Nation Group Development Ltd v. The Bank of East Asia Ltd
Read the full judgment text of CACV 359/2004 on BabelCite. This Court of Appeal judgment was delivered on 14 February 2006.
1. I have read the draft judgment of Yuen JA. I agree with her judgment and would also make the order set out in para. 42 hereof.
Cites 1 case
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CACV 359/2004 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL No. 359 OF 2004 (ON APPEAL FROM HCA No. 5208/2001) ______________________ BETWEEN:
Before: Hon. Yeung JA, Yuen JA and Burrell J in Court Date of hearing: 2 November 2005 Date of Judgment: 14 February 2006 ---------------- JUDGMENT ---------------- Hon. Yeung JA: 1.I have read the draft judgment of Yuen JA. I agree with her judgment and would also make the order set out in para. 42 hereof. Hon. Yuen JA: 2.This is an interesting appeal on the interpretation of the tacking provision (s.45) of the Conveyancing and Property Ordinance Cap. 219. In this judgment, unless otherwise stated, all references to sections are to sections in that Ordinance. Background 3.In 1997 the owner of a property executed a Legal Charge of the property in favour of the Defendant (“the Bank”) to secure all moneys which it may from time to time owe to the Bank. 4.Subsequently the owner entered into an agreement to sell the property to the Plaintiff (“the Purchaser”). The Purchaser paid a total deposit of $10m. 5.However the sale and purchase was not completed due to a problem with the title to the property. The Purchaser commenced proceedings (not the present action) against the owner for the return of the deposit and payment of interest and other ancillary amounts, as well as for a declaration that it had a lien on the property for the sum. In those proceedings, the Purchaser was successful at first instance in 1999, had its judgment reversed by the Court of Appeal in January 2000, but was ultimately successful in the Court of Final Appeal in December 2000. 6.Between the appeal and the final appeal, the Bank made a further advance to the owner of $4.15m in July 2000 ("the 2000 advance"). A Further Charge in favour of the Bank was executed by the owner. 7.The property was eventually sold in 2002. The proceeds of sale were insufficient to satisfy the owner’s debts to both the Bank and the Purchaser. The owner has since been wound up. The Bank asserted priority over the Purchaser in respect of all sums the owner owed it, including the 2000 advance. The Purchaser accepts that the Bank has priority to be paid the sum it advanced the owner in 1997, but not the sum it advanced in 2000. That dispute led to this action. Issue 8.The Bank asserted priority on the ground that it was entitled to "tack" the 2000 advance to the earlier "all moneys" charge. The right to tack, previously a right at common law, is now governed by s.45 which provides:
9.The Purchaser however contended that:
Sakhrani J’s judgment 10.Sakhrani J. held against the Purchaser on both arguments. Appeal 11.On appeal, Miss Sara Tong for the Purchaser argued first that a purchaser’s lien is not a “mortgage” for the purposes of s.45 because:
Discussion (a) Purchaser’s lien can be a "subsequent mortgage" under s.45 12.With respect to Miss Tong, in my view, a purchaser’s lien can be a “subsequent mortgage” for the purposes of s.45. 13.I accept Miss Tong’s first argument to the extent that there are many differences at common law (meaning extra-statutorily) between a purchaser’s lien and a mortgage in the strict sense of an assignment of land subject to a right of redemption upon repayment. I also accept that the Conveyancing and Property Ordinance does not contain a specific provision abrogating those differences. However the issue in this appeal is whether for the purposes of s.45 only, a purchaser’s lien is a “mortgage”, so that the Purchaser’s lien was, on the facts of the present case, a “subsequent mortgage”. 14.In my view, contrary to Miss Tong’s second argument, a purchaser’s lien is clearly included in the word “mortgage” in s.45. The word “mortgage” is defined in s.2 simply as follows -
15.It is clear to me that according to the ordinary and natural meaning of the words in s.2, a purchaser’s lien (being a form of security over land for securing money or money’s worth) is a “mortgage” and there is nothing in the context of s.45 which requires a different meaning. In this respect Miss Tong submitted that the context of s.45 did exclude a purchaser’s lien from the wide meaning of "mortgage". She argued that the reference to a "further advance" could not apply to a purchaser’s lien, because it would be unlikely that there would be a further advance on a purchaser’s lien. A holder of a purchaser’s lien would therefore only suffer the burden but not enjoy the benefit of being a "mortgagee" under s.45. In my view, that is not necessarily so. If a purchaser were to pay a further deposit, that may well be a further advance which, if a subsequent mortgagee consents, would give the holder of the purchaser’s lien priority under s.45(1)(a). But even if it is unlikely that a subsequent mortgagee would consent, that is not to say that the context of s.45 precludes the application of the ordinary and natural meaning of the definition of "mortgage" to that section. 