Posts Tagged ‘priority’

Priority as between (1) the assignment of the net proceeds of any future sale of property and (2) a charging order over the property

April 28, 2022

In Winland Finance Limited v Gain Hero Finance Limited ([2022] HKCFA 3) the Court of Final Appeal had to consider the order of priority as between (1) the assignee of the net proceeds of any future sale of a flat; and (2) a creditor with a charging order over the flat.

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.

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 argued that its earlier loan agreement gave it priority over GH’s charging order. WF failed both at first instance and in the Court of Appeal.The Court of Final Appeal also found in favour of GF.

A charging order takes effect as if it were an equitable charge over the property (High Court Ordinance, s. 20B(3)). A charging order affects land and is registrable at the Land Registry ([31]).

An assignment of the future proceeds of sale of land does not give rise to a proprietary interest in the land ([27]) though a proprietary interest in the net proceeds of sale will arise immediately on sale ([24]). The Court of Appeal had already decided that this assignment was not registrable at the Land Registry.

If T were to sell the flat, the proceeds of sale would have to be applied to discharge the charging order before T would become entitled to the net proceeds of sale (Conveyancing and Property Ordinance, s. 54(1)). T could not give WF any greater interest than he was entitled to ([40]).

In a sense, there is no priority battle between GH and WF since only GH had a proprietary interest in land. On sale, WF would acquire a proprietary interest in the net proceeds of sale after GH’s order had been paid off.

In a loose sense, GH could be said to have priority over WF ([41]).

Michael Lower