XCHRX HUI SHEK TO v. OPEN WORTH INVESTMENTS LIMITED

1997 No.A2268

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. In this action the Plaintiff, Hui Shek To (Hui), seeks to set aside, on the ground of mistake, a Consent Order dated 17th January 1997 (the First Consent Order) made in High Court Action No.A10709 of 1994 whereby Hui agreed to pay the Defendant (Open Worth) by instalments, HK$970,000 and interest. The First Consent Order was replaced by another Consent Order dated 13th June 1995 (the Second Consent Order) after Hui had fallen into arrears. By the Second Consent Order, Hui agreed to pay Open Worth HK$506,000 and interest by instalments. I think HK$506,000 was what was left of the HK$970,000. In other words, HK$464,000 had been paid.

2. On 3rd May 1997 Hui applied for summary judgment to set aside both Consent Orders. The application was dismissed by Master Chung. This is Hui's appeal from Master Chung.

3. Hui was the guarantor of Ease King Limited who was at one time the tenant of Open Worth. In Action No.A10709 of 1994, Open Worth sued Ease King as tenant and Hui as guarantor for rent from April (part) to 11th October 1994 in the sum of HK$1,003,870.96.

4. Ease King and Hui were represented by Kharbari and Cham.

5. Shortly after the 1994 Action was commenced, there was an exchange of without prejudice correspondence between the parties. It apparently began with a letter from Kharbari and Cham dated 14th November 1994, where they said:

"On an entirely without prejudice basis, we are instructed by our clients to inform you that our clients wish to settle the matter without any unnecessary further actions and costs and our clients are prepared to pay the Plaintiff the sum of HK$853,870.96 by 12 equal monthly instalments."

6. There is no evidence why HK$853,870.96 was offered.

7. It is noted that HK$853,870.96 is HK$150,000 less than HK$1,003,870.96.

8. By letter dated 21st November 1994, Messrs. Lo Wong and Tsui, solicitors for Open Worth agreed to the figure of HK$853,870 for arrears of rent up to 11th October 1994 but claimed that although Open Worth had sold the premises on 11th October 1994, they were entitled to the rent for the remainder of October 1994 which they had accounted to the new owners. The rent payable for the balance of October was HK$116,129.04. Thus, Messrs. Lo, Wong and Tsui indicated that Open Worth was prepared to accept HK$970,000 by instalments. HK$970,000 being the sum of HK$853,870.96 and HK$116,129.04. The result of this correspondence is the First Consent Order.

9. As I have said, the Second Consent Order was made after Hui had fallen into arrears.

10. Hui claims that the Consent Order were made by mistake. The particulars are to be found in para.7 of the Amended Statement of Claim. It is alleged that instead of HK$970,000, Ease King was only indebted to Open Worth in the sum of HK$59,113. HK$59,113 is arrived at as follows: Total rent and management fee payable from 1st January 1993 (inception of the tenancy) to 10th October 1994 = HK$3,454,313. Payment made by East King or Hui as at 10th October 1994 = HK$2,747,200. Further payment made from 11th October 1994 to 18th February 1995 = HK$648,000. (HK$3,454,313 - HK$2,747,200 - HK$648,000 - HK$59,113).

11. My first comment is that, as is clear from the without prejudice correspondence, Ease King and Hui agreed to pay rent for the balance of October in the sum of HK$116,129.04. Thus, even on Hui's own figures, the total payable should have been HK$3,454,313 + HK$116,129.04 = HK$3,574,446.12. That being the case on Hui's case, the amount payable should have been HK$59,113 + HK$116,129.04.

12. Moreover, as for the payments made between 11th October 1994 and 18th February 1995 of HK$648,000, it appears that HK$498,000 was probably paid pursuant to the First Consent Order. That although some of these payments e.g. HK$171,000 made in December 1994 had predated the First Consent Order, they were treated as having been paid under the First Consent Order. If I am right about the payment of HK$498,000, then even on Hui's case, the amount payable was HK$59,113 + HK$116,129.04 + HK$498,000 = HK$672,242.04.

13. There is some uncertainty about the difference between HK$648,000 and HK$498,000, i.e. HK$150,000, which was paid in November 1994.

14. It is likely that the payment of HK$150,000 in November was the reason why the claim of HK$1,003,870.96 was reduced to HK$853,870.96. I say no more about this. This is another indication that much is still unknown about the true state of accounts between the parties.

15. I have dealt at some length with the figures because it is Hui's case that he made a mistake in that he had consented to judgment for too much. As will be seen from the above, Hui's pleaded case, namely, he had consented to pay HK$970,000 although only HK$59,113 was due is probably incorrect. On the evidence before me, it seems that if there was a mistake, it was at most a difference between HK$970,000 and HK$672,242.04, namely, HK$297,757.96.

