Archive for the ‘Priorities’ Category

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.

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

October 31, 2012

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


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.

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.

Common law estoppel: mortgagee not revealing his interest in the property

July 5, 2012

In Pickard v Sears (112 E.R. 179) P was the the mortgagee of property which the remained in the actual possession of M (the mortgagor). A writ of fieri facias was executed and the sheriff took the property mortgaged to P. P spoke to the sheriff about the sale of the property but never mentioned his own mortgage. The property was sold to S. P then claimed the property or payment of his debt from S. S refused. It was held that P was estopped from pleading his own mortgage having failed to mention it to the sheriff before the sale:

‘But the rule of law is clear, that where one by his words or conduct wilfully causes another to believe the existence of a certain state of things, and induces him to act on that belief, so as to alter his own previous position, the former is concluded from averring against the latter a different state of things as existing at the time.’ (Lord Denman CJ).

Proprietary estoppel: equity potentially binding on third parties

June 29, 2012

In Chin Lan Hong v Cheung Poh Choo ([2004] HKEC 64) a daughter lived in a room in the house that had been the family home. She occupied the room as her father’s licensee. The father had transferred title to the home to his concubine and some of her children to put it beyond the reach of creditors. The court found that the father’s intention when transferring the title to his children was to retain the beneficial ownership during his lifetime. The children sought to recover possession from the daughter.

The daughter claimed that her father had represented to her that she would always be entitled to a room in the house that had been the family home. This was an assurance said to have been given both expressly and through an alleged family tradition that unmarried daughters would be housed by the father. She claimed to have relied on this assurance to her detriment. As a result she claimed to be entitled to rely on proprietary estoppel to resist the eviction.  The judge found that there had been no detrimental reliance even if there had been an assurance. It is interesting to note that as the children were volunteers, the judge was of the view that their legal title would have been subject to the daughter’s prior equitable interest had the proprietary estoppel claim succeeded.

Competing equitable interests and the Land Registration Act 2002

May 7, 2012

In Halifax plc v Curry Popeck ([2008] EWHC 1692 (Ch)) T and J were fraudsters. They were the registered owners of a bungalow (‘the Property’). They entered into a complex chain of transactions designed to defraud lenders with the help of an allegedly incompetent or dishonest conveyancing clerk. T borrowed money from Halifax who thought they were getting a charge in return but no charge over the Property was executed. The Property was later transferred by T and J to T. T later borrowed money from Bank of Scotland who, again, thought they would have a charge over the Property but again no charge over the whole of the Property in their favour was executed. It was accepted that Halifax had an interest based on proprietary estoppel (they thought they were getting a charge and provided a loan in reliance on this). Bank of Scotland obtained a charging order over the Property and this took effect as an equitable charge. The question was whether the proprietary estoppel had priority over the charging order or vice versa.

It was held that the proprietary estoppel claim had priority. Section 28 of the English Land Registration Act 2002 confirms the rule that competing equitable interests rank in order of date of creation. The exception in section 29 that wipes the slate clean of most equitable interests when there has been a ‘registrable disposition’ for ‘valuable consideration’ did not apply. The transfer to T was not for valuable consideration since it was part of a fraudulent enterprise and there had been no true transaction at all ([43] and [46]).

The judge said that if he were wrong in this then the priorities would be reversed. The fact that T (subject to the proprietary estoppel) was also the disponee under the transfer did not stop section 29 from taking effect. This would not deprive Halifax  of any claim to a personal remedy as against T.

Lyus an exceptional case

November 25, 2011

In Chaudhay v Yavuz ([2011] EWCA Civ 1314, CA (Eng)) V and C were neighbours. An alley divided their properties. V granted an informal easement to C that was binding on the basis of proprietary estoppel. The agreement allowed C to construct a metal staircase on V’s alley leading to doors at the first floor level of C’s property. The arrangement was not recorded in any deed. It could have been protected under England’s Land Registration Act 2002 by registration of a notice. It was not. V sold the property to Y. Neither the contract nor the transfer referred expressly to the agreement. Nor was it disclosed in pre-contract enquiries. The existence of the staircase was, however, obvious and easily apparent on inspection of the property. One question was whether the easement was binding on Y on the basis of a constructive trust. C invoked Lyus v Prowsa.  The standard form of contract used in the contract of sale to Y stated that the property was sold subject to incumbrances ‘discoverable by inspection of the property before the contract.’ C argued that this brought the case within the same category as Lyus v Prowsa and that Y’s conscience was affected so that he took subject to the easement.

