H v. N

CACV 261/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 261 OF 2010

(ON APPEAL FROM HCMP NO. 892 OF 2008 AND
HCA NO. 1444 OF 2008)

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HCMP 892/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 892 OF 2008

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(Pursuant to the order of High Court Judge Saw dated 25 March 2009, HCA 1444/2008 and HCMP 892/2008 be listed for hearing together with and at the same time)

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J U D G M E N T

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Hon Tang VP:

1.  I have had the advantage of reading Fok JA’s judgment in draft. I respectfully agree with it and have nothing to add.

Hon Fok JA:

Introduction

2.  The parties to this appeal, whom I shall refer to as the Father and the Mother, were formerly in a relationship and had a daughter together.  When their relationship came to an end, the Father and the Mother entered into a separation deed (“the Deed”).

3.  The appeal arises out of two separate proceedings.  In HCA 1444/2008 (“the Civil Action”), the Mother sought the specific performance of the Deed.  The Father maintained that the Deed was procured by the Mother’s exercise of duress and/or undue influence and sought to be relieved from his obligations under the Deed.  In HCMP 892/2008 (“the GMO Proceedings”), the Mother sought maintenance for the Daughter from the Father under the Guardianship of Minors Ordinance, Cap. 13, and for his part, the Father sought to vary certain interim maintenance orders that had been made.

4.  The Civil Action and the GMO Proceedings were heard together and, by his judgment dated 5 November 2010, To J gave judgment for the Mother in the Civil Action for specific performance of the Deed and also gave judgment for the Mother in the GMO Proceedings for the payment by the Father of a monthly sum for the upbringing of the Daughter.  However, the Judge stayed the order in the GMO Proceedings for monthly payments on the footing that this order would be redundant if the Father complied with his obligations under the Deed.

5.  The Father appeals to this court to set aside the judgments below and (i) in the Civil Action, to dismiss the Mother’s action and enter judgment for the Father on his counterclaim (seeking rescission of the Deed); and (ii) in the GMO Proceedings, to reduce the monthly sum payable.

The background facts

6.  The background facts are conveniently set out by the Judge and it is sufficient, for the purposes of this judgment, to reproduce the relevant parts of the judgment below:

“The Mother

2. The Mother was born in Hong Kong in 1967 and is now aged 43. She migrated to the United States in 1969 with her parents. She graduated from the Fashion Institute of Technology in 1991. After graduation, she had gainful employment in the fashion industry in New York and in Hong Kong. She broke up with her boyfriend of eight years and went to Europe for holidays. After she returned to Hong Kong, she came to know the Father through the introduction of a mutual friend in September 2000.

The Father

3. The Father was born in Vietnam in 1968 and is now aged 42. He migrated to the United States at the age of two. He graduated from [Georgetown] University in 1991. He joined Bear Stearns Asia Limited (‘Bear Stearns’) in 1992 and became a partner there in 2003. He had married in 1999 but was divorced in July 2000. He had no child born out of that wedlock. Shortly after the divorce he came to know the Mother.

The cohabitation

4. After knowing each other, the Mother went back to New York. However, their friendship continued. The Father visited her during several business trips and convinced her to return to Hong Kong, which she did in March 2001. They commenced cohabitation with the Father providing all the family expenses and the Mother’s living expenses. Soon the Mother became pregnant. After a long discussion, they decided to have the baby but decided against marriage since they did not know each other that well. Their daughter, M, was born on 9 November 2001. She is now aged 9. They moved to the prestigious Grenville House in Magazine Gap Road at a monthly rental of $82,000 paid by the Father’s employer.

5. On 17 August 2005, the Mother accepted the Father’s proposal to marry her. They had a grand dinner celebration with their close friends in Lan Kwai Fong when the Father gave the Mother a 3.75 carat diamond ring worth $300,000. However, they did not undergo any formal wedding celebration in accordance with the Marriage Ordinance. Their cohabitation continued. The Mother enjoyed a very luxurious lifestyle provided by the Father, including membership of Aberdeen Marina Club (‘AMC’), timeshare vacation with Marriot’s Phuket Beach Club, frequent travels, generous credit card spending and full spouse benefit provided by Bear Stearns.

The breakdown of their cohabitation

6. What led to the breakdown of their cohabitation is in dispute. The Mother said that it was because the Father had an affair. The Father said that he had never intended to have a long-term relationship with the Mother and was just playing around when he met her after his marriage broke down. His allegation certainly is untrue in view of the many loving contemporaneous e-mails he sent to the Mother and their long cohabitation. He put the blame on the Mother’s behaviour and her relationship with another man since 2003. He admitted having an affair with another woman called ‘Kelly’ whom he came to know in May 2007. Since then, the Father determined to put an end to the cohabitation with the Mother. That must be the immediate cause of the breakdown. There is no need for me to determine what caused the breakdown. I shall simply outline the course that it took.

7. The Father went on a business trip to New York after the Mother’s 40^th birthday on 26 April 2007. There he came to know Kelly. When he returned to Hong Kong on 7 May 2007, he told the Mother that they should go their separate ways. The Mother proposed to seek counselling from Dr Gandolfi, a marriage counsellor at St John’s Cathedral. The Father agreed. They had separate counselling sessions and later a joint session. However, the counselling was not fruitful.

8. After meeting Kelly again in Los Angeles in June 2007, the Father determined to break up with the Mother. He arranged for Kelly to visit Singapore, Vietnam and Hong Kong. Since he returned to Hong Kong, he behaved strangely towards the Mother. He was seen together with Kelly in Causeway Bay by the Mother’s friend. When confronted by the Mother, he admitted that he had an affair and said he would try to work things out. Eventually, their relationship broke down completely and the Mother drove the Father out of Grenville House in July 2007. There were some attempts by the Mother to reconcile but those attempts failed. The Mother told the Father that she would return to New York with M.

