FOK CHUN YUE BENJAMIN v. FOK CHUN WAN IAN AND OTHERS

HCA 2155/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2155 OF 2011

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D E C I S I O N

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1.  This is the Decision on the Stay Applications[1].

A. INTRODUCTION

A1. Mr Fok and his families

2.  Mr Henry Fok Ying Tung (“Mr Fok”) was a legendary figure.  An extremely successful businessman, a prominent politician and a generous philanthropist, he was well known both in Hong Kong and the Mainland.

3.  Mr Fok died on 28 October 2006 at the age of 83. He was survived by 3 families :

(1) The First Family consisting of his first wife Madam Fok Lui Yin (“the Mother”)[2] with 5 children (“the First Family Siblings”), Madam Fok Lai Ping Patricia (“Pat”)[3], Mr Fok Tsun Ting Timothy (“Tim”)[4], Mr Fok Chun Wan Ian (“Ian”)[5], Madam Fok Lai Lor Nora (“Nora”)[6] and Mr Fok Chun Yu Benjamin (“Ben”)[7];

(2) The Second Family consisting of his second wife Madam Fok Kin Nei Elaine[8] with four children, Madam Fok Lai Lai Lily[9], Mr Fok Man Bun Nelson[10], Mr Manson Fok[11], and Mr Fok Man Fong[12];

(3) The Third Family consisting of his third wife Madam Lam Sook Duen[13] with four children, Mr Fok Hing Yeung David[14], Mr Fok Hin Suen Donald[15], Mr Fok Hin Kwong Danny[16] and Mr Fok Hin Keung Michael[17].

A2. Mr Fok’s will

4.  By his last will dated 20 May 1978 (“the Will”), Mr Fok appointed his sister, Madam Fok Mo Kan (“the Aunt”)[18], her husband Mr Choy Yuen Lam (who had predeceased Mr Fok on 8 June 1993), Ian and Ben to be the executors and trustees of his vast estate (“the Estate”).  He left to each of his wives and children specific pecuniary legacies.  He directed his trustee to make fixed monthly payments out of the residuary estate to each of his wives and children with power and discretion to make changes and adjustments to the amount of the monthly payments to take into consideration changes in the cost of living at intervals as the trustees think fit.  He further directed his trustees to hold his residuary estate for 20 years from the date of his death upon trust, inter alia, to pay or apply the income or capital thereof to or for the benefit of all or such one or more of the living beneficiaries in such shares and in such manner as the trustees shall in their absolute discretion think fit.

5.  On 10 May 2007, probate of the Will was granted to the Aunt, Ian and Ben as the surviving co-executors.

A3. The proceedings commenced by Ben

6.  On 19 December 2011, Ben commenced the present action, HCA 2155/2011, in his dual capacity as an executor and a beneficiary of the Estate to remove the Aunt and Ian as executors of the Estate and consequential relief.  In gist, Ben complained that Ian had misappropriated the Disputed Assets, namely, 350 ordinary shares of HK$1,000 each in Henry Fok Estates Limited (“HFE”) registered in the name of Waterborne Company Limited (“Waterborne”); the entire shareholding in three offshore companies and their assets; and the monies held in three specified joint offshore accounts with Mr Fok (“the JAOS Funds”). Ian has acted in breach of his duties and an executor because, inter alia, he has placed himself and allowed himself to remain in a position of conflict between his personal interests and his duties to the Estate, unilaterally appropriated to himself assets belonging to the Estate without the knowledge or consent of his co‑executors, and obstructed the administration of the Estate.  Separately, Ben alleged that the Aunt, who is in her 80s, is not in good health.  Other than obtaining the grant, she has not played any role in the administration of the Estate since Mr Fok’s death.  Ben has tried to involve her in the administration of the Estate with no avail.  The administration of the Estate has become unworkable and cannot be concluded for so long as the Aunt remains an executrix.  Ben joined the Mother, other siblings of the First Family and members of the Second and Third Families as they are all beneficiaries of the Estate but does not seek any relief against them.

7.  On the same day, Ben commenced another action, HCMP 2621/2011, which is a Beddoe application.

8.  On 10 April 2012, Ben commenced HCA 569/2012 against Ian, Tim, the Aunt and Waterborne to recover the Disputed Assets.

9.  I will refer to the three actions commenced by Ben as “the Proceedings” collectively below.

A4. The Order 14 Application

10.  By summons dated 14 March 2012, Ben applied for summary judgment to, inter alia, remove Ian and the Aunt as executors of the Estate and to replace them by Mr Anthony Rogers, GBS, QC, JP, formerly Vice President of the Court of Appeal (“the Order 14 Application”).  It was fixed before me on 31 July 2012 with 3 days reserved.  The hearing was however adjourned a few times to enable the parties to discuss settlement.  Eventually, they and some other non-parties (31 in total) reached a global settlement agreement in writing dated 3 August 2012 (“the Settlement Agreement”).

11.  Pursuant to Clause 48 of the Settlement Agreement, the hearing of the Order 14 Application was adjourned for 6 months. In the event, the adjourned hearing was fixed before me on 9 April 2013.  At that hearing, Mr Winston Poon, SC, for Ben, informed the court that principally because Ian and Tim refused to honour Clause 19(e) of the Settlement Agreement which concerns the Yau Wing Option[19], Ben had decided to apply to restore and proceed expeditiously with the Order 14 Application; and that Ben would no longer act on the Settlement Agreement lest his position in the Order 14 Application might be prejudiced. Mr Patrick Fung, SC, for Ian and Mr Victor Dawes, for Tim, indicated that they might wish to take a preliminary objection to Ben’s application to restore the Order 14 application based on the Settlement Agreement.  I then gave directions for future conduct and adjourned the hearing to 28 October 2013 with 5 days reserved.

A5. The Stay Applications

12.  By summons dated 3 July 2013, Ian applied for :

“(1) An order that this Action and all further conduct of the proceedings herein be stayed, save for the purpose of perfecting and implementing [the Settlement Agreement], as to which there shall be liberty to apply; (‘Para 1’)

(2) Alternatively, an order that [the Order 14 Application] be stayed; (‘Para 2’)

(3) Further and/or alternatively, such further or consequential orders as the Court may deem fit and/or appropriate; (‘Para 3’)”

13.  On 9 July 2013, the Aunt took out a similar summons for stay.  I will refer to two stay applications collectively as “the Stay Applications” below[20].

14.  Ian contends that the Settlement Agreement is a legally binding multi-party global settlement which is much wider than and includes a compromise of the present action.  It entails multi-reciprocal obligations on the parties.  It affects fundamentally the executors’ duties. It is still afoot, substantial parts have been performed, with everybody still keeping the fruits received under it so far.  Accordingly, there is no basis for revival of the Order 14 Application.  The present action or alternatively the Order 14 Application must be stayed, save for the purpose of perfecting and implementing the Settlement Agreement.

15.  The Aunt basically adopts Ian’s contentions above.  She further argues that her stay application must be allowed anyway when, as will be seen in a moment, Ben still holds the Settlement Agreement good vis-à-vis her.

16.  The Stay Applications are supported by Tim, the Mother and members of the Second and Third Families.  Tim does so as a matter of principle.  Although he would personally benefit by Ben’s case on the Yau Wing Option, he firmly believes that it is unmeritorious.  The Mother is greatly disappointed and saddened by Ben’s refusal to abide by the Settlement Agreement and his application to re-open the Order 14 Application.  She hopes the Settlement Agreement could be implemented in full and her children (the First Family Siblings) could resolve their disputes amicably without bothering the court.  The Second and Third Families are caught innocently in the cross-fire between the two warring camps of the First Family Siblings.  What they want is the full implementation of the Settlement Agreement as expeditiously as possible.

17.  Pat adopts a neutral position with respect to the Stay Applications.

18.  Nora joins Ben in opposing the Stay Applications.  They dispute the court’s jurisdiction to order a stay based on the Settlement Agreement.  Ben further contends that Ian and Tim are in repudiatory breach of Clause 19(e) of the Settlement Agreement, which entitles him to treat the Settlement Agreement has being discharged vis-à-vis them only.  Alternatively, Ian is guilty of material non-disclosure and/or unfair dealing.  Ben is entitled to rescind the Settlement Agreement vis-à-vis Ian and Tim only.

19.  Ben, however, does not accuse any other party to the Settlement Agreement, including the Aunt and all the members of the Second and Third Families, of any breach of the Settlement Agreement.  Ben only treats the Settlement Agreement as being discharged or alternatively rescinded vis-à-vis Ian and Tim only.  The Settlement Agreement remains valid and binding between him on the one hand and all other contracting parties, except Ian and Tim, on the other.  Ben’s stance on the Settlement Agreement is important because, as will be seen later, it has a significant impact on one of the main issues to be discussed below.

B. MAIN ISSUES

20.  The following main issues can be distilled from the parties’ submissions.  The first three of them concern the court’s jurisdiction to order a stay :

(1) Does the court have the jurisdiction to make an order of stay in terms of Para 1 and/or Para 2 in light of Mr Poon’s jurisdictional challenge discussed in Part C2 below?  (“Issue 1”)

(2) Does the court have jurisdiction to impose a stay in the absence of any express provision in the Settlement Agreement for a stay?  (“Issue 2”)

(3) Do Recital B and Clause 48 of the Settlement Agreement, on a proper construction, preclude the court from ordering a stay of the present action and/or the Order 14 Application?  (“Issue 3”)

21.  The remaining main issues are premised on the footing that the court does have the requisite jurisdiction to impose a stay of the present action or the Order 14 Application.

