SO KWONG YIN AND ANOTHER v. SO KONG PO, THE PERSON APPOINTED TO REPRESENT THE ESTATE OF SO FAT, DECEASED AND ANOTHER

DCMP 663/2022

[2023] HKDC 1698

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 663 OF 2022

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REASONS FOR DECISION

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1.  The plaintiffs issued an originating summons dated 11 February 2022 and subsequently amended on 4 August 2022 (“the Amended Originating Summons”) for relief that (1) an order that the deed of gift between So Fat (蘇發), Deceased (“Deceased”) as the donor and the plaintiffs as donees dated 12 June 2000 in respect of Lot No. 103 in Demarcation District No. 197 together with the messuages, erections and buildings thereon (“the Land”) registered in the Land Registry by Memorial No. ST1161206 (“the Deed”) and the conveyance of the Land pursuant to the Deed to the plaintiffs be set aside, and (2) a declaration that the Deed shall be null, void and inoperative ab initio and that the Land forms part of the Deceased’s estate (“Estate”).

The hearing

2.  This was the call-over hearing of the Amended Originating Summons whereby the plaintiffs were nonetheless seeking final relief and which I granted on the terms explained hereinbelow. The 1^st plaintiff is the youngest son of the family, the 2^nd plaintiff is the mother whereas the Deceased is the father. Mr Leung Sze Lum appeared as counsel for the plaintiffs.

3.  At the hearing, the personal representative of the 1^st defendant appeared and indicated that he did not have any intention to contest the proceedings. Indeed, the 1^st defendant made clear in his acknowledgment of service dated 22 August 2022 that he did not intend to contest the proceedings.

4.  For the 2^nd defendant, Mr Poon appearing on behalf of the Director of Lands indicated that he adopts a neutral stance towards the plaintiffs’ application. As explained by Mr Leung, since these proceedings would affect the Government’s rights for the land grant in question (as explained hereinbelow), the Director of Lands has been joined as the 2^nd defendant.

The parties

5.  The Deceased was born in 1944 and his wife, namely the 2^nd plaintiff, was born in 1943 and together they had 7 children which includes the 1^st plaintiff. After the Land was granted the Deceased had caused a 2-story building to be built on the Land where he and his family lived since. At present, the plaintiffs and the 1^st plaintiff’s immediate family are still living on the Land.

The Land Grant, the Disclaimer, the Deed and the problems arising

6.  As per a private treaty grant in about 1983 (“the Land Grant”), the Land was assigned to the Deceased by the Crown at a concessionary premium. The Land Grant at clause 8, General Conditions of the Land Grant provides for the Crown’s right of re-entry on the grantee’s breach or default whereas clause 5(i)(b), Special Conditions of the Land Grant states the following:-

“any person other than a person referred to in (i)(a) above subject always to the payment of the grantee to the Government of Hong Kong of an additional premium equivalent to the difference between the amount of premium (if any) paid by the grantee to the Government at the date of this grant and the full market value of the lot as at the date of the application to the said District Lands Officer for consent such value to be determined by the said District Lands Officers whose decision shall be final and binding upon the grantee; provided that this Special Condition (5)(b) shall apply only to the first assignment, mortgage, charge, underletting or parting with possession or any agreement so to do in favour of such a person at any time after these Conditions have been certified as complied with to the satisfaction of the said District Lands Officer and on payment of such additional premium this Special Condition 5(i)(b) shall no longer apply.”

7.  As such, the Land Grant clause 5(i)(b) prohibits, inter alia, assignment or parting with the possession of the Land without prior written consent of the District Lands Officer except an where agreement is entered into for payment of additional premium equivalent to the difference between the amount of premium paid by the grantee to the Government at the date of the Land Grant and the full market value of the lot as at the date of the application to the District Lands Officer for consent.

8.  Sadly the Deceased was diagnosed late-stage lymphoma in about early 2000 and he informed his children that he wished to transfer the Land to the plaintiffs and specifically so that the youngest and the only unmarried son being the 1^st plaintiff could take care of the 2^nd plaintiff who is his mother. The daughter of the Deceased and sister of the 1^st plaintiff, Madam So Suk Yin (“So Suk Yin”) contacted their former solicitor firm and its then principal to enquire about transferring the Land and was told that the easiest and quickest way was to execute a deed of gift. So Suk Yin was then informed that there was no need for an additional payment of a land premium and only a very low amount of property tax was required.

