NETWELL PROPERTIES LTD. v. JCG FINANCE CO. LTD.

HCA1330/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1330 OF 1999

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J U D G M E N T

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INTRODUCTION

1. A's property was mortgaged to B. C borrowed money from D. The loan was to be secured by a mortgage over A's property in favour of D. B's mortgage was then discharged by the money advanced under the loan to C whereupon D's mortgage was created. When C subsequently defaulted, A alleged that D's mortgage was void and of no effect because of misrepresentation. Assuming but without deciding that A's allegation is true and D's mortgage is hence ineffective, is D nevertheless entitled to be subrogated to the rights of B under B's mortgage according to the principle of unjust enrichment? This is, in gist, the question arises in the present application for summary judgment brought by the defendant on its counterclaim under Order 14A, Rules of the High Court.

DISPUTE

2. The circumstances leading to the dispute between the parties, insofar as they are relevant to the present application, may be summarised as follows.

(1) Acquiring the Property

3. In April 1996, the plaintiff acquired a property known as Duplex Flat B on Ground Floor and First Floor including a Garden and Car Parking Space Nos. 5 & 6 on Ground Floor, Silver Crest, No. 75 Nga Tsin Wai Road, Kowloon ("the Property"). The finance was provided by Asia Commercial Bank Limited ("ACBL"), secured by a first legal charge over the Property dated 29 April 1996. The Property has since been used as the residence of the plaintiff's officers, who are the family members of one of its directors, Ms Tse Sau Fan ("Ms Tse"). The Property was further mortgaged as a second legal charge to Silver Bound Capital Limited for a further loan on 1 July 1996. For present purposes, this second mortgage is immaterial.

(2) The Jinlong joint venture

4. Ms Tse is married to Mr Steve Yu Siu Lung ("Mr Yu"). He was a director of Kwan Lee Construction Company Limited ("Kwan Lee"). Kwan Lee is a construction company owned by the family members of Mr Yu. In July 1993, a subsidiary of Kwan Lee, Kwan Lee (China) Construction Company Limited, and Beijing Wireless Electronic Components No. 6 Factory ("Beijing Wireless") entered into a joint venture for the purposes of reconstructing, refurbishing and redeveloping a property in China known as Jinlong Building, situated at the junction of Jionguowen South Avenue and Beijingzhon East Street, Doncheng District, Beijing. The joint venture vehicle is Jinlong Building Company Limited ("Jinlong"). The subsidiary owned 49% interest in Jinlong. Beijing Wireless owned the remaining 51%. In 1994, Kwan Lee took over the entire interest of its subsidiary in Jinlong and became the Hong Kong partner of the joint venture. Under the joint venture agreement, Beijing was only responsible for supplying the land and the existing building for the development. The capital for financing the joint venture was to be provided by Kwan Lee alone. Kwan Lee invested a sum of US$3.53 million as capital contribution to Jinlong for the purpose of financing the joint venture.

5. In 1996, the Jinlong Building was not completed yet. Kwan Lee needed funds to refurnish, decorate and refurbish it. But it was unable to come up with further money because of financial difficulty. It therefore looked to other investors to finance the project.

(3) Participation by Tung Kee and Unity Win

6. Mr Yung Man Tung was a director of Tung Kee Investment Limited ("Mr Yung" and "Tung Kee" respectively). According to the plaintiff, Mr Yung used to be a specialist sub-contractor of Kwan Lee in early 1980. He posed himself as a wealthy businessman and a person with wide contacts with financial institutions. He showed an immense interest in acquiring Kwan Lee's interest in the joint venture. Ms Tse was also interested. Mr Yung told Ms Tse that he knew Mr Tan Yoke Kong, the general manager of the defendant, very well. He would be able to successfully procure through Mr Tan loan facilities from the defendant to finance the joint venture. A HK$100 million loan facility was required for the purpose of this exercise. Ms Tse then authorised him to negotiate with Mr Tan in this regard.