22.  What is the proper approach in dealing with the Stay Applications?  (“Issue 4”)

23.  In respect of Ian’s application :

(1) As already alluded to, what prompted Ben to apply to restore the Order 14 Application is the purported failure by Ian and Tim to fulfil their obligation under Clause 19(e) of the Settlement Agreement.  Much of the parties’ submissions is devoted to this core issue : does Clause 19(e) on a proper construction cover the Yau Wing Option?  (“Issue 5”)

(2) Based on the proper construction of Clause 19(e), are Ian and Tim in repudiatory breach of the same?  (“Issue 6”)

(3) If yes, is Ben entitled to treat the Settlement Agreement as being discharged against via-s-via Ian and Tim only while holding it as valid and binding vis-à-vis all other contracting parties?  (“Issue 7”)

(4) Alternatively, is Ian guilty of material non-disclosure and/or unfair dealing complained of by Ben?  (“Issue 8”)

(5) If yes, is Ben entitled to rescind the Settlement Agreement via-s-via Ian and Tim only?  (“Issue 9”)

24.  Depending on the answers to Issues 4 to 8 and applying the proper approach as identified, should the court allow Ian’s application and order a stay of the entire action or the Order 14 Application, as the case may be?  (“Issue 10”)

25.  In respect of the Aunt’s application, should it be allowed in its own right? (Issue 11”)  In particular, in light of Ben’s stance that the Settlement Agreement remains valid and binding vis-à-vis her, should it be allowed even if Ian’s application fails?  (“Issue 12”)

26.  Finally, if a stay is to be granted on both or either of the Stay Applications, should a stay the court impose any condition and if so, what should be the condition(s)?  (“Issue 13)

27.  To the three jurisdictional issues I now turn.

C. ISSUE 1 – PARA 1 & PARA 2

C1. The court’s jurisdiction

28.  The court has the inherent jurisdiction to order a stay of proceedings.  Such inherent jurisdiction is preserved by section 16(3) of the High Court Ordinance, Cap 4 in these terms :

“Nothing in this Ordinance shall affect the power of the Court of Appeal or the Court of First Instance to stay any proceedings before it, where it thinks fit to do so, either of its own motion or on the application of any person, whether or not a party to the proceedings.”

29.  How the jurisdiction may be exercised depends on the actual circumstances of the case before the court.  Typically, where the parties to pending proceedings have reached a settlement or compromise, the court may stay the proceedings based on the settlement or compromise : see Foskett on The Law and Practice of Compromise, 7^th Edition, para 11‑04 at pp 195-196.

30.  Here, as seen, Ian and the Aunt mount the Stay Applications based on the Settlement Agreement, which is undisputedly a global settlement covering the Proceedings including the Order 14 Application, the disputes arising from the administration of the Estate and other matters as well.

31.  Mr Poon however submits that the court simply has no jurisdiction to make an order in terms of Para 1 and Para 2.

C2. Mr Poon’s challenge

32.  Mr Poon first argues that a stay is, in practice, equivalent to a discontinuance or dismissal.  In support, he cites Atkin’s Encyclopaedia of Court Forms in Civil Proceedings, 1990 Issue, Vol 12, para 11 at p 16, in which it is stated :

“…a stay of proceedings is equivalent to a judgment for the defendant so absolutely dismissing the action as to preclude the plaintiff from bringing an action for the same cause. Such a form of stay as this has many disadvantages, not the least being the inability to enforce the agreed terms in those proceedings themselves. This disadvantage may be overcome by employing the ‘Tomlin’ form of order, reciting that the parties have agreed the terms scheduled to the order and ordering that all further proceedings be stayed except for the purpose of carrying the agreed terms into effect, with liberty to apply for this purpose. In the absence of consent to the order, as distinct from consent to the agreement … the court has no jurisdiction to make a ‘Tomlin’ Order.” (Italicized by me)

33.  Next, Mr Poon argues that the effect of Para 1 is virtually identical to a Tomlin Order.  It is akin to an order for the purpose of carrying the terms of the schedule to a Tomlin Order into effect. But the parties to the Settlement Agreement had not consented to the making of such an order.  The court therefore does not have the jurisdiction to order a stay under Para 1.  He cites Macallum v Country Residences Ltd [1965] 1 WLR 657 in support.

34.  Finally, Mr Poon argues that if the court has no jurisdiction to order a stay as per Para 1, a fortiori, the court has no jurisdiction to order a stay as per Para 2, which is unconditional and amounts, in practice, to a discountenance or dismissal of the Order 14 Application.

35.  Mr Poon’s first argument that a stay is, in practice, equivalent to a discontinuance or dismissal, is erroneous.

36.  As noted, his argument is based on the italicized sentence in the 1990 Issue of Atkin’s Court Forms quoted above.  That sentence was however changed in the 2000 Issue of Atkin’s Court Forms, para 11, at p 17 to read :

“An order staying proceedings without reference to the agreed terms is equivalent to a judgment for the defendant, so as to preclude the claimant from bringing an action for the same cause.”

37.  For both the original proposition in the 1990 Issue and the revised proposition in the 2000 Issue, the learned editors cited Lindley LJ’s speech in Bean v Flower (1895) 73 LT 371 in support.  There, the plaintiff in an earlier action having become bankrupt, his trustee in bankruptcy elected not to continue the action and then an unconditional order was obtained by the defendants staying further proceedings.  Bean purchased the trustee’s interest and commenced a second action for the same relief as that asked by the former action.  Upon the defendants’ application, the judge dismissed the second action as an abuse of process and as frivolous and vexatious.  On appeal, the Court of Appeal reversed the judges’ decision.  In delivering the leading judgment with which other LJJ agreed, Lindley LJ said :

“I think that the action ought not to be dismissed in a summary way as being ‘frivolous and vexatious’. The motion gives rise to a very difficult question which requires considerable investigation, viz., whether the order staying the proceedings in the former action is equivalent to a judgment for the defendants absolutely dismissing the action. I have great doubt whether the present action is not maintainable. I do not say that it is, for that is a question which the court will not at present decide.”

38.  Plainly, what Lindley LJ had said supports neither of the original or revised propositions in Atkin’s Court Forms. In fact, the point whether a stay amounted to a dismissal was deliberately left open.

39.  The law on the effect of a stay had since Bean v Flower developed.  It is now firmly established by modern authorities that a stay does not operate as a discontinuance or dismissal but the proceedings that have been stayed remain in being.  See Cooper v Williams [1963] 2 QB 567, where Lord Denning MR said at p 580 :

“For some time the effect of a stay has been a matter of doubt … ‘Two views may be taken: first, that it is a discontinuance, and therefore cannot be removed; secondly, that it is not equivalent to a discontinuance, but may be removed if proper grounds shown’. The point was left open in [Bean v Flower]. Of the two views I am of the opinion that the effect of a stay is that it is not equivalent to a discontinuance, or to a judgment for the plaintiff or the defendants. It is a stay which can be and may be removed if proper grounds are shown.”

See also Neill LJ’s speech in Rofa Sport Management AG v DHL International (UK) Ltd [1989] 1 WLR 902, at p 911A-C :

“In my judgment, for the sake of clarity and certainty the word ‘stay’ in an order should not be treated as a possible equivalent of a dismissal or a discontinuance. There may well, of course, be cases, however, where the person who wishes to have the stay removed will face great difficulties. An action which has been stayed by consent following a compromise provides an obvious example. But, as it seems to me, the action following a stay remains technically in being. The action cannot proceed or resume its active life without an order of the court, but I do not consider that it can properly be regarded as dead in the same way as an action which has been dismissed or discontinued by order.”

40.  I reject Mr Poon’s first argument.

41.  Mr Poon’s second argument that a stay as per Para 1 is equivalent to an impermissible attempt to make a Tomlin Order in the absence of the parties’ consent is misconceived.

42.  It is trite law, as established by McCallum v Country Residences Ltd, supra, that in the absence of a consent to the order, as distinct from a consent to the agreement, the court has no jurisdiction to make an order, including a Tomlin Order.  But it does not follow that when an action is settled, the court will have no jurisdiction to stay the action if the settlement agreement is not made an order of the court.  Indeed, the law is quite to the contrary.  As Le Pichon J (as she then was) rightly observed in King Prosper Trading Limited v Tenbase Trading Limited, HCA163/1996, unreported, 25 February 1997, at p 6 :

“It is well settled that where the parties have concluded an agreement for the compromise or settlement of a pending action, the court has power to stay proceedings : see Eden v Naish (1878) 7 Ch 781 and 37 Halsbury Laws of England 4^th Edition at paragraph 442.”

43.  In both Eden v Naish and King Prosper, the settlement agreement was not made an order of the court.  It did not prevent the court from staying the proceedings based on the settlement agreement[21].

44.  I reject Mr Poon’s second argument.

45.  Mr Poon’s third argument can be disposed of shortly.  I have already rejected his first and second argument.  The court undoubtedly has the jurisdiction to make an order as per Para 1 for the entire action, which must include the Order 14 Application.  It follows that the court must have the jurisdiction to make an order as per Para 2 which deals with the Order 14 Application specifically.  Mr Poon’s argument that the stay asked for in Para 2 is unqualified, which is even wider than Para 1, does not take his case any further for the simple reason that I can impose whatever conditions as I deem fit when ordering a stay of the Order 14 Application, whether under the court’s inherent jurisdiction or Para 3.

46.  I reject Mr Poon’s third argument.

47.  For the above reasons, Mr Poon’s first jurisdictional challenge fails.

C3. Answer to Issue 1

48.  I will answer Issue 1 in the affirmative.

D. ISSUE 2 – NO EXPRERSS PROVISION FOR STAY

D1. Ms Chan’s argument

49.  The Settlement Agreement contains no express provision for a stay of the present action or the Order 14 Application.  Ms Chan contends that absent such an express provision, the court cannot impose a stay.  She refers to Doris Bridget Hollingsworth v Howett Nathoniel Humphrey, CA, unreported, 10 December 1987, Re Hearn (1913) 108 LT 452, Green v Rozen [1955] 1 WLR 741 in support and submits that the authorities show that the court would order a stay only if the parties had expressly agreed to a stay in their compromise.  I disagree.

50.  It is true that in some authorities including those cited by Ms Chan, the parties had expressly agreed to a stay as part of their compromise.  But it does not necessarily follow that the court would exercise its stay jurisdiction only if there is an express provision for a stay in the compromise.  In fact, a cursory survey of the authorities clearly shows that the absence of such an express provision is simply not a bar to the exercise of the court’s stay jurisdiction at all.  A ready example is again King Prosper, supra, a case which Mr Poon and Ms Chan heavily rely on.  There, the settlement agreement did not expressly provide for a stay of proceedings.  It did not stop Le Pichon J from granting a stay[22].

51.  In my view, the court’s jurisdiction to order a stay under its inherent jurisdiction as preserved by statute cannot possibly be dictated or curtailed by whether the parties had expressly provided for a stay of proceedings in their compromise or settlement agreement.

