Look at underlying nature of competing interests and their relative priorities before considering the impact of the Land Registration Ordinance

In Hong Kong Chinese Bank Ltd v Sky Phone Ltd ([2000] 3 HKLRD 749, CFI) the following events took place:

9 April 1995 – T granted a charge to X Bank and this was registered on 20 November 1995

1997

10 April 1997 – T borrowed from B1 and granted it a charge which was registered on 21 April.

21 April 1997 – T borrowed from B2 and granted it a charge which was registered on 23 May. The loan advanced by B2 was used to pay off the loan from Bank X which was discharged.

It was held that B2 was entitled in equity to stand in the shoes of X Bank since its funds had been used to repay the loan from X Bank. This unwritten equitable interest had priority over B1’s charge. Since it was not registrable, its priority was not affected by the Land Registration Ordinance.

The case illustrates the fact that the Land Registration Ordinance is not a self-contained system. One has to look at the interests involved and their relative priorities under an unregistered system before considering how that situation is affected by the Land Registration Ordinance.

The court also approved an alternative unjust enrichment analysis. B1 had bought a second charge. If it were to be given priority over Bank X (and B2) it would be unjustly enriched since it would have a first charge.

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