May 2019

Gain Hero Finance Limited v Winland Finance Limited [2019] HKCFI 771 is a case arising out of an intended sale of a property, in which an important question about the nature of a charging order was discussed.

Back in 2014, the owner of the property deposited its title deeds with Winland Finance Limited and entered into a loan agreement with Winland. The loan agreement, registered with the Land Registry, purportedly conferred the proceeds of sale of the property to Winland. In 2015, another creditor known as Gain Hero Finance Limited obtained a judgment against the owner. It then obtained a charging order absolute against the property in 2015, and an order for sale of the property in 2017. Pursuant to the order for sale, Gain Hero entered into an agreement for sale of the property.

Gain Hero’s interest in the property originates from the charging order absolute, but there is no consensus about the nature of Winland’s interest.

Gain Hero’s stance is that the loan agreement only effects a personal loan and is not registrable under the Land Registration Ordinance (Cap 128). Therefore, the registration of the loan agreement shall be vacated. On the other hand, Winland’s primary argument is that a charge over the property was created under the loan agreement, which is therefore registrable. Winland also advanced two alternative arguments, namely—

(1) the deposit of title deeds created an equitable mortgage; and

(2) the loan agreement is a valid assignment of proceeds of sale of the property which enjoys priority over the charging order absolute.

The court held that the owner and Winland could not have intended to create any interest in the property in the loan agreement. Despite the deposit of title deeds of the property, the court, having taken into account the nature of the intended security and the terms of the loan agreement, rejected the existence of any equitable charge over the property created by, but inconsistent with, the loan agreement.

The court did not rule out Winland’s second alternative argument (that the loan agreement constituted an equitable assignment of future sale proceeds). In this regard, Winland argued that Gain Hero’s interest under the charging order absolute only took effect in the same manner as an equitable charge in accordance with Section 20B(3) of the High court Ordinance (Cap 4) and did not create any ownership or proprietary interest in the property. Therefore, Winland’s interest should rank higher than Gain Hero’s both in terms of nature and time.

The court considered Sections 20A and 20B of the High court Ordinance and ruled that the charging order absolute is a charge on the beneficial interest in the property held by the owner. It is not an equitable charge nor a charge over future proceeds of sale. Accordingly, Gain Hero’s interest under the charging order absolute takes priority over Winland’s unregistrable interest in any future sale proceeds of the property under the loan agreement.

The court held that neither an equitable mortgage on the property nor a charge affecting land was created under the loan agreement. The loan agreement was not registrable under the Land Registration Ordinance. Its registration at the Land Registry was vacated accordingly.

This case clarifies the legal nature of loan agreements that purport to create registrable interests affecting real properties, a means often used by money lenders in recent years.