CHOW KI CHUEN v. CHOI LIN FUNG ADA

DCCJ 2139/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2139 OF 2011

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J U D G M E N T

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1.  This is an unusual contractual dispute between ex spouses against the backdrop of concluded matrimonial proceedings.

Background

2.  At the centre stage are two documents.  The first one is a declaration signed by the plaintiff the ex-husband at the instance of the defendant the ex-wife on 26 November 2010 (“Declaration”) whereby the plaintiff declared to have given up any interest in a landed property in the Mainland registered in the defendant’s name (“Property”) that might have arisen from the previous marriage with the defendant.  The Declaration was said to be required for the purpose of the sale of the Property by the defendant to a third party (“Sale”).  The second document is an undertaking signed by the defendant on 26 November 2010 which provides, inter alia, that

(1)   in consideration of the plaintiff signing the Declaration, the defendant undertook to pay the plaintiff half of the selling price of the Property, that is, the Hong Kong dollar equivalent of RMB390,000 on 31 March 2011 or sooner completion of the Sale.

(2)   Should the Sale fail to complete by 31 March 2011, the defendant further undertook to pay the plaintiff via his solicitors the sum of RMB390,000 by 5:00 p.m. on 16 May 2011 irrespective of the completion or otherwise of the Sale by 16 May 2011.  The undertaking is irrevocable and is made in consideration of the plaintiff agreeing to sign the Delcaration (“Clause 2(c)”). [1]

3.  The parties were married in March 1987 and gave birth to a son and a daughter (“Moann”).  The defendant petitioned for divorce in January 2007 and the marriage was dissolved in April 2009 with ancillary relief being granted (“FCMC 156/2007”).

4.  The Property oncefeatured in FCMC 156/2007 but the defendant asserted that the Property did not belong to her but was held on trust for her long time friend Ms Jessie Lee (“Jessie”) who was domiciled in the United States. Jessie flew all the way back to Hong Kong to testify for the defendant.  The Property was not pursued by the plaintiff any further and did not become a subject matter of ancillary relief.

5.  Also featuring in the present dispute is an offshore company incorporated in the British Virgin Islands in 2002 (“CIL”) of which the defendant was the sole director and which is said to have been set up for tax purposes of Jessie asthe sole beneficialowner thereof.  The defendant claimed to have no beneficial interest in CIL, which was accepted by the Family Court in FCMC 156/2007.

6.  Jessie is said to have entrusted her financial and investment affairs with the defendant and would from time to time arrange for money to be deposited into the defendant’s bank account for investment or personal purposes, whether or not through CIL. 

7.  It is the defendant’s pleaded case that in early 2007, the defendant suggested and Jessie agreed to purchase the Property in the defendant’s name for the benefit of and on behalf of Jessie and/or CIL.  All purchase money as well as other incidental expenditure are said to have come from Jessie and/or CIL who was therefore the sole beneficial owner of the Property.  In or around August 2010, Jessie decided and instructed the defendant to sell the Property and a buyer was found in the same month.  When she visited a notary public in the Mainland to effect the Sale, however, the defendant was told that the plaintiff’s consent to the Sale was a prerequisite despite the registration of the Property in her sole name and the dissolution of the marriage (“Requirement”).

8.  Having obtained the purchaser’s indulgence in postponing the completion of the Sale (the terms of which included a provision for return of the deposit of RMB50,000 and payment of an additional sum of RMB50,000 as compensation in case of the defendant’s failure to complete), the defendant sought the plaintiff’s consent to the Sale.  It is pleaded that the defendant was under pressure from both the purchaser and Jessie to complete the Sale as soon as possible and that she had no alternative but to seek the plaintiff’s consent to the Sale.  The plaintiff is said to have known about the financial consequence of the defendant’s failure to complete and the Requirement, and have demanded via Moann and/or correspondence between the parties’ respective solicitors in or before November 2010 for half of the selling price of the Property at RMB390,000 in return for his consent to the Sale (“Demand”).  The plaintiff is further said to have made in front of Moann a threat “to sue the Defendant resulting in her imprisonment” for her concealment of the Property during the proceedings in FCMC 156/2007 (“Threat”) and that it was only for Moann’s sake that the plaintiff was merely making the Demand but nothing more.

9.  On 26 November 2010, the parties met in the office of the plaintiff’s solicitors and in the presence of the handling solicitor Mr. Henry Wan (“Henry”) who is said to have said words to the effect of the Threat.  The defendant claims that she signed the Undertaking, which Henry had prepared in manuscript, under protest and without the benefit of independent legal advice. 

10.  In such circumstances, the defendant seeks to rescind the Undertaking on the grounds of duress, undue influence, the Undertaking being an extortionate or unconscionable bargain, estoppel by record and the defendant being Jessie’s agent in signing the same.

11.  In his Reply and Defence to Counterclaim, the plaintiff denies knowledge or actual knowledge of the purpose of Jessie in setting up CIL, the corporate information relating to CIL, the financial arrangement between Jessie and the defendant, the circumstances in which the Property was purchased and its ownership other than what he learnt from the defendant in the course of the matrimonial proceedings.  He says he only learnt from Moann about the Requirement in about September 2010 but otherwise had no knowledge of the truthfulness of such representation.  He avers that in about September 2010 Moann conveyed to him the defendant’s request for him to sign the Declaration and further represented to him that the defendant offered to pay him RMB390,000 in consideration of his execution of the Declaration (“defendant’s offer”).  He denies having made the Threat and avers that it was only after 16 May 2011 when the defendant failed to make payment in accordance with the Undertaking did he mention during a conversation with Moann that the defendant had concealed the Property during the matrimonial proceedings.  He highlights the fact that the Declaration was drafted by the defendant’s lawyer and denies that the defendant signed the Undertaking under protest or otherwise under duress or undue influence from himself or Henry.  Nor does he accept any of the other grounds on which the defendant seeks to invalidate the Undertaking.

