Matrimonial Causes2011

LCKLM nee CKLM v. LWK

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106198-EN-2016-08-29

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FCMC 11425 / 2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11425 OF 2011

----------------------------

BETWEEN
	LCKLM nee CKLM	Petitioner
and
	LWK	Respondent

----------------------------

Coram: Deputy District Judge I. Wong in Chambers (Not Open to Public)

Date of Hearing: 9 August 2016

Date of Ruling: 29 August 2016

____________________

RULING
(Hadkinson Order and Leave to Appeal)

____________________

The Applications

1. There are two applications before me.

2. The first is the respondent husband’s application for leave to appeal against my Judgment dated 26 February 2016 (“the Judgment”) in which I dismissed his application to amend §§ J and K of his undertakings (‘the Undertakings”) contained in a Consent Order dated 18 February 2016.

3. The second summons is the petitioner wife’s application for a Hadkinson order for staying the respondent’s leave application until such time after he has purged his contempt of court by compliance with the Undertakings. It is common ground that the Undertakings have the same force and effect as a court order.

4. For convenience, I shall continue to refer the petitioner wife as “P” and the respondent husband “R”. I shall also adopt the same nomenclature and abbreviations used in the Judgment. As I have already set out the background to R’s application to amend, the parties’ arguments and my reasoning in the Judgment, I am not going to repeat the same here. This Ruling has to be read together with the Judgment.

5. Since the Judgment, the parties have performed §§ L to N of the undertakings which deal with the Tung Chung property and the transfer of shares of the 10 relating companies. Both are pointing their finger against each other for the delay in the implementation of these other undertakings. I think it is fair to say that due to the complete loss of trust on each other, both parties were putting forward proposals best suited their interests only and hence resulting in deadlock. Anyway, the only matter now remained is the performance of the Undertakings in respect of the Matrimonial Home, the very subject matter on which amendment is sought by R.

6. In response to P’s Hadkinson application, R agrees to arrange payment into court $6,465,127.55, being the sum required for redemption of the mortgage of the Matrimonial Home and to undertake to comply with the final judgment in resolution of the disputes in connection with the Matrimonial Home (“the New Undertaking”). This has been rejected by P.

7. For obvious reasons, counsel agree to deal with the Hadkinson summons before the leave summons, I would therefore deal with the Hadkinson order first.

The Hadkinson Order

8. Briefly stated, the court has the discretion to refuse to hear, or to impose conditions on, a person who is in contempt and who has not purged his contempt: Hadkinson v Hadkinson [1952] P 285.

9. The Court of Appeal, adopting MA v MI [2004] 2 FLR 932 at [59], set out the questions a court should ask itself in Hadkinison applications in CWG v MH [2014] 4 HKLRD 141 at § 12. They are:

1.   Is R in contempt?
2.   Is there an impediment to the course of justice?
3.   Is there any other effective means of securing compliance with the Court’s orders (in the present case, the Undertakings)?
4.   Should the court exercise its discretion to impose conditions having regard to the questions?
5.   Is the contempt wilful (is it contumacious and continuing)?
6.   If so, what conditions would be proportionate?

Discussion

Is R in contempt?

10. There is no requirement that the non-compliance should be shown to have been culpable. The question of culpability, ie the non-paying party had the means to pay, comes into play as regards the court’s exercising its discretion as to whether and how to act on the contempt so established. At that stage all the circumstances are considered. The standard of proof of ability to pay is the civil standard: Mubarak v Mubarik (No 2) [2006] EWHC 1260 (Fam), [2007] 1 WLR 271, §§ 65 – 66 & 71.

11. Question (1) therefore cannot be disputed. Ms Yip SC, on behalf of R, accepts there is non-compliance of the Undertakings. Ms Eu SC, for P, emphasizes that the Undertakings have been outstanding for over 1 ½ years and there is no stay of execution. There is no reason for R not to have complied with the Undertakings in the meantime. R can still appeal against the Judgment after his compliance with the Undertakings and such appeal will not be rendered nugatory in the event that he succeeds on appeal. In the circumstance, R’s constitutional right is not infringed: CWG v MH, supra, at §18.2.

Is there an impediment to the course of justice?

