LCKLM nee CKLM v. LWK

CACV 186/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 186 OF 2016

(ON APPEAL FROM FCMC NO. 11425 OF 2011)

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J U D G M E N T

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Hon Lam VP ：

1.1. I gratefully adopt Cheung JA’s summary of the background of the case and the dispute between the parties. For my part, I agree that the appeal should be dismissed but I would do so without prejudice to other possible courses that might be taken by the Respondent in seeking rectification or other relief by further proceedings.

1.2.   Before us, there is serious dispute between Ms Yip SC and Ms Eu SC as to whether the settlement was reached on the basis of equal division regarding the interest in the matrimonial home.  In connection with that, I am not satisfied that all the requisite evidence is before the court.

1.3.   There is also a dispute as to the proper construction and the effects of Paragraphs J and K of the consent order.  On one possible view, given the condition precedents (b) and (c) in Paragraph K have to be satisfied before the obligation of the Petitioner to pay for the one half of the Net Value of the Matrimonial Home shall arise, the amounts to be deducted under sub-para (v) (a) and (b) would be zero in the calculation of the Net Value for the purpose of Paragraph K(i). And on that view, there would not be any double counting working against the husband. However, that was only a view raised at the hearing and neither party has fully embraced the same before us.  I can see that there are scopes for argument.  We have not heard full submissions on construction.  In light of that, this is not the proper occasion for us to determine the construction issue.

1.4.   I am of the view that these disputes cannot be summarily resolved in an application under the slip rule or the inherent jurisdiction of the court to amend.  The appropriate course is to have these issues properly canvassed in a fresh action.

1.5.   For these reasons, I am not persuaded that the judge was wrong in dismissing the application for amendment. 

Hon Cheung JA :

I.  The appeal

2.1.   The petitioner wife and respondent husband reached a financial settlement at a Family Dispute Resolution (‘FDR’) hearing and recorded their settlement in a minutes of consent order.  The minutes were approved by Deputy District Judge I Wong (now H H Judge I Wong) and made an order of the Court on 18 February 2014 (‘the consent order’).  The consent order was sealed on 30 April 2014. 

2.2.   The husband applied by ‘slip rule’ under Order 20, rule 11 of the Rules of the High Court and under the Court’s inherent jurisdiction to amend certain parts of the consent order.  Apart from minor amendments which were not disputed, the Judge refused the application but granted the husband leave to appeal against his refusal.  The husband had also relied on the ‘liberty to apply’ provision in the consent order but this is no longer an issue in this appeal.

II.  The background

3.1.   The wife and the husband are a very successful couple engaged in the logistic trade.  Their assets comprise mainly of the following :

1) A block of warehouse building (‘the Warehouse’) purchased in the name of a company known as EIL of which the couple each owned 50% of the shares;

2) A matrimonial home on the Peak (‘the matrimonial home’) purchased in the name of another company called ELI of which each party owned 50% of the shares;

3) A property in Tung Chung (‘the Tung Chung property’) owned in the name of the wife; and

4) A group of ten related companies, of which each owned an equal share in the business and the assets. 

3.2.   The contentious aspect of the husband’s application to amend the consent order is in respect of the provisions relating to the matrimonial home. 

3.3.  The market value of the matrimonial home is specified at HK$49 million.  ELI which holds this property owes a loan of $15,160,264.72 to another company called OLL (‘the OLL Loan’).  The matrimonial home is also subject to a mortgage in favour of Hang Seng Bank with an outstanding mortgage repayment of $15,003,503.82.

3.4.  Under the terms of the settlement, the wife is to acquire the husband’s interest in ELI by paying him one half of the net value of the matrimonial home.  The net value is defined in Paragraph J of the consent order as the sales price less (1) the outstanding mortgage payment of $15,003,503.82, (2) repayment of the OLL Loan of $15,160,264.72, (3) other expenses in relation to the transfer of shares of ELI, (4) all other liabilities of ELI as shown in the audited accounts of ELI.

3.5.   Under Paragraph K of the consent order the payment by the wife to the husband for acquiring his shares is subject to (1) the completion of the sale of the warehouse, (2) each of the parties to repay 50% of the OLL Loan, (3) the husband to pay the wife half of the outstanding mortgage repayment of $15,003,503.82 and (4) any other assets and liabilities of ELI shall be shared or borne by the parties equally.