7. It is Ms Tse's evidence that Mr Yung and Ms Tse would take over Kwan Lee's interest in the joint venture of the development of the China Property by investing in equity 75% and 25% of the loan to be obtained from the defendant respectively. Various agreements were then entered into by the parties. In essence, the arrangement is thus. A company called Unity Win Investments Limited ("Unity Win") would acquire Kwan Lee's interest in the joint venture. Tung Kee and Unity Win would apply for HK$100 million loan facilities from the defendant. The facilities were to be secured by properties arranged by Ms Tse and Mr Yung. Ms Tse should provide a Hong Kong property of value equal to 25% of the total loan, i.e., HK$25 million. (It later turned out to be the Property.) Mr Yung would have to arrange properties equivalent to 75% of the loan, i.e., HK$75 million for mortgage. It is the plaintiff's case that these agreements were made with the knowledge, consent and approval of Mr Tan. It is Ms Tse's case that her financial exposure under the arrangement would be limited to HK$25 million.

(4) The loan facility by the defendant and the Mortgage

8. On 28 October 1996, the defendant issued a facility letter to Tung Kee and an unnamed borrower. Drawdown of the loan was to be made in three tranches. The amount of the 1st drawdown was HK$46 million, HK$25 million of which was to be applied to redeem the Property and a property situated at Robinson Road Property, which was arranged by Mr Yung for mortgage. One of the conditions of the 1st drawdown was that the Property and the Robinson Road Property would then be mortgaged to the defendant. The 2nd drawdown was in the sum of HK$24 million. The 3rd drawdown was in the sum of HK$30 million. One of the conditions for the 3rd drawdown was that a third property was to be mortgaged to the defendant.

9. On 31 October 1996, Tung Kee, Unity Win and the defendant entered into the ensuing loan facility agreement ("the Loan Agreement"), incorporating the terms of the facility letter. Further, it was provided in the Loan Agreement that the third property to be offered by Tung Kee and Unity Win should be at a value not less than HK$30 million.

10. On or about 31 October 1996, the 1st drawdown of HK$46 million was made and a total sum of HK$14,077,256.59 was applied to discharge the ACBL Mortgage. On 1 November 1996, the mortgage in favour of the defendant ("the Mortgage") was created. It was a tripartite mortgage with the plaintiff as the mortgagor, Tung Kee and Unity Win as borrowers and the defendant as the mortgagee. Under clause 2.01 of the Mortgage, the plaintiff and the borrowers jointly and severally covenanted with the defendant that they would on demand repay all outstanding sums payable by the borrowers to the defendant. Pursuant to the Loan Agreement, the entire sum of HK$100 million was all drawn down eventually.

11. It is the defendant's case that by a deed of assumption and restructuring dated 11 July 1997, the plaintiff in consideration of the defendant agreeing, inter alia, to restructure the indebtedness of Tung Kee and Unity Win, expressly acknowledged and confirmed that the Mortgage as at the time of the deed secured the said indebtedness. By a supplemental loan agreement dated 19 December 1997, the defendant advance a further sum of HK$22 million to Tung Kee and Unity Win. By a debt restructuring deed dated 13 August 1999, the indebtedness of the Tung Kee and Unity Win to the defendant was restructured. This deed provided that they remained liable for and covenanted to repay to the defendant the sum of HK$66,442,046.92 with interest from 1 August 1999.

(5) Mr Yu's further evidence

12. Mr Yu in his second affirmation filed on 24 December 2001 gave further details on the acquisition of Kwan Lee's interest and the circumstances leading to the discharge of the ACBL Mortgage. It may be summarised as follows.