12. Ms Eu argues that there is an impediment to the course of justice in that the Undertakings should be complied with. R should not be permitted to delay the due administration of justice. This is contrary to the golden rule that court orders should be obeyed.

13. Ms Eu also stresses that the delay has caused prejudice to P. For the reason that R is still holding half of the shares in the company holding the Matrimonial Home, P cannot let out the property in the meantime. She has been kept out of rental for almost one and a half year and suffered a loss of at least $544,000. Further, she received notification from the Buildings Department on 29 June 2016 that certain remedial work for an unauthorized building work had to be carried out, failing which she might be liable to a fine and imprisonment. On the other hand, there is no prejudice to R to comply with the Undertakings. Both parties are persons of means. There is no reason why P would not be able to repay the over-payment should R succeed in his appeal. Ms Eu also makes reference to a recent incident where R unilaterally withdrew money of USD34,525.61 and $13,243.25 from the parties’ joint account without P’s consent and to the fact that R did not provide his new address to P.

14. With respect, the alleged prejudice per se is quite different from an impediment to the course of justice. As has been said by Ryder J in MA v MI [2004] 2 FLR 932:

[48] The emphasis is on the impediment to the course of justice, the wilful and continuing nature of the disobedience that makes it more difficult for the court to ascertain the truth or enforce its orders and there being no other method of securing compliance with the court’s order.

15. R is the applicant in the leave application. He is seeking to advance his case subsequent to the adverse ruling in the Judgment. I do not think R’s conduct amounts to such an abuse of the process of the court as to render further proceedings unsatisfactory and to prevent the court from doing justice. His appeal would not make the court more difficult to ascertain the truth or make the court’s function more difficult to perform. Quite to the contrary, if leave is granted, the issue in dispute would have the opportunity to be clarified and resolved by the Court of Appeal.

16. I agree with Ms Yip that the renting out of the Matrimonial Home and the Building Order can be sorted out between the parties or their legal representatives. I do not find any substance in P’s complaint regarding the withdrawals of funds in so far as it relates to the Hadkinson application. P also made complaint in her affirmation that there was further encumbrance over the Matrimonial Home but apparently the matter was not pursued in the hearing. In any event, I do not find any substance in the complaint.

Is there any other effective means of securing compliance with the Court’s orders (in the present case, the Undertakings)?

17. Ms Eu submits that there is no other effective means to secure R’s performance of the Undertakings; in particular, she contends that the New Undertaking offered by R is useless. The New Undertaking is just a unilateral variation of the Consent Order through the backdoor. Ms Eu also submits that enforcement of court order is an aspect of administration of justice. P should not be bothered to take out expensive satellite litigation for enforcement of the Undertakings.

18. With respect, I do not agree that there are no other effective means to secure R’s performance. There is a variety of enforcement measures in the Rules of the High Court and under the common law for securing compliance in order to remedy P’s alleged prejudice, none of which however has been engaged. R is a well-established businessman firmly rooted in Hong Kong with substantial assets and respectable status in his trade. There is not a hint that any methods of enforcement would be futile.

Is the contempt wilful?

19. Ms Yip argues that there is no contumacious disobedience on the part of R. He has completed with the Consent Order in every way he could, except the Undertakings which are the subject matter of the dispute.

20. It seems clear to me that the contempt is wilful, at least as from the Judgment, which is more than 6 months ago. R is certainly a man of substantial means. There is nothing to suggest that he is not able to pay.

Should the court exercise its discretion?

21. Ultimately, the crucial question is whether in the exercise of its discretion, the court should stay R’s application for leave to appeal by reason of his non-compliance.

22. In Hadkinson v Hadkinson, it was said that there are two exceptions from the general rule. One of such exceptions is that a person can apply for the purpose of purging his contempt and another is he can appeal with a view to setting aside the order upon which his alleged contempt is founded: per Romer LJ, at 289.

23. Ms Yip argues that R’s case falls within one of the two exceptions.

24. In response, it is argued by Ms Eu that the exception does not apply at all. R is not appealing against the Consent Order upon which he is found to be in contempt. He is only seeking leave to appeal against the Judgment, the subject matter being whether he can amend the Undertakings as contained in the Consent Order under the inherent jurisdiction or the slip rule. There is no bar to R to appeal against the Consent Order or to seek rectification of it. In the circumstances, it cannot be said that there is any infringement of the maxim “audi alteram partem” or related constitutional rights: CWG v MH [2014] 4 HKLRD 141, § 18.2; also X Ltd v Morgan-Grampian Ltd, [1991] 1 AC 1, at 50E.