D2. Answer to Issue 2

52.  The answer to Issue 2 is “Yes”.

E. ISSUE 3 – RECITAL B & CLAUSE 48

E1. A working hypothesis

53.  At this juncture, I have yet to deal with Ben’s complaints against Ian and Tim and his entitlement to treat Settlement Agreement as being discharged or alternatively rescinded against them only. Those matters form other grounds of opposing the Stay Applications.  In determining Issue 3, I will proceed on the basis that the Settlement Agreement is, ex hypothesi, valid and binding on all the contracting parties, including Ben on the one hand, Ian and Tim on the other.  In short, it is to be regarded as an unimpeached settlement agreement binding on all the 31 contracting parties.

E2. The prima facie position

54.  It is trite that an unimpeached compromise represents the end of the disputes from which it arose.  Such issues of fact or law as may have formed the subject matter of the original disputation are buried beneath the surface of the compromise.  Prima facie, the court will not permit them to be reopened in the pending proceedings or raised afresh in a new action.  The foundation of the principle lies in two aspects of public policy : the need for there to be an end to disputation and the desirability of parties being held to their bargains : see Foskett, supra, paras 6-01 and 6-02 at pp 111-112.

55.  Here, the Settlement Agreement begins with Recital A to D, explaining the background leading to its execution thus :

“A. Ben in his capacity as an Executor and Beneficiary of the Estate has commenced proceedings in [the Proceedings]. In particular, Ben has made [the Order 14 Application] fixed for 31 July 2012 (the O14 Hearing). Ben believes that it is in the best interest of the Estate to continue with the Proceedings, in particular the O14 Hearing seeking the removal of Ian and the Aunt as Executors absent a family settlement on satisfactory terms.

B. It is clearly in the interests of all parties that any matters relating to the administration of the Estate which are in dispute should, if possible, be resolved amicably, without incurring unnecessary expenses or delay through litigation, or causing any further publicity. It is with these objectives in mind that Ben as well as all the Beneficiaries agree to accept the terms herein as a condition for (i) an adjournment by consent of all parties of the O14 Hearing and (ii) a stay in HCA 569 of 2012. For the avoidance of doubt, these matters are agreed upon solely for the purpose of perfecting and implementing the terms of this Agreement, and pending such occurrence, shall not prejudice the Estate’s interests in any claims made in those proceedings. In particular, the aforesaid stay in HCA 569 of 2012 shall not be relied on as a ground for striking out those proceedings.

C. It is also recognized that for all the same reasons it is desirable that a global family settlement including matters which do not arise directly in relation to the administration of the Estate be reached now to avoid any future dispute.

D. The Parties have therefore agreed to enter into this Agreement on terms binding all parties in the manner as hereinafter appears.”

56.  Then Clauses 1 to 47, grouped under different headings, set out in a comprehensive manner as to how various aspects of the settlement are to be implemented.  They include the appointment of investigating accountants, distributions of the Estate (which differ from the provisions in the Will), disposals of the First Family Siblings’ interests in HFE, distributions of the JAOS Funds, and the continuation of Mr Fok’s charitable and philanthropic work.

57.  For the disposal of the Proceedings, Clauses 48 to 50 stipulate :

“The Proceedings

48. The Parties hereto agree that :

(a) the O14 Hearing be adjourned to a fixed date in not more than 6 months’ time, or so soon thereafter (not in consultation with Counsel’s diary) as the Court’s diary can accommodate for a hearing, solely for the purpose of perfecting and implementing the terms in this Agreement; and

(b) there shall be a stay for 6 months in HCA 569 of 2012,(collectively referred to as the Adjournments). For the avoidance of doubt, the Adjournments are agreed upon for the sole purpose of perfecting and implementing the terms of this Agreement. The Parties shall have the liberty to apply for necessary orders and directions in HCA 2155 of 2011 and HCA 569 of 2012 in the event that issues arise as to the implementation of any of the terms of this Agreement. Once all the terms of this Agreement, save as to Clause 17(b), have been fully implemented and perfected and the distributions under Clause 12 have taken place, the Parties to the Proceedings will agree to the dismissal of HCA 2155 of 2011 and HCMP 2621 of 2011 with costs thereof to be provided for in accordance with Clause 49 below. Upon the HFE Completion and the Property Acquisition Completion Date, the Parties to the Proceedings will agreed to the dismissal of HCA 569 of 2012 with costs thereof to be provided for in accordance with Clause 49 below to the intent that all claims if any shall be waived and foregone save and except any claims arising out of this Agreement. At the same time, Ian’s counterclaim in HCA 569 of 2012 shall be withdrawn with costs provided in accordance with Clause 49 below.

49. All parties’ costs incurred in relation to the administration of the Estate and the Family Companies including their costs and disbursements incurred in relation to the Proceedings and intended proceedings, and all matters incidental thereto, and such costs and disbursements in respect of the negotiation, entering into and implementation of this Agreement, shall be paid out of the Estate as a priority over any other payments envisaged in this Agreement, to be taxed on a full indemnity basis, if not agreed.

50. The Parties agree that they and/or their legal representative shall sign all necessary consent summonses to give effect to Clauses 48 to 49 above.”

58.  In the final part which deals with general matters, Clause 55 re-iterates the global nature of the Settlement Agreement :

“55. This Agreement is entered into in connection with the compromise of disputed matters including the subject matter of the Proceedings and in the light of other considerations to promote family harmony. It is not, and shall not be represented or construed by the Parties as, an admission of liability or wrongdoing on the part of any Party to this Agreement or any other person or entity.”

59.  With respect to how the parties should perform their obligations, Clauses 60 and 68 provide :

“60. Each party shall (and shall use all reasonable endeavours to procure that any relevant third parties shall) refrain from taking any action which is inconsistent with the overall spirit and intent of this Agreement or which might prejudice the parties’ ability to give full effect to this Agreement.

…

68. All parties shall act in good faith in the spirit of this Agreement and use their best endeavours to do, perform and implement and to procure all necessary parties to do, perform, and implement all duties, obligations, transfers, actions, and any other matters and/or to execute all required documents needed by the Agreement and/or to give effect thereto.”

60.  There can be no doubt whatsoever that the Settlement Agreement is a global settlement of the disputes in the Proceedings including specifically the present action and the Order 14 Application, the disputes arising from the administration of the Estate and other matters beyond outside the scope of the Proceedings and administration of the Estate.  It requires all the contracting parties to use their best endeavours in good faith to perform all the obligations, some of which are multi-reciprocal, in implementing all its terms.  So prima facie, the court should not allow Ben to reopen the underlying disputes in the present action and the Order 14 Application by imposing a stay.

E3. Is the prima facie position displaced by Recital B and Clause 48?

61.  The prima facie position that the court will stay pending proceedings when the parties have reached a compromise may be displaced if they have agreed that their original dispute may be resurrected in certain circumstances : Foskett, supra, para 6-01 at p 111.  When such circumstances arise, there is no proper basis to prevent a party from reopening his claim by imposing a stay.  So the crucial question is whether Recital B and Clause 48, on a proper construction, entitle Ben to continue with the action or reopen the Order 14 Application now.

62.  The nub of Mr Poon’s and Ms Chan’s arguments is that although the Settlement Agreement is meant to be a compromise of the present action and the Order 14 Application, Recital B and Clause 48 do not mandate a stay.  What the parties have agreed is only an adjournment of 6 months.  Ben may revive at least the Order 14 Application, if not entire action, after the expiry of the 6 months adjournment, if the Settlement Agreement is not fully performed within time.  They take a number of points in developing their arguments.

63.  They first submit that what the parties have actually agreed under Recital B and Clause 48 is an adjournment of the Order 14 Application for 6 months and not a stay of either the action or the Order 14 Application as is the case for HCA 569/2012.  If the court were to impose a stay, then it would be re-writing the bargain struck by the parties, which is impermissible.  In support, Mr Poon cites Lord Diplock’s speech in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at p 848F‑G, which in gist re-iterated that under the principle of freedom of contract, contracting parties might reduce their agreement into express terms or leave them to be incorporated by implication of law from the legal nature of the contract and if wish to reject or modify any implied term, they are at liberty to do so by express terms.

64.  Mr Poon then contends that after the 6 months’ adjournment, Ben can do whatever he likes, including re-opening the Order 14 Application.  Mr Poon seems to be suggesting that the 6 months adjournment is an adjournment simpliciter.

65.  In a similar vein, Ms Chan argues that Ben can continue with the present action and reopen the Order 14 Application.  Her argument is more elaborate.  She submits that Clause 48, construed as a whole, sets out a scheme whereby :

(1) The parties have entered into a compromise to settle, inter alia, the Order 14 Application.  6 months have been agreed for the Settlement to be performed.

(2) Consistent with that, a 6 months adjournment of the Order 14 Application was agreed to.

(3) During that time, and notwithstanding the adjournment, the parties have liberty to apply to court for directions and orders concerning issues arising from implementation of the Settlement Agreement.

(4) If the Settlement Agreement can be fully performed within the 6 months as stipulated, the parties would agree to dismiss the present action, including the Order 14 Application, whereupon all claims shall be waived and foregone.

66.  Ms Chan then argues that when, as is the case now, the Settlement Agreement has not been fully performed within the 6 months as stipulated, and the parties have not agreed on extension of time for performance or any further adjournment of the Order 14 Application, Clause 48 clearly shows that the revival of the Order 14 Application is an option open to Ben.  Under Recital B, the adjournment of the Order 14 Application is without prejudice to the Estate’s interest in the claims in this action.  This is reinforced by the provision in Clause 48 that the claims in this action will only be dismissed upon full performance of the Settlement Agreement.  Thus the compromise embodied in the Settlement Agreement is on the basis that the underlying causes of action would be preserved.  In such a case, in the event of a breach of the compromise the innocent party can opt to sue on the underlying dispute or on the compromise : Foskett, supra, para 11-01 at p 195.  It follows that if the 6 months’ adjournment had run out and the Settlement Agreement has not yet been fully performed, Ben has the option to revive the underlying cause of action or sue for breach of the Settlement Agreement.  Ms Chan therefore concludes that the Settlement Agreement does not mandate a stay of the Order 14 Application as contended by Ian and the Aunt.