3.6.   The husband’s application is to change the agreed value of the matrimonial home from the net value to the current market value in Paragraph K(i) of the consent order.

3.7.   The Judge set out the Paragraphs J and K of the consent order with the proposed amendments as underlined.

‘ J. And Upon the Petitioner and the Respondent agreeing and acknowledging that:-

(i) The current market value of the property known as (the Matrimonial Home) is HK$49 million;

(ii) The Matrimonial Home is subject to an existing mortgage created in favour of Hang Seng Bank with outstanding mortgage repayment of HK$15,003,503.82 as at 31^st January 2014;

(iii) The Matrimonial Home is jointly owned by the Petitioner and the Respondent via a corporate vehicle, namely, ELI.  The Petitioner and the Respondent currently each holds 50% the issued shares of ELI;

(iv) ELI currently owes to OLL a loan of the amount of around HK$15,160,264.72 as at 31^st January 2014;

(v) The net value of the Matrimonial Home (the “Net Value of the Matrimonial Home”) shall mean the sale price of the Matrimonial Home after deducting the following payments or expenses:

(a) the outstanding amount payable upon redemption in respect of the mortgage in favour of Hang Seng Bank as mentioned in Paragraph J(ii) above; and (sic)

(b) repayment of loan advanced by ELI OLL to OLL ELI as mentioned in Paragraph J(iii) (iv) above;

(c) other reasonable expenses in relation to the transfer of shares of ELI (including legal costs, tax and stamp duty, if any); and

(d) all other liabilities of ELI as shown on the latest audited accounts of ELI, if any.

K. And Upon the Petitioner and the Respondent agreeing and undertaking to the Court and to each other that:-

(i)  The Petitioner shall acquire all the Respondent’s interest of and in ELI (represented by his 50% shares in ELI) by paying to the Respondent one half (1/2) of the Net Value of the Matrimonial Home (as defined above) current market value of the property as mentioned in Paragraph J(i) upon the satisfaction of the following conditions precedent:

(a) The completion of the sale of the Warehouse;

(b) The Petitioner and the Respondent each repays 50% of the ELI Loan to OLL, such that the ELI Loan is fully released;

(c) The Respondent pays to the Petitioner an amount equivalent to one half (1/2) of the outstanding redemption amount in respect of the mortgage secured thereon in favour of Hang Seng Bank mentioned in Paragraph J(ii) above;

(d) Any other assets and liabilities of ELI as shown on ELI’s latest audited accounts shall be shared or borne by the Petitioner and the Respondent equally;

(ii) …

(iii) Provided that if after the transfer by the Respondent of his 50% shares in ELI to the Petitioner aforesaid the Matrimonial Home is subsequently sold to a third party for re‑development purpose within 3 years from the date of this order at a price exceeding HK$49 million, the amount of sale proceeds in excess of HK$49 million shall, after deduction of all reasonable expenses in relation to such sale (including property agent’s commissions, auctioneer’s fees, legal costs, tax and stamp duty, if any), be divided equally between the Petitioner and the Respondent.  The Petitioner further undertakes that she will not or will not cause the Matrimonial Home to be sold or held by her nominee so as to defeat the Respondent’s 50% of the sale proceeds referred to hereof.’

III.  The husband’s case

4.    It is the husband’s case that the intention of the parties is to have a 50/50 division of the matrimonial home after discharging its liabilities which is also on 50/50 basis.  The intention is that the husband should get about $9.42 million by transferring his interest to the wife in the matrimonial home.  However, according to the terms of the consent order, the husband would not in fact get this $9.42 million and, instead, has to pay out about $15 million more because of double counting by the terms of the consent order.  The net result is that, taking into account the $9.42 million, the husband will suffer a net loss of $5,663,768.54. This figure, however, was not spelt out in the judgment below. 

IV.  The Judge’s decision

5.1.   The Judge held that, there was ambiguity in the consent order in respect of the use of terms ‘net value’ and ‘sale value’.  He also referred to the common intention was to give the husband $9.418 million but there was a double counting by $15 million in terms of the mortgage and the loan.

5.2.   The Judge gave five reasons for refusing the application:

1) The husband’s contention of equal division is not borne out by the wording of the consent order.  While there was indication by the parties at the conclusion of the first hearing of the FDR on 29 January 2014 that there would be equal division of assets, he was not informed at the resumed hearing on 18 February 2014 that this position remained to be the same.