12.  It should be noted that, for the purpose of this action, the parties obtained leave to adduce expert evidence on PRC law on the Requirement and a joint expert report was produced.  The exercise was quite unnecessary as the issue has never been whether there really was such a legal requirement in PRC law.  At any rate, the legal opinions expressed in the joint expert report at best gives a general picture by acknowledging the existence of administrative measures in certain cities requiring written confirmation by ex-couples for transfer of properties purchased during their marriage.  As it turned out, the joint expert report was not referred to by either party at trial.  As the discussion below will show, in the resolution of the present dispute, neither does it really matter how the defendant came to believe she was bound by the Requirement to obtain the plaintiff’s consent to the Sale.

The plaintiff’s case

13.  Mr. Hui put the plaintiff’s case as one of a simple contractual claim: under the agreement as embodied in the Undertaking, the defendant agreed to make payment of RMB390,000 to the plaintiff in consideration of the plaintiff making the Declaration.  The plaintiff has signed the Declaration and the defendant is therefore liable to pay.  Relying on the general principle that the courts are not generally concerned with the adequacy of consideration as admirably explained in Chitty on Contracts (31^st ed) §§3-014 to 3-015, Mr. Hui submitted that the signing of the Declaration, irrespective of its validity or legal effect, is good consideration flowing from the plaintiff to the defendant to support his claim for the contractual sum of RMB390,000. 

The plaintiff’s evidence

14.  In his witness statement, the plaintiff said the defendant did not mention the specific address of the Property during the matrimonial proceedings other than referring to a property in Foshan City of Guangdong Province.  He only came to know that the Property was the property in Foshan City when the defendant sought his consent to the Sale.  Around August 2010, Moann called him to say the defendant was about to sell the Property and his consent was required according to the Mainland law.  Moann then conveyed to him the defendant’s offer.  He took time to consider and had spoken to Moann over the phone and in meeting a number of times when Moann urged him to agree to give his consent as he might need the money for his daily use.  Then came the draft of the Declaration from the defendant’s solicitors in late August 2010 and he proceeded to seek legal advice and engaged Henry to handle the matter in about October 2010.  To protect the plaintiff’s interest, Henry recommended that the defendant should sign an undertaking to pay to the plaintiff half of the selling price of the Property, hence the Undertaking.  Moann related the recommendation to the defendant who agreed, hence the meeting of 26 November 2010.  Since the defendant came on her own, Henry told her at the start of the meeting that she could attend with her own lawyer from whom she could seek independent legal advice but the defendant declined.  After a peaceful discussion for over three hours, the parties agreed on the terms of an undertaking before Henry wrote out the same for the parties to sign.  Neither he nor Henry had in any way threatened, coerced or unduly influenced the defendant to make her sign the Undertaking.  And the defendant signed the Undertaking in her own right rather than as an agent.  On 1 December 2010, he visited the defendant’s solicitors in Wanchai and signed the Declaration in accordance with the parties’ agreement but the defendant has since failed to pay him RMB390,000 as promised.

15.  In cross examination, the plaintiff maintained that when asking him to sign the Declaration, Moann remarked that he was in need of money.  He however admitted that in fact he was not in need of money.  He denied having taken the initiative to demand the sum of RMB390,000 or having made the Demand and insisted that it was Moann conveying the defendant’s offer to him.  When the defendant failed to pay him, he mentioned during a conversation with Moann that the defendant might have concealed the Property during the matrimonial proceedings.  He was however equivocal as to what brought him to raise this with Moann other than agreeing with Mr. Kalvin Chan, Counsel for the defendant, that he thought this remark would make the defendant pay.  It was put to him that during a dinner gathering with his son and Moann before 26 November 2010, he claimed he could sue the defendant and put her to prison but, for the sake of Moann and his son, he stopped shortly of doing so.  He denied the same but otherwise admitted to have said he agreed to sign (the Declaration) only for the sake of Moann and his son. 

16.  It is of note that in re-examination, the plaintiff admitted that he believed the defendant was the beneficial owner of the Property rather than a trustee.  That being so, he considered it fair for him to have half (of the selling price). 

The defendant’s case

17.  Mr. Chan put the defendant’s case as thus: the plaintiff, disgruntled after losing substantial assets in the earlier matrimonial proceedings, seized the opportunity to exploit his privilege under PRC law in extorting RMB390,000 from his ex-wife, the defendant, by duress and/or undue influence in an unconscionable dealing. The defendant however concedes that the burden is on her to vitiate the agreement/Undertaking.  At trial, the defendant no longer pursued the defence of estoppel or agency.  It is implicit in the defendant’s argument that the Undertaking is otherwise valid and enforceable.

18.  To run the three lines of defence, Mr. Chan quoted extensively from and relied heavily on Nelson Enonchong, Duress, Undue Influence and Unconscionable Dealing (2^nd ed) as well as Chitty on Contracts in his 40-page opening submissions.  

19.  Having referred to the two elements in the wrong of duress as explained by Lord Scarman in Universe Tankships Inc of Monrovia v ITF [1983] 1 AC 366 at 400C, namely, (1) pressure amounting to compulsion of the will of the victim, and (2) the illegitimacy of the pressure exerted, Mr. Chan ran a case of duress of the person and/or economic duress. 