67.  Properly analyzed, Mr Poon’s and Ms Chan’s arguments boil down to three major points :

(1) First, the 6 months’ adjournment of the Order 14 Application is an adjournment simpliciter.  That is why, according to Mr Poon, Ben can do whatever he likes upon expiry of the adjournment.

(2) The 6 months’ adjournment is the time limit for full performance of the Settlement Agreement.  If the Settlement Agreement is not fully preformed within time, Ben can continue with the present action or at least revive the Order 14 Application.

(3) Under Recital B, the 6 months’ adjournment was agreed without prejudice to the Estate’s interest in any claims in the Proceedings.  So, Ms Chan reasons, Ben’s underlying causes of action and his Order 14 Application are preserved and can be revived upon the expiry of the 6 months’ adjournment when the Settlement Agreement has not been fully performed.

I will deal with these main points in turn.

68.  In my view, when construing the relevant provisions in Recital B and Clause 48 about the 6 months adjournment, one must always firmly bear in mind that the Settlement Agreement is a global compromise of all the disputed matters including the present action and the Order 14 Application.  Plainly, the primary intention of the parties is to implement the Settlement Agreement, which as envisaged at the time would take 6 months to complete.  This leads to the 6 months’ adjournment.  Consistent with the intention to implement the Settlement Agreement within the 6 months’ adjournment, both Recital B and Clause 48 provide that the sole purpose of the 6 months’ adjournment is for perfecting and implementing the terms of the Settlement Agreement.  It is indeed stressed by way of repetition in Clause 48 by the phrase “for the avoidance of doubt”, driving home again the point that the 6 months’ adjournment is for the sole purpose of perfecting and implementing the terms of the Settlement Agreement.  Accordingly, the 6 months’ adjournment is not an adjournment simpliciter.  As rightly submitted by Mr Wong, SC, for Tim, it is there to enable the Settlement Agreement to be fully implemented, and ultimately to resolve all the disputed matters covered by it, including the present action and the Order 14 Application.

69.  Further, although it was originally contemplated that implementation of the Settlement Agreement would complete within 6 months, I do not think it is a time limit for full performance as such.  For one thing, the parties could agree to an extension.  (In fact, in respect of the HFE Completion, it has been postponed well beyond the 6 months agreed.)  For another, time has not been made an essence of the contract.  For yet another, the parties might apply to court for directions on implementational issues.  It might entail a further adjournment of the hearing for the Order 14 Application and extension of the time for performance beyond the 6 months’ period, so that they could iron out those differences.  In fact, when the matter first came before me on 9 April 2013, Ben’s original stance was to ask for an adjournment of 3 months “to resolve the parties’ differences and assess whether the Settlement Agreement can be fully performed”[23].

70.  It is perfectly understandable why the 6 months’ period is not a deadline for full performance of the Settlement Agreement.  While the parties have to use their best endeavours in good faith to perform their obligations, issues or even disputes on implementation might well arise, rendering full performance of all the terms of the Settlement Agreement within 6 months impossible.  The parties might well need more time to resolve the differences themselves.  Or they might wish to involve the court.  In the latter scenario, even if an application were made to the court within the 6 months’ period, the resolution of the differences would in all probability take a much longer time to complete.

71.  The third main point calls for a close examination of Recital B.  Recital B first deals with the adjournment of the Order 14 Application and stay of HCA 569/2012 without specifying the duration for both. It then goes on to provide :

“For avoidance of doubt, these matters are agreed upon solely for the purpose of perfecting and implementing the terms of this Agreement, and pending such occurrence, shall not prejudice the Estate’s interest in any claims made in those proceedings. In particular, the aforesaid stay in HCA569/2012 shall not be relied on as a ground for striking out those proceedings.”

72.  The words “these matters” refer to the adjournment of the Order 14 Application and the stay of HCA 569/2012.  They are agreed upon solely for the purpose of perfecting and implementing the Settlement Agreement.  The words “pending such occurrence”, refer not to the adjournment or stay but to the perfecting and implementation of the Settlement Agreement. Put another way, pending the perfecting and implementation of the Settlement Agreement, the Estate’s interest in any claims in the Proceedings is preserved.

73.  For present purpose, I would assume that the present action and the Order 14 Application lie within the Estate’s interest. So under Recital B, Ben’s underlying causes of action in the present action and hence and his entitlement to continue with the action and to reopen the Order 14 Application are all preserved and kept in abeyance pending the perfecting and implementation of the Settlement Agreement.

74.  It follows that if, as is the case here for the purpose of determining Issue 3, the Settlement Agreement is, ex hypothesi, valid and binding and capable of fully performed and, as I have said, the 6 months’ adjournment is not a time limit for full performance, Recital B does not entitle Ben to continue with the present action or reopen the Order 14 Application simply because the time has expired.  For his underlying causes of action in the present action and the Order 14 Application are still kept in abeyance pending the perfecting and implementation of the Settlement Agreement despite the effluxion of time.

75.  There are two further minor points arising from Ms Chan’s submissions.

76.  She argues that because Ben’s underlying causes of action are preserved, when there is a breach of the Settlement Agreement, Ben as an innocent party can opt to sue on the underlying dispute or on the compromise.  But as I have said at the outset, for the purpose of determining Issue 3, the Settlement Agreement is, ex hypothesi, valid and binding. The question whether Ben can continue with the action and revive the Order 14 Application based on a breach of the Settlement Agreement is something to be examined later.  It is not relevant to the determination of Issue 3.

77.  She next submits that under Clause 48, the Order 14 Application was adjourned whereas HCA 569/2012 was stayed.  The distinction used in the wording means that the adjournment is not meant to be a stay.  I do not think the distinction really matters.  For in the ensuing part of Clause 48, they are both given the same treatment when being referred to collectively as “the Adjournments” solely for the purpose of perfecting and implementing the Settlement Agreement.  The word “adjournment”, as opposed to “stay”, does not really add much to Ms Chan’s argument.

78.  To recap, the true intent of Recital B and Clause 48, on a proper construction, is this.  Consistent with the intent that the Settlement Agreement is a global compromise which all the contracting parties are obliged to perform to their best endeavours in good faith, as long as it is, ex hypothesi, valid and binding on all the contracting parties and is capable of being performed, the present action and the Order 14 Application are kept in abeyance, which will be eventually dismissed upon its full performance.  The parties have agreed to have 6 months to perform the Settlement Agreement.  But that is not a time limit for performance as such. The expiry of the 6 months’ adjournment or indeed any agreed extension, without more, will not entitle Ben or indeed any party to the Settlement Agreement to continue with the present action or the Order 14 Application, if it is still, ex hypothesi, valid and binding on all the contracting parties and is capable of being performed.  Thus construed, neither Recital B nor Clause 48 prevents the court from ordering a stay of the present action or the Order 14 Application as contended by Mr Poon and Ms Chan.  The prima facie position that a stay of the present action and the Order 14 Application should be imposed is not displaced by Recital B and Clause 48.

79.  Contrary to Mr Poon’s and Ms Chan’s submissions, construing Recital B and Clause 48 in the way as I just did is not an impermissible attempt to re-write the contractual bargain.  It is actually holding the parties to the contractual bargain as encapsulated in those provisions.  It also gives effect to the public policy of disallowing a party to an unimpeached compromise, of which the Settlement Agreement is one for the purpose of issue 3, to re-open the underlying disputes afresh, thereby ensuring that the finality achieved by the Settlement Agreement will not be disturbed.

E4. Answer to Issue 3

80.  I will answer Issue 3 in the negative.

81.  Having established the court’s jurisdiction to impose a stay of the present action and the Order 14 Application, I next consider the proper approach to be adopted in dealing with the Stay Applications.

F. ISSUE 4 – PROPER APPROACH TO THE STAY APPLICATIONS

82.  It is well established that where a party to a compromise attempts to ignore its existence by continuing with the underlying proceedings, the other party may apply to stay the proceedings : See Foskett, supra, para 11-03 at pp195-196.  If the compromise is unimpeached, then a stay will follow.

83.  If the existence of the compromise is being disputed, it is normally directed to be tried as a preliminary issue.  If the point is determined in favour of the applicant, an order staying the proceedings will be made and a declaration given as to the terms of the compromise : see Foskett, ibid, and footnote 5.  In the meantime, the underlying proceedings would be stayed pending the outcome of the preliminary issue on the existence of the compromise : see Yen Wing Choi &Others v Match Power Investment Limited, HCA 1829/2005, unreported, 16 May 2007, per Burrell J at paras 16-17 and 21. 

84.  Instead of directing it to be tried as a preliminary issue, the court may determine the question whether a disputed compromise exists on affidavit evidence alone without a trial.  In such event, the court must approach the evidence with great care.  It must be satisfied beyond doubt that the compromise did exist before ordering a stay of the main proceedings.  I derive this proposition from King Prosper, supra, applying Shackleton v Swift [1913] 2 KB 304.  

85.  In Shackleton v Swift, the plaintiff sued the defendant for her wrongful detention as an alleged lunatic.  The defendant applied for a stay on the ground that the action was not maintainable in the absence of any allegation by the plaintiff that the defendant had not acted in good faith and with reasonable care.  The judge refused the defendant’s application.  The defendant’s appeal was allowed by the Court of Appeal. Vaughan Williams LJ stated the general principle at p 311-312 thus :

“To stay an action, to say that an action shall not be tried, is generally to take a step which ought not to be taken except in a very clear case…. [Because] it is a strong thing to say to a plaintiff who is brining an action that his complaint will not be heard, to say that it will be stayed without there having been a trial, without the evidence having been heard. Generally speaking, the consequence is that the judges are very slow to stay actions; that does not mean that there is no discretion in the judges; but the general practice is that you should not stay actions unless the action, beyond all reasonable doubt, ought not to go on.”

86.  That general principle was applied in King Prosper. There, the defendant applied to stay the proceedings on the basis that the parties had concluded an agreement to compromise the action by way of correspondence.  The plaintiff disputed that and further argued that the settlement agreement had been rescinded subsequently.  Le Pichon J first found at p 4 of the judgment the existence of a binding settlement agreement to be beyond reasonable doubt.  She further found at p 5 that the plaintiff’s prospects of successfully establishing the existence of any subsequent discharge agreement between the parties as alleged was practically moonshine. She then dealt with the law at pp 6-7 :

“Because a stay of proceedings interrupts in a fundamental way the right that a party has to have his case tried on the basis of substantive merits, the general practice is that a stay of proceedings should not be imposed unless the proceedings beyond all reasonable doubt ought not to be allowed to continue : see per Vaughan Williams LJ in Shackleton v Swift [1913] 2 KB 304 at 312. But there is no real doubt that the parties did conclude an agreement to settle pending proceedings, prima facie, a stay ought to be granted.”

