed by Madam Au, she assigned the property to herself, Mr Lam Yung Ping, Wallace and Mr Lam Yung Wah and thereafter the three Defendants in the present action held the property as joint tenants.

3. By a letter dated 3 August 1996 the solicitors for the Plaintiffs raised the following requisition with the Defendants:

" Your clients, Au Mee Lang, Lam Yung Ping Wallace and Lam Yung Wah acquired the interest in the captioned property under and by virtue of a Deed of Gift from the said Au Mee Lang who thereby retained interest in the said property. It therefore prevents the time from running under the three year period concerning the estate duty charge on the captioned property upon the death of the said Au Mee Lang. Accordingly, please advise us how your clients will attend the potential risk of estate duty charge against the said property upon the death of the said Au Mee Lang."

4. The response of the Defendants' solicitors by letter dated 7 August was:

" The Deed of Gift memorial no.4568944 was executed on 22 September 1990, in other words, more than 5 years before the present transactions. The risk of the disposition being caught by section 6 of the Estate Duty Ordinance is therefore nil. Furthermore, the donor of the said Deed of Gift will together with the other two joint owners execute the assignment to your client who will then become a bona fide purchaser without notice of any charge of estate duty on the above property under section 18 of the Estate Duty Ordinance (as a matter of fact, as the said donor is still alive there is not such an charge)."

5. The objection of the purchaser is that there is the potential risk of estate duty charged against the property by virtue of section 6(1)(c) upon the death of Madam Au. Counsel for the purchaser relied on the case of Lee Siu Man v Chu Chi Wing [1992] HKC 266 where Godfrey, J. as he then was, held that the defendant vendors who acquired the property in question under a deed of gift within three years of the time of the sale of the property and at which time the donor was still alive constituted a defect in title.

6. In the present case counsel for the Plaintiffs argues that even though the Deed of Gift was executed in September 1990, some five years ago, Madam Au nevertheless still retains interest in the said property in law and in fact as one of the joint tenants. She has not been excluded in from the benefits obtainable from the gifted property so that the gift in 1990 was incomplete and the three year period under the section has never started to run. Time under the section could only start to when the donees hold the property to the complete exclusion of the interests of Madam Au. The Plaintiffs' position is this : if Madam Au were to die the property will still be subject to estate duty by virtue of section 6(1)(c) and hence the Plaintiffs' requisition has not been answered sufficiently.

7. In the case of gifts inter vivos this section will apply whether the gift is :

"... by way of transfer, delivery, declaration of trust or otherwise."

Further more, a donee must pay estate duty upon he donor's death unless the gift was completed at least three years before death and the gift was irrevocable, with:

"bona fide possession and enjoyment ... assumed by the donee immediately upon the gift and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise."

8. The only issue before me, as submitted by counsel for the plaintiffs, is whether despite the Deed of Gift Madam Au has retained interest in the property so as to prevent the three year statutory period from running.

9. There is before me no suggestsion that the Deed of Gift had not been executed properly or that the subject matter is not capable of constituted a gift in law. Indeed throughout the entire history of the transaction no point had been taken on the validity of the Deed of Gift and the correspondence between the solicitors had been centered on the issue of whether the donor had divested herself of all her interest in the property. If the gift failed and I do not think it is the case, the flat remains the property of Madam Au. Since Madam Au is presently alive, the provisions in the Estate Duty Ordinance has no application.

10. If however, the gift is incomplete for the purpose of section 6(1)(c) by reason that Madam Au had retained interest in the property as a joint tenant then one of the legal consequences is that the three-year period within which the transaction is caught under the section had not started to run. Counsel relies on the Privy Council decision of Chick v Commissioner of Stamp Duties (NSW) [1958] AC 435 in which a property transferred by way of a gift by the father to his sons some 17 years previously was held to be caught by similar legislation in New South Wales upon the father's death. The entire property was deemed to have been the father's for the purpose of computation of the father's estate duty.

11. If Madam Au dies before the transaction is completed then I could see the force and the logic behind counsel's argument. Equally if the present owners are holding the property as tenants in common, and they are trying to sell their respective shares, section 6(1)(c) would also apply. The present transaction is however, a straight forward sale by the present owners who own the property as joint tenants. As such their respective interest in the property is indivisible. If the objection by the Plaintiffs is sound, then when Madam Au dies in a future date, not only the entire sales proceed but also the flat as well will form part of her estate for the purpose of estate duty calculation. This proposition simply cannot be right. The better view must be, I think, upon completion of the sale, the flat no longer belongs to Madam Au or any of the defendants and it cannot constitute "property passing upon her death" within the meaning of section 5. Only the sales proceeds could become the subject matter of estate duty calculation. How the estate duty will be assessed and in what proportion could not be the plaintiffs' concern.

12. It is also submitted by Counsel for the Plaintiffs that even if section 6(1)(c) has no application there is still a problem of a potential risk of estate duty under section 6(1)(d) in which it was pointed out to the solicitors for Defendants by a letter dated 15 August. The relevant section provides :

"... property to which the deceased has been absolutely entitled, and which he has caused to be transferred to or vested in himself and any other person jointly, whether by disposition or otherwise ... so that the beneficial interest therein or in some part thereof passes or accures by survivorship on his death to such other person;"

13. With respect to counsel for the Plaintiffs, the objection under this section is misconceived. Once the flat is sold it will no longer be in the joint ownership of the Defendants and there is no question of Madam Au's interest in the flat being passed on to the other two Defendants by the doctrine of survivorship.

14. For the reasons given I find that the Plaintiffs' requisition on 3 August 1996 had been sufficiently answered by the Defendants and the summons is dismissed with costs.

(K.K. Pang)

Deputy Judge of the High Court

Representation:

Mr Brian Wong, inst'd by M/s David F.K. Yeung & Partners, for Plaintiffs

Mr Peter Ng, inst'd by M/s Wilkinson & Grist, for Defendants