Archive for the ‘Charging orders’ Category

The priority of unwritten equitable interests

April 4, 2017

In Si Tou Choi Kam v Wealth Credit Ltd ([2017] 1 HKLRD 1074) A and B acquired property as legal joint tenants. B’s creditor, C, obtained and registered charging orders over the property. C then applied for an order for sale of the property. A obtained a declaration that A was sole beneficial owner of the property (having supplied the entire purchase price) and registered it at the Land Registry.

The priority of unwritten equitable interests is governed by the doctrine of notice. The charging order is to be treated as if it were an equitable charge. Priority is governed by the first in time rule. A’s interest, having arisen at the time of acquisition, has priority under this rule.

There is no authority for the proposition that A is under a duty to obtain a declaration and register it in order to preserve this priority. It was surprising, therefore, that the court held that A’s priority was governed by the date of registration of the declaration.

Michael Lower



Does a charging order sever a joint tenancy?

February 4, 2015

In Ho Hai Kwan v Chan Hon Kuen ([2015] HKEC 132, CFI) the question was whether there had been an equitable severance of a joint tenancy by virtue of a charging order in respect of the property against one of the co-owners. Was it an act operating on the joint tenant’s share? There were obiter dicta in previous Court of Appeal decisions (Malahon Credit Co Ltd v Siu Chun Wah Alice and Fortis Bank v Yu Kam Hoi Herman) to suggest that this was the case. In this case, it was successfully argued that a charging order did not have this effect. The argument was that a charging order (enforceable in the same way as an equitable charge by virtue of section 20B(3) of the High Court Ordinance) does not confer any title on the person who obtained it but merely creates an encumbrance ([19]). Thus, a charging order had no effect on the four unities of the joint tenancy and was insufficiently final and irrevocable; there was no alienation ([20] – [31]). The charging order did not sever the joint tenancy ([58]).

Michael Lower

Part performance: contract unregistered and in breach of New Grant

May 6, 2013

In Silver Hope Ltd v Chan Kwai Wah Alice ([2013] 1 HKLRD 823, CFI) W had entered into a contract to purchase the property in 1996. The contract amounted to a breach of the New Grant covenants concerning the property. W paid the entire purchase price and entered into possession. The contract was stamped but not registered. In 2012, P obtained a charging order in respect of the property and later an order for sale. W now sought to be joined as a defendant to the proceedings and to stay the execution of the order. To succeed, W needed to show that there was an arguable case that he had an equitable interest in the property. W was met by two arguments. First, that the contract was unlawful and so void (because it was formed in breach of covenant). Second, that the charging order (which had been duly registered) had priority over the unregistered contract.

W succeeded in being joined as a party. He was not relying on the contract but on the equity that arouse out of his having paid the entire purchase price and gone into possession (presumably this is on the basis of the doctrine of part performance). Hence, it could be argued that W would not need to plead the unlawful contract (see Tinsley v Milligan).

As for registration, after Financial and Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd, it is clear that the court can look at the substance of the competing interests (and then consider the impact of registration or a failure to register). This could be seen as a contest between two equitable interests (Hong Kong Civil Procedure 2012 50/9A/17). Thus, it is arguable that W’s equitable interest has priority over the charging order notwithstanding the failure to register it.

Charging order made after debtor had assigned the property to another

November 1, 2012

In Ng Kam Ha v Vincent Sina Traders (HK) Ltd [1987] HKLR 1193, HC):

C assigned a flat to N on 10 December 1985 and this was registered on 7th February 1986,

V obtained a charging order nisi over the flat in respect of a debt owed to it by C on 3rd February 1986 and this was registered on 6th February 1986.

It was held that the charging order did not affect N’s interest in the flat. C had assigned the flat, and so had no interest in it, by the time of the charging order. There was nothing for the charging order to attach to.

V could not invoke section 3(2) of the Land Registration Ordinance since it was not a purchaser or mortgagee.