The argument failed. Lyus was an exceptional case. It relied on the buyer to agree to be subject to the earlier obligation. The facts relied on here (the standard condition referring to encumbrances in general terms and the ease of discovery) were nowhere near enough to bring the case within Lyus. It would be very difficult to rely on Lyus in the absence of a specific term in the contract and where the encumbrance (the easement) could have been registered and has not been (paras. 61 – 62 and 68).

E.R. Ives Investment Ltd v High

October 21, 2011

In E.R. Ives Investment Ltd v High ([1967] 2 QB 379, CA (Eng)) D built a house. W built a block of flats on neighbouring land. D noticed that the foundations of the flats encroached onto his land. D and W agreed orally that D could have a right of way over W’s land between D’s land and a road. In return, W could keep the foundations on D’s land. They exchanged letters confirming this agreement. No deed was ever prepared (though the idea of a deed was mentioned in discussions) and D did not register the right of way under the relevant English registration (which provided that unregistered but registrable rights would be void as against later purchasers in good faith). W sold the flats to T. D built a garage on his land that could only be used if the land was approached via the right of way that had been agreed. T approved of the building of the garage. D contributed to the cost of resurfacing the yard over which he had a right of way. T sold the flats to P. The sales particulars and the conveyance to P each made it clear that the conveyance to P was subject to the right of way. P claimed that the right of way was void as against him as it had not been registered. The English Court of Appeal found against P: the right of way was binding on it. It was estopped from denying that it was subject to the right of way,

Common to all of the judgments in the English Court of Appeal is the idea that D enjoyed an equity which bound P. Lord Denning MR thought that there were two alternative bases for this equity. First, the idea of mutual benefit and burden (the owners of the flats could not enjoy the benefit of having their foundations on D’s land and deny that they were subject to the burden of the right of way. Alternatively, W and T (by virtue of their conduct described above) were estopped from denying that they were bound by D’s equity. P took with notice of the equity and so was bound by it. Danckwerts LJ pursued a much more straightforward proprietary estoppel analysis.

The lack of registration was not a problem since the general view of the Court of Appeal seems to have been that this equity was not something that could be registered anyway. It was not a case of a contractual agreement to grant the easement; rather it was a free-standing equity that did not fall into a registrable category and possibly could not be registered at all.

Winn LJ made an interesting suggestion as to how third parties would be bound (his counter-suggestion to Lord Denning’s mutual benefit and burden?):

‘Estoppels arising from representations made by owners of land that rights exist affecting the land will, unless in form they are limited to the duration of the interest of the representor, bind successors to his title.’ (at 405).

It would obviously be unsatisfactory to leave this situation open to the possibility of a later flat owner coming along with no notice of the equity and taking free of it. There was a need for some self-perpetuating solution that would survive changes of ownership.

Weekly review: 18 – 23 July

July 23, 2011

From now on, Saturday’s posting will not be a new case but a round-up of the new postings from the previous week. The round-up will give a summary of the blog posts and sometimes some of the context relating to them.

Easements of necessity are based on intention

When A transfers part of his land to B, an easement of necessity might be implied into the transfer where otherwise the land could not be put to any use without the claimed easement. The easement is implied because the court decides that the parties must have intended that the land could be put to some use. Where the transfer makes it clear that no grant of an easement is intended there can be no easement of necessity Nickerson v Barraclough.

Dealings with property acquired under Hong Kong’s Home Ownership Scheme

Hong Kong’s Home Ownership Scheme aims to help people get onto the housing ladder. Property held under the scheme can be co-owned and can be sold but there are conditions and procedures to be observed. As Cheung Shu Yin v Yip So Wan illustrates, failure to observe the relevant procedure results in the alienation (here the creation of an interest under a resulting trust) being void.

Licensee may be estopped from denying licensor’s title

A licensee who knew the nature of the title claimed by the landlord when accepting a license is estopped from denying that title (Terunnanse v Terunnanse). So if the licensee has any doubts and may wish to raise them he should do so sooner rather than later.

Priority of charging orders

Charging orders have to be re-registered every five years and then take effect for a further five years from the date of re-registration. They retain priority as from the date of registration and not the subsequent re-registration (Incorporated Owners of Century Centre v Bank of China (Hong Kong))

The right of support and protection from the weather

Terraced or semi-detached properties may be so designed that they rely on each other for structural support. If this situation persists for long enough, an easement of support can be claimed based on prescription. This right of support includes a right to protection from structural damage caused by the impact of the weather on the support enjoyed by the remaining property (Rees v Skerrett) even though there is no general right to protection from the weather (Phipps v Pears).

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.