In re Hongkong and Shanghai Banking Corporation Limited

Headnote

[An assignment of the proceeds of sale of land does not create an interest affecting land for the purposes of the Land Registration Ordinance, Cap.128 and is accordingly not registrable]

1992, No.MP4049

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

---------------------

J U D G M E N T

---------------------

1. This is an application by Yasaki International Company Limited ("Yasaki") for payment out to it of money in court. The sum in court represents the proceeds of sale of Shops 55 and 68 on the Ground Floor of Chungking Mansion, 36-44 Nathan Road, Kowloon, belonging to one Lee To Bee ("the land"). Yasaki is a judgment creditor of Lee To Bee. The judgment debt exceeds $600,000.

2. The sale was a sale by the bank as mortgagee. There stands in court to the credit of the action the sum of $801,662.55 together with some accrued interest.

3. The contest which I have to resolve is a contest between Yasaki, which has the benefit of a charging order on the property, and another company, Afalong Investment Company Limited ("Afalong") which claims to have an interest in the land taking priority over that of Yasaki under its charging order.

4. Afalong's interest was created earlier, and was registered at the Land Office earlier, then the interest of Yasaki; and the real issue in the case is whether Afalong's interest under the instrument which created it is an interest which affects the land at all. If it does affect the land there is no question but that it ranks in priority over the interest of Yasaki.

5. The instrument on which Afalong relies is an assignment made on 8th May 1990 between Lee To Bee (called in the assignment "the assignor") and Afalong. It recited that the assignor was the registered owner of the shops in question; that the assignor was indebted to Afalong (called "the lender") for HK$350,000; and that the assignor had agreed to execute an assignment of the proceeds of sale, or part thereof, in respect of one or both of the shop properties for the due payment to Afalong of the said sum of HK$350,000. The assignment was an assignment by way of mortgage of the proceeds of sale to be received by the assignor from purchasers under the terms of contracts of sale made or to be made by the assignor with those purchasers, with a proviso for re-assignment. (This is the classic form of mortgage; although of course this mortgage could take effect in equity only, being an assignment of future property.)

6. The assignment contained as Clause 1 a definition clause which is of crucial importance.

7. The property the subject of the assignment is described as the "Assigned Proceeds" and is defined in the following terms :

" 'Assigned Proceeds' means and includes (i) all moneys representing proceeds of sale received or to be received by the Assignor from Purchasers under the terms of their respective contracts and (ii) all the Assignor's right, title, benefit and interest of and in all moneys for the time being and from time to time held and retained by the Assignor's Solicitors."

"Contracts" are defined as follows :

" 'Contracts' means and includes all or any agreements for sale and purchase which may at any time and from time to time hereafter be entered into (or deemed to be entered into) by the Assignor with any purchasers (including the Government of Hong Kong) for the sale of one or both of the Properties."

"Secured Indebtedness" is defined as follows :

" 'Secured Indebtedness' means HK$350,000.00 which the Assignor covenants to pay to the Lender under the terms of this Assignment."

Clause 2(a) of the assignment reads as follows :

"2(a) As security for the payment of the Secured Indebtedness the Assignor as legal and beneficial owner hereby assigns unto the Lender the Assigned Proceeds or part thereof which is equivalent to the Secured Indebtedness TO HOLD the same unto the Lender absolutely but subject to the proviso for cesser hereinafter contained."

Clause 3 reads as follows :

"Upon payment to the Lender of the whole of the Secured Indebtedness the Lender shall at the request and cost of the Assignor reassign the subject matter of this Assignment to the Assignor or as the Assignor shall direct."

8. This assignment was registered, as I have said, in the Land Office; presumably, as an instrument affecting land (see s.2 of the Land Registration Ordinance, Cap.128). But the subject matter of the assignment was, as it says : "All moneys representing proceeds of sale received or to be received by the Assignor from Purchasers". The assignment does not purport to affect the assignor's interest in the land itself. It affects only the proceeds of sale which may in the future be received by the assignor from purchasers. I find it quite impossible, in these circumstances, to accept that the assignment is to be treated as in some way affecting the land and so, having regard to its date of creation and the date of its registration, taking precedence over the charging order of Yasaki. In an interesting argument, Mr Yau, for Afalong, suggested that, under the assignment, Afalong took either an equitable interest in the land itself or an interest which affected an interest in the land. To my mind, the assignment did neither of these things. I have arrived at these conclusions without reference to authority; but they are, I think, supported by the English cases In re Rayleigh Weir Stadium [1954] 1 WLR 786 and Thomas v. Rose [1968] 1 WLR 1797.

9. Mr Yau then suggested, alternatively, that even if the assignment did not affect an interest in land, it was in no worse case than Yasaki's charging order, which itself affected only the proceeds of sale of land. But I do not think this is correct. The effect of the charging order is prescribed by s.20B(3) of the Supreme Court Ordinance, Cap.4. This provides that a charge imposed by a charging order shall have the like effect and shall be enforceable in the same courts and in the same manner as an equitable charge created by the debtor by writing under his hand. The charge so created would be a charge on the land itself, and not simply a charge over the proceeds of sale of that land.

10. Mr Yau finally argued as a last resort that the assignment created a mere equity; but an equity of a character sufficient to justify its ranking in precedence over Yasaki's charging order. But I do not think a mere equity of this sort creates any registrable interest at all. Some equities have the potential of creating an interest in land, such as the equity which may arise as a result of a proprietary estoppel. But until realised such an equity cannot be treated as a subsisting or registrable interest in the land.

11. For these reasons, I reject the argument of Afalong and decide in favour of Yasaki that its interest under the charging order takes priority over any claim which Afalong may have to the moneys in court. (I would add that in any event the assignment of the proceeds of sale under which Afalong claims does not purport to affect the proceeds of any sale effected by the bank; it purports to affect only the proceeds of any sale effected by the assignor. For that reason, too, it seems to me that Afalong's attempt to claim priority in respect of the proceeds of the sale by the bank is doomed to failure.) I will make the appropriate order in favour of Yasaki accordingly. The costs will follow the event. The costs of all parties to this application other than Afalong are to be taxed (if not agreed) and paid by Afalong.