25. I agree with Ms. Yip’s criticism that the distinction made by Ms Eu is an attempt to draw a distinction between the wind and the breeze. In my view, the distinction is semantic and artificial; one has to look at the substance of R’s application. If R succeeds in his appeal, he would be exonerated from his contempt.

26. Again, in Hadkinson v Hadkinson, Denning LJ (as he then was) formulated what he described as “the modern rule”. Essentially, he said it is a strong thing for a court to refuse to hear a party to a cause and it is only to be justified by grave considerations of public policy. It is a step which a court will only take when the contempt itself impedes the course of justice and there is no other effective means of securing his compliance: at 298.

27. The House of Lords confirmed that the question should be approached on the basis of a discretion to be exercised flexibly, according to the circumstances, rather than on the basis of a rule : X Ltd v Morgan-Grampian Ltd [1991] 1 AC 1, at 46B.

28. Thus, “the modern rule” formulated by Denning LJ is generally seen as a better approach. The court has a wide power to do what is just: ASM Shipping Ltd of India v TTMIU Ltd of England (No 2) [2007] EWHC 927 (Comm), § 49. Our Court of Appeal also confirmed it is a matter of discretion of the court: TCWF v LKKS and Ors (unrep.; CACV 166/2012, 24 December 2012) § 3.

29. As for the two exceptions mentioned by Romer LJ, it has been said in Arlidge, Eady & Smith on Contempt (4^th Ed) that it would be more appropriate to categorize the so-called exceptions simply as being situations in which the discretion will generally be exercised in favour of hearing the litigant in default: at §§ 12-69 & 12-72. Hence, while whether R falls within one of the two exceptions or not is not determinative, it would be wrong for me not to give due weight to it.

30. Ms Yip also emphasizes the importance of the right of appeal and the right to be heard. She refers me to what Denning LJ said, again, in Hadkinson v Hadkinson at p 295:

“I need hardly say that it is very rare for this court to refuse to hear counsel for an appellant. No matter how badly a litigant has behaved, nevertheless, generally speaking, if he has a right of appeal, he has a right to be heard; for the simple reason that, if he is not heard, his right of appeal is valueless…”

31. A Hadkinson Order is prima facie restrictive of a party’s constitutional right of access to court. It has however been held that the guaranteed rights under Article 35 of theBasic Law (rights of access to the courts) and under Article 10 of the Bill of Rights (equality before courts and right to fair and public hearing) are not absolute but may be subject to limitations. Such limitations are valid if they pursue a legitimate aim, are proportionate to that aim and are not such as to impair the very essence of the right: Ng Yat Chi v Max Share Limited & Others [2005] 1 HKLRD 473, (2005) 8 HKCFAR 1, at § 73; see also MA v MI [2004] EWHC 1158 (Fam), [2004] 2 FLR 932, [2005] Fam. Law 355, [51].

32. Finally, it has to be borne in mind that as per Ryder J in Mubarak v Mubarik [2004] 2 FLR 932, § 57 the Hadkinson sanction is a remedy of last resort. The power to make such an order should be exercised judicially, sparingly and proportionately: C v C (Appeal: Hadkinson order) [2010] EWHC 1656 (Fam), [2011] 1 FLR 434 § 42.

33. As the docket judge of this case, I am well aware of the history of the present proceedings. I have made some adverse comments on R’s “pick and choose” attitude in compliance with the Consent Order in another Ruling of 18 March 2016 when I dealt with the costs of P’s injunction. I am also sure that what little trust the parties might have on each other has long lost. Nevertheless, the bright side of the matter is that the parties have finally come to a stage where the Matrimonial Home is the final and only dispute between them. All the others are matters in the past.

34. In the final analysis, considering that R is appealing against the very subject matter of his non-compliance and although it is axiomatic that the facts of every case are different, this case is definitely not such an “exceptional and unusual” one for an applicant for leave to appeal to have to comply with conditions before he would be heard: Mubarak v Mubarik (No 2) [2007] 1 WLR 271 at § 88, taking all the above factors into consideration, I am driven to the conclusion that the discretion should be exercised in favour of R. I also consider that it is not an appropriate case to impose any conditions.