9. The Father discussed with the Mother about buying her and M a flat and their maintenance. Gandolfi advised them to seek the services of a lawyer in drafting a separation agreement. They agreed to sign the separation agreement (‘Gandolfi agreement’) on 8 November 2007 before the Father would leave for New York. However, the Father and the Mother eventuated in a bitter dispute when the Father refused to attend M’s birthday party and sign the Gandolfi agreement before leaving for New York. Instead, the Father instructed Fiona Chan of Messrs Oldham, Li & Nie (‘OLN’) to draft a separation deed (‘OLN draft’). The progress was slow. The Mother then instructed Casewell of Messrs Boase Cohen & Collins (‘BCC’) to prepare the Deed based on the OLN draft which the Father sent her on or about 16 November 2007. The Deed was executed in the office of BCC on 26 November 2007.

10. The Father honoured the terms of the Deed until February 2008 when coincidentally the Mother overspent by 100% of the agreed limit. Despite an apology by the Mother and undertaking to set off the overspent amount against the following month’s allowance, the Father terminated all her credit cards and stopped payment of maintenance for the Mother and M. He terminated the Mother’s membership of AMC under the excuse that she had allowed other people to use the facilities of AMC and charge the expenses to his account. He stopped payment of the Mother’s Blackberry account and limited her use of the family car. He only paid for the rent, utilities, the maid, M’s school fee and extra-curricular activities.

11. The Mother instructed BCC to write to the Father on 14 March and 18 April 2008 to demand performance of the Deed. On 30 April 2008 through his solicitors, the Father repudiated the Deed saying that it was void because of undue influence and duress. At the same time, the Father was informed that his employment with Bear Stearns would be terminated in June 2008. Upon the Father offering to rent the Mother and M accommodation in Mid-Levels and to pay their food and household expenses of $10,000, the Mother and M moved out of Grenville House.

12. Following the collapse of Bear Stearns, the Father and eight colleagues from Bear Stearns formed a new company, Octagon, a sub-division of GFI Securities LLC (‘GFI’). He commenced employment with GFI on 23 October 2008. His salary was $160,000 plus a housing allowance of $130,000 per month.

13.       On 25 May 2010, the Father quit GFI to join Kim Eng Securities Pte Limited (‘Kim Eng’) as the managing director of one of its subsidiaries, Kim Eng Securities USA Inc with effect from 1 July 2010.  He relocated to New York on 3 June 2010. He received a sign-on bonus of US$2 million and an annual salary of US$250,000, i.e. a monthly salary of US$12,500, net of tax.”

The proceedings and further background

7.  On 13 May 2008, the GMO Proceedings were filed by the Mother against the Father.  On 6 June 2008, against the Father’s undertaking to pay the Daughter’s education, medical and dental expenses, and the rent of HK$35,000 for the new residence of the Mother and the Daughter, as well as the utilities and related expenses and the salaries of a driver and maid, Hartmann J (as he then was) adjourned the GMO Proceedings and made an order by consent that the Father pay interim maintenance in the amount of HK$17,000 per month.

8.  On 31 July 2008, the Civil Action seeking specific performance of the Deed was commenced by the Mother.

9.  On 18 August 2008, the Father married his new partner, Kelly, in Las Vegas.

10.  On 29 September 2008, the Mother applied for a variation of the interim maintenance order of Hartmann J.  On 4 November 2008, Saw J ordered the Father to pay an additional monthly sum of HK$9,500 and released him from his undertaking to pay utility charges.

11.  On 18 December 2009, the Father took out an application to vary downwards the interim maintenance orders.

The Judgment below

12.  The Judge dealt first with the Civil Action.  The Father’s defence was that the Deed was obtained by undue influence and duress and further that it was void for uncertainty.  So far as the defence of undue influence is concerned, the Judge identified this as being whether, on the facts of this case, the Father executed the Deed as a result of undue influence exerted on him by the Mother.

Duress/Undue influence

13.  The thrust of the Father’s case in this regard (§22) was that he was threatened by the Mother and hurried into signing the Deed lest the Mother take the Daughter away from Hong Kong and move to New York.  The Mother’s father was an auxiliary policeman in New York who, to the Father’s knowledge, was accustomed to carrying a gun and the Father was frightened of him and fearful that if the Daughter was in New York and he was working in Hong Kong, he would not have the opportunity to have access to the Daughter to whom he was very devoted.

14.  In a lengthy section of his judgment, the Judge analysed the negotiation of the Deed by reference to a series of contemporaneous e-mails (§§27 to 52).  These e-mails covered the period from 17 July 2007 to 23 November 2007 and it is apparent from them that, from the outset, the Father was offering to provide maintenance to the Mother and the Daughter. Relevantly, the Judge said (§49):

“I have no difficulty to find that the Father offered to maintain the Mother and M and to buy them a property in recognition of his own responsibility and fault in the breakdown of their relationship, as compensation for hurting the Mother and M, as the discharge of his obligation as a dutiful father and as a souvenir to mark the end of their relationship.”

He found (§50) that “[w]hat the Father did is inconsistent with his case of undue influence” and said (§51):

“… it is clear from the e-mails and from what he did from August through to early November 2007, that he intended to provide for the Mother and M, including buying them a flat as a result of their separation. … There was no suggestion that his intention was not genuine or that his promise was procured by undue influence.”

15.  Next, the Judge analysed the facts concerning the preparation of the Deed and compared the terms of the Deed prepared by the Mother’s solicitors with an earlier draft prepared by the Father’s solicitors (§§52 to 54 and 55 to 58).  He found that the Mother’s anxiety to have the Deed finalised was understandable and that “[t]he Mother’s pressure could not be interpreted as undue influence” (§53).  He found that:

“54. The Father decided to have a deed on his own terms and to be signed at his own timing. This was not the conduct of a person acting under undue influence. …”

16.  As regards the comparison of the terms of the Deed and the earlier draft, the Judge concluded:

“58. Thus, the Deed was similar to what he had instructed OLN to draft in November 2007 and the Father now says he signed the Deed as a result of undue influence from the Mother. It is not impossible for a person to change his mind. But it was not the Father’s evidence that he had a change of mind in November 2007 and his business trip was a cover up to delay the signing of the Gandolfi agreement with a view to play down and retract from his promise. His case that he signed the Deed because of his fear that the Mother would take M to New York is difficult to mount when all along it was his intention to provide for the Mother and M in terms similar to those provided in the OLN draft and he was the one who initiated the negotiation and gave instruction to OLN.”

