KINGSWAY FINANCE LTD v. WANG QINGYI AND ANOTHER

CACV 189/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 189 OF 2013

(ON APPEAL FROM HCA 360/2012)

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REASONS FOR JUDGMENT

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Hon Cheung CJHC:

1.  At the conclusion of the hearing, we dismissed the appeal of the 2^nd defendant, Wing Wui Finance Limited, from the judgment and order of Deputy High Court Judge Saunders dated 24 July 2013 whereby the deputy judge determined, under Order 14A, three questions of priority of competing securities over some proceeds of sale, and entered judgment for the plaintiff, Kingsway Finance Limited, accordingly. We now give our reasons.

The facts

2.  The facts are not in dispute.  At all material times, both Kingsway and Wing Wui were licensed money lenders. The 1^st defendant, Wang Qingyi, was the registered owner of a property in Park Island, Ma Wan.

3.  On 19 August 2010, Wang executed the “Oi Wah mortgage”, an “all moneys” mortgage, in favour of Oi Wah Pawnshop Holding Limited in respect of a $7.62 million loan.  The Oi Wah Mortage was duly registered on 3 September 2010.

4.  On 30 May 2011, Kingsway advanced a loan of $2 million, “Kingsway’s 1^st loan”, repayable on 30 November 2011, to Wang.  The loan was secured by the “2^nd mortgage”, also an “all moneys” mortgage, in favour of Kingsway.  The 2^nd mortgage was duly registered on 15 June 2011.

5.  On 3 August 2011, Wing Wui lent $1.5 million to Wang.  It was secured by the “3^rd charge” in favour of Wing Wui.  The 3^rd charge was duly registered on 5 August 2011.

6.  On 9 August 2011, Kingsway advanced $7.62 million, “Kingsway’s 3^rd loan”, repayable on 9 November 2011, to Wang to enable her to discharge the Oi Wah mortgage.  Accordingly, the Oi Wah mortgage was discharged on 12 August 2011.

7.  On 16 November 2011, Kingsway agreed to advance a “4^th loan” of $9.62 million to Wang to enable her to repay, by way of loan restructuring, Kingsway’s 1^st and 3^rd loans on 30 November 2011, which was duly done.

8.  Thereafter, Wang failed to repay her indebtedness to Kingsway and Wing Wui respectively, resulting in judgments being entered against her in favour of the two creditors.  The Ma Wan property was sold pursuant to an order of the court, and the net proceeds of sale were paid into court, pending the adjudication of priority between Kingsway and Wing Wui to the proceeds.

The parties’ positions

9.  Wing Wui’s case may be briefly stated.  Wing Wui accepted that its 3^rd charge, being later in time, ranked lower in priority to the Oi Wah mortgage and Kingsway’s 2^nd mortgage.  However, the Oi Wah mortgage was discharged on 12 August 2011, after the 3^rd charge was entered into.  Moreover, on 30 November 2011, Wang made use of Kingsway’s 4^th loan to repay Kingsway’s 1^st loan, which was secured by the 2^nd mortgage, as well as the 3^rd loan. Although the 2^nd mortgage was an “all moneys” mortgage and therefore covered, as between Kingsway and Wang, not only the 1^st loan but also the 3^rd and 4^th loans respectively, those two subsequent loans could not be “tacked” to the 2^nd mortgage when it came to the question of priority (see below).  And the 1^st loan secured by the 2^nd mortgage had been repaid by the 4^th loan.  Wing Wui therefore argued that in those circumstances, its 3^rd charge enjoyed priority for the indebtedness it covered, and thus it was entitled to the net proceeds of sale of the property.

10.  Kingsway disagreed.  It argued that by advancing $7.62 million to Wang to enable her to discharge the Oi Wah mortgage (Kingsway’s 3^rd loan) with the express condition that the 3^rd loan would be secured by a first mortgage over the property, Kingsway was subrogated to the rights of Oi Wah under the Oi Wah mortgage, in priority over Wing Wui’s 3^rd charge, in respect of its 3^rd loan.  Kingsway’s 4^th loan was no more than a means to restructure the 1^st and 3^rd loans, which Wang had no ability to repay on their due dates.  No new loan was made. The 4^th loan was again made on the express condition that it would be secured by a first mortgage over the property.  Therefore, Kingsway contended, it was subrogated to the respective rights under the 2^nd mortgage and the Oi Wah mortgage in respect of the 4^th loan after the repayment of the 1^st and 3^rd loans.  Kingsway also ran an alternative argument based on equitable mortgage.