16. Mr. Allen Lam, who appeared for Hui, submitted that, even so, it was a material mistake.

17. Mr. Lam put his case thus. If a plaintiff claims too much and the defendant by mistake, consented to judgment, the consent order may be set aside if the mistake is material. That is because the plaintiff made a mistake by claiming too much and the defendant made a mistake by consenting to too much. So the mistake was not unilateral but mutual or common. However, Mr. Lam in response to a question by me, contended that if a plaintiff by mistake claimed too little, and the defendant consented to judgment, the plaintiff cannot apply to have the consent order set aside. That is because according to him the plaintiff would be estopped. I must say I have considerable doubt about the correctness of this submission.

18. A consent order, just as a contract, may be set aside for mistake.

19. Hui relies on mistake. But what is the mistake he claimed to have made? An unilateral mistake, without more, is not enough. The amended Statement of Claim is not entirely clear. There, the allegation is that Hui had consented to too much. But I do not believe it is sufficient to show that a defendant had consented to judgment for too much. That may be an unilateral mistake, moreover, it may not be a mistake at all. It might be a result of give and take. Sometimes, it may be that a plaintiff accepted too little or a defendant paid too much. The difference may be material but no relevant mistake was made. That is because the parties agreed to the figure knowing that it may not be correct. Indeed, prior to full investigation, it may be that the plaintiff thinks that he had the better of the defendant and vice versa. But, however it may turn out on full investigation, I do not believe either party can rely on his own mistake.

20. Mr. Walker Sham referred me to what Vaughan Williams L.J. said in Huddersfield Banking Co. Ltd. v Henry Lister & Son Limited (1895) 2 Ch.273 at 278

"As regards the other matter relied on as a ground for not giving relief, I agree that if the arrangement come to was a compromise of doubtful rights and a give-and-take arrangement, parties to it could not afterwards have the compromise set aside because upon obtaining fuller information they thought they had made a bad bargain."

21. The best indication of the mistake relied on by Hui is to be found in an Affirmation he filed in Bankruptcy Proceedings No. B1229 of 1996. These bankruptcy proceedings were brought by Open Worth against Hui for his failure to comply with the 2nd consent order.

22. Hui said:

"9.When I received the Statement of Claim in High Court Action No. A10709 of 1994, I immediately sought the advice of Messrs. Kabhari & Cham. I was asked if the said Ease King Limited had been in default in paying the rent as being alleged. At that time, I told my legal advisers that I was not sure because Ease King Limited did not maintain a steady payment record - it would pay the rent whenever it had the money. I said I need time to go through all the cheques, bank statements and accounting record of Ease King Limited. Thereafter I did not hear from may solicitors.

10. In January 1995, my solicitors told me that they had reached a settlement with the Petitioning Creditor, but they did not tell me the details. They told me that it would be very difficult for me to defend the action because I had signed the said agreement and had agreed to be a guarantor. At that time, I thought East King Limited might have failed to pay the rent of the said premises for a few months. I must stress, however, that before I gave my consent to the settlement, I was not asked by my legal advisers to, and in fact I did not, conduct thorough calculation whether Ease King Limited was in default in paying the rent or not. I just took it from my legal advisers that I had no other alternatives but to consent to the proposed settlement.

11. In 1996, I learnt about a series of legal proceedings against me. As I was not satisfied with the service of Messrs. Karbhari & Cham, I sought assistance from my present legal advisers Messrs. Liu, Chan & Lam who then asked me to look through all the accounting record of Ease King Limited. After the work was finished, I realised that I had wrongly, on the ground of mistake, given my consent to my previous solicitors Messrs. Karbhari & Cham to agree to the Consent Order."

23. It is not clear from the above, what is the mistake relied on to set aside the Consent Orders. Is the mistake his reliance on his solicitors?

24. If so, I think Mr. Sham is right that ordinarily, mistaken reliance on one's legal advisers would not entitle one to set aside a Consent Order. Harris v Manahan [1996] 4 AER 454. In fairness, I should add that the allegations against Karbhari and Cham are vague and one-sided. They have not had an opportunity to deal with them.

25. If Hui was not sure about the amount due, but he nevertheless consented to judgment, because he did not want to spend the time and effort necessary to ascertain the true amount, it is at least arguable that there is no relevant mistake. Moreover, even if Hui was mistaken about the amount, there is no evidence that Open Worth was aware of that mistake.

26. Mr. Lam referred me to what Vaugham Williams L.J. said in Hudderfield

"If the mistake was in fact made, it seems to me to be immaterial how the parties came to make it."

27. That may be so, but it is critical to ascertain whether a mistake had been made, and what was the mistake.

28. A defendant who consented to judgment although he was not sure whether the quantum of the claim is correct, but decided to do so, because he did not want to spend the time or effect necessary to ascertain the correct amount, arguably, had not made a mistake about the quantum.

29. Since I am satisfied that there are arguable issues, I will not go on and deal with other interesting points which were advanced in argument.

30. However, Mr. Lam submitted, that even if I am not minded to give summary judgment, I should impose as a condition for leave to defend, that Open Worth must agree to a stay of the bankruptcy proceedings pending the determination of this Action. I do not believe it will be a correct exercise of discretion to do so. The further conduct of the bankruptcy proceedings must be resolved in those proceedings.

31. The appeal is dismissed. It was agreed that costs should follow the event. The Defendant is to have the costs of this appeal in any event.