2) The parties had agreed to retain his or her own properties.

3) While there is a provision that if the wife is to sell the matrimonial home within three years for redevelopment at a price exceeding $49 million and the amount of proceeds in excess of that sum would be shared equally between the parties, there may be other reasons why the parties agreed to this provision.

4) The amendment would render the definition of ‘net value’ in Paragraph J(v) otiose. (see paragraph 45 of judgment 1^st and 2^nd sentences)

5) While the husband contended that the minutes was prepared in haste and there was mutual oversight on the part of the lawyers on the wording of the draft, there is no affirmation evidence from any of these persons on how the mistake was made.  It is also not clear if the husband’s case is one of mutual mistake or unilateral mistake.

V.  The principles

6.1.   There are three ways for error recorded in a judgment to be corrected.  The first is to apply to the judge who gave or approved the judgment under the inherent jurisdiction of the Court or by way of the ‘slip rule’ to correct an accidental omission so that the Court’s intention is manifested.  In the case of a consent order, the Court’s intention is to give effect to the true bargain of the parties as recorded in the consent order.  The second is to appeal against the judgment and the third way is to commence a fresh action to set aside the judgment by reason of fraud or mistake.

6.2.    In respect of the first method, Ribeiro PJ in Man Ping Nam v Man Hong Hang (No. 2) (2007) 10 HKCFAR 140 at 144 states that :

‘ 10. Even if an Order as drawn up is ambiguous, it is well settled that the court (at all levels) has an inherent or implied discretionary power to clarify the original order if the court’s intention appearing from the body of the judgment is manifest. .....

 See also the cases cited in Hong Kong Civil Procedure 2007 at 20/11/1.

 11. In the absence of any prejudice to the other party (in which event discretionary considerations may come into play), it matters not that an application for such clarification is made after the Court’s order has been sealed since it operates to make plain what the Court has in fact already decided.  It does not involve the Court acting when functus officio.

 19. The “slip rule” powers exercisable under O.20 r. 11 are available to the Court......

 20. It is clear that the failure of the court’s original order to cover a particular matter as a result of an accidental omission of counsel or solicitors or the party is capable of being corrected under this rule: In re Inchcape [1942] 1 Ch 394, approved by the Privy Council in Tak Ming Co v Yee Sang Co [1973] 1 WLR 300 at 304 et seq.  In the Court of Appeal, the rule has been applied in a case where there was an accidental omission to ask for costs and interest: Winston Camera & Radio Co Ltd v Combi (Singapore) Pte Ltd [1988] HKC 156.  The correction can be made by the Court “at any time”, so the fact that correction is sought after the appellants had the Order sealed is not an obstacle.

 21. Where the “slip rule” applies to any order of this Court, the discretion it confers should be liberally approached to ensure that the Court’s decisions are properly given effect, particularly bearing in mind that there is no appeal from the Court’s decisions.  On the other hand, it must also be borne in mind that persons affected by orders of the Court need to know with certainty and finality what such orders consist of.’

6.3.   The parties accepted that amendment under the Court’s inherent jurisdiction or the ‘slip rule’ is available even in a consent order.

6.4.   In respect of the second and third methods, this Court in WTOL v WYPP (Unrep. CACV 241/2011, 18 July 2012) states that,

‘ 34. In de Lasala v. de Lasala [1980] AC 546, the Privy Council, on appeal from Hong Kong, held at page 561 (per Lord Diplock) that:

“Where a party to an action who seeks to challenge, on the ground that it was obtained by fraud or mistake, a judgment or order that finally disposes of the issues raised between the parties, the only ways of doing it that are open to him are by appeal from the judgment or order to a higher court or by bringing a fresh action to set it aside.”

See Lui Sik-kuen alias Lui Lup-fun v. Lee Suk-ling [1992] 2 HKLR 371 applying de Lasala v. de Lasala.