16.Next, Miss Tong focussed on the word “mortgage” which she interpreted in the strictly technical sense of an assignment of land with a right of redemption upon repayment. I do not agree that in the context of s.45, the legislature employed the word in that strict sense. In my view, in defining “mortgage” simply as “a security over land for securing money or money’s worth”, the legislature concentrated on the substance of a security over land being effected, and dismissed the form in which that security was created (be it by way of a mortgage - where land is assigned with a right of redemption upon repayment of a debt; or a charge - where land is appropriated, but not assigned, as security for the discharge of a debt; or a lien - which is a specie of equitable charge). 17.The narrow interpretation adopted by Miss Tong would mean that s.45(1) would not apply even to a legal charge. I can see no reason why the legislature would have chosen to abrogate the common law tacking principles for mortgages in the strictly technical sense and yet keep them for legal charges, when both are clearly securities over land for securing money or money’s worth. 18.In fact, at the same time that s.45(1) was enacted, s.44 was enacted which provided that as from that date, a mortgage of a legal estate could be effected only by a legal charge: s.44(1), and mortgages effected by way of assignment before the commencement of the section shall be deemed to have been replaced by legal charges: s.44(3). It would make no sense for the legislature to enact s.45 to abrogate the common law and to provide new statutory rules to govern only a form of security that has been replaced. (Although a limited class of mortgages in the strictly technical sense remain - those created by statute: s.44(8), the terms of s.45 are of general application and are not restricted to these mortgages). Given the timing of the enactment of s.44 and a.45, it is clear that s.45 was intended to govern all forms of security over land and the word "mortgage" should not be interpreted in the purist technical sense. 19.Miss Tong sought to support her narrow interpretation by referring to the express incorporation of a lien in the definition of “mortgage” in s.205(xvi) of the Law of Property Act 1925. This section provides:
20.This leads conveniently to a discussion of Miss Tong’s third argument. She submitted that the words "... for securing money ..." connote an intentional act of the parties only. I think that is reading too much into those words. They refer simply to the purpose of the security, a purpose which may be intended by the parties or achieved by operation of law. In fact, s. 205(xvi) of the Law of Property Act refers expressly to “ any ... lien on any property for securing money ...”, showing that the words “for securing money” do not refer only to an intentional act of the parties. 21.Miss Tong sought to rely on Chase Corporation (Aust) Ltd v North Sydney Brick & Tile Co. Ltd 14 ACSR 586 for the proposition that tacking is inapplicable in the case of a charge resulting from a lien. That was a case where a lien-holder (a company) sought to tack later debts owed to it by a shareholder in order to gain priority over a mortgagee of the shares. The decision of Cohen J in the Supreme Court of New South Wales - Equity Division was based on the principles of tacking at common law as there was no equivalent of s.45. At common law, a person seeking to tack must have the legal estate (at 599). As the lien-holder did not have the legal estate, it was not entitled to tack. That decision is not relevant to the present appeal, as the common law right to tack has been abrogated by s.45(3). 22.Fourthly, Miss Tong pointed to the phrase "mortgage, charge or lien" in s.44(8) to support her argument that a lien is not included in the definition of "mortgage". In my view, that is correct as far as that section is concerned because that is what that context requires, and the wide definition of “mortgage” in s.2 is subject to the proviso “unless the context otherwise requires”. As we have seen, s.44 provides for the replacement of legal mortgages by legal charges. In the context of that section, therefore, the word “mortgage” has to be read in the strictly technical sense of an assignment of property subject to the right of redemption upon repayment. 23.Finally, Miss Tong referred us to the decision of Deputy Judge Poon in Sino Billion. She submitted that the judge held that a charging order (which takes effect as an equitable charge) was not a “mortgage” within the meaning of s.52. Miss Tong argued that since a purchaser’s lien also takes effect as an equitable charge, similarly such a lien should not be regarded as a “mortgage” within the meaning of s.45. 24.The facts in Sino Billion are quite complicated but for present purposes, the relevant facts are as follows. Certain properties were owned by Lam and others as tenants-in-common. Lam had divorced his wife and owed her money under a divorce settlement. 