Applying the law, Le Pichon J ordered a stay based on her findings.

87.  Further, since it was the defendant’s case that the parties had settled the plaintiff’s claim on a particular sum, Le Pichon J imposed as a condition of stay a payment by the defendant of that sum, observing at p 8 that :

“Good faith requires that the sum due under the compromise be paid if the proceedings are to be stayed.”

88.  The case went on appeal[24].  The Court of Appeal disturbed Le Pichon J’s finding that the parties had reached a settlement agreement.  Godfrey JA said at p 2 :

“The question is, as so often, whether the parties arrived at a concluded compromise as a result of this negotiation. The judge was of the opinion that it was plain beyond argument that they had done so. If that conclusion was correct, then the judge was quite right to stay the action. If, however, it was clear that there was no concluded agreement, or even that there may not have been a concluded agreement, then as it seems to me, she was wrong to stay the action. What she should have done in those circumstances was to direct the trial of an issue as to the disputed compromise.”

89.  The Court of Appeal disturbed Le Pichon J’s factual finding because it was wrong for her to conclude on the affidavit evidence alone that there existed a final and binding settlement agreement.  But as Geoffrey JA said, if the Judge’s conclusion, reached on affidavit evidence alone, were correct, she would have been right to stay the action.  In other words, it was open to the Judge to deal with the matter by considering the affidavit evidence alone but she erred in finding that the disputed compromise existed beyond doubt.

90.  King Prosper concerned a disputed compromise.  Here, the conclusion and existence the Settlement Agreement is not in dispute.  What Ben is disputing is its enforceability vis-à-vis Ian and Tim only as opposed to all the other contracting parties including the Aunt.  Ben regards the Settlement Agreement as being discharged or alternatively rescinded against his two brothers.  In my view, the same approach to a stay application based on a disputed compromise as discussed above should equally apply to a stay application which is opposed on the ground that the settlement agreement should be set aside or rescinded, with only one exception.  The exception arises from this.  It is well settled that where a party wishes to set aside or rescind the settlement agreement, a fresh action instituted for that purpose is required : see Foskett, supra, para 6-35 at p 127 and para 12-02 at p 211.  So instead of a trial of preliminary issue, the court should direct a fresh action be instituted to determine if the settlement agreement should be set aside or rescinded.

91.  On the standard of proof, Mr Poon refers to the statement of law laid down in Shackleton v Swift and applied in King Prosper by Le Pichon J (quoted at para 86 above) and insists that the court must apply the criminal standard of “beyond reasonable doubt” when assessing the evidence about the enforceability of the compromise.  I disagree.  When the courts used the expression “beyond reasonable doubt” in the authorities, they were not imposing the criminal standard of proof in civil matters.  They did so in order to underscore the point that the court would not interrupt a party’s right to have his case tried on merits unless the evidence establishes unequivocally that a stay should be imposed.

92.  Mr Poon further argues that an applicant for a stay must come to the court with clean hands so that the court may refuse the relief as a matter of discretion.  Ms Chan pitches her case even higher.  Relying on what Le Pichon J had said about good faith in King Prosper, supra (quoted in para 87 above), she argues that “good faith” is a second requirement that the applicant must satisfy before the court can grant relief.  So unless Ian has performed his side of the bargain, the court should decline him the relief.  Neither Mr Poon nor Ms Chan has cited any authority in support of their very bold propositions.  It is hardly surprising because the court’s jurisdiction here is not based on equity.  It is simply asked to enforce the contractual bargain embodied in the compromise according to the public policy of bringing finality to the underlying disputes.  Further, I also agree with the submission of Mr Wong for Tim that Ms Chan’s argument is an impermissible attempt to elevate Le Pichon J’s underlying thinking in imposing a condition to the stay of the facts before her Ladyship into a general threshold for the exercise of the jurisdiction.  It must be rejected.

93.  To sum up, in dealing with a stay application which is opposed on the ground that the settlement agreement should be set aside or rescinded, the court may direct a fresh action be instituted to determine the question and in the meantime order a stay of the underlying main action pending the determination of the fresh action.  Or if it is possible to do so, the court may deal with the question on affidavit evidence alone.  However, before imposing a stay, the court must be satisfied beyond doubt that the question is to be answered in the negative so that the underlying main action, beyond doubt, ought not to go on.

94.  In answering Issue 4, I will apply the approach as set out in paras 82 and 93 above in dealing with the Stay Applications.

95.  I next turn to Issues 5 to 10 pertaining to Ian’s application.  It is apparent from the evidence filed by the parties that there are factual disputes underlying some of the Issues which cannot be resolved on affidavits alone.  To resolve them, a proper trial is necessary.  However, as explained below, it does not hinder me from determining these Issues except Issue 8.

G. ISSUE 5 – CONSTRUCTION OF CLAUSE 19(E)

96.  At the centre of the dispute concerning Clause 19(e) is the Yau Wing Option.  To put it in context, Clause 19(e) has to be read together with Clauses 4 and 18.

97.  Under Clause 3 of the Settlement Agreement, KPMG is appointed as investigating accountant to investigate and ascertain the existence, ownership and value of the assets of the Estate.  They are also tasked under Clause 4 :

“… to conduct an investigation regarding any options(s) that the HFE Group may presently have or has had (if any) in projects in mainland China (including the projects in Nansha), including any option(s) or similar rights pursuant to any other instrument or oral arrangement (the Yau Wing Option) exercisable by either Yau Wing or any entities within the HFE Group … to repurchase any interest in Panyu Development or in any other projects in which Panyu Development is engaged from FYTF and report to the First Family Siblings and the companies concerned on the terms of any such option. Ian and Tim, as directors of Yau Wing, Panyu Development and FYTF shall procure any and all relevant information in relation to any of the aforesaid option(s) (including expired option rights) relating to Panyu Development be provided to the Executors and the Investigating Accountants.”

98.  Clause 18 deals with the setting up of a new company by the First Family Siblings thus :

“Prior to the HFE Completion, the First Family Siblings shall cause to be incorporated a new company (China Option Newco) owned by each of them in equal shares and of which they are each a director. The constitution of China Option Newco will provide that each of the First Family Siblings shall have identical voting and economical rights in respect of their shareholdings therein.”

99.  Clause 19(e) then provides :

“In consideration of the payment at the HFE Completion by China Option Newco to HFE of HK$1 (the valid and sufficient receipt of which is hereby acknowledge), HFE, Ian and Tim shall procure the transfer to China Option Newco of the benefit of any option(s) that the HFE Group presently has or has had and which has been exercised and/or transferred either to an HFE Group company or any other entity, or is presently entitled to acquire or obtain, in or in respect of projects in mainland China (including but not limited to option(s) in respect of the projects in Nansha held by Panyu Development or any other entitles under FYTF), or if such transfer is not possible, such option(s) shall be held on trust for China Option Newco. …In the event that any option not exercised within one month prior to the expiry of the option, it shall be transferred and sold to HFE at HK$1.”

G1. The general approach

100.  The modern approach to construction of contracts can be found in ICS Ltd v West Bromwich BS [1998] 1 WLR 896 where Lord Hoffmann enunciated the principles at pp 912H-913F thus :

“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax : see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749.

(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191, 201 :

‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’

101.  In BCCI v Ali [2002] 1 AC 251, Lord Hoffmann explained the concept of “background” further at para 39 at p 269 D-G :

“The background is however very important. I should in passing say that when, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] I WLR 896, 913, I said that the admissible background included ‘absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man’, I did not think it necessary to emphasise that I meant anything which a reasonable man would have regarded as relevant. I was merely saying that there is no conceptual limit to what can be regarded as background. It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective) or proved common assumptions which were in fact quite mistaken. But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage : ‘we do not easily accept that people have made linguistic mistakes, particularly in formal documents’. I was certainly not encouraging a trawl through ‘background’ which could not have made a reasonable person think that the parties must have departed from conventional usage.”

102.  The general principles stated by Lord Hoffmann do not admit every background fact surrounding the making of a contract for the purpose of construction.  As noted in Lewison on the Interpretation of Contracts, 5^th Edition, para 3.17 at p 150, there are three important limitations :

(1) The facts in question must be relevant.

(2) The facts are known or should have been reasonably available to all the parties.  Facts that were known or reasonably available to only one of them will not be relevant.  For if the facts were neither known nor reasonably available to all the parties, they could not have played any part in forming the presumed intention which is embodied in the contract.  Where a fact is known to one party and not to the other, in theory it may well have played a part in forming the intention of the party who knew the fact.  However, unless a fact was known or reasonably available to both parties, it will not be admitted in evidence, because what the court is seeking is not the actual intention of one party to the contract, but the presumed mutual intention of both of them.

(3) Previous negotiations or the parties’ declarations of subjective intent are excluded.  The background cannot be used to introduce by a side wind evidence of the subjective intention of the parties, since it is contrary to the objectivity of construing contracts.

103.  With these principles in mind, I now set out the relevant background for the purpose of construing Clause 19(e).  I will start with the uncontroversial facts in Parts G2.1 and G2.2 below. 

G2. The relevant background

G2.1. The Yau Wing Option

104.  During his lifetime, Mr Fok had built up a vast business empire headed up by three flagship companies two of which are HFE and Fok Ying Tung Foundation Limited (“FYTF”)[25].

105.  HFE was established in June 1953.  It is an asset-rich company with a very strong balance sheet.  The HFE Group has some 29 subsidiaries and associated companies, one of which is Yau Wing Company Limited (“Yau Wing”).  Yau Wing was incorporated in June 1954.  As a construction company, Yau Wing has been engaged in a series of large scale construction and property development projects over the years.