17.  The Judge then addressed the facts concerning the execution of the Deed on 26 November 2007 (§§59 to 60).  The Judge noted that the Father’s case as to undue influence was that he was frightened that the Mother would take the Daughter out of Hong Kong and that he felt he could not leave the offices of the Mother’s solicitors without signing and so he signed the Deed without having talked to his lawyer about its terms.  The Judge posed the question, at the conclusion of this section of his judgment, as to whether what the Father said was credible.

18.  In analysing the case of undue influence (§§61 to 69), the Judge concluded that the Mother’s suggestion of taking the Daughter to New York in November 2007 could not be treated as a threat and that, if it was a threat, it was not operative on the Father’s mind (§61).  He found, in respect of the Father’s alleged fear about the Daughter moving to New York and of the Mother’s father, that the Father was “hopelessly incredible” (§64).  The Judge rejected the argument that the Deed should be set aside because the Father had obtained no independent legal advice.  He held that the Father clearly had legal advice on the contents of the Deed as those contents were effectively supplied by him through the draft prepared by his solicitors (§§66 to 67).  He concluded that the Father’s complaint about lack of legal advice “was just a convenient excuse” (§68).  Finally, the Judge noted that the Father complied with the terms of the Deed until February 2008.  In none of these e-mails during those three months did he complain about undue influence.  He concluded (§69):

“Obviously and fatally, his alleged fear of M’s leaving Hong Kong was just a concocted defence and afterthought as all along it was his decision to provide for the Mother and M and to buy them a property in Hong Kong or New York. It could not be said that he signed under threat or undue influence and that he had no free choice.”

Uncertainty of terms

19.  The Judge noted the Father’s case that certain provisions of the Deed could not be enforced by reason of uncertainty (§70).  The Judge approached this issue on the basis that:

“73. … the court should try to give effect to the intention of the parties as reflected in the document when reading it as a whole rather than to find ways to ridicule the document so as to render it void and thereby frustrating the intention of the parties to the document. If on the true construction of a contract, it transpires that a party has made a bad bargain, so be it. It is the court’s function to give effect to the contract entered into in good faith rather than to make its own value judgment and bail a party out of a bad or unwise bargain.”

20.  The Judge analysed the Father’s complaints in respect of clauses B6, B13, B14 and B15 of the Deed (§§74 to 81) and concluded that “there is no ambiguity or overlap between clause B6 and clauses B13, B14, B15 or any other clauses.  The spending under all these clauses and credit cards are limited.”

21.  The Judge upheld in part the Father’s challenge to clause B16 concerning holidays (§§82 to 84) and concluded that “there is ambiguity as to the class of hotel, duration and what those expenses cover.”  He ruled that the phrase in that clause “and pay for her hotel and holiday expenses” must be struck out for uncertainty.

22.  The Judge rejected the Father’s challenge to clause C2 concerning the property to be purchased for the Mother and the Daughter (§§85 to 86) and concluded that “[t]he property to be purchased must be one at the choice of the Mother subject to the price ceiling of $25 million.”

23.  Finally, the Judge rejected the Father’s challenge to clause E2 concerning the duration of the Deed (§§87 to 89).

Judge’s conclusion on the Civil Action

24.  The Judge noted that the Deed provided for nothing out of the ordinary of what the Father had been providing for the Mother and the Daughter.  He noted also that the package under the Deed excluding the down payment for the flat was about HK$150,000 per month, which was about a third of his income as compared with a more than 50-50 share when they were living under the same roof.  He held that the Deed had not been shown to have been obtained as a result of duress or undue influence and that, subject to the deletion of the part relating to payment of hotel and holiday expenses in clause B16, the Mother was entitled to specific performance of the undertakings in terms contained in the Deed.  He dismissed the Father’s counterclaim.

The GMO Proceedings

25.  The Judge observed that, having reached the conclusion he did in the Civil Action, it was not necessary to consider the Mother’s application in the GMO Proceedings or the Father’s variation application.  This was because, if the Mother were able specifically to enforce the Deed, both she and the Daughter would be adequately provided for and the Mother would not be entitled to an order in the GMO Proceedings.  Accordingly, the Judge dealt with these applications “very briefly and for completion purpose only” (§94).

26.  After analysing the relevant law (§§99 to 103), the Judge considered the evidence of the lifestyle of the parties (§§104 to 114), the Father’s resources, liabilities and means (§§115 to 126), the Mother’s resources, liabilities and means (§§127 to 133).  He then considered what would be reasonable financial provision for the Daughter (§§134 to 145).

27.  The Judge concluded this part of his analysis as follows:

“144. I consider a total sum of $66,893, say $67,000, a reasonable provision for the Father to make for M in addition to such holidays as the Father would wish to provide. That makes an annual sum of $804,000. I now compare this sum with the Father’s lifestyle before and since taking up his employment with Kim Eng. That annual sum is about double the value of the Christmas gift he gave Kelly in 2008, about the price he paid for his Maserati in 2007, slightly less than the price he paid for his Hummer in 2009, about one eighth of the funds he transferred to Kelly in 2008, about two-thirds of the price of the diamond ring he bought for Kelly in June 2009, 16% less than the annual budget for his clothing and less than one-third of the budget he planned for celebrating his wedding which took place more than two years ago. While the Father is entitled to spend all that he earns in any way he pleases, he cannot do so in ignorance of the obligation he owes to the child whom he brought to this world. The monthly sum of $67,000 is equivalent to US$8,600. It is only 13.76% of his net monthly income of US$62,500. That is by no means excessive. It will not affect his lifestyle as a chief executive officer which he wishes to maintain or his commitment to provide for a luxurious lifestyle for his new family. Having so tested the assessed sum against the Father’s lifestyle before and after taking up his present employment and having considered his needs, his obligations and his present martial status, I consider the monthly sum of $67,000 is by no means excessive or burdensome.

145.  The Mother had been out of the employment market for two years.  Though she may be able to find gainful employment, her income is unlikely to be comparable to the Father’s.  Having regard to the likely disparity in income between them and that the Mother would have to contribute to the cost of accommodation in order to enable M to maintain the lifestyle that both she and the Father considered reasonable to M’s station in life, I do not consider it appropriate to require any more contribution from the Mother.”

28.  Based on his conclusion, he ordered the Father to pay the monthly sum of HK$67,000 to the Mother for the maintenance of the Daughter from the date of the application in the GMO Proceedings (i.e. 13 May 2008) until the later of the Daughter attaining the age of 18 or completing her full time education.  The Father was to pay the Mother a lump sum representing any shortfall from 1 August 2007 to 12 May 2008 for the purpose of reimbursing the Mother for the funds spent by her in the Daughter’s upbringing during that period.  The Judge discharged the interim orders of Hartmann J and Saw J, leaving it to the parties’ solicitors to calculate the necessary adjustments, and dismissed the Father’s variation application.  As noted above, the Judge stayed the order in the GMO Proceedings, save in respect of costs, since “the above maintenance provision would be wholly unnecessary if the Father would perform his obligation under the Deed” (§146).  In addition, by his order in the GMO Proceedings, both parties were given liberty to apply.

Costs

29.  The Judge made an order nisi in the Civil Action that the Father pay the costs of the Mother on an indemnity basis.  The Father applied to vary this order but, by his Decision dated 24 May 2011, the Judge made the costs order absolute.

30.  In the GMO Proceedings, costs were awarded to the Mother on a party and party basis.

The appeal

31.  As I have indicated above, the Father seeks to overturn the order in the Civil Action for specific performance of the Deed and also to vary the order for maintenance in the GMO Proceedings.  Further, and regardless of the outcome of the appeal against the order in the Civil Action, the Father makes a free-standing challenge to the Judge’s award of indemnity costs against him.

The maintenance order in the GMO Proceedings

32.  It is convenient to deal with this issue first.

33.  In support of the appeal against the order for maintenance in the GMO Proceedings, the Father seeks to introduce fresh evidence as to his financial circumstances since the making of the order in the GMO Proceedings.  The evidence consists of his 12^th and 13^th affidavits and the purpose of this evidence is to show that his prospects have diminished considerably since the time of the original order for maintenance, specifically that he is not now able to meet that order.

34.  It is to be noted that, at the time of the hearing of the appeal, although the 12^th affidavit had been sworn by the Father, the 13^th affirmation remained an approved but unsworn draft.  More importantly, the contents of the 12^th affidavit are highly contentious, as can be seen from the Mother’s 16^th affidavit, which she in turn sought leave to adduce in the event leave was given to the Father to rely on his 12^th affidavit.  The degree of contentiousness is further illustrated by the contents of the Father’s 13^th affidavit.  This court is simply not in a position to resolve the disputed evidence in these respective affidavits.

35.  A further and decisive factor, so far as the fresh evidence is concerned, is that the Court of First Instance has jurisdiction to vary any order in the GMO Proceedings by a subsequent order: Guardianship of Minors Ordinance, Cap. 13, s. 10(4).  We were informed that the Father is acting in person in ongoing variation applications to the Court of First Instance in respect of the maintenance order in the GMO Proceedings.  In the circumstances, I do not consider that it would be appropriate for this court to receive the fresh evidence sought to be relied upon by the Father.  If that evidence is to be deployed, the appropriate forum is the Court of First Instance where any disputes over that evidence can be tested by cross-examination and resolved.

36.  For these reasons, I would dismiss, with costs to the Mother, (i) the Father’s summons dated 19 October 2011 to adduce his 12^th affidavit, (ii) the Father’s summons dated 19 October 2011 to amend the notice of appeal (the only amendment relating to the order the Father would seek on the basis of the fresh evidence), (iii) the Father’s summons dated 26 October 2011 to adduce his 13^th affidavit.  The Mother’s summons dated 25 October 2011, being consequential upon the Father’s attempt to adduce his 12^th affidavit, is redundant and accordingly I would make no order on that summons, save that the costs of the summons be paid by the Father to the Mother.

37.  So far as the appeal against the maintenance order in the GMO Proceedings is concerned, the notice of appeal seeks to advance various grounds (grounds 22 to 25) to challenge findings made by the Judge which led him to make the order in question.

38.  Grounds 22 and 23 seek to suggest the Judge was inconsistent in finding the Father to be a spendthrift yet at the same time finding that he had undisclosed income or capital from which to provide maintenance.  I do not consider that the passages identified in the notice of appeal disclose the inconsistency alleged.  The fact that the Father spent as lavishly as he did can be explained on the basis that he anticipated being able to meet his liabilities either out of additional earnings or from existing capital that could or would be available to him.

39.  Ground 24 seeks to argue that the Judge was inconsistent in treating the Father’s means “on the basis of his total income including the sign-on bonus after tax.  His annual income is US$250,000 plus a sign-on bonus of US$2 million over a period of twenty-four months” (§126) since there was evidence that the Father had an obligation to repay US$700,000 to his former employer.  However, I do not regard the Judge’s approach as disclosing an inconsistency.  The Judge was aware of the Father’s obligation to repay his former employer (§§106, 118 and 121).  What the Judge also noted, however, was that the Father had been lavishly spending money on other items (§§107 to 114) which suggested to the Judge that the Father had other undisclosed resources or was simply trying to put his money beyond the reach of the Mother and the Daughter.  He also observed (§125) that, if the Father was correct as to his parlous state, it is difficult to see how the Father could have offered to provide HK$44,500 per month for the Daughter’s maintenance, this being the sum he had offered prior to the hearing (see §96).  In treating the Father’s means on the basis of his income including the sign-on bonus, the Judge was, I believe, merely taking his income and sign-on bonus as a notional figure of available means from which to calculate what would be a reasonable sum to order him to pay as maintenance.  In the light of the Judge’s concern that the Father had undisclosed means (§122) and was exaggerating his expenses (§125), this was a view I consider he was entitled to take.

40.  Ground 25 seeks to argue that the Judge failed properly to take into account the resources and earning capacity of the Mother.  However, the Judge analysed the Mother’s resources, liabilities and means (§§127 to 133 and 145).  He assessed the amount of maintenance by reference to the need for the Mother to fulfil her role as the “carer” of the Daughter (§§134 to 137).  On the other hand, he did consider it fair for the Mother to contribute HK$10,000 per month to the cost of accommodation, since she was not entitled to be accommodated by the Father and that was the sum that could be obtained from letting her flat in Homantin (§136).

41.  For these reasons, I do not consider there is any substance in the grounds of appeal seeking to challenge the maintenance order in the GMO Proceedings.

The Deed

42.  I turn then to address the appeal in the Civil Action in relation to the Deed.  Two matters need to be considered separately.  The first is the Father’s appeal against the Judge’s rejection of his case of duress or undue influence.  The second is the Father’s appeal against the Judge’s rejection of his case that the Deed was void for uncertainty.

Duress/undue influence

43.  It is not contended on behalf of the Father that the Judge made any material error of law in respect of his assessment of the defence of duress or undue influence.  The Father’s case on appeal is that the Judge erred in his findings of fact in relation to this defence.

44.  Before considering the alleged errors of fact, it is useful to consider briefly the ambit of the respective defences of duress and undue influence as a matter of law.

45.  At common law, a contract entered into as a result of duress may be avoided by the party who was threatened.  A relevant operative threat may be a threat to the victim’s person (or spouse or near relative), or to his property, or a wrongful and illegitimate threat to his economic interests.  The basis of the defence of duress is that it deprives the victim of any practical choice other than to enter into the contract.  This being the case, two questions arise: first, whether the pressure or threat is legitimate, and secondly, the effect on the victim.[1]

46.  The equitable doctrine of undue influence covers cases in which a transaction between two parties who are in a relationship of trust and confidence may be set aside if the transaction is the result of an abuse of the relationship.[2]  As Lord Nicholls said in Royal Bank of Scotland plc v Etridge (No.2) [2002] 2 AC 773:

“6. … Undue influence is one of the grounds of relief developed by the courts of equity as a court of conscience. The objective is to ensure that the influence of one person over another is not abused. In everyday life people constantly seek to influence the decisions of others. The law has set limits to the means properly employable for this purpose. To this end the common law developed a principle of duress. Originally this was narrow in scope, restricted to the more blatant forms of physical coercion, such as personal violence.

7. Here, as elsewhere in the law, equity supplemented the common law. Equity extended the reach of the law to other unacceptable forms of persuasion. The law will investigate the manner in which the intention to enter into the transaction was secured: ‘how the intention was produced’, in the oft repeated words of Lord Eldon LC, from as long ago as 1807 (Huguenin v Baseley 14 Ves 273, 300). If the intention was produced by an unacceptable means, the law will not permit the transaction to stand. The means used is regarded as an exercise of improper or ‘undue’ influence, and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person’s free will. …

8. Equity identified broadly two forms of unacceptable conduct. The first comprises overt acts of improper pressure or coercion such as unlawful threats. Today there is much overlap with the principle of duress as this principle has subsequently developed. The second form arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage. …”.

47.  Here, the Father’s case is that the Mother exercised undue influence of the first form identified by Lord Nicholls, namely overt acts of improper pressure or coercion.  Whether this is established is dependent on the findings of fact as to whether the threats issued by the Mother were illegitimate and if they left the Father with no practical choice other than to enter into the Deed.  As I have already noted, the Judge did not think the Mother’s statement that she would take the Daughter to New York could be treated as a threat but, even if it was, it was not operative on the Father’s mind in signing the Deed (§61).

48.  It is convenient here to identify the relevant threats relied upon.  They are evidenced by two e-mails emanating from the Mother dated 9 November 2007, sent by her as a reaction to the Father not signing the separation agreement negotiated by the parties through Dr Gandolfi.  The Father had instead sent the agreement to his solicitor, Ms Fiona Chan of OLN.  This caused the Mother to write to the Father in these terms:

“That is not the agreement we had. [You] were to sign this before [you] leave for [New York], not after [you] return. [You] have reneged on your side of the bargain. [You] have given me no choice [and] pushed me to a corner. [You] will have to live with the consequences of your own decision. All I asked was for [you] to do the right thing, sign before [you] leave [and] stay for [M’s] birthday. [You] chose neither. Now I will keep my word.”

49.  On the same day, the Mother also wrote to Dr Gandolfi in these terms:

“Firstly, [the Father] did not keep his promise to sign the agreement before he left for [New York]. Secondly, he cannot change any terms without me agreeing to it. I will not accept any changes. Lastly, he has left me no choice but to follow through with what I said. Therefore, I will arrange for M and I to leave after she finishes this term in school if not sooner.”

Although there is nothing to indicate that the latter e-mail was copied to the Father, I am prepared to accept that the tenor of the message communicated by the Mother to Dr Gandolfi would have reflected the tenor of the communications between the Mother and the Father at that time.

50.  In my opinion, the Father’s challenges to the Judge’s findings that there was no undue influence are unsustainable for a number of reasons.  I shall address the individual grounds of challenge below but will first set out a number of reasons why, in my view, the Judge was correct to conclude that the Father could not establish the defence of undue influence on the facts of this case.

51.  First, the idea that the Mother might leave Hong Kong and go with the Daughter to New York to live after the relationship between the Father and the Mother terminated must have been in the parties’ contemplation from at least 1 August 2007 because on that date the Father proposed financial arrangements for the Mother and the Daughter which included a proposal to “save up to buy you a place in HK or NYC”.  The Mother had lived in New York before coming to live with the Father in Hong Kong and her family is based there.  It appears the Daughter has a US passport.  For these reasons, New York would be the natural choice of home for the Mother and the Daughter if they were to leave Hong Kong and they would need to do so if the Father was no longer supporting them in Hong Kong.  Although I would accept that the prospect of the Daughter moving to New York would put pressure on the Father in that it would make it more difficult for him to maintain contact with her if he were still living and working in Hong Kong, the reason she would need to move to New York with the Mother would be to mitigate the consequences of the termination of financial support by the Father.  It is also clear, in my opinion, that there is no basis to suggest that the Mother issued any threat of physical violence towards the Father either directly or through her father.

52.  Secondly, there is no indication in the contemporaneous correspondence or other evidence that the threat was one which the Mother intended to carry out immediately.  The 9 November 2007 e-mail from the Mother to Dr Gandolfi talks in terms of the Mother arranging for her and the Daughter to leave “after she finishes this term in school if not sooner”.  Given that the Daughter was attending a prestigious international school in Hong Kong, it is more probable that any relocation would likely take the Daughter’s schooling into consideration.  In this respect, the natural time to move to New York would be at the end of the school term at the Christmas holidays and before the beginning of the next term beginning in January of the following year.

53.  Thirdly, if the Mother were to take the Daughter to New York, or even simply take her somewhere else in Hong Kong outside the Father’s knowledge, the Father would have available to him legal means of redress to seek access rights to the Daughter.  Such legal redress would be available against attempts by the Mother to prohibit any contact between the Father and the Daughter, likewise for any unreasonable or excessive restriction of access.  In short, the Mother’s threat to take the Daughter to New York could not in fact deny him such reasonable access to the Daughter as the law would allow.  It must be acknowledged that, in practical terms, it would be more inconvenient for the Father if the Daughter were in New York whilst he remained in Hong Kong but it is questionable, in my view, that this inconvenience would be sufficient to constitute the sort of pressure that the law would regard as illegitimate.

54.  Fourthly, the tenor of the contemporaneous e-mails demonstrates clearly that, to his credit, the Father was offering to provide maintenance for the Mother and the Daughter, notwithstanding he was not obliged to do so for the Mother.  From as early as 17 July 2007, there is e-mail correspondence from the Father offering to provide financial support to the Mother as well as the Daughter, and to “work on getting house”.  The Father took steps to prepare a will leaving his estate to the Daughter.  A draft separation agreement was under preparation from 1 November 2007.  On 14 November 2007, the Father arranged for his solicitors, OLN, to prepare a separation deed.  When the Mother retained her own solicitors, BCC, the Father’s reaction (on 16 November 2007) was that he was “getting it done” so she should not “waste time or money” by involving her solicitors and there was no reference to any pressure due to the Mother’s threat to leave Hong Kong with the Daughter.  By 23 November 2007, after the exchange of drafts of the Deed, the Father was indicating that “everything seems fine except the house part” and there is no mention of any pressure due to threats from the Mother to take the Daughter away from Hong Kong.

55.  Fifthly, and in my opinion very significantly, the immediate reaction of the Father to the execution of the Deed is wholly inconsistent with someone who contends that his contractual consent was vitiated by coercive threats.  His first communication in writing with the Mother after the Deed was executed is an e-mail dated 29 November 2007 in which he said:

“Nothing is more important to me than [M] and her well being .. I want you to be mad at me and not the other person in my life because it was not her that broke us up it was me …”.

The Father continued in the e-mail to explain why he would like to introduce his new partner (now wife) to the Daughter.  There is nothing in that e-mail by way of complaint about the execution of the Deed on 26 November 2007.  The tenor of this e-mail is not consistent with his having been the subject of illegitimate pressure three days earlier.

56.  Sixthly, and also very significantly, the Father honoured the terms of the Deed in respect of the monthly obligations until February 2008.  If he was concerned about the continuing possibility of the Mother taking the Daughter to New York, he had ample time in which to seek legal redress to secure such access rights as he was entitled to under the law.  Instead, he performed his obligations under the Deed.  This is more consistent, in my opinion, with the Father being prepared to undertake those obligations for the benefit to him of discharging his moral responsibility towards maintaining his Daughter and securing ready access to the Daughter in Hong Kong than with him having been coerced into a situation in which he had no practical alternative.

57.  Finally, the allegation of undue influence and undue pressure at the time of the execution of the Deed was only raised for the first time in a letter from his solicitors to the Mother’s solicitors dated 30 April 2008, over five months after the Deed was executed.  This letter was only written after the Mother’s solicitors had written a letter before action complaining that the Father had breached the Deed.  This delay in raising the alleged undue influence is substantial and, in my opinion, significantly undermines the alleged defence.

58.  I would accept that the Mother was driving a hard bargain and insisting on generous terms under the Deed.  The attitude she evinced towards the Father in the e-mail correspondence was, at times, spiteful.  However, the law does not preclude vigorous negotiation or punish mere spitefulness.  Something more is required to invoke the doctrine of undue influence and, in my opinion, no such additional factor is present in this case.

59.  I turn to address the individual grounds of appeal raised by the Father.

60.  In ground 1, the Father complains that the Judge erred in describing his new partner as “the immediate cause of the breakdown” (§6) and allowed this disproportionately to influence his analysis of the evidence.  I do not think there is any inaccuracy in the Judge’s description since it is clear that, once the Father committed to his new relationship, the previous relationship with the Mother would inevitably end.  But, in any event, the Judge said that “there [was] no need for [him] to determine what caused the breakdown” (§6) and therefore I do not accept that this comment by him led him into error in his fact finding in relation to the defence of undue influence.

61.  In grounds 2, 20 and 21, it is contended that the Judge erred in ordering specific enforcement of the Deed in circumstances in which the Father could not comply with it, since that would defeat the objective of the Guardianship of Minors Ordinance, namely ensuring “the welfare of the minor as the first and paramount consideration”.  However, the Deed is a specific contractual arrangement between the Father and the Mother for the benefit of the Daughter, which the Mother is seeking to enforce in the Civil Action, and it is wholly separate to any maintenance order in the GMO Proceedings.  There is no requirement for the court to consider the welfare of the Daughter in determining the issue raised in the Civil Action.  In any event, it is implicit from his finding that the Father had undisclosed income or capital that the Judge considered the Father had the ability to meet his obligations under the Deed.  Finally, the Father’s contention here is self-serving in that he is forced to rely on his own breach of the Deed to support the argument that its enforcement would defeat the objective of the Guardianship of Minors Ordinance.

62.  Ground 3 challenges the Judge’s findings based on his review of the e-mail correspondence.  Having read that correspondence closely, I do not consider that the Judge made any error in his assessment of it.