The decision below

11.  As mentioned, three specific questions were posed for the deputy judge’s determination.  The deputy judge decided two questions, including the third question on subrogation, in favour of Kingsway, but determined the question on equitable mortgage against Kingsway.  The decision on subrogation effectively decided the question of priority in Kingsway’s favour, and accordingly the deputy judge gave judgment for Kingsway in respect of the net sale proceeds, in priority over Wing Wui.

The only issue on appeal – subrogation

12.  At the hearing before us, it was apparent that the only real issue was the subrogation question.  In other words, whether Kingsway was subrogated to the rights of Oi Wah under the Oi Wah mortgage in respect of its 3^rd loan; and whether, as regards its 4^th loan, Kingsway was subrogated to the rights under the 2^nd mortgage following the repayment of the 1^st loan and to that under the Oi Wah mortgage after the repayment of Kingsway’s 3^rd loan.

Equitable subrogation

13.  This appeal did not involve any contractual right to subrogation, which is highly dependent on the agreement or common intention between the parties concerned.  Rather, it was concerned with the equitable remedy of subrogation, which is based on the doctrine of unjust enrichment, rather than the agreement or common intention of the party enriched and the party deprived as such.  This important distinction was explained by Lord Hoffmann in Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221, 231G/H-232A/B:

“… Subrogation in this sense is a contractual arrangement for the transfer of rights against third parties and is founded upon the common intention of the parties. But the term is also used to describe an equitable remedy to reverse or prevent unjust enrichment which is not based upon any agreement or common intention of the party enriched and the party deprived. The fact that contractual subrogation and subrogation to prevent unjust enrichment both involve transfers of rights or something resembling transfers of rights should not be allowed to obscure the fact that one is dealing with radically different institutions. One is part of the law of contract and the other part of the law of restitution. Unless this distinction is borne clearly in mind, there is a danger that the contractual requirement of mutual consent will be imported into the conditions for the grant of the restitutionary remedy or that the absence of such a requirement will be disguised by references to a presumed intention which is wholly fictitious. …”

14.  On the nature of this type of equitable subrogation, Lord Hoffmann had this to say at page 236E/F-G:

“… It is important to remember that, as Millett L.J. pointed out in Boscawen v. Bajwa [1996] 1 W.L.R. 328, 335, subrogation is not a right or a cause of action but an equitable remedy against a party who would otherwise be unjustly enriched. It is a means by which the court regulates the legal relationships between a plaintiff and a defendant or defendants in order to prevent unjust enrichment. When judges say that the charge is ‘kept alive’ for the benefit of the plaintiff, what they mean is that his legal relations with a defendant who would otherwise be unjustly enriched are regulated as if the benefit of the charge had been assigned to him. It does not by any means follow that the plaintiff must for all purposes be treated as an actual assignee of the benefit of the charge and, in particular, that he would be so treated in relation to someone who would not be unjustly enriched.”

15.  For equitable subrogation as a restitutionary remedy, the focus is on unjust enrichment.  As Lord Hoffmann elaborated at page 234B-D:

“These cases seem to me to show that it is a mistake to regard the availability of subrogation as a remedy to prevent unjust enrichment as turning entirely upon the question of intention, whether common or unilateral. Such an analysis has inevitably to be propped up by presumptions which can verge upon outright fictions, more appropriate to a less developed legal system than we now have. I would venture to suggest that the reason why intention has played so prominent a part in the earlier cases is because of the influence of cases on contractual subrogation. But I think it should be recognised that one is here concerned with a restitutionary remedy and that the appropriate questions are therefore, first, whether the defendant would be enriched at the plaintiff’s expense; secondly, whether such enrichment would be unjust; and thirdly, whether there are nevertheless reasons of policy for denying a remedy. …”

16.  Questions of intention may, nonetheless, play a role, and, depending on the facts, may even be “highly relevant” when deciding whether the enrichment has been unjust (page 234D/E).

