IP NGA SIN v. CHEUNG SIU SO

CACV 269/2022, [2026] HKCA 126

On appeal from [2021] HKDC 601

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 269 OF 2022

(ON APPEAL FROM DCCJ 2019 OF 2017)

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REASONS FOR JUDGMENT
AND
DECISION ON COSTS

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Hon Barma JA (giving the Reasons for Judgment and Decision on Costs of the Court):

Introduction

1.  The plaintiff’s writ and statement of claim were struck out by the judge below on the ground that a binding settlement agreement had been reached between the parties so that it was an abuse of process for the plaintiff to proceed with the action.  With leave given by this court,[1] the plaintiff appealed against the strike-out order.  At the conclusion of the hearing, we allowed the appeal with costs of the appeal (limited to one counsel), and reserved our decision on the other costs, to be given together with our reasons for judgment. 

2.  This is our reasons for judgment and decision on costs.

Background

3.  The plaintiff sues her mother, the defendant, for a declaration that a Housing Authority flat in Pok Hong Estate in Shatin (“Flat”)  registered in the defendant’s name is held on trust for the plaintiff absolutely, and for orders for the transfer of the legal interest and possession from the defendant to her.

4.  The writ was issued on 27 April 2017.  According to her statement of claim re-amended on 24 October 2019, the plaintiff’s case is broadly this.  The defendant was the registered tenant of the Flat.  In 2002, the Housing Authority offered to sell flats in the estate, including the Flat, to its tenants under the Tenants Purchase Scheme.  It was agreed among the family of four, comprising the plaintiff, the defendant and the plaintiff’s father and elder brother, that they would accept the offer and purchase the Flat on the basis that it would be registered in the defendant’s name for her to hold on trust solely for the plaintiff, on condition that the plaintiff would be responsible for the monthly mortgage payments with some initial financial support from her father in a form of a gift.  The defendant agreed that she would transfer the Flat back to the plaintiff once the mortgage repayments were complete.  The plaintiff did afterwards pay for all the outgoings and the defendant did not contribute anything towards the purchase price or the expenses arising out of the ownership of the Flat.

5.  In her defence amended on 31 July 2017, the defendant denies there were any such discussions among the family as the plaintiff has alleged and denies that the plaintiff paid for the acquisition of the Flat, although it is accepted that she and her brother had together paid about $1200 a month to the defendant since 2003 or 2004, and that from November 2009 the monthly mortgage repayments were paid from the plaintiff’s bank account.  It is denied that there was any resulting or constructive trust in relation to the Flat. 

6.  The plaintiff filed a reply which was re-amended on 4 May 2018.

7.  By March 2020, the action had progressed to the stage where the pre-trial review was 2 months away (8 May 2020)  and the 5-day trial was 5 months away (commencing on 5 August 2020).  On 12 March 2020, the defendant’s solicitors, Messrs Raymond Siu & Lawyers (“RSL”)  wrote a letter, marked “without prejudice save as to costs” and “subject to contract” (“March letter”), to the plaintiff’s solicitors, Messrs. Lo & Fung (“L & F”).  It read as follows:

“1. We refer to the captioned case.

2. We have been instructed that our client is, on an entirely without prejudice basis, prepared to accept the following terms in full and final settlement of the disputes between the parties in respect of the captioned case:-

(1)  Your client will pay to ours a sum of HK$1,500,000

(2)  Your client will discontinue the captioned case against ours on the understanding that there will be no order as to costs

(3)  Upon the performance of (1)  and (2)  above and subject to approval being given by the Hong Kong Housing Authority, our client shall within 12 months after your client’s performance aforesaid cause the Property (as defined in the Amended Statement of Claim filed herein on 17^th July 2017 (‘Amended S/C’))  to be transferred to the Brother (as defined in the Amended S/C)  and/or your client (‘Conveyance’)

(4)  The premium payment and/or the stamp duty arising out of the Conveyance will be borne by your client

(5)  Each of your client and ours will bear her own costs in respect of the Conveyance

3. No doubt, you must be aware that the terms of settlement above will be subject to the approval by the Director of Legal Aid (as our client is on legal aid). As such, nothing herein shall be binding on our client unless and until a Consent Summons/Order with all terms thereof having been agreed shall have been signed by the parties’ respective solicitors.