Charging order subject to prior unwritten equitable interest?

October 30, 2012

In Wa Lee Finance Co Ltd v Yau Tak Wah ([2002] HKEC 1102, CFI) W had charging orders over Y’s property and had registered them at the Land Registry. The applicants sought to be joined as defendants and to set aside the charging orders. They claimed that they had made substantial contributions to the cost of building the house on Y’s land. They had done so, they alleged, pursuant to a joint development agreement with Y under which they were to be assigned the ground and first floors of the house. The agreement had not been registered but they claimed to have the benefit of an unwritten equitable interest (by virtue of their financial contributions) independently of their rights under the unregistered agreement. The CFI decided that their claim was arguable. They were added as parties to the proceedings but the charging orders were not overturned. This question would have to await the trial of the action proper.

Principles to be applied when making a charging order absolute

August 14, 2012

In Chan Miu Cheung v Prague Enterprises Ltd ([2012] 3 HKLRD 414) the plaintiff had obtained charging orders nisi against properties owned by D1 and D2. Yuen J as she then was (the hearing took place in 1999) explained the principles to be applied when determining whether or not to make charging orders absolute. The court ‘has both the right and the duty to take into account all the circumstances of a particular case (whether they arose before or after the making of the order nisi) and it should exercise its discretion so as to do equity, so far as possible, to all the parties involved, ie the judgment creditor, the judgment debtor and / or other unsecured creditors.’ (para. 19)

The defendant has the burden of showing why orders nisi should not be made absolute (para. 27). The defendants had not discharged this burden. It was, in principle, inequitable for the plaintiff to have kept a prior charging order nisi extant until the application to make the current order absolute had been launched. Yet the defendants’ own ten month delay in fixing a date for the hearing of their own application to discharge the prior order nisi meant that it was difficult to show that the plaintiff’s action in this regard had caused them any prejudice (para. 22). The plaintiff had an interest in the charging order even though most of the sum due to the plaintiffs represented costs and was subject to a charge in favour of the Legal Aid Department (para. 24). The defendants claimed that they had a right to set-off their claims against the plaintiff; this failed since the defendants had not produced enough material to show that an inquiry into this matter would be worthwhile. Nor was there any real explanation as to why the defendants had delayed for a long time in taking any further action in respect of their claims (paras. 30 – 32).

Late re-registration of charging orders does not affect priority vis-a-vis charging orders antecedent to the re-registration

July 22, 2011

The Land Registration Ordinance requires charging orders to be registered. Section 17 of the same ordinance requires them to be re-registered every 5 years. Where there are two charging orders, A and B, with A initially having priority over B, the later re-registration (or failure to re-register within the stated time period) does not give B priority over A (even during the period before B needs to re-register). Failure to re-register only affects A’s priority vis-a-vis interests that arise after A’s failure to re-register on time.

In Incorporated Owners of Century Centre v Bank of China (Hong Kong) Ltd ([2011] HKEC 864) Bank of China obtained and registered charging orders nisi and absolute in respect of certain property in 2001. HSBC obtained and registered  charging orders nisi and absolute in respect of the same property in 2002. Section 17 of the same ordinance requires them to be re-registered every 5 years. Each bank made its first re-registration within 5 years and Bank of China made its second re-registration in 2010 (a few weeks late). HSBC argued that it had priority (even if re-registration occurred within time) because the effect of re-registration was that the re-registered charging order was postponed to any existing registered charging orders. This argument failed. The re-registered charging order retained whatever priority it had previously enjoyed as against interests (including other charging orders). Were it not so, the priority of one interest over another would vary depending upon when the question of priority had to be addressed. Thus, on HSBC’s argument, it would enjoy priority from 2010 (the date of Bank of China’s registration) until the time came for it to re-register (when Bank of China would resume priority). Authority and principle were against HSBC’s submission. Bank of China had priority.