Registrability and priority of an assignment of the proceeds of a future sale of land

In Winland Finance Limited v Gain Hero Finance Limited ([2021] HKCA 576) the Court of Appeal looked at the registrability of a loan agreement where the borrower assigned the right to the net proceeds of any future sale of real property to the lender by way of security. It also looked at the relative priorities of such an agreement and a later charging order.

T owned a flat in Kowloon (‘the flat’). In June 2014, T entered into a loan agreement with Winland Finance Limited (‘WF’). T borrowed HK$2.1 million from WF and assigned to WF the net proceeds of any sale of the flat. T also gave WF the title deeds to the flat. WF registered the loan agreement at the Land Registry on 17 September 2014.

In November 2014, T entered into a further loan agreement with Gain Hero Finance Limited (‘GH’). In June 2015, GH obtained judgment against T for breach of the agreement. In August 2015, GH obtained a charging order absolute over the flat. In March 2017, GH obtained an order for sale of the flat. Under the terms of the order, payment would be made to GH and the surplus of the net proceeds of sale would be paid to T.

WF brought proceedings arguing that its earlier, registered loan agreement gave it priority over GH’s charging order or that the delivery of title deeds to it gave it an equitable mortgage with priority over the charging order. WF failed. Yuen JA gave the principal judgment.

First, the WF loan agreement did not relate to land and should not have been registered ([22.2]). Yuen JA expressed the hope that the Land Registry would refuse to register such agreements in the future ([23]).

Second, the WF loan agreement did not disclose any intention that the delivery of title deeds was to give rise to an equitable mortgage.

Third, while the charging order was to be treated as if it were an equitable charge over the flat (High Court Ordinance, s. 20B(3)), WF only had an equitable interest in the proceeds of any future sale. Thus, GH had priority. In fact, GH had a proprietary interest in the flat ([28.1]) and WF did not.

Fourth, it would have been prudent for the masters who dealt with GH’s charging order applications to order service direct on WF but they did not do so ([31.1]). WF, however, did not take any steps to have the order set aside. Had it done so, the court could have considered whether T was insolvent at the time of the charging orders. The court could then have considered the impact of a charging order on the fair distribution of assets.

Michael Lower

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The priority of unwritten equitable interests

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