35. In respect of these two approaches, a fresh action is clearly more appropriate where there are factual disputes between the parties.  As Booth J (as she then was) in Crozier v. Crozier [1994] Fam 114 at 117 stated:

“In cases where issues of fact will need to be resolved or the court will be asked to make substantive orders, then it will clearly be more convenient for the case to be heard by a judge with the appropriate jurisdiction rather than by the Court of Appeal.” ’

6.5.  Where the mistake is a mutual or common mistake or a unilateral mistake by one party and known to the other party, the cause of action is for rectification of the agreement or as in the present case, the consent order.  As Lord Hoffmann NPJ held in Kowloon Development Finance Ltd v. Pendex Industries Ltd (2013) 16 HKCFAR 336 :

‘ 19. ……, it is true to say that the concept of rectification for common mistake involves carrying into effect what the parties appear to have actually agreed that the document should say.  And in deciding what the parties have agreed, the common law adopts its usual objective stance, looking at what a reasonable observer would have understood the parties to mean and not concerning itself with their uncommunicated states of mind: Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101.

 20. Rectification for unilateral mistake, on the other hand, is very much concerned with the subjective states of mind of the parties.  If the contract contains a provision which one party knows that the other party thinks is not there, or knows that the other party is mistaken about its meaning, the court may, as a matter of discretion, either refuse to allow him to enforce the contract as it would ordinarily be construed (Hartog v Colin and Shields [1939] 3 All ER 566) or go further and rectify the written agreement to give effect to what the mistaken party thought had been agreed (A Roberts & Co. Ltd v Leicestershire County Council [1961] Ch 555).  A civilian system of law would deal with such a case as a breach of the principle of good faith in contractual negotiations.  To claim to enforce a contract in terms to which you know the other party never meant to agree is a breach of good faith.  The common law has no such general doctrine of good faith in negotiation but a number of individual rules which provide remedies against specific forms of bad faith.  Rectification for unilateral mistake is one of these: compare Bingham LJ in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433.’

6.6.   The parties had referred to a number of first instance decisions on applications under the Court’s inherent jurisdiction and the slip rule.  I would like to repeat that parties should not refer to such decisions to this Court since they are not binding on us as a matter of precedents.  The practice of referring to first instance decisions when there are plenty of decisions of this Court and the Court of Final Appeal on the topic has become too prevalent lately and should be stopped immediately. 

6.7.   Specifically on these cases, I would comment on LPKP v PTRR (FCMC 11056/2005, 19th November 2009) where the Family Court Judge in Paragraph 10 set out the ‘Summary of the law’ by counsel :

‘ 22. The power to amend consent order under the “slip rule” will arise where the mistake of the consent order has occurred as a result of mutual mistake. Such power will equally arise where the mistake of one party which was known to the other who did not draw attention to the mistake: see Thomas Bate Ltd v. Wyndham’s Ltd [1981] 1 WLR 505 (CA), at 515E-516B, 520H-521B; Islam v. Askar (CA), 13 October 1994 (lexis transcript).’

6.8.   The two cases cited in support of this proposition are in fact cases on rectification and not under the slip rule.

VI.  The over counting

7.1.   The husband’s case that he should receive $9.42 million can be illustrated by the following chart prepared by Ms Anita Yip SC (together with Mr Ken S H Chan) for the husband.  The deduction from the market value or sales price is in respect of the outstanding mortgage payment and repayment of the loan.

	100%		50%		50%
	Amount HK$		Husband HK$		Wife HK$
Matrimonial Home Sale Price/Market Value [per para J (i) Consent Order]	49,000,000.00		24,500,000.00		24,500,000.00
Mortgage Loan – Hang Seng Bank [per para J (ii) Consent Order]	(15,003,503.82)		(7,501,751.91)		(7,501,751.91)
Loan due to OLL [per para J (iv) Consent Order]	(15,160,264.72)		(7,580,132.36)		(7,580,132.36)
Net Value of Matrimonial Home [per para J (v) Consent Order]	18,836,231.46		9,418,115.73		9,418,115.73

7.2.   On the husband’s case, as per paragraph K(i) of the consent order, the wife shall acquire all the husband’s 50% share of ELI by paying the $9.4 million to the husband and this means she will assume all the assets and liabilities of the husband and will solely settle the OLL Loan and the Mortgage Loan.

7.3.   Ms Yip’s submission that by virtue of Paragraph K there will be an over counting resulting in the husband not receiving the $9.42 million but also have to pay an extra of $5,663,768.54 can be illustrated by the following chart prepared by her.