106.  FYTF was incorporated in 1977 as a company limited by guarantee.  It is funded by the enormous incomes that Mr Fok derived from his investments in casinos in Macau.  Its memorandum of association specifies that its income and property shall be applied for charitable purposes.  Until August 1999, FYTF had been qualified for tax exemption under section 88 of the Inland Revenue Ordinance, Cap 112 as applied to charities. The FYTF Group has 20 subsidiaries and associated companies, including Panyu Development Company Limited (“Panyu Development”), a company incorporated in March 1992.

107.  It had always been Mr Fok’s passionate dream to develop Nansha, his hometown, which was just an undeveloped rural area in the mid-1980s, into a quality seaside city, a commercial centre and logistic hub for the Pearl River Delta, a centre for education, technology and culture that would act as a bridge and platform for the cooperation and cultural exchange between Hong Kong and Guangzhou.

108.  To realize Mr Fok’s dream, a joint venture company in Panyu called Panyu Nansha Development Construction Company Limited (“PND”) was formed in 1992 to carry out construction and development projects in Nansha.  PND was 49% owned by a PRC Company representing the interest of the local government of Panyu.  The remaining 51% shareholding was held by Panyu Development.  Panyu Development was then in turn held equally (one share each) by Yau Wing and Fok Ying Tung Panyu Development Foundation Limited (“FYTPDF”), another company limited by guarantee incorporated by Mr Fok in 1986 for charitable purposes.

109.  On 11 June 1997, Yau Wing transferred its one share in Panyu Development to FYTF at the par value of HK$1.  Ben was aware of the transfer as he in his capacity as director, together with other directors, signed the minutes of the relevant meeting of Panyu Development recording the said transfer.  Since then, Panyu Development has been held equally by FYTF and FYTPDF with one share each.  Through its shareholding in Panyu Development, FYTF has about 25% interest in PND.

110.  At the same time when Yau Wing transferred its one share in Panyu Development to FYTF, FYTF granted an option to Yau Wing to buy back the share on or before 30 June 2007 (“Yau Wing Option”).  The option letter was signed by Ian in his capacity as FYTF’s director (“the Option Letter”) pursuant to Mr Fok’s direction.  The Option Letter stipulated :

“(1) [Yau Wing] shall have the option at any time before 30 June 2007 (the ‘Option Date’) by written notice to [FYTF] (the ‘Option Notice’) to purchase from FYTF of the Sale Share and any additional shares of the Company issued to [FYTF] (the ‘Option Shares’) at a consideration equal to the par value of the Option Shares.

(2) Within 7 days after the receipt of the Option Notice, [FYTF] shall supply [Yau Wing] with a copy of the updated management accounts of [Panyu Development] with detailed information of the Shareholder’s Loan.  For the purpose of this clause, it is hereby declared and agreed interest shall be accruing on Shareholder’s Loan from the date of the loan at Hong Kong Bank prime rate.  Further advances by way of Shareholder’s Loan may be made to [Panyu Development] from time to time for its business requirements and such further advances shall carry interest at the Hong Kong Bank prime rate from the respective dates the advances were made.”

111.  Nobody else other than Mr Fok and Ian was aware of the Yau Wing Option or the Option Letter as the time.

112.  In the end, Yau Wing did not exercise the Yau Wing Option, which had on its face lapsed after 30 June 2007.  There was no discussion of the matter at the board meeting of Yau Wing.  Only Ian knew about the lapse of the Yau Wing Option at the time.

G2.2. Ben was told that the Yau Wing Option had lapsed before signing the Settlement Agreement

113.  One the evidence before me, the lapse of the Yau Wing Option was first brought up at the board meeting of FYTF on 25 November 2011 which Ben attended.  The minutes of the said meeting recorded :

“It was recalled that [Yau Wing] originally holds 1 ordinary share of HK$1.00 each (equivalent to 50% equity interest) in the capital of [Panyu Development] which currently owns 51% equity interest in [PND].

It was noted that the said 1 share was subsequently sold by [Yau Wing] to [FYTF] under the terms and conditions as stipulated in an undertaking given by [FTYF] whereby [FYTF] agreed to grant to [Yau Wing] an option to purchase back the sale share. It was further noted that the option has been lapsed.

It was considered that [FYTF] could engage a lawyer to advise the Board on the grant of further option to [Yau Wing] for purchase back of the sale share.”

114.  The lapse of the Yau Wing Option was repeated during the course of negotiations leading to the Settlement Agreement, which started in mid-2012 at the initiation and with the assistance of two influential and trusted senior public figures.  At the family meeting held on 5 May 2012, Ian gave a snapshot of Mr Fok’s assets and liabilities.  He was asked about the Nansha project.  According to Ben[26]:

“Ian stated the Panyu Development was originally held by Yau Wing and FYTPDF. He went on to explain that the purpose at that time was to develop Nansha for the benefit of HFE on the one hand and for charity on the other. Yau Wing, being a subsidiary of HFE, held one share in Panyu Development. It was later discovered that the development of Nansha would take a long time to complete. Since FYTF had stable income from its interests in the Macau casinos, Father wanted to use that income in the development of Nansha. In those circumstances, the share in Panyu Development was sold to FYTF at par value. At the same time, an option was granted to Yau Wing to purchase the share back. However, the option had expired. Having said that, Ian said that if the family members so wished, we could give further thought to it. If the share were to be repurchased, HFE would have to pay the sum advanced to Panyu Development at the time, plus interest.”

115.  On 7 July 2012, the First Family Siblings[27] had a meeting with one of the senior figures.  A number of matters were discussed.  The Nansha project was touched upon but not discussed in detail.  Later in the evening of the same day, Ben met with Ian and Tim.  Ben asked Ian about the interest in Panyu Development.  According to Ben[28] :

“Ian said that if the share was repurchased, the benefit could be shared. Ian said that he could not say for sure whether Yau Wing could repurchase the one share in Panyu Development or not. However, he did say to me and Tim that, notwithstanding that the Option Period of the Yau Wing Option had elapsed, if the members of FYTF all agreed, Yau Wing should be able to repurchase the Panyu Development share either at its market price as at the date of expiry of the Yau Wing Option or pursuant to the terms of the expired option, which required repayment of loans advanced to Panyu Development with interest. It is important to note that at the time of this meeting, neither myself nor Tim had seen the Option Letter which would have revealed that the 50% interest in Panyu Development could have been ‘purchased back’ for a nominal sum of HK$1, rather than ‘market price’ which Ian seemed to be suggesting. He told me that it was clear that the benefit of the Yau Wing Option could be shared amongst the First Family Siblings. Ian said that lawyers could be instructed to consider this.”

116.  As pointed out by Tim[29], Ben evidently did not trust Ian, and hence did not accept what Ian had said about the lapse of the Yau Wing Option at its face value and requested investigations to be carried out.  This led to Clauses 4, 18 and 19(e) of the Settlement Agreement.

117.  I now come to the two important facets of Ben’s case on the background that he seeks to rely on for construing Clause 19(e). 

G2.3. Ben’s reliance on the Option Letter

118.  Ben relies heavily on the Option Letter as part of the relevant background for construing Clause 19(e).  He said he was not aware of it until it was produced by solicitors’ correspondence on 23 January 2013.  In other words, he was simply not aware of the terms of the Option Letter before he signed the Settlement Agreement.

119.  Ben’s case is that although the Option Letter was purported to be an option, “the entire beneficial and economical interest and control appears to have remained with Yau Wing, a subsidiary of HFE”[30].  He said[31] :

“Thus it now seems to me that, notwithstanding the characterisation of the arrangement as an ‘option’, the commercial reality was the FYTF held the legal title in the one share in Panyu Development as nominee for Yau Wing.”

120.  Ben went on to say that[32] :

“Given that the beneficial interest was clearly intended to reside with Yau Wing, and the [First Family] had complete control of both Yau Wing and FYTF, the Yau Wing Option could always be regranted, or another mechanism for transferring the share could have been found.”

121.  Ben then cited in support of his analysis the way in which Nansha projects were funded by the HFE group including advancing enormous loans and providing staff free of charge[33].  He said all of that is consistent with the HFE Group (through Yau Wing) being the ultimate owner of the 50% interest represented by one share in Panyu Development.  He repeated his assertion that FYTF is no more than the nominee of Yau Wing, and the Yau Wing Option simply documented a mechanism for taking back the legal title to that share[34].

122.  Ben also relied on what Ian said in autumn 2009 in very general terms that Yau Wing had an option to repurchase some assets from FYTF[35], and at the board meeting of HFE held on 29 March 2012 that Yau Wing had the right to buy back the share in Panyu Development[36], without referring to that Yau Wing Option having lapsed or expired.  According to Ben, Pat, Nora and he were very sceptical about what Ian had said at that board meeting.  Ben then wrote a letter to the board of HFE dated 11 April 2012, raising his and Pat and Nora’s queries, which was unanswered.

123.  With the benefit of the Option Letter and hindsight, Ben now said[37] :

“I see now that this is all consistent with what I now understand to be the true position – i.e. that the HFE Group was providing funding on the basis that it retained a beneficial interest in 50% of the share capital of Panyu Development.”

124.  Ben’s assertion that FYTF is and was at all material times a mere nominee holding the share in Panyu Development for Yau Wing is hotly disputed by Ian who has countered Ben’s allegations in great detail[38].  Resolving them here without a trial is an impossible task.  But for construing Clause 19(e), whether Ben’s case is established or not is irrelevant.  I can safely ignore it and the underlying factual disputes when construing Clause 19(e).

125.  In my view, Ben is simply not entitled to rely on this nominee point arising from the Option Letter for the purpose of construing Clause 19(e).  It is his own case that he was not aware of the Option Letter before he signed the Settlement Agreement.  Nor was the Option Letter reasonably available to him at the time.  Indeed, as will be seen in a moment, it is his very serious complaint that Ian had all along deliberately kept the Option Letter from him, thereby breaching his equitable duty of making full disclosure.  In other words, the Option Letter is not a fact which was known or reasonably available to Ben at the time of the Settlement Agreement.  What Ben does now is to look at the operations of the Nansha projects and Ian’s conduct retrospectively through the prism of the Option Letter and then comes up with the conclusion that now all can be explicable by the fact that FYTF is a nominee of Yau Wing.  As rightly submitted by Mr Chang, SC, for Ian, what Ben did not say is that it was something he thought of at the time of the Settlement Agreement.  Nor, I would add, was it something Ben would reasonably think of at the time.