35. I now turn to R’s leave to appeal.

The Legal Principles on Leave to Appeal

36. The parties have no dispute over the applicable legal principles. The relevant test governing applications for leave to appeal from the District Court is provided in section 63A(2) of the District Court Ordinance (Cap 336) (“the DCO”):

“Leave to appeal shall not be granted unless the judge, the master or the Court of Appeal hearing the application for leave is satisfied that –
(a) The appeal has a reasonable prospect of success; or
(b) There is some other reason in the interests of justice why the appeal should be heard.” [emphasis added]

37. The Court of Appeal discussed the application of s 63A(2) of the DCO in Sunny Tadjudin v Bank of America, National Association, HCMP No 691 of 2012, unreported, 29 June 2012 at paragraph 9:

“9. Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (SMSE v KL [2009] 4 HKLRD 125 para 17). Furthermore, it is pertinent to bear in mind that even if there is a reasonable prospect of success on appeal, the court still retains a discretion whether to grant leave to appeal, although the fact that there is, ex hypothesi, a reasonable prospect of success would heavily influence the court’s exercise of discretion (Ho Yuen Ki Winnie & Ors v Ho Hung Sun Stanley & Anr. HCA 391/2006, 25 May 2009, A Cheung J para 3; and HCMP 1009/2009, 24 August 2009, para 22).”

R’s Leave to Appeal

38. R has 3 Grounds of Appeal.

1^st Ground – Wrong to conclude that the Consent Order makes no reference to an equal division – manifest intention was equal division

39. Ms Yip emphasizes on the “double counting” of the mortgage and the ELI Loan and refers me to various undisputed facts or findings of facts to support her argument that there is an abundance of evidence on equal division. For instance, she relies on the equal shareholding of the corporate vehicle that owns the Matrimonial Home, the fact that initially 50/50 split was P’s bottom line and the position of the parties on the 1^st FDR hearing which was essentially one of 50/50 split. It is not necessary for me to set out the undisputed facts here for the reason that Ms Yip is essentially repeating what she said in the original application in support her contention that the parties’ agreement is both in principle and in substance the kind of Charman arrangement: § 28 of the Judgment.

40. In response, Ms Eu submits that all the points raised in the draft Grounds of Appeal and the underlying basis on which they raise are repetition of points already ventilated and discussed in the Judgment. R has not raised any new points for appeal.

41. To start with, I need to clarify that it was not my conclusion that the Consent Order makes no reference to equal division. What I said was I accepted that Ms Yip’s criticisms over the way in which the undertakings were drafted are relevant but the question is whether they are sufficient: §41 of the Judgment. My conclusion was, as can be seen in § 51, I was not able to agree with Ms Yip that ‘… when objectively construed, the manifest intention of the parties as contended by R is clearly shown on the order was drawn” (emphasis added).

42. That said, I am attracted to 2 of the points raised by Ms Yip.

43. The first is that there was no evidence at all that R decided to be generous to P by being fully responsible to pay off the mortgage and the ELI Loan plus giving P the entire Matrimonial Home for free and the second is that P has not provided any specific reason why in the event that the Matrimonial Home is sold within 3 years at a price exceeding $49 million, the amount of sale proceeds in excess of $49 million shall be divided equally between the parties. There has not been any evidence adduced by P as to what was the reason for such provision for equal division in the Consent Order.

44. I consider these arguments are valid and for this reason, R has a reasonable prospect of success on this ground.

2^nd Ground – Wrong in concluding that there was no mistake in the Consent Order in adopting the manifest intention of the parties with regard to the Matrimonial Home

45. Ms Yip submits that while I accurately pointed out that there would be ‘double counting’ of the mortgage and the ELI Loan in P’s version, I failed to recognize such ‘double counting’ was a result of an inadvertent mistake by putting “Net Value” instead of “current market value” in § K(i) of the Undertakings, which defeated the overarching intention of the parties of an equal split of the assets: § 29 of the Judgment. She argues that the “accidental mistake (that) was caused by the mutual oversights of the parties’ legal representatives” is the only irresistible inference that I should have drawn: § 2.6 of Grounds of Appeal.