13. Unity Win's shareholding was spilt between Pearl Fame Investment Limited ("Pearl Fame") and Tung Kee in the ratio of 4 to 6. Pearl Fame held all its shares on trust for Jafee Holding Inc. ("Jafee"), a Liberian company of Mr Yu and his family. 25% of Tung Kee's interest was beneficially owned by Jubilation Investment Inc. ("Jubilation"), another Liberian company of Ms Tse and her family. Thus the actual distribution of beneficial interest in Unity Win was 45% to Tung Kee (being 75% of its 60% shareholding), 15% to Jubilation (being 25% of the 60% shareholding held in the name of Tung Kee), and 40% to Jafee. In short, Mr Yung and his camp owned 45% whereas Mr Yu, Ms Tse and their camp owned 55%. Mr Chan, counsel for the plaintiff, explained that when Ms Tse said in her affirmation that the ratio of equity agreed between herself and Mr Tung was 25% and 75%, she was actually referring to the proportion of their respective interest in the beneficial ownership of Unity Win's shareholding held in the name of Tung Kee.

14. By an agreement dated 29 October 1996 ("the October agreement") supplemented by another agreement dated 10 March 1997, Kwan Lee sold all its 49% interest in Jinlong to Unity Win. Under clause 4(a) of the October agreement, Unity Win was to pay a sum of US$3.53 million, representing the capital previously injected by Kwan Lee into Jinlong (see paragraph 4 above), to Kwan Lee upon completion and approval of a Chinese transfer agreement by the Chinese government, to be executed within three days of the date thereof. Unity Win was therefore urgently in need of the money, which was to be contributed by Tung Kee (representing Mr Yung and his camp) on the one hand and the Yus and their camp on the other in accordance with their respective shareholding in Unity Win (45% to 55%). Tung Kee therefore had to come up with US$1.5885 million (US$3.53 million x 45%) but it was unable to do so at the time. Mr Yung and the Yus therefore orally agreed that if the full sum of US$3.53 million could be arranged by the Yus' camp, Mr Yung would in return ensure that Tung Kee would repay the sum of US$1.5885 million, using part of the monies advanced under the last drawdown pursuant to the Loan Agreement. It is Mr Yu's evidence that for some reason which I do not propose to go into, Kwan Lee had agreed that his family was entitled to the sum of US$3.53 million payable by Unity Win under the October agreement.

15. Pursuant to the above oral agreement, Mr Yung procured Tung Kee to arrange for the outstanding balance on the ACBL Mortgage, namely, HK$14,077,256.59, to be discharged by the monies advanced under the 1st drawdown pursuant to the Loan Agreement. It was regarded by the Yus' camp that Tung Kee had thereby discharged its duty to pay the sum of US$1.5885 million to Kwan Kee under the October agreement. He explained that the Property was owned by the plaintiff. Tung Kee and Pearl Fame held their shares in the plaintiff on trust for Jubilation. Under the agreement between Kwan Lee and Mr Yu's family, the plaintiff, representing the interest of Jubilation, which was one of the nominee of the Yus' camp in the joint venture, was entitled to receive the payment of HK$14,077,256.59 for the purpose of discharging the ACBL Mortgage.

16. Further, by an agreement dated 18 January 1997 between Unity Win and Beijing Wireless, Unity Win agreed to increase its paid up capital in Jinlong from US$3.53 million to US$3.82 million. Unity Win therefore had to inject a further sum of US$0.29 million. Tung Kee, in accordance with its beneficial ownership, ought to contribute 45%, that is, US$0.1305 million. Tung Kee had discharged the ACBL mortgage for HK$14,077,256.59. The equivalent in US currency is about US$1.81 million, assuming an exchange rate of 1 to 7.74. Thus after the discharge, Tung Kee was owed the balance of about HK$1.7 million. Accordingly, it was agreed between Mr Yung's camp and the Yus' camp that the additional capital of US$0.29 million was to be paid by the Yus' camp by mutual set off of a debt due to Kwan Lee from Jinlong. After the set off, the balance owed to Tung Kee was HK$772,196.59. On 2 January 1997, Ms Tse caused a company controlled by her and her family to pay HK$774,130 to Pearl Fame to discharge the outstanding balance.