20.  On duress of the person, Mr. Chan characterized the Threat as one of illegitimate threat of criminal proceedings which Henry subsequently repeated before the parties signed the Undertaking.  Mr. Chan relied on, inter alia, the following passages in Enonchong, op cit and Chitty on Contracts.  A threat to prosecute, even when perfectly proper in itself, in the sense that a prosecution would be justified, may amount to an improper threat for the purposes of the law, if it is coupled with a demand for restitution or for a promise of restitution or other contractual undertaking.  See Chitty on Contracts §7-049.  A threat to institute a criminal prosecution unless the complainant pays money or enters into an agreement has long been regarded as illegitimate.  It is enough that the contract was entered into as a result of a desire to prevent a prosecution and that desire was known to the other contracting party even if there is no specific charge or there is no existing state of facts justifying criminal proceedings on such a charge.  What matters is that the person threatened believes the assertion that there is some basis for a criminal prosecution and by reason of that belief is induced to enter into the contract or to make a payment.  A threat may be unlawful even though it is a threat to do a lawful act, depending on the nature or purpose of the demand which the threat is applied to support.  Even where a threat of lawful action is not unlawful, the conduct of the person in making the threat to back a particular demand may be regarded as unacceptable and therefore illegitimate.  Here the question is not whether the conduct is lawful but whether it is morally or socially unacceptable although the authorities do not disclose any precise test by which the court is to answer this question.   See Enonchong, op cit, §§5-013 to 5-016 and 3-017 to 3-023.  It is sufficient that the threat was a reason rather than a predominant reason for the victim entering the contract.  See Chitty on Contracts §7-026.  

21.  Mr. Chan argued that the plaintiff and/or Henry when making the Threat either knew or ought to have known about the falsity of the allegation of the defendant having concealed the Property in the matrimonial proceedings and the Threat was made with the plaintiff’s malice (grudge) against the defendant resulting from the distribution of assets in the matrimonial proceedings or for the improper motive of extorting money from the defendant to the plaintiff’s benefit.  Even if the Threat coupled with the Demand is found to be lawful, Mr. Chan submitted, it was wrongful for the plaintiff to make the Threat to support the Demand when threatening to report the defendant to the police for perjury to support a demand for money from the defendant would tantamount to blackmail.

22.  As to economic duress, Mr. Chan relied on, inter alia, the following exposition of the law. It is not illegitimate for a person who is under no duty to contract with another to threaten not to contract with that person except on particular terms.  However, if the threat not to contract with another except on specified terms is made to back a demand that is not made in good faith, it may be regarded as illegitimate.  See Enonchong, op cit, §3-030.  In this context, the threat must normally be one of some gravity.  How serious the threats must be in order to constitute duress may depend on the physical and mental condition of the person threatened.  Weakness of intellect or fear, whether reasonably entertained or not, may be relevant factors which should be taken into account.  See Chitty on Contracts §7-034.  The court looks at the subjective circumstances of the complainant, such as his age, health, financial circumstances or receipt of legal advice.  A threat to refuse to complete a contract, the performance of which is essential for the complainant to meet his commitments to a third party, is regarded as putting the complainant under pressure.   See Enonchong, op cit, §34-002.

23.  Mr. Chan argued that the plaintiff’s insistence on including Clause 2(c) requiring the defendant to pay him RMB390,000 whatever the result of the Sale was to back a demand not made in good faith because the plaintiff was seizing the opportunity to take advantage of his privilege under the Requirement  and the defendant’s constraint by reason of her commitment to the Sale to extort the exorbitant sum of RMB390,000 for abandoning something he knew he had never had.  He invited the court to take into account the defendant’s circumstances up to the signing of the Undertaking as well as her subjective view in determining the gravity of the Demand.

24.  As regards the applicable test for causation in a case of economic duress, Mr. Chan was aware of a line of authorities in favour of the adoption of the “but for” test as discussed in and endorsed by Chitty on Contracts at §7-028.  He however invited the court to adopt the counter argument in Enonchong, op cit, §§4-005 to 4-014 in favour of the less stringent Barton v Armstrong test, that is, it is enough that the illegitimate pressure was a reason, not the reason nor the predominant reason or cliching reason why the complainant acted as he did.

25.  As regards the defence case on undue influence, the defendant ran a case of actual undue influence exercised by the plaintiff and/or Henry, relying on substantially the same facts supporting her case on duress.  Here, reference is made to the English Court of Appeal’s judgment in Bank of Credit and Commerce International SA v Aboody where Slade LJ said: “…we think that a person relying on a plea of actual undue influence must show that (a) the other party to the transaction…had the capacity to influence the complainant; (b) the influence was exercised; (c) its exercise was undue; (d) that its exercise brought about the transaction”; and to the two-prong requirement of the complainant’s capacity to make a free and informed judgment having been impaired by the defendant’s improper or unconscionable conduct as discussed in Enonchong, op cit, §§7-005 to 7-006 and 8-003 to 8-007.  As to the test for causation, as in the cases of fraud, actual undue influence must have influenced the contract but undue influence need only be a significant reason rather than the principal reason.  See Chitty on Contracts §7-072.

26.  In arguing for the defence case on unconscionable dealing, Mr. Chan referred to the three requirements, all of which must be proved before the ground is made out, distilled from Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1983] I WLR 87 at 94-95 and Strydom v Vendside Ltd [2009] EWHC 2130 (QB) at [35] as follows: (i) the party seeking relief must have been under some special disadvantage or disability (such as poverty or ignorance); (ii) the stronger party must have acted in a way which is unconscientious in taking advantage of the weaker party’s disability (that is to say, there must be impropriety in the stronger party’s conduct); and (iii) there must be a significant imbalance in the substance of the transaction to the disadvantage of the weaker party.  Special disadvantage should not be confused with ordinary inequality of bargaining power though.  See Enonchong, op cit, §§15-005 to 15-007.

27.  Mr. Chan sought to establish a special disadvantage on the defendant’s part by reference to her commitment to the Sale and her constraints under the Requirement, which the defendant honestly believed to have existed and which effectively gave the plaintiff a de facto right to veto or to cause substantial delay in the Sale, coupled with the plaintiff’s knowledge of the same.  As to the requirement for impropriety in the plaintiff’s conduct, Mr. Chan argued that the plaintiff had actual or constructive notice of the defendant’s special disadvantage/disability and had brought pressure to bear on her by means of the Threat.  It matters not that the initiative came from the defendant because there can be passive acceptance of the benefit in unconscionable circumstances.  See Enonchong, op cit, §§17-019 and 17-024.  Mr. Chan further argued that impropriety could be inferred from the terms of the bargain here, which include the requirement for the defendant to pay RMB390,000 to the plaintiff who had no interest in the Property and had never contributed anything to the acquisition of the Property and the payment would have to be paid no matter whether the Sale could be completed.  Mr. Chan also drew an analogy between the present case and the old English case of Evans v Llewellin [1787] 1 Cox 334 1191 in which an unconscionable bargain was found (even though the plaintiffs were cautioned to take time to consider the matter and seek advice but they declined) when there was not sufficient locus penitentiae and no person present to give advice to the plaintiffs who were entirely in the hands of their counterparts.