17.  In Burston Finance Ltd v Speirway Ltd (in liquidation) [1974] 1 WLR 1648, a pre-Banque Financièrecase, Walton J said in an oft‑cited passage at 1652B-D:

“ What is the basis of the doctrine of subrogation? It is simply that, where A’s money is used to pay off the claim of B, who is a secured creditor, A is entitled to be regarded in equity as having had an assignment to him of B’s rights as a secured creditor. There are other cases of subrogation where B is not secured, but the ordinary and typical example is as I have stated. It finds one of its chief uses in the situation where one person advances money on the understanding that he is to have certain security for the money he has advanced, and, for one reason or another, he does not receive the promised security. In such a case he is nevertheless to be subrogated to the rights of any other person who at the relevant time had any security over the same property and whose debts have been discharged, in whole or in part, by the money so provided by him, but of course only to the extent to which his money has, in fact, discharged their claims.”

18.  The parties were agreed, quite correctly, that even after the authoritative analysis of the true nature of equitable subrogation (on the basis of unjust enrichment) in Banque Financière, the type of situation described by Walton J remains one of the commonest types of situations where subrogation is invoked as an equitable remedy on the ground of unjust enrichment.

19.  Nonetheless, there has been a shift of focus under the modern approach to equitable subrogation, as Proudman J pointed out in Anfield (UK) Ltd v Bank of Scotland plc [2011] 1 All ER 708, 716:

“[32] In my judgment, whether or not I am technically bound to apply it, the analysis in Cheltenham & Gloucester case is to be preferred to that in the Burston Finance case on the basis of the approach taken in the Banque Financière de la Cité case. First, the focus has shifted from facts affecting the conscience of the mortgagor to the justice of the position as between the lender and the party enriched.  Secondly, it is clear that the availability of subrogation does not turn entirely on the existence of an unfulfilled mutual intention or agreement between the party seeking subrogation and the enriched party: see [1998] 1 All ER 737 at 741, [1999] AC 221 at 227 per Lord Steyn, [1998] 1 All ER 737 at 744-747, [1999] AC 221 at 231‑234 per Lord Hoffmann with whom Lord Griffiths and Lord Clyde agreed.  Thirdly, prominence is given to the intention of the lender.

[33] Applying these principles, the House of Lords held that the enrichment that would occur in the absence of subrogation would be unjust, because the claimant had advanced funds on the mistaken assumption that it would obtain a postponement of the borrower’s intra‑group debts. This assumption was causative of the claimant’s decision to advance money to the borrower.

[34] Thus the factor that renders the enrichment unjust is the non‑fulfilment of the lender’s expectation as to the security, forming the basis of its decision to advance funds. This is to be contrasted with the Burston Financeapproach which requires an inquiry, akin to the process of contractual construction, into the question whether the precise terms of the bargain between the lender and borrower have been fulfilled.

[35] I agree with the Judge below that in considering the question whether the lender got what it bargained for, the bargain is to be interpreted in what she called (at paras 65‑67 and 72) ‘the wider sense of “the envisaged transaction”’, analysing Lord Hoffmann’s words, ‘an essential part of the transaction under which it paid the money’ in Banque Financière de la Cité case [1998] 1 All ER 737 at 747, [1999] AC 221 at 235.

[36] The enrichment of the claimant is unjust because the bank funded the repayment of the Halifax charge on the basis that it would obtain a legal charge. Because of the failure to register under the 2002 Act it obtained only a subsequent equitable charge. It does not matter that the borrower has performed the terms of the bargain between the borrower and the lender.”

