Equitable assignment of a property’s future sale proceeds is a common form of security for repayment of loans. Surprisingly, there has never been any case authority on the question of priority between such an assignment and subsequent encumbrances on the property such as equitable charges. In Winland Finance v Gain Hero Finance,1 the Hong Kong Court of Final Appeal decided on the issue of priority between a prior equitable assignment of sale proceeds and a subsequent equitable charge created by a charging order. The judgment touches upon the nature of (i) an assignment of sale proceeds and (ii) an equitable charge, and raises some practical concerns over using the former as a form of security.

Tang was an owner of a property built on land granted by the Government. In the land grant, there was a non-alienation clause prohibiting Tang from assigning, mortgaging or charging the property without the consent of Financial Secretary Incorporated (“FSI”), in favour of which a legal charge over the property was created to secure the performance of that clause. Tang took out a loan with Winland and, to comply with the non-alienation clause, Winland obtained a security for its loan in the form of “an assignment of the balance of all future proceeds of sale of the property receivable by Tang”, which would be reassigned to Tang upon full repayment. This was, in essence, an equitable mortgage over the future sale proceeds effected by an equitable assignment. The loan agreement was accepted for registration on the Land Registry. Subsequently, Tang borrowed money from Gain Hero, and the security granted was appointing Gain Hero as Tang’s attorney to receive payment of the property’s future sale proceeds. Tang defaulted in his repayment to Gain Hero, which then commenced proceeding and obtained a judgment against him. It