126.  Taking Ben’s case at its highest and accepting it to be true, even if FYTF was a nominee of Yau Wing at the time of the Settlement Agreement, it was a fact only known to Ian.  It was not a fact known or reasonably available to Ben.  Such a fact and any matter arising from it cannot possibly form part of the relevant background for the purpose of construing Clause 19(e) in order to ascertain the mutual presumed intention of the parties embodied therein.

G2.4. Ben’s reliance on without prejudice negotiations and revisions of the drafts

127.  Ben further referred, in length, to the negotiations conducted on a without prejudice basis and how the drafts of the Settlement Agreement were revised[39].  He wants to rely on them as part of the background for construing Clause 19(e).  That is, however, impermissible.

128.  As noted, without prejudice negotiations are in general not admissible.  Such evidence may be admissible to prove a fact known to all parties or the general object of the contract : Lewison, supra, para 3.09 at pp 91-92.  But that is not what Ben is seeking to do.  He referred to them to show “our subjective intentions and understanding in reaching the Settlement Agreement”[40]. Further, evidence of draft agreements, which does not represent the final consensus between the parties, is inadmissible : Lola Cars International Ltd v Dunn [2004] EWHC 2616, para 20.

G3. Proper construction

129.  In my view, the true intent of Clause 19(e), read together with Clauses 4 and 18 against the relevant background as set out in parts G2.1 and G2.2 above, is patently clear.

130.  First, Clause 4 clearly acknowledges the fact that whether the HFE Group, in particular Yau Wing, still presently has the Yau Wing Option, or whether the Yau Wing Option had already lapsed is an issue arising from the settlement negotiations that needs to be addressed.

131.  Second, KPMG is therefore appointed to carry out the necessary investigation under Clause 4.  The scope of the investigation covers any existing and expired option.  However the investigation is only confined to any options or similar rights, whether the same are still in existence or had already expired.  It does not extend to any other form of interests or rights.

132.  Third, the transfer to be effected under Clause 19(e) is predicated on the finding made by KPMG under Clause 4.  The tentative word “any” used in the expression “the benefit of any option(s) that the HFE Group presently has or has had and which has been exercised and/or transferred either to an HFE Group company or any other entity, or is presently entitled to acquire or obtain” clearly shows that the option may or may not exist, depending on the investigation by KPMG under Clause 4.

133.  Fourth, the use of the words “presently has or has had and which has been exercised and/or transferred”, and “is presently entitled to acquire or obtain” in the same expression clearly refers to an option which is still in existence.

134.  Fifth, it follows that only an option which, according to KPMG’s investigation, is still in existence is to be transferred to China Option Newco under Clause 19(e).  It does not cover an expired option, of which the Yau Wing Option is one.

G4. Mr Poon’s arguments on construction

135.  Mr Poon takes four main points on construction. They all boil down to one contention, namely, the parties must have regarded that the Yau Wing Option still existed at the time of the Settlement Agreement.

136.  First, Mr Poon argues that if unless the parties had assumed the benefit of the Yau Wing Option exists and would be transferred to China Option Newco, it was pointless for the parties to have agreed to set up China Option Newco under Clause 18 in the first place.

137.  However, as rightly submitted by Mr Wong for Tim, the Settlement Agreement is supposed to be a final settlement agreement among all the parties including the First Family Siblings.  But there are matters still need to be investigated and ascertained.  The Settlement Agreement seeks to provide mechanisms to dispose of such matters, without having to negotiate or agree further.  The setting up of China Option Newco is part of the agreed mechanism to deal with the Yau Wing Option.  If KPMG finds that it still exists, then it can be transferred to China Option Newco without further ado.  The setting up of China Newco does not presuppose the existence of the Yau Wing Option or indeed any option at all.

138.  Second, Mr Poon submits that the last sentence in Clause 19(e), which provides that if China Newco does not exercise the option transferred within one month prior to its expiry, it shall be transferred and sold to HFE at HK$1, is there to benefit Ian and Tim as the acquirers of the entire issued share capital of HFE.  So the parties must have understood that there was or would be a valid option.

139.  The logic in this argument is difficult to follow.  In my view, the last sentence in Clause 19(e) is there to give finality to the transaction concerning the option.  If for some reason China Newco does not exercise the option, then HFE can, as it were, take it up.  It does not presuppose that the existence of an option to be transferred to China Option Newco in the first place.

140.  Third, Mr Poon contends that it does not make commercial sense to provide for the Yau Wing Option in the Settlement Agreement if it does not exist.  However, if the relevant background as set out in Parts G2.1 and G2.2 above is properly understood, it makes perfect commercial sense to provide for the Yau Wing Option as the Settlement Agreement does under Clauses 4, 18 and 19(e).  In this regard, I repeat what I have said about the true intent of Clause 19(e) above.

141.  Fourth, Mr Poon argues that if the Yau Wing Option does not exist, it would be devoid of commercial sense for the parties to agree that the value of the interest in Panyu Development is to be subsumed within the fixed value of the HFE Group (under other provisions concerning HFE) for the purpose of achieving a clear break between Pat, Nora and Ben on the one hand and Time and Ian on the other over HFE.  This argument is misconceived. Whether that interest would be subsumed within the fixed value of the HFE Group or to be vested in China Option Newco through the transfer of the option under Clause 19(e) is contingent on the existence of the Yau Wing Option.  And that is something to be investigated by KPMG under Clause 4.  It does not presuppose the existence of the Yau Wing Option.

142.  Mr Poon then takes two other points on construction to argue that Clause 19(e) :

(1) extends to (a) the expired Yau Wing Option; (b) the share covered by the expired Option; or (c) the underlying interest represented by that share; or

(2) contemplates a re-execution of the expired Yau Wing Option.

143.  Relying on the words “is presently entitled to acquire or obtain … in respect of the projects in Nansha held by Panyu Development” in Clause 19(e), Mr Poon argues that they are capable of covering an expired option such as the Yau Wing Option.  This is flatly contradicted by the clear meaning of the language used, which refers undoubtedly to an existing option.

144.  Mr Poon then argues that Clause 19(e) specifically envisages HFE, Tim and Ian taking “all such steps as shall be necessary” to secure the relevant rights and interest, and that “those rights and interests” must include procuring the transfer of the share in Panyu Development or even re‑executing the expired Yau Wing Option.  This is wrong because “those rights and interests” only refer to the rights and interests of an existing option.  They do not include the share covered by the option or extend to an expired option. Further, it contradicts the clear wording used in Clause 19(e) to say that irrespective of the lapse of the Yau Wing Option, Ian and Tim must procure a new option on the same terms.  In the course of his oral submissions, Mr Poon seems to have conflated the concepts of an option, the share covered by the option, and the underlying interest represented by that share.  I would only say this.  Clause 19(e) covers an existing option and no more.

145.  I reject all the points on construction raised by Mr Poon.

146.  That said and to put the matter beyond doubt, I would emphasize that I have not found against Ben on his case that FYTF is and was at the material times Yau Wing’s nominee.  The point is still open to him. He may well wish to pursue it against Ian or any other related party in other proceedings[41]. This is entirely a matter for him.

G5. Pat’s and Nora’s position

147.  Ms Chan and Mr Smith, SC for Pat ask me not to determine the construction of Clause 19(e) here.  They say it should be left to be dealt with in another forum.  Ms Chan even submits that Issue 4 is outside the scope of the Stay Applications.  I disagree.

148.  For one thing, how to construe Clause 19(e) is the very core issue of the hearing now before me.   More importantly, both Nora and Pat are effectively on the same front as Ben’s on this issue.

149.  It was Nora who first raised the issue of construction of Clause 19(e) by her solicitors’ letter dated 5 August 2013, which foreshadowed Ben’s very lengthy arguments in his 4^th affirmation. She confirmed in her 2^nd affirmation filed on 3 September 2013[42] that her solicitors’ letter accorded with her instructions and accurately set out her position.

150.  Pat has adopted Nora’s position on the construction issue in her solicitors’ letter dated 7 August 2013.  She further said in her 2^nd affirmation filed on 3 September 2013 that the First Family Siblings had agreed that HFE Group’s interest in respect of the projects in the Mainland (including, in particular, the projects in Nansha held by Panyu Development) would be hived off and injected into China Newco and that each of the First Family Siblings would have an equal share in China Option Newco[43]; that it was only during the course of the negotiations leading to the Settlement Agreement that she became aware that HFE had an interest in the projects in the form of an option[44]; and that she would not have agreed to the division of assets and the valuation Ian put forward for other properties held in HFE unless the First Family Siblings had an equal interest in and equal control over the Family’s interest in the projects in the Mainland[45]. She further said that it became clear as a result of KPMG’s investigation that the Yau Wing Option had lapsed and complained that the position should have been explained in detail in the course of the negotiations[46].  She said Ben then requested that Ian should procure that an option on similar terms to the Yau Wing Option be granted to China Option Newco in order to carry out the terms of the Settlement Agreement as nearly as may be to what they as a family had agreed[47].

151.  What Pat had said about the purported effect of Clause 19(e) is no more than a declaration of her subjective intent when she entered into the Settlement Agreement.  Although it must be rejected for the purpose of construing Clause 19(e), it clearly shows that her case on how to construe Clause 19(e) is just the same as Ben’s.

152.  Given their position, it lies ill in Nora’s and Pat’s mouth to say that the court should not construe Clause 19(e) now when, as I have demonstrated, the court is quite capable of doing so.

G6. Answer to Issue 5

153.  I will answer Issue 5 in the negative.

H. ISSUES 6 – REPUDIATORY BREACH

H1. Clause 19(e) not engaged

154.  KPMG did carry out investigations under Clause 4.  Their finding is that the Yau Wing Option had expired and lapsed[48].  The further reported that based on the information they gathered, they had not identified any option other than the Yau Wing Option held by the HFE Group in respect of the projects in the Mainland[49].  There is nothing in the evidence to contradict KPMG’s findings.  Clause 19(e) is not engaged.  Ben’s allegation that Ian and Tim had committed a repudiatory breach of Clause 19(e) is completely groundless.