9.  The Deceased and the plaintiffs followed the foregoing advice and executed the Deed confirming the same on 12 June 2000. At the time of execution of the Deed, the Deceased, the plaintiffs and So Suk Yin were told that they should wait for letters from the Inland Revenue Department and again there was no need for additional payment of a land premium and a very low amount of property tax was required. Unfortunately the Deed drafted by the former solicitors was without consideration of the Land Grant, especially the effects of payment of a land premium under the terms of the Land Grant and on the title to the Land by operation of the Land Grant.

10.  On even date of 12 June 2000, the plaintiffs also signed a disclaimer (“the Disclaimer”) to their former solicitors mainly concerning the stamp duty to be collected by the Government and a potential problem on the title of the Land within 3 years from the date of the Deed. The Disclaimer incorrectly stated that potential problems regarding the title to the Land may arise if the Land was to be transferred by way of sale and purchase within 3 years from the date of the Deed.

11.  Exacerbating the foregoing problem was that the Deceased and the 2^nd plaintiff were both illiterate, had very limited primary 5 level education and the rest of the family were dependent on the legal advice of their former solicitors. As a result, this led to the Deceased and his family, inclusive of the plaintiffs, relying on the misstatements and incorrect advice of their former solicitors which ignored the implications of the Land Grant (particularly clause 5(i)(b)) and then entering into the Deed in its flawed form.

12.  It was at a later date that the aforesaid problems were noted concerning the Deed and thereafter the Sha Tin District Lands Office were informed by letter dated 10 August 2021 of the same. In a reply letter dated 7 December 2021, the Sha Tin District Lands Office then stated that, inter alia, any assignment without approval constitutes a breach of the Land Grant, in particular clause 5(i)(b).

The law

13.  It is trite and submitted by Mr Leung that a case of this nature and the fact that it is uncontested, the court may dispose of this case summarily as pursuant to Hong Kong Civil Procedure 2023, Vol 1, §28/4/2.

Rescission of contract under a common mistake

14.  It is trite that a contract will be rescinded if the parties were under a common misapprehension either as to facts or as to their relative and respective rights provided that the misapprehension was fundamental and the party seeking to set it aside was not himself at fault as per Law Siu Yin Ada v Lo Hung Kwan, CACV 1034/2000, Woo and Le Pichon JJA, 3 May 2001, unreported, which states at page 13 thereof that:-

“A contract will be rescinded if the mistake of one party has been induced by a material misrepresentation of the other or if the parties were under a common misapprehension either as to facts or as to their relative and respective rights provided that the misapprehension was fundamental and the party seeking to set it aside was not himself at fault.” (emphasis added)

15.  Mr Leung then cited Triple Seven MSN 27251 Ltd v Azman Air Services Ltd [2018] 4 WLR 97 where §§60-76 provides a summary of various authorities on the applicable principles regarding common mistake and notably at §76:-

(1)  There must have been, at the time of the conclusion of the contract, an assumption as to the existence of a state of affairs substantially shared between the parties.

(2)  The assumption itself must have been fundamental to the contract.

(3)  That assumption must have been wrong at the time of the conclusion of the contract.

(4)  By reason of the assumption being wrong, the contract or its performance would be essentially and radically different from what the parties believed to be the case at the time of the conclusion of the contract; alternatively, the contract must be impossible to perform having regard to or in accordance with the common assumption. In other words, there must be a fundamental difference between the assumed and actual states of affairs.

(5)  The parties, or at least the party relying on the common mistake, would not have entered into the contract had the parties been aware that the common assumption was wrong.

(6)  The contract must not have made provision in the event that the common assumption was mistaken.

16.  Upon Mr Leung’s invitation, this court found that in the present case there was a common mistake made between the Deceased and the plaintiffs at the material time when the Deed was executed that there were no implications on breaching the terms of the Land Grant nor issues of seeking prior written approval from the District Lands Officer and for payment of additional land premium as relating to clause 5(i)(b). Given the Deed was drafted by the Deceased and the plaintiffs’ former solicitors, a lack of legal advice from their former solicitors at the time of the conclusion of the Deed, there was a common assumption between the Deceased and the plaintiffs which was fundamental to the execution of the Deed. Indeed my findings in this case as relating to the Disclaimer and the Deed were fraught with difficulties largely beyond the knowledge and awareness of the Deceased and the plaintiffs in these circumstances and in fact well after a year since the material events took place and carried out by the parties.

17.  Certainly, on the facts of the case, there appears to have been no understanding of the impact by the parties (or their former solicitors), let alone the existence of clause 5(i)(b) per the Land Grant. The performance of the Deed would be precluded by clause 5(i)(b) since its execution constitutes a breach of the Land Grant and the Government would be entitled to enforcement actions which would be essentially and radically different from what the parties believed to be the case at the time of the Deed’s execution and even thereafter.