The defendant’s evidence

28.  In her witness statement, the defendant explained why she had no alternative but to seek the plaintiff’s consent to the Sale and her instruction to Moann to approach the plaintiff who subsequently sought and obtained from Moann information about the selling price of the Property and the penalty in case of the defendant’s failure to complete.  Meanwhile, she engaged a lawyer to draft a declaration which was faxed to the plaintiff around 25 August 2010.  Subsequently, she learnt from Moann about the Demand as well as the Threat which the plaintiff made during a dinner.  She was “irritated” and told Moann to arrange a meeting between her and the plaintiff but the plaintiff declined.  On 26 November 2010, she met the plaintiff at Henry’s office.  During the meeting, the plaintiff repeated or said words to the effect of the Demand to her and either the plaintiff or Henry insisted on inclusion of Clause 2(c) to protect the plaintiff’s position because upon the plaintiff signing the Declaration the defendant would be able to sell the Property anytime for any price and to anyone.  After Henry wrote out the Undertaking, she was too annoyed to wait for the same to be typed out and simply signed on the manuscript under protest.  She said she could not realistically have any independent legal advice as she had no alternative but to sign the Undertaking given the Requirement.   

29.  The defendant’s oral evidence presented quite a different picture. She said Jessie decided and instructed her to sell the Property because of the latter’s worry about the US tax authority managing to trace the Property to her (“Jessie’s Worry”).  As the price of the Property had gone up considerably, she agreed Jessie should sell the Property anyway.  After learning about the Requirement, she sought advice from both lawyers and estate agents who advised her that she had no alternative but to seek the plaintiff’s consent to the Sale.  When Moann told her about the Threat, she was quite surprised.  Upon checking her financial statement made in the matrimonial proceedings (“Form E”), she realized the Property was not reported and was very worried.  At the commencement of the meeting on 26 November 2010, the first thing Henry said was that she could be sued for failing to report the Property.  She was even more worried when the same message came from a lawyer’s mouth.  Acutely aware of the difference between what the plaintiff asked for and the penalty payable on her failure to complete the Sale, she revealed her real concern was not the penalty for failing to complete but Jessie’s Worry.  She was worried that it would be even harder to sell the Property after the plaintiff’s demise.  Incidentally, she expected that she and the plaintiff could truly become separate people after the Sale.  Therefore, she would rather pay RMB390,000.  She subsequently refused to pay after an uncle advised her that in law she need not pay the plaintiff.  

30.  In cross examination, she admitted that she used to be an investment consultant.  While not enjoying any beneficial interest in CIL, she somehow could draw money from CIL’s bank account for her own use as she managed CIL’s affairs for Jessie and would at times make payment for CIL from her own bank account.  She admitted to have obtained loans from Jessie from time to time.  She said Jessie was effectively supporting her living since her divorce.  Indeed, she had kept the proceeds of the Sale in her bank account in the Mainland and would regularly withdraw money out of the proceeds to make payment of various kinds on Jessie’s behalf. 

31.  As to Jessie’s Worry, Jessie merely said she was worried that the US tax authority might be able to trace to the Property but then the two of them did not discuss the topic in any detail.  The defendant was unable to say how there could be tracing to the Property other than the fact that payment for the Property was drawn from CIL’s bank account in Hong Kong.  In her later answers, the defendant admitted that Jessie had never put pressure on her to effect the Sale as soon as possible.  It was the defendant who put pressure on herself to complete the Sale.

32.  The defendant was also asked why she should worry about the Threat or even bother to check her Form E at all when it was her conscious decision not to include the Property in her Form E in FCMC 156/2007 because the Property did not belong to her.  In an answer which did not address the apparent lack of justification for her worry, the defendant simply said she would not have worried so much had the plaintiff not said he would sue her and put her to prison.  It was then pointed out to her that she could have sought advice from her own lawyer if worried about the Threat. Again without actually dealing with the query, she said she did not wish to spend more money on legal costs and just wished to sell the Property as soon as possible.  In later answers, she attempted to rationalize her worry by referring to a past instance in which the plaintiff was pursued by the Inland Revenue Department for outstanding tax liability and the plaintiff told her that one might end up in jail in arguing with the tax authority.  The defendant said this remark had an impact on her, hence her worry about the Threat even though she had no idea how the plaintiff could put her to jail when all she failed to do was to include in Form E something not belonging to her.

33.  When asked how she would pay the RMB390,000, the defendant said she intended to pay out of her own resources instead of the selling price because it was something between her and the plaintiff with which she did not wish to bother Jessie.  She was however equivocal as to how she would manage to pay when she said she did not have the means.  In later answers, the defendant said she did not even wish to borrow from Jessie because the latter would have given her the money without the need for repayment had she asked.  She seemed to be justified in this belief because she later revealed that in the past two years she had been drawing money from CIL as her living expenses.  Suffice it to say the financial arrangement between the defendant and Jessie has remained a myth even after trial.

34.  On what Henry had actually said at the start of the meeting on 26 November 2010, the defendant clarified that Henry merely said she could be sued for failing to report the Property without saying she could be sued and be put to prison for the same reason.  It is of note that she then retorted by saying she had in fact reported the Property and Henry appeared to be puzzled by the answer and simply brushed off the issue and proceeded to hold the meeting.  She confirmed that Henry did ask if she would need a lawyer but she saw no need therefor when she would have to sign the Undertaking anyway in order to sell the Property.  As to the ensuing discussion among the parties, suffice it to say what the defendant depicted was a showdown of words before the parties finally agreed on the terms of the Undertaking.   The plaintiff did say he required payment to be made whether or not the Sale went through but he explained this was because his consent would enable the defendant to sell the Property in future even if the Sale fell through.