17. In the circumstances, Mr Yu contended that good and valid consideration had been provided for the discharge of the ACBL Mortgage without any unjust enrichment on any party at all.

PROCEEDINGS

18. On 29 January 1999, the plaintiff commenced the present proceedings to set aside the Mortgage on misrepresentation and to claim for damages. In brief, it is the plaintiff's case that the defendant had through Mr Tan represented, inter alia, that Mr Yung would procure Tung Kee to provide a security in favour of the defendant in respect of a third property up to a net value of HK$30 million. But the plaintiff subsequently discovered that Tung Kee failed to provide a third property for mortgage but the defendant nevertheless granted to loan up to and exceeding HK$100 million to Tung Kee and Unity Win.

19. In its counterclaim, the defendant first claims that because of the default on the part of Tung Kee and Unity Win, the plaintiff was liable under the Mortgage to repay the said sum of HK$66,442,046.92 with interest : see paragraph 11 above. Alternatively, it claims that it is entitled to be subrogated to the rights of ACBL under the ACBL Mortgage. It now seeks summary judgment under Order 14A, Rules of the High Court for summary judgment on the subrogation claim.

20. For the obvious reason that Order 14A procedure is only appropriate where there is no relevant dispute of facts and the case may be disposed of on points of law alone, Mr Mok, counsel for the defendant, does not seek to dispute the plaintiff's case as summarised above for present purposes. In other words, the evidence adduced by the plaintiff is to be accepted at their face value.

QUESTIONS OF LAW

21. The two questions of law that required my determination, the parties agree, are :

(1) Is the defendant entitled to be subrogated to the rights of ACBL under the ACBL Mortgage over the Property in the circumstances of the present case ("the Liability Question")?

(2) If the defendant is so entitled, what is the loan amount (including principal and interest) which is enforceable by the defendant under such subrogated rights ("the Quantum Question")?

22. Before addressing these questions, it is convenient to first set out the law on the subject of subrogation.

THE LAW

23. The origins of subrogation are obscure : see Goff & Jones, The Law of Restitution, (5th edn), at p.121. And, as observed by Lord Hoffmann in Banque Financiere de la Cite v. Parc (Battersea) Ltd [1999] 1 AC 221 at p.231D-E, it is bedevilled by problems of terminology and classification which are calculated to cause confusion. But it would appear from the authorities that after considerable development, subrogation is now a recognized from of remedy available in a wide variety of different situations in which it is required in order to reverse the defendant's unjust enrichment : Boscawen v. Bajwa [1996] 4 All ER 769, per Millet LJ (as he then was) at p.777.

24. Traditionally, subrogation is available in cases where there is a contractual arrangement founded on common intention of the parties, either express or implied, for the transfer of rights against third parties : see e.g., Hobbs v. Marlowe [1978] AC 16, per Lord Diplock at p.39. But the exclusivity of this claim for the common law was firmly rejected by the House of Lords in Lord Napier and Ettrick v. Hunter [1993] AC 713. For the authorities clearly demonstrate that the remedy is also available in equity as part of the law of restitution, which does not depend on any agreement or common intention of the party enriched and the party deprived : Banque Financiere de la Cite v. Parc (Battersea) Ltd, per Lord Hoffmann at pp.231D-234C. The basis upon which the court acts in equity is explained by Millet LJ in Boscawen v. Bajwa, above :

"Equity lawyers speak of a right of subrogation, or an equity of subrogation, but this merely reflects the fact that it is not a remedy which the court has a general discretion to impose whenever it thinks it just to do so. The equity arises from the conduct of the parties on well-settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff ... Once the equity is established the court satisfies it by declaring that the property in question is subject to a charge by way of subrogation ..."

25. When the court is concerned with subrogation as a restitutionary remedy, the questions that arise for consideration are :

(1) Was the recipient of the benefit enriched at the claimant's expense?