20.  In Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759 (18 June 2004), May LJ stressed the flexibility and adaptability of equitable subrogation as a remedy to produce a just result according to the facts of each case:

“62. Accordingly so far as is relevant to this appeal, the remedy of equitable subrogation is a restitutionary remedy available to reverse what would otherwise be unjust enrichment of a defendant at the expense of the claimant. The defendant is enriched if his financial position is materially improved, usually as here where the defendant is relieved of a financial burden – see Peter Birks, An Introduction to The Law of Restitution page 93. The enrichment will be at the expense of the claimant if in reality it was the claimant’s money which effected the improvement. Subject to special defences, questions of policy or exceptional circumstances affecting the balance of justice, the enrichment will be unjust if the claimant did not get the security he bargained for when he advanced the money which in reality effected the improvement, and if the defendant’s financial improvement is properly seen as a windfall. The remedy does not extend to giving the claimant more than he bargained for. The remedy is not limited to cases where either or both the claimant and defendant intended that the money advanced should be used to effect the improvement. It is sufficient that it was in fact in reality so used. The remedy is flexible and adaptable to produce a just result. Within this framework, the remedy is discretionary in the sense that at each stage it is a matter of judgment whether on the facts the necessary elements are fulfilled.”

Did Kingsway obtain what it bargained for?

21.  On the facts of present case, Kingsway argued that its 3^rd and 4^th loans were classic examples where subrogation would provide a fair answer to prevent unjust enrichment.

22.  Mr Kenneth CL Chan (Mr Fung Pak Kay with him), for Wing Wui, disagreed. First, he contended that Kingsway had got all that it bargained for in terms of security, that is, a first mortgage over the property, when making the 3^rd and 4^th loans respectively, and therefore there was no place for the operation of subrogation.

23.  For that proposition, counsel relied on Cheltenham & Gloucester Plc v Appleyard [2004] EWCA Civ 291 (15 March 2004), where the English Court of Appeal, in distilling the case law on subrogation (including Banque Financière) into no less than 13 principles, said:

“38. Seventhly, a lender cannot claim subrogation if he obtains all the security which he bargained for, as in Burston Finance (applying Capital Finance Co Limited v Stokes [1969] 1 Ch 261) or where he has specifically bargained on the basis that he would receive no security as in Paul v Speirway Limited (in liquidation) [1976] 1 WLR 220.”

24.  In Burston Finance, the plaintiffs advanced moneys to a corporate purchaser of property on an express stipulation for a first legal charge.  They got a first legal charge but failed to effect registration of the charge under section 95 of the Companies Act 1948, and it was therefore void as against the liquidator. The plaintiffs argued that this did not matter because they were subrogated to the unpaid vendor’s lien of the vendor of the property, which lien their moneys went to discharge, in respect of their loans, and the equitable lien required no registration.  The court held that the plaintiffs obtained all that they bargained for when advancing the moneys, that is, a first legal charge which, when executed after completion of the sale and purchase, replaced the lien, which was regarded as abandoned.  It was not open to the plaintiffs to revive or rely on the abandoned lien thereafter.

25.  In the present case, Mr Chan submitted that what Kingsway bargained for when advancing the 3^rd and 4^th loans respectively was a first mortgage over the property in its favour.  And Kingsway did obtain such a first mortgage following the discharge of the Oi Wah mortgage because its 2^nd mortgage automatically became the first mortgage over the property.  It was an “all moneys” mortgage and therefore was good enough to cover and secure the 3^rd loan (in addition to the 1^st loan), as between Kingsway and Wang.  The fact that in terms of priority, it was not good against Wing Wui’s 3^rd charge because the 3^rd loan could not be “tacked” to the 2^nd mortgage as the requirements in section 45 of the Conveyancing and Property Ordinance (Cap 219) for tacking were not satisfied (see below) was neither here nor there.  Kingsway obtained what it bargained for, that is, a first mortgage, and therefore there was no place to invoke subrogation.  Whether that first mortgage enjoyed priority over Wing Wui’s 3^rd charge in relation to the 3^rd loan was irrelevant.

26.  Likewise, in relation to the 4^th loan, which was advanced to repay the 1^st and 3^rd loans, what Kingsway bargained for by way of security was a first mortgage.  As Kingsway’s 2^nd mortgage had become a first mortgage over the property after the discharge of the Oi Wah mortgage, it already had what it bargained for.  The fact that because of section 45, no tacking could operate to tack the 4^th loan to the 2^nd mortgage for the purpose of priority was neither here nor there.

27.  Mr Chan also pointed out that when Wang failed to repay her indebtedness to Kingsway, all that Kingsway as a secured creditor relied on in the correspondence was the 2^nd mortgage.  This showed that whether viewed subjectively or objectively, Kingsway regarded its 2^nd mortgage as the first mortgage it bargained for (and obtained) when making the two loans.

28.  I do not accept Mr Chan’s argument.  First, the argument adopted a highly technical and unreal approach to determining Kingsway’s intention in requiring as a condition for the 3^rd and 4^th loans respectively a first mortgage over the property.  When considered in the commercial context of the present case, there can be no doubt that what Kingsway intended to obtain, and what it actually bargained for, was first priority over the property as a secured creditor, just like Oi Wah under the Oi Wah mortgage, once that mortgage was discharged by means of the 3^rd loan which Kingsway was advancing to Wang.  Whatever instrument or security document, if any, which Kingsway intended or had to execute in order to achieve that purpose was nothing more than a means to an end.  Whatever means were available or actually adopted, what mattered, commercially speaking, to Kingsway was the obtaining of first priority over the property as a secured creditor for the 3^rd loan.  And that was only natural and indeed commonsense.

29.  Burston Finance is wholly distinguishable on the facts because there the plaintiffs did get what they bargained for, namely, a legal charge. However, to make it valid as against others, it had to be registered in accordance with the Companies Act, something which was within their power to do and which they should have done.  For their own reasons, they failed to do so.  The situation is wholly distinguishable here.

30.  This also brings me to my second point in answer to Mr Chan’s argument.  As has been pointed out above, intention is only of significance, once equitable subrogation is placed firmly on the footing of unjust enrichment, in that it serves as an indicator, albeit a highly relevant one in some circumstances, of whether the enrichment (as to which there was no dispute in the present case) was unjust.  Viewed in this light, it is even easier to see why Burston Finance could not be further from the facts of the present case.  There, the plaintiffs had only themselves to blame for failing to register the otherwise wholly valid and effective legal charge that they bargained for and successfully obtained.  There was nothing unjust about their losing priority to the liquidator by reason of their own failure to register the charge.  Here, even assuming that all that Kingsway bargained for was its 2^nd mortgage becoming the first mortgage after the discharge of the Oi Wah mortgage (because it mistakenly thought that the 2^nd mortgage could also cover the 3^rd loan for the purposes of priority), the ultimate question still remains: whether it was unjust for Wing Wui’s 3^rd charge to have priority over Kingsway’s 3^rd loan which was used to discharge the Oi Wah mortgage, which had priority over the 3^rd charge? In this regard, Kingsway’s intention was only relevant but not decisive.

“Unjust” enrichment?

31.  This therefore brings me to another point made by Mr Chan, namely, that there was no unjust enrichment in the present case.  In relation to that, all Mr Chan could say was that Kingsway charged a higher rate of interest under the 3^rd and 4^th loans than Oi Wah under the Oi Wah mortgage.

32.  Again, I reject the argument.  First, as regards the 3^rd loan, there was simply no evidence before the court to show that Kingsway charged a higher interest rate under the 3^rd loan than that charged under the Oi Wah mortgage.  As regards the 4^th loan, the evidence clearly showed that Kingsway charged the same rate of interest under the 4^th loan as that charged under the 1^st and 3^rd loans (combined).

33.  Secondly, interest was a total red herring, because subrogation would not give Kingsway any right under the Oi Wah mortgage (or for the matter, the 2^nd mortgage) to a higher rate of interest as a secured creditor. As was explained by Neuberger  LJ (as he then was) in Cheltenham & Gloucester:

“76. Despite Walton J’s reference to two rates of interest in Burston Finance, and the strong observations of Lord Salmon in Orakpo, it is inherent in many cases of subrogation, at least of the sort described in Walton J’s classic formulation, that there will be two rates of interest, namely the contractual rate agreed by the parties, and the rate applicable to the security in relation to which subrogation is claimed. We believe that the law in this connection was accurately summarized by Evans LJ in Halifax v Muirhead at 427:

‘Clearly, the rights which are transferred … to the third party who discharges the mortgage must be those which existed immediately before the charge took place. With the extent to which they may be exercised by the third party thereafter by virtue of subrogation depends also upon the terms upon which the money, which is used to discharge the original mortgage, is advanced to the borrower by the new lender.  If he makes an unsecured loan, he cannot claim the benefit of a security which was available to the original mortgagee (Paul v Speirway …; see also Boscawen …).  Similarly, he cannot recover a greater rate of interest that he agreed to accept under the new mortgage (Chetwynd v Allen [1899] 1 Ch 353; see also Western Trust & Savings Limited v Rock (unreported, 26^th February 1993, CA) per Peter Gibson LJ at 9G.’”