35.  In answer to the observation of Mr. John Hui, counsel for the plaintiff, that from the defendant’s own evidence, one could hardly see the defendant was labouring under any fear for imprisonment, the defendant did not respond by insisting that she was in fear of imprisonment but simply emphasized that her ultimate aim was to resolve the matter and there would be nothing left to fear for once the matter was resolved.  Without hesitation, she agreed with Mr. Hui’s comment that she appeared to be more eager than the plaintiff to resolve the matter.  

Moann

36.  Moann is currently working for a hotel in the United States and flew back to Hong Kong to testify for the defendant.  She said she met the plaintiff twice before the defendant signed the Undertaking.  The first meeting was in August 2010 when she first asked the plaintiff to assist the defendant by giving his consent to the Sale.  The defendant’s response was in my view quite natural when he asked why his consent was required when the Property did not belong to the defendant.  Despite Moann’s explanation, the plaintiff was initially unwilling to assist.  The plaintiff later called to ask about the selling price and asked for half thereof in exchange for his consent.  She related the same to the defendant who was furious about the demand and responded with an exclamatory remark that what could be earned from the Sale would not be sufficient to pay the plaintiff (“exclamatory remark”).[2]  That said, however, the defendant appeared to be more concerned about securing the plaintiff’s consent the soonest possible because she also indicated she had no choice but to pay or else it would be even more troublesome in terms of documentation in the event of the plaintiff’s demise.

37.  The second meeting took place at a dinner on 18 October 2010 arranged by Moann to celebrate the plaintiff’s birthday (“birthday dinner”).  On that occasion, Moann said she tried to talk the plaintiff into accepting a lower sum for his consent to the Sale.  The latter refused and retorted that in fact he could have sued her mother and put her to prison for failure to disclose the Property during the matrimonial proceedings.  Moann reiterated that the Property was in fact disclosed during the matrimonial proceedings and that his lawyers must have failed to explain this to him.  The plaintiff disagreed and insisted that the defendant had failed to disclose the Property, and Moann said no more.  That was all Moann could recall about the conversation with the plaintiff during the dinner. 

38.  At this juncture, Moann was invited to look at paragraph 19 of her witness statement prepared in English by the defendant’s legal representative which reads: “…The Plaintiff further threatened to sue the Defendant resulting in her imprisonment for having allegedly concealed the Property during the proceedings in FCMC 156/2007…, and it was only for my sake that he was merely making the Demand but nothing more.”  She could not understand the underlined part even after taking time to read the same carefully.  As it turned out, Moann confirmed during cross examination that the plaintiff had furhter said to the effect that he agreed to sign (the Declaration) for the defendant for the sake of Moann, or else he could have sued her mother and put her to prison for her failure to disclose the Property.[3] Moann confirmed that the plaintiff made this remark upon refusing to accept less than half of the selling price.  This episode serves as a resounding reminder to practitioners that it is desirable, if not imperative, to draw up a witness statement in the language with which the witness is familiar, especially if the actual content of a conversation is in dispute or otherwise has an important bearing.

39.  The defendant’s response upon Moann relating to her what the plaintiff said during the dinner is noteworthy.  In her witness statement, Moann described the defendant as “seemingly irritated” by the plaintiff’s remark.  In her testimony, Moann described the defendant as being puzzled by the plaintiff’s accusation.  When asked if the defendant had by words or by conduct shown herself to be panicking, Moann said the defendant only felt puzzled.  Apparently more concerned about the plaintiff’s consent to the Sale, the defendant then asked if the plaintiff had indicated when he would sign the necessary document and Moann replied in the negative.  After waiting for a while, the defendant took the initiative and asked Moann to arrange a meeting between the plaintiff and the defendant.   

40.  In cross examination, Moann clarified that when making the exclamatory remark, the defendant meant what Jessie and not the defendant could earn from the Sale would not be sufficient to satisfy the Demand.  Contrary to the defendant’s evidence, Moann said she understood from the defendant that the sum of RMB390,000 was to be paid out of the proceeds of the Sale and it would therefore be Jessie who would suffer loss. 

Did the plaintiff make the Demand?

41.  The plaintiff denied having made the Demand and alleged that it was the defendant who, through Moann, made the defendant’s offer in return for his consent to the Sale.

42.  On balance, I am inclined to think it was unlikely for the defendant to have made the defendant’s offer.  The defendant’s offer is totally inconsistent with the defendant’s stance throughout the earlier matrimonial and the present proceedings that the Property was beneficially owned by Jessie.  A sudden offer from her to pay the plaintiff half of the selling price in order to effect the Sale would definitely give rise to suspicion as to whether the Property in fact belonged to the defendant herself.  On the contrary, the plaintiff’s own testimony and his conduct after Moann related to him the defendant’s request for his consent to the Sale point to the plaintiff being the one asking for half of the selling price.  For one thing, while acknowledging to have contributed nothing towards the purchase of the Property, the plaintiff admitted that he believed the defendant to be the true owner of the Property so that he should be entitled to half of the selling price thereof under the overriding principle for equal distribution of family assets between divorcing spouses as applied in FCMC 156/2007 (“overriding principle”).   His belief in his entitlement to half of the selling price is best manifested by his demand via Henry’s letter for half of the estimated value of the Property which suggests that he did not accept the defendant’s assertion as to the selling price and would like to ensure he would get half of the true value of the Property.  This is inconsistent with the plaintiff’s suggestion that he was passively receiving an offer from the defendant.  On balance, I prefer Moann’s evidence that it was the plaintiff who first demanded RMB390,000.  