(2) Was such enrichment unjust in the circumstances?

(3) Whether there is any defence to the claim, including any policy reason for denying a remedy?

See Banque Financiere de la Cite v. Parc (Battersea) Ltd, per Lord Steyn at p.227A-B and Lord Hoffmann at p.234C-D.

26. With the above principles in mind, I now turn to the Liability Question.

THE LIABILITY QUESTION

(1) Is the plaintiff enriched at the expense of the defendant?

27. The first issue that I have to address here is whether the plaintiff is enriched at the expense of the defendant.

28. Mr Chan submitted that the ACBL Mortgage was discharged by the monies advanced under the 1st drawdown to Tung Kee and Unity Win pursuant to the Loan Agreement and transferred by the defendant's solicitors to ACBL by the order of Tung Kee and Unity Win. The money used to discharge the ACBL Mortgage was thus the money of Tung Kee and Unity Win. The defendant clearly regards itself as a creditor against them in respect of the loan including the money transferred to ACBL. Apart from the physical transfer of the money to ACBL under the instruction of and as agent for Tung Kee and Unity Win, the defendant cannot sensibly said to have paid off or discharged the ACBL Mortgage for the benefit of the plaintiff. Thus the enrichment to the plaintiff, if any, is not at the expense of the defendant.

29. Mr Mok argued that the primary question is whether the plaintiff was enriched as a result of the redemption of the ACBL Mortgage. He relied on the facts of Banque Financiere de la Cite v. Parc (Battersea) Ltd., above. There, BFC made an advance of DM$30 million through the interposition of H for the purpose of enabling Parc to repay part of a loan from another bank secured by a first charge over its property. H was the chief financial officer of the group to which Prac belonged. Although H was named as the borrower, he was to pass on the loan to Parc for repaying the debt. His interposition was to enable BFC to avoid certain obligations under the banking regulations in Switzerland. The transaction did not contemplate that Parc would provide any security but it was an express condition of the advance that other companies in the group to which Parc belonged would not demand repayment of their loans until BFC had been repaid. One such company was OOL which was owed ￡26.25 million. But the persons who negotiated the transaction had no authority to commit OOL to such an undertaking and it was not binding upon it. Parc became insolvent. The House of Lords held that BFC was entitled to be subrogated to the first charge to the extent that its money was used to repay the debt which it secured. Mr Mok drew an analogy from the facts above. BFC's loan was made not to Parc but to H with the intention that H would use the money to redeem Parc's property, which he did. Here, all the parties intended that part of the money advanced under the 1st drawdown to Tung Kee and Unity Win should be used (and it was in fact so used) to redeem the ACBL Mortgage.

30. Apart from Banque Financiere de la Cite v. Parc (Battersea) Ltd, there are authorities to the effect that where A's mortgage was discharged by money borrowed by B from C, C was entitled to the remedy of subrogation.

31. In Chetwynd v. Allen [1899] 1 Ch 353, Terrel had in 1891 lent Mr Chetwynd ￡2,000 secured upon mortgages over two properties: a house called Cedars, which belonged to his wife, and a riding school which was his own. Mrs Chetwynd had consented to the mortgage over her property. In 1892, Mr Chetwynd borrowed ￡1,200 from Mynors, saying that it was to pay off Terrell's mortgage on Cedars and promising him a transfer of that mortgage. He did not disclose that Cedars belonged to his wife or that Terrell's mortgage was for a larger sum and was over the riding school as well. Mr Chetwynd applied ￡1,000 for Mynor's money in part repayment to Terrell. Mrs Chetwynd, who had known nothing of the transaction with Mynors, claimed that she was entitled to Cedars with the benefit of the part repayment to Terrell but free of any claim by Mynors. Romer J held that the charge over Cedars and the riding school was, to the extent of ￡1,000 "kept alive in equity favour of Mynors."