34.  On the facts, it seems to me plain that absent subrogation, Wing Wui would be unjustly enriched by Kingsway’s making of its 3^rd loan to discharge the Oi Wah mortgage and its making of the 4^th loan to discharge the 1^st and 3^rd loans.

Subrogation upon subrogation

35.  Thirdly, Mr Chan argued that there can be no subrogation upon subrogation.  He had in mind Kingsway’s 4^th loan which repaid both the 1^st and 3^rd loans.  In relation to the 3^rd loan, as explained, Kingsway enjoyed subrogated rights under the Oi Wah mortgage which the 3^rd loan had discharged.  Mr Chan contended that if one were to allow that part of the 4^th loan which discharged the 3^rd loan to enjoy the benefits of the Oi Wah mortgage again by subrogation, that would be subrogation upon subrogation, something which, Mr Chan argued, is contrary to principle.

36.  I disagree.  As May LJ pointed out in Filby, the remedy of equitable subrogation is flexible and adaptable to produce a just result (para 62).  Equitable subrogation being a means employed by the court to prevent unjust enrichment, I see no reason in principle to restrict it to having only one time application.

37.  If authority is required, this can be found in Jonathan Parker LJ’s judgment (with which both Kennedy and Longmore LJJ agreed) in the English Court of Appeal case of UCB Group Ltd v Hedworth [2003] 3 FCR 739, paras 137-148.  In para 147, the learned judge said, after reviewing the authorities, that he was “unable to see any conceptual difficulty in subrogation at one remove (as it were), provided that the requirements for subrogation are otherwise met.”  The judge therefore concluded on the facts that UCB was entitled to be subrogated to the lien to which Barclays Bank in turn became entitled by way of subrogation on financing part of the purchase price of the properties in question, for otherwise it would produce a windfall benefit for Mrs Hedworth, a result that would be contrary to reason and justice (para 148).

Contrary to public policy?

38.  Finally, Mr Chan argued that there was a good policy reason against Kingsway’s entitlement to subrogation.  Essentially, counsel argued that because of section 45, Kingsway could not tack the 3^rd and 4^th loans to its 2^nd mortgage, so as to gain priority over Wing Wui’s 3^rd charge. Policy considerations would dictate that Kingsway, a mere licensed money lender, should not be allowed to bypass the statutory requirements for tacking laid down in section 45, via subrogation.

39.  Section 45 of the Conveyancing and Property Ordinance reads:

“ (1) A mortgagee under prior mortgage may make a further advance or re-advance to rank in the same priority over a subsequent mortgage as the original advance under that prior mortgage-

(a) if the subsequent mortgagee so consents; or

(b) where the further advance or re-advance does not exceed, with any other outstanding advance or re-advance, the specified maximum amount secured under that prior mortgage; or

(c) where that prior mortgage is in favour of an authorized institution (as defined in the Banking Ordinance (Cap 155)) and is expressed to secure all money which may, from time to time, be owing to the prior mortgagee,

and paragraphs (b) and (c) shall have effect whether or not the prior mortgagee had notice of the subsequent mortgage at the time when the further advance or re-advance was made by the prior mortgagee.

(2) The priority to which a prior mortgagee is entitled under subsection (1) shall extend, in addition to the amount secured under the prior mortgage, to interest on that amount and to all costs, charges and expenses secured under the mortgage.

(3) Subject to subsection (1), the right to tack in relation to land is abrogated:

Provided that nothing in this section shall affect any priority acquired before the commencement of this section.”

40.  Kingsway’s 3^rd and 4^th loans did not qualify for tacking under section 45(1) because no consent was obtained, the 2^nd mortgage was an “all moneys” mortgage, and Kingsway, a licensed money lender, was not an authorised institution as defined in the Banking Ordinance (Cap 155).