H2. Answer to Issue 6

155.  The answer to Issue 6 is “No”.

I. ISSUE 7 – DISCHARGE

156.  In light of the answers to Issues 5 and 6, Issue 7 does not arise.

J. ISSUE 8 – NON DICLSOURE AND BREACH OF DUTIES BY IAN

157.  Ben dealt with this issue in length in his 4^th affirmation[50].

158.  In gist, he companied that Ian had failed to provide Pat, Nora and him a copy of the Option Letter during the negotiations leading to the Settlement Agreement.  Had he done so, it would have alerted them of a substantial claim which HFE or Yau Wing might have against Ian, which in turn would have a material impact upon the valuation of their combined interest in HFE[51].

159.  Ben further said that he was induced by Ian into believing that there was a right to reclaim the legal title to a substantial interest in the Nansha development (through the share in Panyu Development), which would be transferred either by the Yau Wing Option or by a regrant of the Yau Wing Option.  He was thus induced into agreeing to enter into the Settlement Agreement[52].

160.  Ben also complained that Ian owed a positive duty to deal fairly with him, Pat and Nora and was under a duty to disclose the relevant facts, by either pointing out that in his view they were signing up to an agreement which left China Option Newco with nothing and meant that they would receive no benefit at all from Nansha; or giving us the full documents which would have led them to realize that that was a possibility[53].

161.  All these complaints are strongly denied by Ian.

162.  Again, I cannot resolve those disputes without a trial.  So I cannot provide a definite answer to Issue 8.  But as I will explain in a moment, it does not really matter for present purposes even if Issue 8 is to be answered in Ben’s favour.

K. ISSUE 9 – RECISSION

163.  In determining Issue 9, I would proceed on the assumption that Ben’s case against Ian on material non-disclosure and breach of equitable duty is established.

K1. Ben’s stance of reprobation and approbation impermissible

164.  Now, Ben is seeking a recission ab initio of the Settlement Agreement against Ian and Tim only.  He holds the Settlement Agreement valid and binding on all the other contracting parties.  How Ben can rescind the Settlement Agreement against Tim when only Ian is guilty of non-disclosure and breach of duty is not made out.  More importantly, the law does not allow Ben to rescind the Settlement Agreement against some of the parties selectively.

165.  Where members of a family by contract settle a dispute amongst themselves, there must be a full and complete disclosure of all material circumstances within the knowledge of any of the parties.  Breach of the duty of disclosure entitles a party to the settlement, to whom disclosure was not made, to rescind it : Cartwright on Misrepresentation, Mistake and Non-Disclosure, 3^rd Edition, paras 17-29 at pp 817-818.  The general rule is that if recission operates, the contract is set aside in its entirety. The innocent party must rescind the whole contract or none of it.  He cannot elect to rescind only the part affected by the misrepresentation or non-disclosure whilst retaining the advantages of the remainder of the contract.  Once a right to rescind is established, the contract can be rescinded only in its entirety : see Cartwright, supra, paras 4-13 at p 114.  It follows that Ben cannot elect to rescind the Settlement Agreement against Ian and Tim only based on his complaints against Ian.

166.  However, Mr Poon submits that Ben can do so by relying on Hurst v Bryk and others [2002] 1 AC 185.  The facts of that case are  well summarised in the headnote, which read :

“The plaintiff and the 19 defendants became partners in a firm of solicitors in 1989. The partnership deed provided, inter alia, for retirement on giving not less than nine months’ notice expiring on an accounting date, namely 31 May, but contained no provision as to what was to happen on the dissolution of the partnership. The firm did not prosper and in August 1990 all the partners save one, who initially intended to succeed to the other partners’ shares and become sole proprietor, served retirement notices to take effect on 31 May 1991. By September 1990 the defendants decided that it would not be possible to maintain the partnership until May 1991 and sought an early termination despite the objection of the plaintiff. A dissolution agreement was signed by all the partners except the plaintiff agreeing to the cessation of the practice of the firm on 31 October 1990. The Plaintiff indicated to the defendants that he regarded the dissolution agreement as a repudiation of the partnership agreement which he had no alternative but to accept and brought proceedings seeking, inter alia, a declaration that he was discharged from contributing towards the partnership liabilities accruing on or after 31 October 1990. The defendants counterclaimed for payment by the plaintiff of his share of the partnership liabilities. The judge found that the dissolution agreement was a repudiatory breach of the partnership agreement but dismissed the plaintiff’s claim and declared that he was liable to pay his share of the partnership liabilities, including ongoing liabilities and losses yet to be realised. The Court of Appeal upheld that decision.”

167.  The House of Lords dismissed the plaintiff’s appeal.  In his judgment, Lord Millet dealt with, inter alia, the discretional power of the court to decree a dissolution of a partnership under section 35(d) of the Partnership Act when a partner, other than the partner suing, “wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him”.  His Lordship said at pp 195F-196A :

“It is difficult to envisage a case in which conduct of this description would not constitute a repudiatory breach of conduct which the party suing could accept by bringing proceedings.

Even if this brought about the automatic dissolution of the partnership, it would not follow that paragraph (d) was altogether empty of content. It would not be needed where there are only two partners, but it would still be needed where there are more than two partners and there is at least one partner who is innocent of any wrongdoing and who does not accept the repudiation. It would also arguably be needed even in a case like the present where there are numerous partners who fall into only two camps, those who are alleged to have committed a repudiatory breach and those who claim to have accepted it. What is there to bring the contract to an end as between the parties who are in the same camp? It is noticeable that the Act expressly provides that the death or bankruptcy of any partner operates to dissolve the partnership as regards all the partners. The contractual doctrine applies to multiparty as well as to two party contracts, but it merely effects the mutual discharge of reciprocal obligations. It necessarily operates bilaterally as between each party in breach and each party accepting the breach as repudiatory by discharging them from their reciprocal obligations. It is difficult to see how it can operate to discharge the parties in the same camp, whether guilty or innocent, from the obligations they owe each other. This can only be achieved by agreement.” (Italicized by me)

168.  Mr Poon relies on the italicized part of Lord Millet’s speech and submits that Ben is entitled to rescind the Settlement Agreement against Ian and Tim only.  With the greatest respect, I disagree.  The simple reason is that Hurst v Bryk and Lord Millet’s judgment dealt with a repudiatory breach of contract and not rescission ab initio.  I fail to see how Mr Poon can derive any meaningful assistance from Lord Millet’s speech at all.

169.  If Ben so wishes, he may bring another action claiming against Ian for damages for material non-disclosure and breach of his duty in equity to act fairly.  But that does not detract from the stark position in law that he cannot rescind the Settlement Agreement against Ian and Tim selectively.

170.  Ms Chan fairly acknowledges the difficulty that Ben is facing.  She has not advanced any argument to support his impermissible stance of reprobation and approbation.    

K2. Answer to Issue 9

171.  The answer to Issue 9 is “No”.

L. ISSUE 10 – DETERMINING IAN’S APPLICATION

172.  I would apply the approach which I have set out in para 93 above in determining Ian’s application.

173.  Based on the answers to Issues 5, 6 and 9, it is not necessary to direct a fresh action be instituted to determine the question if Ben is entitled to regard the Settlement Agreement as being discharged or alternatively rescinded against Ian and Tim only.  On the evidence before me, I have no doubt whatsoever that Ben is not entitled to do so.  The Settlement Agreement is still afoot, binding on all the 31 contracting parties.  The present action and the Order 14 Application, beyond doubt, ought not to go on.  A stay is in order.

174.  For completeness, assuming that I were wrong in determining Issues 5 and 6 and should have directed a fresh action be commenced by Ben to decide if the Settlement Agreement should be discharged vis-à-vis Ian and Tim, the result would just be the same.  For the present action including the Order 14 Applications must still be stayed pending the determination of Issues 5 to 7 in the fresh action.

175.  The answer to Issue 10 is a resounding “Yes”. The present action including the Order 14 Application must be stayed on Ian’s application.

M. ISSUES 11 & 12 – THE AUNT’S APPLICATION

176.  I will adopt the approach in para 82 above in determining the Aunt’s application.  The Settlement Agreement remains an unimpeached compromise, binding on Ben and the Aunt.  Neither Mr Poon nor Ms Chan has proffered any meaningful objection to the Aunt’s application.  A stay must follow.

177.  The answer to Issue 11 is also a resounding “Yes”, which means that the entire action including the Order 14 Application must be stayed on her application.

178.  Since it is my ruling that Ian’s application succeeds in its own right, Issue 12 does not arise.

N. ISSUE 13 – CONDITION FOR STAY

179.  The stay that I am going to impose should not unduly hinder or frustrate any further performance of the Settlement Agreement, which is badly needed.  The stay must therefore be made subject to the condition of allowing the Settlement Agreement to be perfected and implemented in full as expeditiously as possible.

180.  The parties have in their evidence touched upon various implementational issues concerning different aspects of the Settlement Agreement.  Hitherto, they have been side-tracked by Ben’s application to restore the Order 14 Application and the ensuing Stay Applications.  Now is the time to re-focus.  As required by the Settlement Agreement, the parties should use their best endeavours in good faith to resolve all the outstanding matters.  If for some reasons those matters cannot be resolved without the court’s intervention, they should promptly apply to the court for directions.

181.  Again for completeness, I would mention this. If I were to deal with Ian’s application as per para 174 above, difficult questions as to how the Settlement Agreement could be implemented in the meantime might arise.  It is plainly in the interest of all the 31 contracting parties that the Settlement Agreement be perfected and implemented as expeditiously as possible.  Even Ben would not have any objection to that for the benefit of all the other parties except Ian and Tim.  But his position vis-à-vis Ian and Tim on the question of discharge would need to be preserved pending determination of Issues 5 to 7 in the fresh action.  The condition that I would impose must therefore, on the one hand, ensure that implementation of the Settlement Agreement would continue during the currency of the stay but without, on the other, affecting Ben’ position in the fresh action.  I would need to hear the parties further on the condition to be imposed.

N. DISPOSITIONS

182.  For the above reasons, I will allow the Stay Applications and order that the present action including the Order 14 Application be stayed save and except for the purpose of perfecting and implementing the Settlement Agreement in full as expeditiously as possible.

183.  To monitor the progress of the implementation of the Settlement Agreement, I will direct the parties to report to the court in writing within the next 3 months.

184.  On costs, the parties should first attempt an agreement, failing which they should lodge and exchange their submissions within the next 42 days.  I will then dispose of the question of costs on paper.