	100%		50%		50%
	Amount HK$		Husband HK$		Wife HK$
Matrimonial Home Sale Price/Market Value [per para J (i) Consent Order]	49,000,000.00		24,500,000.00		24,500,000.00
Mortgage Loan – Hang Seng Bank [per para J (ii) Consent Order]	(15,003,503.82)		(7,501,751.91)		(7,501,751.91)
Loan due to OLL [per para J (iv) Consent Order]	(15,160,264.72)		(7,580,132.36)		(7,580,132.36)
Net Value of Matrimonial Home [per para J (v) Consent Order]	18,836,231.46		9,418,115.73		9,418,115.73
50% share of Mortgage Loan – Hang Seng Bank [per para K (i)(c) Consent Order]			(7,501,751.91)
50% share of Loan due to OLL [per para K (i)(b) Consent Order]			(7,580,132.36)
	18,836,231.46		5,663,768.54		9,418,115.73

7.4.   Ms Yip submitted that as a result, the wife will be getting the matrimonial home for free and she is not required to pay off either the mortgage payment or the OLL Loan.  This is because in deriving the calculation of 50% share of net value, both the OLL Loan and the Mortgage Loan have been accounted for once. And in following the calculation of paragraph K(i)(b) and (c) of the consent order, these two loans are ‘double counted’.

VII.  The wife’s response

8.  Ms Audrey Eu S.C. (together with Mr Au Lut Chi) for the wife disagreed with Ms Yip’s submission.  She accepted that the wife has to pay approximately $9 million to acquire the matrimonial home from the husband according to the consent order.  The figure that Ms Eu relied upon is $9.5 million but nothing really turns on whether the payment is $9.42 or $9.5 million. 

VIII.  My view

9.1.   If indeed the wife has to pay the $9.42 or $9.5 million to the husband, then one may think that the husband’s application for amendment is a case of much ado about nothing.  However, Ms Yip still insisted before us that it is not how much the wife is going to pay the husband but rather how much the husband has to pay in order to get that money.  Eventually, Ms Yip stated that there is an over counting of $7.5 million in respect of the mortgage repayment and this will result in the husband receiving $2 million instead of the agreed $9.42 or $9.5 million as the case may be.

9.2.   The husband’s application for amendment is based entirely on the case of over counting.  To address this, one has to look at the terms of the consent order.  On the face of Paragraphs J and K, the question of over counting does not seem to exist at all.  In order for the husband to receive $9.42 million by giving up his interest in the matrimonial home, he is required under Paragraph K(i)(b) and (c) to pay half of the outstanding mortgage payment and half of the OLL Loan.  It should be pointed out that the parties do not seem to be concerned over the other expenses and liabilities in Paragraph K(i)(d) and (e).  The over counting, according to the husband, stems from Paragraph K(i)(b) and (c).  These provisions are, on their face, condition precedents to be fulfilled by the husband in order to receive his half share of the net value of the matrimonial home at $9.42 million and they do not suggest any requirement of additional payment on his part in order to receive this sum. The husband’s contention is that he has already paid half of the outstanding mortgage payment and the OLL Loan in order to get his half share of the net value of the matrimonial home under Paragraph J and in addition he has to pay the same sums again under Paragraph K(i)(b) and (c) (or according to his latest position payment under (c)).  This does not seem to be borne out by the terms of the consent order.  Paragraph K(i)(b) requires the husband and the wife each to be responsible for half of the OLL Loan payment. Although Paragraph K(i)(c) only requires the husband to pay half of the outstanding mortgage payment, there is no suggestion that he is required to pay an extra $7.5 million.  $7.5 million only is what the terms of the consent order required him to pay in the settlement.  In any event, Ms Eu has submitted that as the wife will acquire the whole of the matrimonial home through ELI, she will be solely responsible for the outstanding mortgage payment herself.  Looking at the matter in the round, my view is that the husband has not made out a case of accidental omission or that the Court’s intention as recorded in the consent order has not been properly manifested which needs to be remedied either the Court’s inherent jurisdiction or under the ‘slip rule’.  This being the case the Judge had correctly dismissed the application although on a basis different from the one that I have adopted.

9.3.   In any event, in view of the shift of the husband’s own position on how much is over counted, this is clearly not a suitable case for amendment.

IX.  Conclusion

10.  I would dismiss the appeal with costs to the wife together with certificate for two counsel.

Hon Kwan JA :

11.  I agree with the judgment of Cheung JA.