Whether the Threat was made as pleaded

43.  I first deal with the timing of the plaintiff’s reference to the defendant’s concealment of the Property in the previous matrimonial proceedings, whether in the form of the Threat or otherwise.  The plaintiff said he accused the defendant of having concealed the Property only because the defendant failed to make payment after 16 May 2010.  In cross examination, however, he was unable to offer any good reason for bringing this up with Moann other than agreeing to counsel’s suggestion that he thought this would prompt the defendant to pay.  On the other hand, on his own admission, he never believed the defendant’s assertion that the Property belonged to Jessie.  If long after the matrimonial proceedings were concluded the plaintiff suddenly approached him through Moann for the sale of the Property, this could only have reinforced his belief in the true ownership of the Property.  That being so, it is only logical for the plaintiff’s suspicion to have featured in the conversation between the plaintiff and Moann soon after the latter brought up the Property and the defendant’s intended sale thereof. I therefore find it more likely than not that the plaintiff had referred to the defendant’s concealment of the Property in the earlier matrimonial proceedings during the conversation with Moann prior to the signing of the Undertaking.  Next I consider whether the Threat was made as pleaded. 

44.  The defendant’s pleaded case is that the plaintiff made a threat “to sue the Defendant resulting in her imprisonment” for her concealment of the Property during the proceedings in FCMC 156/2007 (“Threat”) and that it was only for Moann’s sake that the plaintiff was merely making the Demand but nothing more.  The threat was allegedly made during a meeting with Moann who then related the same to the defendant.

45.  This is where the defendant’s case begins to fall apart.

46.  Noting the discrepancy between Moann’s evidence and the defendant’s pleaded case, namely, “睇在你份上我先至幫你媽媽簽”  instead of “睇在你份上我先至只係要錢而唔告佢”, Mr. Chan submitted that the difference was immaterial in that “幫你媽媽簽” (sign (the Declaration) for the defendant) was substantially the same as “只係要錢” (merely making the Demand), being the other side of the coin, and that the omission of the last few words “而唔告佢” (and did not sue her) did not detract from the effect of the preceding sentence which constitutes the Threat and contains the real sing and coercive effect.    

47.  I disagree.  In Moann’s evidence, the plaintiff is said to have remarked that “he agreed to sign (the Declaration) for the defendant only for the sake of Moann, or else he could have sued her mother and put her to prison for her failure to report the Property”.  He never said for the sake of Moann he merely made the Demand and did not sue the defendant. This can make a world of difference.  What Moann heard the plaintiff said is clearly one single statement and one cannot dissect the statement in the same way as the defendant did in her Defence and assert that the first part contains the Threat while ignoring the words following the phrase “or else” which forms an inseparable part of the statement.  Context is important here.  One would have found it odd for the plaintiff to have made the Threat out of the blue and in front of his son and daughter on the occasion of the birthday dinner.  What transpired was that Moann attempted on her own accord to talk the plaintiff into agreeing to accept a lower sum in return for his consent to the Sale.  It was this bargain talk of Moann that prompted the plaintiff to make the said remark which was clearly collateral to his refusal to accept anything less than half of the selling price, to which he firmly believed he was entitled under the overriding principle.  The plaintiff was not asserting his right to sue the defendant to back up the Demand.  He was merely refusing to reduce his demand which he made, as I have found, well before the dinner and long conveyed to the defendant who on her own evidence appeared to be prepared to pay, even if reluctantly.  

48.  Quite contrary to the defendant’s assertion, the said remark of the plaintiff tends more to show that he did not have any intention to take legal action about what could be an act of perjury on the defendant’s part but was merely concerned about securing his entitlement to half of the selling price.  Furthermore, there is no evidence to suggest that the plaintiff had, after uttering the remark, directed either of his children to relate the same to the defendant, whether to make the latter agree to the Demand or otherwise.  Incidentally, Moann was clearly unintimidated by what the plaintiff said when she managed to rebuff the plaintiff by reiterating the defendant’s stance that the Property was in fact disclosed in the matrimonial proceedings.  I agree with Mr. Hui that the Threat sounds more like an incidental comment during the conversation between the father and the daughter.

49.  On balance, I find the defendant to have failed to prove that the plaintiff made the Threat.

The Threat having no causative effect

50.  Even if the Threat was made as pleaded, for the following reasons I am not satisfied that it had any causative effect on the defendant in her final decision to sign the Undertaking in return for the plaintiff’s consent to the Sale.

51.  Throughout the previous matrimonial proceedings and the present proceedings, the defendant was adamant that Jessie was the beneficial owner of the Property and she was just a nominal owner.  She was entirely justified to maintain this stance when Jessie had taken the trouble to fly all the way back to Hong Kong to confirm the ownership of the Property, which must have been the reason for the plaintiff not to pursue the Foshan property in FCMC 156/2007.  That being so, one cannot possibly think of any basis whatsoever for the defendant’s belief in or fear for the Threat.  Apparently appreciative of the inexplicable nature of her alleged fear, all the defendant could do was to agree with the convenient proposition put to her during trial that she feared the plaintiff and/or Henry might somehow be able to turn her conscious decision not to disclose the Property in FCMC 156/2007 against her and put her to prison even though she could not imagine how that could happen.  I find her fear so unjustified as to be totally incredible and I reject her evidence in this regard. 

52.  In his closing submission, Mr. Chan stressed that it is sufficient under the head of duress of the person for the Threat to be a reason and for the defendant to believe there was some basis for a criminal prosecution whether or not a particular form of prosecution was pointed out and whether or not there was in fact any real ground for instituting a criminal proceeding.  See Seear v Cohen (1882) 45 LTR 589 at 590.  To find a basis for the defendant’s fear, he referred to the defendant’s testimony that on checking the Form E she realized she had indeed failed to specifically refer to the Property.  However, he defendant was not even able to explain why, in the light of her stance on the ownership of the Property as aforesaid, she would bother to check the Form E in the first place when she must know full well that the Property had not been disclosed in that statement.  As a matter of fact, the defendant’s oral evidence unfolded a picture of someone who was hardly labouring under any fear of penal consequence for concealment of the Property in the earlier matrimonial proceedings.  One need only look at the defendant’s calmness when Moann related the Threat to her. Just like Moann, the defendant rebuffed the idea of concealment of the Property.  She was merely perplexed about the plaintiff’s accusation but hardly showed any sign of anxiety or helplessness.  It is interesting to note that in both the witness statements of Moann and the defendant herself, the defendant was described as being irritated, and not frightened, by the Threat.  