4.  The offer above is valid for acceptance within the next 14 days.  If we do not hear from you by 26 March 2020, the offer above will automatically lapse.”

In short, the defendant offered a settlement involving (1)  the plaintiff paying the defendant $1,500,000, (2)  the defendant transferring the Flat to the plaintiff, and (3)  the action being discontinued with no order as to costs.

8.  It appears there was no communication between the solicitors until L & F sent a letter to RSL on 17 April 2020 (“April letter”), which was marked “without prejudice save as to costs” and read as follows:

“We write on behalf of our client, the Plaintiff, to make a sanctioned offer under Order 22 of the Rules of the District Court.

Having considered the documentary evidence already filed, we take the view that our client has a strong case as she can proof (sic) the transactions made to the Defendant in satisfying mortgage payments as well as the transactions made directly to the bank. The Plaintiff also has clear evidence of the agreement reached within the family and the arrangements put in place at the time of the purchase of the property in question.

In order to save time and costs and bring this litigation to an amicable close, we have been instructed to make this sanctioned offer made pursuant to Order 22 of the Rules of the District Court. In full and final settlement of her claim (inclusive of costs and interests)  in the above-mentioned action, our client offers a sum of HK$500,000, payable in the schedule set out below.

Schedule of payment

HK$200,000 payable within 28 days of the consent order; HK$12,500 payable on the first working day of each month for 24 months starting on 1 June, 2020.

This offer is open for acceptance for 28 days. If the offer is not accepted, it will automatically lapse. We look forward to your reply.

Your prompt attention to this matter is highly appreciated.”

9.  As can be seen, the April letter made no mention of the Flat at all.  Reading the operative sentences literally in isolation, the plaintiff was offering a settlement involving simply the plaintiff paying $500,000 to the defendant. The defendant says this is what the April letter meant, and she went on to accept that offer, as described below.

10.  There was no written communication between the parties until 15 May 2020, when RSL wrote to L & F an open letter (“May letter”)  which stated as follows:

“1. We refer to your letter dated 17 April 2020 marked ‘Without Prejudice save as to Costs’ in which your client’s offer (‘Offer’)  is contained.

2. Our client accepts the Offer. We have prepared a Consent Order (in draft)  incorporating the terms of the Offer. The said draft Consent Order is herewith enclosed.

3.  Should the said draft Consent Order meet with your approval, please treat it as engrossment and endorse thereon, and then return the same duly endorsed by you to us for our further action.”

11.  The draft consent order attached to the May letter contained orders that the plaintiff “shall pay a sum of HK$500,000 to the Defendant in full and final settlement of her claim (inclusive of costs and interests)  in the action herein” with $200,000 payable within 28 days and $12,500 payable on the first working day of each month for 24 months starting on 1 June 2020, and that the plaintiff’s action shall be dismissed.

12.  By further letters dated 25 and 28 May and 1 June 2020, RSL chased L & F for a reply.

13.  On 2 June 2020, L & F wrote to RSL saying that the defendant had misunderstood the plaintiff’s offer, and clarified that the intention of the settlement was that in exchange of the payment of the settlement sum, title to the Flat would be transferred to the plaintiff.  The letter attached a draft consent summons with added terms for the transfer of the Flat by the defendant to the plaintiff.

14.  By letter dated 3 June 2020, RSL stated that the offer in the April letter had not been misunderstood, that the terms of settlement proposed by the plaintiff were fully set out in the April letter which had been validly accepted by the defendant resulting in a binding settlement agreement between the parties.