32. In Butler v. Rice [1910] 2 Ch 277, Mrs Rice owned properties in Bristol and Cardiff which were equitably mortgaged to a bank to secure a loan of ￡450. Mr Rice asked Mr Butler to lend him ￡450 to pay off the mortgage on the Bristol property, not mentioning the Cardiff property or the fact that both belonged to his wife. Mr Butler agreed to lend on a mortgage for ￡300 over the Bristol property and a guarantee for the rest from Mr Rice's solicitor. The money was used to pay off the bank but Mrs Rice refused to execute a mortgage over the Bristol property. She had known nothing about the transaction before the bank's mortgage was paid off. Following Chetwynd v. Allen, Warrington J held that Mr Butler was entitled to the benefit of the mortgage over the Bristol property to secure the money he had advanced.

33. Apparently in both Chetwynd v. Allen and Butler v. Rice, the fact that the money used to discharge the wife's mortgage was not borrowed by her did not prevent the lender from claiming and obtaining subrogation.

34. In my view, the following propositions may be deduced from the authorities :

(1) Equity should look at the substance rather than the form of the transaction which gave rise to the claim of subrogation.

(2) The mere fact that an mortgage is discharged wholly or in part by the money borrowed by a third party and not by the mortgagor himself does not necessarily prevent the lender from claiming subrogation against the mortgagor to the extent of the money he had advanced or to the extent that his money had paid off the mortgage, as the case may be.

(3) If the loan to the third party is made for the purpose of applying the money to discharge the mortgage and the money is so applied subsequently, the mortgagor is in equity enriched at the expense of the lender, whether or not he is aware of the loan at the time.

35. On a strict analysis, Mr Chan is no doubt correct in submitting that the money advanced under the 1st drawdown became money of the Tung Kee and Unit Win and then it was used forthwith to redeem the ACBL Mortgage. But for all intents and purposes, the substance and effect of the transaction, as contemplated by all the parties concerned including the plaintiff, was that the defendant's money, through the 1st drawdown, would be used to discharge the plaintiff's indebtedness under the ACBL Mortgage. The money was in fact so used later. Following the propositions set out above, I reject Mr Chan's submission that the plaintiff was not enriched at the expense of the defendant merely because the money was advanced under the Loan Agreement.

36. Mr Chan argued that the defendant could not have it both ways : the right to subrogate cannot sit side by side with the existence of the Loan Agreement. With respect, I disagree. The fact that the defendant holds Tung Kee and Unity Win to their bargin under the Loan Agreement does not in my view debar them from claiming subrogation against the plaintiff.

37. Referring to Mr Yu's evidence in his second affirmation as summarised in paragraphs 12 to 17 above, Mr Chan submitted that the plaintiff had provided full consideration for the sums used to discharge the ACBL Mortgage. To recap, the consideration is provided thus. Mr Yung procured Tung Kee to use the money from the 1st drawdown to discharge the ACBL Mortgage. This was a set-off against (1) Tung Kee's pro rata contribution in respect of Kwan Lee's capital injection of US$3.53 million into Jinlong and (2) Tung Kee's pro rata contribution towards a subsequent increase in capital of Jinlong. The plaintiff cannot be said to have unjustly enriched, counsel contended. The arrangement is rather convoluted and the part in relation to the capital increase came into existence after the discharge of the ACBL Mortgage. Further, despite its importance, it is only revealed at a very late stage. However, given Mr Mok's concession, it has to be accepted at its face value. Be that as it may, I am of the view that it dose not assist the plaintiff. For the plaintiff's contention ignored the fact that it is never a party to the acquisition exercise of Kwan Lee's interest in the joint venture. Tung Kee was allowed to set-off its liability of capital contribution via-s-via the other joint venture partners in the Yus' camp. Any consideration for the use of the money to discharge the ACBL Mortgage did not move from the plaintiff. It came from the joint venture partners in the Yus' camp. The plaintiff may well be owned beneficially by Ms Tse and her family but that does not in my view alter the position.