53.  Neither am I satisfied that Henry had repeated the Threat at the meeting of 26 November 2010 so as to substantiate the defendant’s alleged fear.  At trial, the defendant clarified that Henry did not say anything about putting the defendant to prison.  Henry was immediately rebuffed by the defendant and said no more on the topic of concealment. As Mr. Hui rightly observed, Henry appeared to have lost the argument rather than succeeding in threatening the defendant.  Not only was she unintimidated by Henry’s remark, the defendant even felt able to do away with independent legal advice in bargaining with her legally represented counterpart on the terms to be included in an undertaking.  Indeed, the defendant admitted to have been more eager than the plaintiff in securing the latter’s consent to the Sale.  She could not even wait for Henry’s draft in manuscript to be typed out and proceeded to sign the same after confirming the same to be legally valid and binding.  As Mr. Hui submitted, all these show every bit of the defendant’s willingness to procure the parties’ agreement to be drawn up and signed, which is totally inconsistent with any sign of duress. 

54.  It is the defendant’s pleaded case that the plaintiff was aware of the financial consequence of the defendant’s failure to complete the Sale and the Requirement which put pressure on the defendant to complete the sale as soon as possible leaving her with no alternative but to seek the plaintiff’s consent to the Sale.  In fact, the defendant was not worried about the financial consequence of her failure to complete the Sale and would rather pay almost four times the penalty in securing the plaintiff’s consent to the Sale.  There is no evidence that the purchaser was pressing for completion or early completion of the Sale at all.  On the contrary, during the meeting of 26 February 2010 the defendant said she was doubtful if the purchaser would still want to complete the Sale.  It might well be that the Sale could have been cancelled by consent without the defendant having to pay any penalty at all.

55.  Nor was the defendant under any pressure from Jessie.  The pressure was self-induced in that the defendant saw Jessie’s instruction to sell the Property as a mission which she must complete in order to alley Jessie’s Worry.  Mr. Hui had attacked the credibility of the defendant’s allegation about Jessie’s Worry.  For the purpose of deciding whether the defendant was laboring under any duress, however, I need only accept what the defendant said at face value.

56.  More importantly, the plaintiff could not possibly be aware of the true reason for the defendant to have agreed to the Demand when there is no evidence of the defendant having ever told him about Jessie’s Worry.  All the plaintiff knew was that the defendant was selling the Property and in so doing would require his consent under PRC law.  Even if it had ever occurred to the plaintiff that the defendant was, as a result of her commitment to the Sale and the Requirement, placed at a special disadvantage and that he was making use of the same to make the latter accede to the Demand, the defendant was not in fact subjected to any such pressure from the plaintiff in agreeing to the terms of the Undertaking.

57.  In rebuttal of the plaintiff’s criticism of the defendant’s failure to seek independent legal advice, Mr. Chan sought to justify the defendant’s belief in the Requirement in furtherance of his submission that it would be futile for the defendant to obtain legal advice because this would not have saved the need for the Declaration.  This argument is misplaced.  The question is not whether there actually was the Requirement or whether the defendant believed she was bound by the same.  The question here is why she consciously decided not to seek independent legal advice, not even from the lawyer who represented her in the matrimonial proceedings or the drafter of the Declaration, on whether her fear for the Threat was justified or whether she had no option but to subject herself to what she now criticizes as an unconscionable dealing.  The defendant was clearly having ready access to legal advice well before the meeting at Henry’s office.  She said she did not wish to incur further legal costs.  Her nonchalance could only be explained by the fact that she had no fear whatsoever for the Threat.  Far from demonstrating any weakness of intellect or fear or special disadvantage, she has proven herself to be determined to strike a deal with the plaintiff both to resolve Jessie’s Worry and to secure a truly clean break with the plaintiff.

58.  Nor did the defendant appear to suffer from impecuniosities.  While the defendant reportedly intimated to the plaintiff during the meeting on 26 February 2010 that she would have no money to pay him if the Sale fell through, the extension of time to mid May 2010 under Clause 2(c) must have gone someway to alleviate the defendant’s concern.  More importantly, the agreed extension of time militates against the suggestion that the defendant was suffering from impecuniosities.  It is the defendant’s case that she signed the Undertaking under the Threat.  If so, she must have signed the same to avoid having to go to prison.  If the defendant knew there was no way she could pay the plaintiff by mid May 2010 should the Property remain unsold by then, the plaintiff would execute the Threat and put her to prison upon her failure to pay by the deadline.  The extra six weeks or so must therefore reflect a genuine estimate on the defendant’s part with a view to catering for her own need in effecting payment to the plaintiff in the event that the Sale fell through.  Worse come to worse, the defendant could borrow from Jessie who clearly has no urgent need for the sale proceeds which are still kept by the defendant.      

59.  Quite understandably, Mr. Hui mounted attacks on the defendant’s evidence on her relationship with Jessie and the financial arrangement between them in justifying the plaintiff’s disbelief regarding the true ownership of the Property.  Suffice to say the true ownership of the Property remains a myth to this date.  I agree with Mr. Hui’s observation that in the course of the parties’ negotiation (through Moann) from August to November 2010, the defendant had not provided any level of comfort to the plaintiff to reassure him that Jessie was the real beneficial owner of the Property.  In the circumstances, it would not be surprising for the plaintiff to say he did not believe the defendant’s claim that she was only a nominal owner of the Property.  Insofar as is necessary, I accept that the plaintiff genuinely believed the Property belonged to the defendant and in making the Demand he thought he was entitled to half of the selling price of the Property under the overriding principle.  To that extent, the Demand cannot be criticized as “unjustified or unrelated with the purpose for which the right to exercise the lawful action was granted”.  Neither would the court concern itself with the question as to whether the Demand is exorbitant so long as the defendant freely agreed to the same.

60.  Nor can the defendant now be heard to complain about the reasonableness of Clause 2(c). This was clearly a result of hours of negotiation between the parties.  According to the defendant, the plaintiff did explain why he required the inclusion of such a term and the defendant herself seemed to have accepted the plaintiff’s reason or otherwise agreed that the Property would be freed from any restriction upon the plaintiff signing the Declaration so that even if the Sale did not go through the defendant would still be able to sell the Property in future.  No impropriety can therefore be inferred from the terms of the bargain.

61.  In conclusion, I find the defendant to have failed to establish any duress, whether in the form of duress to the person or economic duress.

62.  In Profit Step Development Ltd & Anor v Sun Rising Developing (Agriculture) Ltd (1649/2008) unreported, 30 November 2010, Fok J (as he then was) was invited to rule on the question of whether the appropriate test of causation for economic duress is a “but for” test as opposed to a less exacting one.  The learned judge noted that a similar question arose in Esquire (Electronics) Ltd v Hongkong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439 but the Court of Appeal did not consider it necessary to answer the same given the facts of that case.   Similarly, Fok J did not consider that the question need to be resolved in the case before him since the issue in dispute could be answered without resolving the legal issue and because it was not fully argued by counsel.  In the same vein, I find it unnecessary to address the issue here.

63.  Nor does Mr. Chan’s rather flimsy argument on undue influence convince me that the plaintiff, the ex-husband, or Henry, the plaintiff’s solicitor who had advised the defendant of her entitlement to independent legal advice, neither of whom the defendant would have placed any trust, could possibly have or had in fact exercised any undue influence on the defendant who could have sought but chose not to obtain legal assistance and who was determined to obtain the plaintiff’s consent to the Sale in order to alley Jessie’s Worry and incidentally secure a truly clean break with the plaintiff, a result which could not be said to be disadvantageous to the defendant.  As Mr. Chan rightly noted, a critical element of undue influence is that the stronger party has overcome the complainant’s will without convincing his reason: Enonchong, op cit, §8-003. Here one can hardly say the defendant’s free will was impaired in any way. Rather, she exercised her free will in signing the Undertaking to achieve purposes unbeknown to the plaintiff.

64.  As to Mr. Chan’s argument on unconscionable bargain, Alec Lobb (Garages) Ltd and Strydom, supra, as well as several other cases involving alleged unconscionable bargains were considered by Waung J in Lo Wo & Ors v Cheung Chan Ka & Anor [2000] 2 HKLRD 370 at 381B-382F before the learned judge summarized the relevant legal principles in the following terms:

“ …it seems to me that a fair reading of the relevant authorities including authorities from Australia suggest the following factors are relevant to Court’s consideration of whether to set aside for unconscionable bargain.

1. Serious Disadvantage of the Exploitee

The traditional requirement of poverty and ignorance of the person exploited (“Exploitee”) stated in the old cases such as Fry v Lane had been broadened in recent years to include all species of serious disadvantage so that age, poverty, ignorance, lack of assistance or independent advice or inability to judge what is in his best interest are merely various aspects of serious disadvantage suffered by the Exploitee giving rise to the opportunity for the other party who gains from the transaction (“Exploiter”) to take unconscionable advantage.

2. Terms of Bargain being Oppressive

The cases have shown that mere inadequacy of consideration is not sufficient for the court to act. The undervalue has to be such as to lead to the view that the Exploitee had given away valuable assets or rights for much less than what they are worth to such extent as to either reinforce the view that the Exploitee was at a serious disadvantage by a morally culpable Exploiteror that the conduct of the Exploiter was morally culpable.

3. Morally Culpable Conduct of the Exploiter

Exploitation is the foundation for a finding of unconscionable bargain and exploitation usually takes the form of the strong party, the Exploiter taking unfair advantage of the seriously disadvantaged party, the Exploitee. What seems to be present in all cases where the courts have set aside for unconscionable bargains are circumstances of the transactions which suggest that the Exploiter was aware of an opportunity for exploitation and has taken advantage of such opportunity. Examples of this would be the ignorant brothers in Fry v Lane, the drunk old man in Blomley v Ryan, the elderly immigrant parents in Commercial Bank v Amadio, the “slow” lessor in Boustany v Piggott. In Hart v O’Connor relief was denied because although the vendor was of unsound mind, this fact was not apparent to the purchaser…for the court to reach a conclusion of unconscionable bargain it is necessary to have a finding of moral culpability against the Exploiter, either by way of over-reaching or oppressive conduct or in the form of actual or constructive fraud. What seems to be necessary in my view is that the conduct of the Exploiter in the circumstances has shocked the conscience of the court.

(Emphasis added)

65.  Based on the analysis above, I find the defendant to have failed to establish any special disadvantage on her part, oppressiveness of the terms of the Undertaking or morally culpable conduct on the plaintiff’s part so as to shock the conscience of the court.  As to the case of Evans v Llewellin, supra, Mr. Chan did not elaborate on how an analogy could be drawn between the present case and the old English case.  Each case turns on its own facts.  The highlights of the facts of the English case above mark the distinguishing factors which are not present here.

Conclusion

66.  The defendant having failed to establish any grounds for vitiating the Undertaking which is therefore binding and enforceable, I enter judgment for the plaintiff against the defendant in the sum of RMB390,000, or the Hong Kong dollar equivalent at the time of payment, with interest at judgment rate from the date of writ until judgment and thereafter at judgment rate until payment.  The defendant’s counterclaim is dismissed.

67.  I make an order nisi thatthe defendant do pay the plaintiff his costs of this action, to be taxed if not agreed with a certificate for counsel.  The order nisi shall become absolute unless an application is made for variation of the same within 14 days from the date of judgment.