63.  Ground 4 is a complaint that the Judge failed to take into account his disbelief of the Mother’s evidence when analysing the circumstances relating to the Deed.  The Judge clearly did not accept all aspects of the Mother’s evidence but formed the view that “those blemishes did little damage to [his] assessment of her credibility on the crucial issues” (§25).  In any event, it is plain that the Judge did not rely solely on the Mother’s evidence in arriving at his findings of fact in respect of the defence of undue influence.  I have set out above the Judge’s process of reasoning in the judgment, including the negotiation of the Deed (§§27 to 51), the preparation of the Deed (§§52 to 54), the comparison of the drafts of the Deed (§§55 to 58) and the execution of the Deed (§§59 to 60), leading him to his analysis and conclusions on the Father’s defence.

64.  Grounds 5 and 6 concern the obligation in the Deed to purchase a property for the Mother and the Daughter.  Ground 5 refers to statements in the contemporaneous correspondence showing that the Father did not have the means to pay for the purchase of a property and it is contended that this shows the proposal was theoretical or aspirational and without foundational basis.  Ground 6 challenges the ability of the Father to pay for this purchase.  I do not consider either ground has merit.  The Judge was clearly aware of the statements relied upon in ground 5.  He was also clearly aware of the difference in wording between the OLN draft of the Deed and the BCC draft of the Deed.  Despite this, the Judge concluded that the Father intended to provide for the purchase of a property with a value not exceeding HK$25 million.  I do not consider there is any basis for disturbing this finding.

65.  Ground 7 seeks to contend that the Judge failed to recognise the necessity from the Father’s perspective of keeping the parties on friendly terms to avoid conflict between the Father and the Mother.  I do not consider that there is any substance in this complaint.  The Judge was well aware of the Father’s close attachment to the Daughter and this attachment provided a substantial and rational reason why the Father would wish to benefit the Daughter, as well as the Mother, through the Deed.

66.  Ground 8 contends that the Judge erred in equating the Father’s willingness to provide for the Daughter in the event of his death with a desire to make ongoing financial arrangements whilst he was living.  In my view, the Judge was entitled to regard this as a factor supporting his conclusion that the Father had a genuine intention to make generous provision for the Daughter.  But, in any event, it is important to note that this was not the only factor leading the Judge to conclude that the Deed was valid.  His conclusion in this regard was reached after considering all the circumstances leading to the execution of the Deed.

67.  Grounds 9 and 10 contend that the Judge was wrong to regard the Deed as having been based on the OLN Draft (§44) and that the only difference between them was the term concerning the purchase of a property (§56).  In my opinion, the Judge’s statement that the Deed was based on the OLN draft (§44) is accurate in fact.  He identified the differences between the versions of the Deed (§§55 to 58) and did not limit those to the difference in respect of the term concerning the purchase of the property.  His conclusion on the comparison of the terms, which I consider to be accurate, was stated in the following terms:

“58. Thus, the Deed was similar to what he had instructed OLN to draft in November 2007 …”.

68.  It was also submitted that the Judge was wrong in holding that “[t]he Deed was drafted along the lines of the OLN draft and in almost identical terms” (§66).  In my opinion, the Father’s case makes too much of this statement in the judgment.  It is true that there were differences between the terms of the OLN draft of the Deed and the BCC draft of the Deed and we were provided with a helpful table of the differences.  However, I do not believe the Judge was suggesting that the terms were literally identical.  I have referred in the previous paragraph to the Judge’s conclusion on the comparison between the different versions of the Deed and the comment of which complaint is made is to be read in the light of that conclusion.

69.  Finally, in this regard, the Father’s skeleton submissions suggested that the OLN draft did not provide for a specific maintenance sum to be paid to the Mother but this is not correct, since the OLN draft did provide for this in its clause 7.

70.  Grounds 11 and 12 relate to the question of whether the Father was pressured into signing the Deed notwithstanding his wish to show the Deed to his solicitors.  It is contended that the Father was not offered the opportunity to take independent legal advice on the terms of the Deed as reflected in clause E4.  However, the chronology shows that the Father was sent the OLN draft on 16 November 2007, ten days before the Deed was eventually signed.  I have already observed that the Judge was accurate in describing the Deed as having been drafted on the basis of the OLN draft.  The Judge was therefore entitled, in my view, to hold that the Father must have had legal advice on the contents of the Deed to the extent that its contents were based on the OLN draft, which is the gravamen of the Judge’s comment of which complaint is made in ground 12 (§67).  The draft Deed in its final version save as to one point in parentheses in respect of clause B13 was sent to the Father at 9.30 am on 23 November 2007, which provided him with the weekend to review the draft with his solicitors if he so wished.  Indeed, his immediate reaction within 15 minutes (at 9.42 am on 23 November 2007) was that “everything seems fine to me except the house part”.  This chronology does not sit consistently with a complaint that he was not afforded the opportunity to take legal advice.  If this were a decisive issue, it is surprising that the Father did not make immediate complaint of being forced to sign a document containing clause E4 and also clause E5 (which recorded that the parties entered the Deed “of their own free will” and that “no pressure or influence has been used upon them”), both of which clauses derived from the OLN draft.

71.  In this regard, it was submitted on behalf of the Father that the Judge acknowledged that at least at “the very moment of execution” the Father objected to the terms of the Deed and to signing it (§66).  I do not regard this acknowledgment as tainting the Judge’s conclusion that there was no undue influence. That conclusion was reached after consideration of all the circumstances of the case and not just the single factor of whether or not the Father might have hesitated at the point of signing the Deed.  No doubt when finally faced with the document for signature the Father may have had some qualms about the commitment he was entering into.  He may have felt resentment towards the hard bargain driven by the Mother as the price to enable him to maintain close access to the Daughter or concerns as to the financial commitment he was undertaking under the Deed.  But that does not elevate the case to one of the Father having been subjected to undue influence.

72.  Grounds 13 and 14 contend that the Judge failed to take the Mother’s threat to take the Daughter to New York and therefore to separate the Father and the Daughter properly into account in assessing the undue pressure.  In my opinion, there is nothing in this contention since the Judge was clearly mindful that the effect of the alleged threat was geographically to separate the Daughter from the Father.

73.  Ground 15 contends that the Judge erred in concluding that the viewing of a property worth HK$22 million showed an ability to pay that much for a property since the Judge also found the Father to be a “great spender” spending “far in excess of what he earns” (§75) and a “spendthrift” (§91).  Ground 16 contends that the purchase of a property was out of the ordinary, contrary to the Judge’s view (§91), compared to the parties’ previous accommodation which was rented.