41.  I do not accept counsel’s argument.  It is true that section 45 only allows tacking in certain prescribed circumstances.  It is also true that outside those prescribed circumstances, the right to tack under common law has been abolished: section 45(3).  However, it is, put at the lowest, doubtful whether even under common law, the 3^rd and 4^th loans would qualify for tacking in the first place.  InRe Alton Corporation [1985] BCLC 27, Sir Robert Megarry VC said at pages 35h-36a/b:

“There is a further aspect to this point. I do not know whether there is any definition of the term ‘further advance’; none has been put before me. It is familiar enough in the law of mortgages in relation to tacking, both before 1926 and after 1925. Under the law, a later loan could in certain circumstances be ‘tacked’ to an earlier loan and take the priority of that earlier loan as against intervening incumbrances. That presupposes the continued existence of that earlier loan with its superior priority, for once it has gone there is nothing to which the further advance can be tacked. Where, however, the later loan is made with the object of repaying and so destroying the earlier loan, I would hesitate to describe the later loan as being a ‘further advance’. In one sense, it is indeed an ‘advance’, and a ‘further’ one at that. Yet in the way in which the term is normally used in the law of mortgages, and not least in respect of a mortgage by deposit of deeds being security for ‘further advances’, I doubt whether the judges and authors concerned had in mind that the making of a new loan to replace an existing loan and so destroy it would be described as making a ‘further advance’; and in the absence of compelling authority I certainly would not do so.”

42.  Mr Kenny Lin, for Kingsway, also submitted that in Burnes v Trade Credits Ltd [1981] 2 All ER 122, a case turning on the interpretation of a guarantee, Lord Keith, in giving the advice of the Privy Council, said (page 124h‑i):

“ In their Lordships’ opinion that view is erroneous and the argument for the respondent is unsound. While the meaning of the word ‘advance’ may be shaded somewhat by the context, it normally means the furnishing of money for some specified purpose. The furnishing need not necessarily be by way of loan, but clearly that is what was in contemplation here. When cl 14 refers to ‘a further advance’ it appears to their Lordships to be referring to the furnishing of an additional principal sum. Where the term for repayment of the original principal sum is extended, it is true to say that that sum remains advanced for a further term, but it is a distortion of language to say that a further advance has been made. In reaching the conclusion which their Lordships have quoted, Mahoney JA referred to a considerable number of decided cases. Their Lordships have examined these, but have not found any of them to support his conclusion, or indeed to be of any assistance at all for present purposes.”

43.  Regardless of the true scope of tacking under common law or under section 45, for my part, I do not see how subrogation in the type of situation we were faced with in this appeal would have the effect of undermining the objective behind section 45, when there was, in reality, no additional money lent to the borrower, and the prior mortgage was not made to secure any additional indebtedness as such.

44.  In any event, Mr Chan could give no good answer to the very robust reason which the deputy judge gave in his judgment for rejecting a similar argument he made below (para 36):

“The mere fact that by virtue of the provisions of s 45 CPO the route of tacking is not open to Kingsway is not, in my view, a basis to say that consequently Kingsway should not be entitled to look to another perfectly lawful route to achieve the same end. I do not understand it to be the policy of the law that if a claimant cannot achieve a result by one route he is barred all routes to his result. It would be tantamount to saying that if two different causes of action arose from one set of facts, and that there was a bar, for example, time, to one, then the other, in time, should not be allowed to succeed. I do not understand that to be the law.”

Other arguments

45.  Various other minor arguments were made in Mr Chan’s written submissions, but were not repeated in oral argument.  None of them, in my view, including the argument on notice, made any difference to the result in the present appeal.  On the other hand, Mr Lin, quite correctly, found it unnecessary to pursue his argument based on equitable mortgage, the subject matter of Kingsway’s respondent’s notice.

Disposition

46.  For these reasons, the appeal was dismissed with costs to Kingsway save for the respondent’s notice in respect of which no costs order was made.

Hon Lam VP:

47.  I agree and have nothing to add.

Hon Barma JA:

48.  I agree with the Reasons for Judgment given by the Chief Judge.