18.  Given the foregoing, this court found that the Deceased and the plaintiffs would not have executed the Deed had they been aware of the common assumption of facts as aforesaid was wrong.

Setting aside of gifts

19.  Where a voluntary transaction by one party intends to confer a bounty on another, the deed will be set aside if the court is satisfied that the disposer did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it as per Hotung v Ho Yuen Ki & Ors [2005] 4 HKLRD 558 at §26.

20.  The court does have jurisdiction to rescind a voluntary disposition but the mistake has to be distinctive mistake, a causative conscious belief or tacit assumption that the state of affairs is as the transferor mistakenly believed it to be as found in Pitt v Holt [2013] 2 AC 108 §§104-105, 108, 125-128 later referred to in Chu Wen Jing Jennifer v Sin Hon Wai, HCA 121/2016, Recorder Stewart Wong SC, 14 November 2016, unreported at §37. It will be noted that there were very different facts in Chu Wen Jing Jennifer (ibid) related to distinctly triable issues and the state of mind(s) of the protagonists in that particular case.

21.  I repeat my findings of fact arising under the foregoing section as relating to rescission of contract under a common mistake.

22.  From my findings of fact it can certainly be said that a mistake was made in the present case which can be said to be distinct and distinguished from mere ignorance or inadvertence. The Deceased and the plaintiffs executed the Deed under the impression that there would be no adverse consequences such as breaching the Land Grant when the Deed was being executed.

23.  Without their knowledge and a lack of proper advice from their former solicitors, the Deceased and the plaintiffs were ignorant about the implications of clause 5(i)(b) of the Land Grant and the possible need for seeking prior written approval from the District Lands Officer and payment of land premium was a tacit assumption that there would be no adverse consequences. This was a situation beyond a case of mere ignorance which led the Deceased and the plaintiffs into a false belief or assumption that there was no breach of the Land Grant or any implications for payment of land premium.

24.  The mistake made by the Deceased and the plaintiffs, even if it was due to carelessness on the part of the person making the voluntary disposition, on the facts of this case there is no evidence that the Deceased and the plaintiffs were deliberately running the risk of avoiding payment of the land premium as required under clause 5(i)(b) of the Land Grant. I found on the facts of this case that the Deceased and the plaintiffs, in fact his entire family, placed heavy reliance on the legal services and advice of their former solicitors in preparing, drafting and executing the Deed. There was no pressing need for the Deceased and the plaintiffs to take steps for the execution of the Deed in 2000, otherwise than in the context of planning for allocating the Deceased’s properties before he passed away.

25.  There was a mistake regarding the understanding of the legal character or nature of the Deed by the Deceased and the plaintiffs (and what also appears to be a mistake on the part of their former solicitors). The gravity of the mistake and the serious consequences to the plaintiffs are that the Land Grant was breached and the Hong Kong Government accrues a potential right to enforce the Land Grant and for forfeiting the Land Grant and re-entering the Land.

26.  In the present case, if the mistaken disposition of the Deed was left uncorrected, the plaintiffs and the Deceased’s estate would suffer injustice, unfairness or unreasonableness due to such a mistake.

27.  Additionally, the Disclaimer supports the plaintiffs’ case on there being a mistake which is grave in nature. The Disclaimer had never mentioned the effect of clause 5(i)(b) of the Land Grant. It is fair to say it appears that the land premium will be a much more substantial sum compared to the stamp duty of the transfer by way of the Deed. The evidence on the whole does appear to indicate that the former solicitors of the Deceased and the plaintiffs never conducted any land searches nor did they consider the effects of clause 5(i)(b) when the Deed was being drafted or in the circumstances leading up to its execution.

28.  I found that there are sufficient grounds for the plaintiffs to set aside the Deed, which is a voluntary disposition of the Deceased’s interests in the Land to the plaintiffs. I exercise my discretion and order the setting aside of the Deed.

Conclusion

29.  Given the foregoing reasons, I was willing on this occasion to grant final relief to the plaintiffs. There appeared to be no substantive reason to deny final relief to the plaintiffs, nor in the circumstances to further delay such relief to be granted and for the parties to incur further costs.

30.  I made an order in terms of the Amended Originating Summons as stated in the first paragraph of this decision at the hearing. Furthermore, as agreed between the parties, I also ordered that there be no order as to costs.

31.  As a post-script to this decision, a difficulty was encountered at the hearing when dealing with this case since PD5.4 was not fully complied with and I reminded Mr Leung and those instructing him of the same.