15.  The defendant did not immediately apply to strike out the action.  In the event, the trial was adjourned due to the COVID-19 pandemic. 

16.  On 31 August 2020, the defendant issued her application by summons for the writ and statement of claim to be struck out and the action dismissed.

Decision below

17.  In his decision dated 18 May 2021 (“Decision”),[2] Judge H Au-Yeung noted that L & F’s April letter did not refer to the March letter at all.  He found nothing that required the defendant to read the April letter together with the March letter.  He held that the wording of the April letter was clear, that any reasonable person in the shoes of the defendant would have construed the April letter to mean that the plaintiff was not insisting on having the Flat transferred, and that objectively construed, the only settlement term in the April letter was payment of $500,000 by the plaintiff to the defendant.  He held that the parties had reached a binding agreement when, by the May letter, the defendant accepted the plaintiff’s offer in the April letter.

18.  As a result, the judge struck out the writ and statement of claim.  He ordered the plaintiff to bear the defendant’s costs of the action incurred on or after 2 June 2020 and the defendant’s costs of her strike-out summons, and that subject thereto, there be no order as to the costs of the action.

19.  In a separate decision dated 8 November 2021,[3] the judge refused leave to appeal.

Reasons for allowing the appeal

20.  To see whether a binding settlement agreement had been reached, it is necessary to interpret the April letter to see what was offered.  Interpretation is not about finding out the subjective intention of the writer, but is the ascertainment of the objective meaning of the document in question.  The objective meaning of the April letter is what a reasonable person having all the knowledge available to the recipient, i.e. the defendant and her solicitors, would have understood the plaintiff to mean.

21.  The background knowledge includes the factual context, in which the April letter must be seen.  With respect, the judge erred because he focussed virtually solely on the wording of the April letter and sought only to find the meaning of the words.  But, as explained by Lord Hoffmann in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, 775, it is important,

“to distinguish between the meanings of words and the question of what would be understood as the meaning of a person who uses words. The meaning of words, as they would appear in a dictionary, and the effect of their syntactical arrangement, as it would appear in a grammar, is part of the material which we use to understand a speaker’s utterance. But it is only a part; another part is our knowledge of the background against which the utterance was made. It is that background which enables us, not only to choose the intended meaning when a word has more than one dictionary meaning but also, in the ways I have explained, to understand a speaker’s meaning, often without ambiguity, when he has used the wrong words.”

22.  The parties had filed a joint statement of issues and their respective listing questionnaires and the plaintiff had re-amended her statement of claim only a few months before, in October 2019.  On 14 January 2020, the plaintiff filed a hearsay notice and an application to set down the case for trial.  So it appears that the plaintiff was getting ready for trial.

23.  The April letter came after the March letter, which was an “opening shot” from the defendant in an attempt to compromise the dispute at a fairly advanced stage of the litigation (almost 3 years after the writ was issued, less than 2 months before the PTR).  It is true that the April letter did not expressly refer to the March letter, but it would be wrong to think that the March letter therefore became irrelevant in finding out what the plaintiff meant by the April letter.  With respect, the judge erred in thinking that because there was nothing in the wording of the April letter that required the defendant to read it together with the March letter,[4] the existence of the March letter was wholly irrelevant.[5]

24.  The context also includes the value of the Flat as known to the defendant. According to the defendant, the Flat could be sold on the secondary market (i.e. without the need to pay any premium to the Housing Authority)  for not less than $2,500,000.  The principal of the mortgage loan was $157,500 in 2002, and monthly repayments had been made for over 17 years by April 2020.[6]  In other words, the defendant should have in her mind that the net equity in the Flat was close to $2,500,000.

25.  By the March letter, the defendant had made a settlement offer that, if accepted, would give the plaintiff a substantial surplus (i.e. the net equity of the Flat less $1,500,000 to be paid to the defendant).  The plaintiff did not accept that offer, showing that she did not find it attractive enough.

26.  It was in these circumstances that the April letter was issued, to the terms of which we must now turn.  The plaintiff’s solicitors prefaced the offer with the statement that their client had “a strong case” as she could prove the payments she made to the defendant and to the bank for mortgage repayments, and that she had “clear evidence of the agreement reached within the family and the arrangements put in place at the time of the purchase of the property”, which was plainly a reference to the agreement and arrangements alleged in her re-amended statement of claim as described above.  These assertions of strength seem to us to be wholly incongruous with the total surrender that the defendant contended the plaintiff had signalled.

27.  Furthermore, the offer was made for the full and final settlement of “her” – the plaintiff’s – claim.  It is impossible to see how that could apply to an offer involving solely the plaintiff’s payment of $500,000 to the defendant.  That would be a wholesale abandonment of the plaintiff’s claim and an attempt to settle the defendant’s claim for costs.  The content of the “consent order”, which would define the date for payment of the first tranche of $200,000, was not spelt out.  A reasonable reader of the April letter, knowing that the plaintiff had rejected the offer in the March letter, which would give her the Flat in return for payment of $1,500,000 (a net gain of close to $1,000,000 based on the defendant’s valuation), would not have thought that the plaintiff would by her April letter offer simply to pay $500,000 to the defendant and then walk away.  In our view, the true interpretation instead is that the offer of $500,000 dealt only with the plaintiff’s obligations under the settlement. On the defendant’s side, she would have to transfer the Flat to the plaintiff (and/or to her brother), as proposed in the March letter.  If that was agreed, there would then be application to the court leading to a “consent order” containing the obligations on both sides.

28.  It follows that the May letter did not operate as an acceptance of the April letter properly construed.  The parties were not ad idem.  No settlement agreement was reached.  There was no basis for the defendant to apply to strike out the writ and statement of claim.  The defendant’s summons must therefore be dismissed.

29.  For the above reasons, the appeal was allowed.

30.  It is unnecessary to deal with the argument advanced on behalf of the plaintiff, relying on Hartog v Colin & Shields [1939] 3 All ER 566 and Shogun Finance Ltd v Hudson [2004] 1 AC 919 at §123, that if the offeree knows that the offeror does not intend the terms of the offer to be those suggested by the objective meaning of his words, he cannot, by purporting to accept the offer, bind the offeror to a contract.

31.  We would add that there is a latent ambiguity in the April letter, which was expressed as a “sanctioned offer” under Order 22 of the Rules of the District Court (Cap 336H).  Under Order 22 rules 2(3)  & 21(1), where a plaintiff’s sanctioned offer is accepted, the plaintiff is entitled to her costs of the proceedings up to the date upon which the defendant serves notice of acceptance, unless the court otherwise orders.  The April letter, however, stated that the offer was intended to be in full and final settlement of the plaintiff’s claim “inclusive of costs and interests”. This, it seems to us, is something of which a reasonable recipient would have required clarification.

Costs

32.  At the hearing, we ordered the costs of the appeal (limited to one counsel)  be to the plaintiff.

33.  For the costs of the defendant’s strike-out summons below, the plaintiff has turned out to be the winner, but she had advanced a number of arguments before the judge that were rejected and not the subject of this appeal.  We also consider that the plaintiff was, by the wording of the April letter, responsible to some extent for the consequent dispute.  In all the circumstances, we consider it just that the plaintiff should have half of the costs below, with a certificate for counsel.

34.  As for the costs of the applications for leave to appeal before the judge and this court, in light of the fact that the plaintiff failed to obtain leave on 2 of the 3 grounds put forward, we consider that the plaintiff should only have half of her costs from the defendant, with a certificate for counsel.

35.  The defendant’s own costs are to be taxed in accordance with the Legal Aid Regulations.

36.  We should record that at the hearing, having regard to the fact that the dispute had come about because of the poor wording of the April letter, Mr Chan informed us that the plaintiff’s solicitors would not seek to recover from their client any relevant costs not recovered from the defendant.