38. In the circumstances, I hold that the plaintiff is enriched at the expense of the defendant to have the ACBL Mortgage discharged.

(2) Is the plaintiff's enrichment unjust?

39. The next question is whether the plaintiff's enrichment is unjust. Mr Mok submitted that it is. He argued that if subrogation were denied, the plaintiff would be entitled to have the Property free of any encumbrance. Further, counsel submitted that by allowing subrogation, the plaintiff would not take up a liability greater than it had originally intended. Ms Tse wanted to limit the financial exposure to no more than 25% of the total loan, that is, HK$25 million. Allowing subrogation to the extent of the then indebtedness under the ACBL Mortgage does not increase the intended exposure. Hence, it is not unjust to the plaintiff. I agree with Mr Mok's submission and hold that the plaintiff's enrichment is unjust. This brings me to the question whether there is any defence to deny a remedy.

(3) Any defence?

40. Mr Chan submitted that there exists a strong policy reason why a remedy should be denied. The defendant is guilty of misrepresentation which rendered the Mortgage ineffective. What the defendant is now claiming is to seek to enforce an otherwise ineffective mortgage. That is not permissible as it frustrates the policy underlying the legal rule which has invalidated the Mortgage : Goff & Jones, The Laws of Restitution (5th end) at p.153.

41. Under the Mortgage, the plaintiff is liable to repay all the indebtedness of the borrowers. The total sum counterclaimed by the defendant stands at no less than $66.4 million. What the defendant is claiming under subrogation is limited to the extent of the loan being advanced to discharge the ACBL Mortgage. It wants to stand in the shoes of ACBL under the ACBL Mortgage. Thus analysed, it is clear that the defendant is not attempting to enforce the Mortgage as such. Further, Mr Chan has not advanced any reason and I see none why the plaintiff is entitled to retain the unjust enrichment conferred by the Mortgage, which is the fruit of an ineffective transaction it seeks to set aside. The effect of allowing subrogation is to strip the plaintiff of that unjust enrichment and put it back to its exact position before the Mortgage came into existence with only one exception : ACBL Mortgage would still be effective but with the defendant being subrogated to ACBL' rights.

42. Lastly, Mr Chan submitted that the plaintiff had suffered a change of position. The defence of change of position in restitutionary claims is still developing : see Lipkin Gorman (a firm) v. Karpnale Ltd [1991] 2 AC 548, per Lord Goff at pp.579-580. Generally speaking, the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full.

43. It would appear that Mr Chan primarily relying on his submissions on the consideration point, which I have already rejected. Mr Mok further submitted that providing the Property as security had all along been intended and considered necessary for the purpose of acquiring Kwan Lee's interest in the joint venture. It was part and parcel of the arrangement and it involved no change of position affecting the plaintiff. I agree. Even if I were wrong, and there had been a change of position, it would not be inequitable in the circumstances of this case to require the plaintiff to make restitution to the extent now claimed. It does not exceed the financial exposure it had originally intended to take up.

44. In the circumstances, I am not persuaded that the plaintiff has any defence to the subrogation claim.

(4) Conclusion

45. For the above reasons, I will answer the Liability Question in the affirmative.

QUANTUM QUESTION

46. Although there is evidence before me on quantum, counsel had not made full submission in this respect. It seems to me that working out the exact amount due under the ACBL Mortgage should not be difficult. I will therefore leave the Quantum Question to the parties for the time being. If they cannot agree on the quantum, they are at liberty to apply.

OTHER MATTERS AND COSTS

47. There are some other outstanding matters, including the defendant's application to strike out. I invite the parties to consider their position on those matters in light of my ruling on the Order 14A application. I will give them general liberty to apply if necessary.

48. Finally, I hold that costs of the Order 14A application should follow events. I will therefore make an order nisi that the defendant is to have the costs of the application to be taxed if not agreed. The order nisi is to be made absolute within 14 days after handing down.

Remarks: