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Kingsway Finance Ltd v Wang Qingyi And Another

Judgment Cited authorities 11 Cited in 1 Precedent Map Related
Vincent
Judgment Date27 November 2014
Citation[2015] 1 HKLRD 260
Judgement NumberCACV189/2013
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV189/2013 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)

____________

BETWEEN

KINGSWAY FINANCE LIMITED
(國滙信貸有限公司)
 Plaintiff
(Respondent)
and
WANG QINGYI
(王清宜)		 1st Defendant
WING WUI FINANCE LIMITED
(永匯財務有限公司)		 2nd Defendant
(Appellant)

____________

Before: Hon Cheung CJHC, Lam VP and Barma JA in Court

Date of Hearing : 23 October 2014

Date of Judgment : 23 October 2014

Date of Reasons for Judgment : 27 November 2014

______________________________

REASONS FOR JUDGMENT

______________________________

Hon Cheung CJHC:

1. At the conclusion of the hearing, we dismissed the appeal of the 2nd 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 1st 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 1st loan”, repayable on 30 November 2011, to Wang. The loan was secured by the “2nd mortgage”, also an “all moneys” mortgage, in favour of Kingsway. The 2nd 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 “3rd charge” in favour of Wing Wui. The 3rd charge was duly registered on 5 August 2011.

6. On 9 August 2011, Kingsway advanced $7.62 million, “Kingsway’s 3rd 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 “4th loan” of $9.62 million to Wang to enable her to repay, by way of loan restructuring, Kingsway’s 1st and 3rd 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 3rd charge, being later in time, ranked lower in priority to the Oi Wah mortgage and Kingsway’s 2nd mortgage. However, the Oi Wah mortgage was discharged on 12 August 2011, after the 3rd charge was entered into. Moreover, on 30 November 2011, Wang made use of Kingsway’s 4th loan to repay Kingsway’s 1st loan, which was secured by the 2nd mortgage, as well as the 3rd loan. Although the 2nd mortgage was an “all moneys” mortgage and therefore covered, as between Kingsway and Wang, not only the 1st loan but also the 3rd and 4th loans respectively, those two subsequent loans could not be “tacked” to the 2nd mortgage when it came to the question of priority (see below). And the 1st loan secured by the 2nd mortgage had been repaid by the 4th loan. Wing Wui therefore argued that in those circumstances, its 3rd 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 3rd loan) with the express condition that the 3rd 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 3rd charge, in respect of its 3rd loan. Kingsway’s 4th loan was no more than a means to restructure the 1st and 3rd loans, which Wang had no ability to repay on their due dates. No new loan was made. The 4th 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 2nd mortgage and the Oi Wah mortgage in respect of the 4th loan after the repayment of the 1st and 3rd 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 3rd loan; and whether, as regards its 4th loan, Kingsway was subrogated to the rights under the 2nd mortgage following the repayment of the 1st loan and to that under the Oi Wah mortgage after the repayment of Kingsway’s 3rd 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...

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    • Hong Kong
    • Court of First Instance (Hong Kong)
    • October 21, 2022
    ...the enrichment would be unjust, and whether there are any defences available to the defendant. See Kingsway Finance Ltd v Wang Qingyi [2015] 1 HKLRD 260 at [13] to 20. RBF accepts that where the plaintiff and defendant did not have direct dealings, but the substance of their dealings was su......

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