74.  It is by no means clear that the Judge was equating the viewing of the property with an ability to pay (§86).  However, it is a fact that, in the course of negotiating the separation agreement, the parties identified the target property to be one of a minimum of 2,000 square feet in the Mid-levels.  This is to be seen in the light of the parties’ home in Grenville House and it is clear that the purchase of a property of some equivalence to the previous home was contemplated.  In any event, the Judge’s comment that the Deed did not provide for anything out of the ordinary to what the Father had been providing for the Mother and the Daughter (§91) is to be considered in the context of the standard of accommodation to be provided rather than the precise manner in which it was to be provided, i.e. whether rented or purchased. I do not consider there to be any error in the Judge’s approach in the manner contended in either of these grounds.

Uncertainty

75.  Grounds 17 to 21 of the notice of appeal challenge the Judge’s conclusion that there was no uncertainty in the terms of clauses B6, B13, B14, B15, C2 and E2 of the Deed.

76.  So far as the complaints of uncertainty in respect of clauses B6, B13, B14 and B15 are concerned, I find myself in respectful agreement with the conclusion of the Judge that none of these are uncertain either as to time or quantum as alleged (§§75 and 81).  I do not consider that there is any error in the reasoning of the Judge, save in one minor respect, as regards those clauses and I would respectfully adopt that reasoning in answer to these grounds of appeal (§§74 to 81).

77.  The one exception relates to the Judge’s construction of clause B14 (§78).  There, the Judge construed the phrase “her living expenses” in the part of that clause which reads “to be used by the Mother for M and her living expenses” as meaning the Daughter’s living expenses and not those of the Mother’s also.  I do not think this is correct and I would construe the words “and her living expenses” as referring to the Mother’s living expenses.  However, I do not consider this affects the substance of the Judge’s conclusion that there is no uncertainty in respect of this clause.  The supplementary credit cards are to be used for the Mother’s and the Daughter’s living expenses with an upper credit limit of HK$90,000 per month.  The HK$90,000 refers to the total credit limit on the cards rather than the spending limit, which is set by reference to the other clauses in part B of the Deed.

78.  Ground 19 asserts uncertainty in respect of clause C2 in respect of the purchase of a property.  However, no submissions were advanced in the skeleton or oral submissions made on behalf of the Father in support of this ground.  The Judge dealt with the argument of alleged uncertainty in respect of clause C2 and concluded there was no uncertainty (§§85 to 86).  I do not consider that there is any error in his reasoning in this regard.

79.  Grounds 20 and 21 assert that the Judge was in error in finding that clause E2 is not uncertain.  So far as ground 20 seeks to invoke the welfare of the child consideration in the Guardianship of Minors Ordinance, this is not a relevant factor in connection with the enforcement of the Deed.  In any event, I respectfully agree with the reasons given by the Judge for his conclusion that clause E2 is not uncertain (§§87 to 89).  Under that clause, the maintenance arrangements are to be reviewed on the 5^th anniversary of the Deed (i.e. on 26 November 2012) and, as the Judge observed, may result in the Father’s obligations being revised downwards (§87).

80.  In the course of the hearing there was some debate about the meaning of the requirement in clause B17 for the Father to provide the Mother with his cheque book on his HSBC bank account to use for daily household expenses.  However, no ground of appeal was raised in respect of this particular clause in the Deed suggesting any uncertainty arising from it.  In any event, we were shown evidence from the Mother’s affidavit that explained that during their cohabitation the Father would provide the Mother with “a blank cheque book signed so that [she] could settle any household expenses or [the Daughter’s] extra curricular activities for same”.  It is also to be noted that the requirement in clause B17 is based on a term included in the OLN draft (clause H(n)).

Appeal as to costs in the Civil Action

81.  It was submitted on behalf of the Father that the Judge’s reasons for ordering costs on an indemnity basis were not within the orthodox reasons for making such an order, as identified in Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 and JP Morgan Chase Bank v Springwell Navigation Corporation [2008] EWHC 2848.

82.  It was contended that the Father was entitled to raise the defence of undue influence given that he was “undoubtedly under some pressure to sign the Deed and the claim for undue influence was far from bogus”.  In any event, it was contended that the court had to determine the circumstances of the signing of the Deed for the purposes of its interpretation.  Finally, it was pointed out that the Father had been at least partly successful in that part of clause B16 was held to be void for uncertainty.

83.  In his Decision in respect of the costs order, the Judge found that the Father had absolutely no reason for defending the Civil Action (§28).  He gave four reasons for awarding indemnity costs.  First, the allegations of duress and undue influence were obviously a concoction as a result of his change of mind about the Deed.  Secondly, this resulted in the Mother having to incur substantial costs in prosecuting her claims, which included her having to sell a diamond ring to meet her legal expenses.  Thirdly, the Judge considered the Father had concealed wealth or had at least made unexplained transfers to unknown parties, which could have been saved for the Daughter.  Fourthly, the Father contested the Civil Action with the motive that the Mother might abandon it out of considerations as to costs.  The Judge concluded:

“The Father’s lack of an arguable defence coupled with his conduct in the litigation justified costs against him on indemnity basis” (§29).

84.  In my view, the Judge’s award of indemnity costs was within the Judge’s broad discretion on costs on the basis that he considered the Father to have advanced a defence which was wholly without basis, indeed was a “concoction”, for an ulterior purpose of depleting the Mother’s funds and with the motive of persuading her to abandon her claim.  I accept that he might have taken a different view but the role of this court is not to substitute its view for that of the Judge below but only to interfere if it is shown that the Judge has erred in principle.  In my judgment, he has not done so and I would therefore not disturb his award of indemnity costs in the Civil Action.

Conclusion

85.  For these reasons, I would dismiss the Father’s appeal and make the orders in respect of the various ancillary summonses set out above (in §36).

86.  As to the costs of the appeal, these will follow the event and so I would make an order that the Father pay the Mother’s costs of the appeal, to be taxed (for the avoidance of doubt, on a party and party basis) if not agreed.

Hon Sakhrani J:

87.  I agree with the judgment of Fok JA.