25.Lam purportedly borrowed money from two companies which he in fact controlled through his mistress. These companies first obtained default judgments against Lam and then obtained charging orders against Lam’s interest in the properties. 26.In the meantime, as Lam had failed to pay his ex-wife under the divorce settlement, she obtained a charging order against his interest in the properties. 27.The mistress’s companies and Lam then obtained consent orders (without notice to others) for the sale of the properties (“the consent orders for sale”). These orders provided that unless Lam redeemed the charges within 7 days, his interest in the properties would be sold by private treaty and the conduct of the sale was given to the companies. 28.Lam did not redeem the charges within the time stated under the consent orders for sale, and the companies purportedly assigned his interest in the properties to a purchaser WSI. 29.Lam’s ex-wife and the other tenants-in-common sought to set aside the charging orders obtained by the mistress’s companies on grounds of collusion and fraud. 30.WSI sought to oppose the applications. Lam’s ex-wife and the other tenants-in-common then raised the preliminary point that WSI had no locus standi to oppose the applications as, notwithstanding the purported assignments by the mistress’s companies, there had been no proper transfer of title. 31.Deputy Judge Poon found that in fact there were never any loans from the mistress’s companies to Lam, and the default judgments, charging orders and consent orders for sale were all obtained by collusion and fraud. They were set aside. 32.As for WSI’s position, the judge held that the terms of the consent orders for sale simply committed the conduct of the sale to the mistress’s companies as an administrative matter only. The companies had not applied for (and therefore had not obtained) any orders under s.25A of the High Court Ordinance enabling them as judgment creditors to execute the conveyance, nor a vesting order under s.48 of the Trustee Ordinance vesting Lam’s interest in the properties in the purchaser WSI. The judge also held that the terms of the consent orders for sale did not take effect as appointments to convey under s.51 of the Trustee Ordinance. 33.WSI had also sought to rely on s.52 (of the CPO) which provides:
34.The judge held against WSI. Given his findings that the mistress’s companies had not adopted the procedures provided under the High Court Ordinance and the Trustee Ordinance for conveying title, the decision was clearly right. As there was no conveyance, no sale was ever effected and so s.52 was not engaged. 35.Miss Tong however relied on the following passage (§18):
36.As s.52 was not engaged in any event because there was no sale, the views expressed in that passage were not necessary to the judge’s decision. Further the views in the first part of that passage were obviously expressed in the context of s.52 only. In any event, I do not think it is necessary or desirable on this appeal (dealing with the meaning of “mortgage” in the context of s.45) to comment on the correctness or otherwise of views expressed in the context of another, unrelated section. (b) The 2000 advance fulfilled the conditions of s.45(1) 37.I then come to Miss Tong’s argument that in any event, the 2000 advance did not fulfil the conditions of s.45(1). 38.Section 45(1) provides that a mortgagee under prior mortgage may make a further advance or re-advance to rank in the same priority over a subsequent mortgagee as the original advance under that prior mortgage if (amongst other things) the prior mortgage is in favour of an authorized institution as defined in the Banking Ordinance and is expressed to secure all money which may from time to time be owing to the prior mortgagee. 39.There is no dispute that the Bank is an authorized institution as defined in the Banking Ordinance and that the prior mortgage was expressed to secure all money which may from time to time be owing to the Bank. There is also no doubt that as the 2000 advance was of an additional principal sum, that would normally be regarded as a “further advance” (Burnes v Trade Credits Ltd [1981] 2 All ER 122, 124 h-j). 40.Miss Tong however argued that there was no “further advance” because the 2000 advance was made pursuant to a Further Charge, recital (3) of which stated that
41.With respect, I do not agree. The Further Charge also contained provisions expressly attaching the 2000 advance to the prior mortgage. The 2000 advance was referred to as “further facilities” and in clause 6, the parties clearly expressed their intention that the provisions in the prior mortgage “shall extend to and apply for further securing the payment of the further facilities”. Order 42.For these reasons, I would dismiss the appeal with an order nisi that the Plaintiff (Appellant) pay the Defendant’s (Respondent’s) costs of the appeal. Hon. Burrell J: 43.I agree.
Miss Sara Tong instructed by Kok & Ha for the Plaintiff (Appellant) Mr C.Y. Li, instructed by Vincent T.K. Cheung Yap & Co. for the Defendant (Respondent) |
Cases cited in this judgment