46. Ms Eu submits that R has not advanced any new arguments under this ground.

47. I never said that the Undertakings are without problem. Quite to the contrary, I expressly said in § 35 of the Judgment that the Undertakings are pregnant with problems, arising mainly from the use of the terms “current market value” and “the sale price”. If the ordinary and natural meaning of the word is to be used, § J(v) (ie the calculation of “the Net Value”) is not workable because there would never be a “sale price”: § 37 of the Judgment. It was only with the consensus of the parties that “the sale price” would also be the same as “the current market value” of $49 million that the Undertakings became workable. As this is also relevant to the 3^rd Ground, it would be useful for me to set out § 38 of the Judgment,

38. With the consensus that the figure of $49 million is to be adopted, §§ J and K are not merely literally intelligible but also workable as evident from the fact that the parties are able to work out their own calculations, only with the ramification that it would work against R. This is exactly what R is complaining about. His complaint is that taking the wordings of §§ J and K at their face value, or put it another way, if §§ J and K are implemented according to their natural and ordinary meaning of the word, it would defeat the overarching intention of the parties behind the consent order. (emphasis added)

48. As can be seen, it was only with an extrinsic aid that made the Consent Order workable. With this in mind, the 2 points raised by Ms Yip in the 1^st Ground are also relevant here. I agree that the “double counting”, coupled with the said 2 points, makes the irresistible inference argument more than a fanciful one. I would also grant leave to appeal on this ground.

3^rd Ground - Wrong to find that the Consent Order is workable

49. Ms Yip submits that I erred in finding that the Consent Order is workable by applying the ordinary and natural meaning of the words. My acceptance that if the ordinary and natural meaning of the word is to be used, undertaking § J(v) (ie the calculation of the Net Value) is not workable because there would never be a “sale price” where the Matrimonial Home is to be acquired by P but not to be sold: § 37 of the Judgment. This is plainly inconsistent with my finding that the Consent Order is workable by applying the ordinary and natural meaning of the words. In consequence, I ought to have found that the Undertakings are not workable if the natural and ordinary meaning of the word is to be applied.

50. I have to agree with Ms Eu that this submission is plainly unarguable. As I said in § 38 of the Judgment (and reproduced in para 47 above), it was only with the agreement that the figure of $49 million was to be adopted that made the Consent Order workable. Further, the fact that R accepts he is in non-compliance plainly demonstrates that the Consent Order is workable. I do not find any reasonable prospect on this ground.

Orders

The Petitioner’s Summons

51. For the above reasons, I dismiss the petitioner’s summons dated 9 May 2016 with an order nisi that the costs of the summons be to the respondent, with certificate for two counsel.

The Respondent’s Summons

52. As for the respondent’s application for leave, I give leave to appeal on his 1^st and 2^nd grounds of appeal. The costs of the application be in the cause of the appeal with certificate for two counsel. This is also by way of an order nisi.

(I. Wong)
Deputy District Judge

Ms Audrey Eu, SC and Mr Au Lut Chi, instructed by Ernest Li & Co, Solicitors, appeared for the petitioner

Ms Anita Yip, SC and Ms Cindy K S Lee, instructed by Lam and Lai, Solicitors, appeared for the respondent

103699-EN-2016-03-18

LCKLM nee CKLM v. LWK

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FCMC 11425/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11425 OF 2011

----------------------------

BETWEEN
	LCKLM nee CKLM	Petitioner
and
	LWK	Respondent
------------------------

Coram: Deputy District Judge I. Wong in Chambers (Not Open to Public)

Date of the Petitioner’s Written Submissions: 4 January 2016

Date of the Respondent’s Written Submissions: 4 January 2016

Date of Handing Down Ruling: 18 March 2016

--------------------------

Ruling on Costs
(By Paper Disposal)

--------------------------

Introduction

1. This is a ruling on the costs of an application taken out by the petitioner wife on 6 February 2015. The subject matter was disposed of in the first call-over hearing on 11 March 2015, leaving the costs issue to be determined now.

2. For convenience, I shall continue to refer the petitioner wife as “P” and the respondent husband “R. I shall also adopt the same nomenclature and abbreviations used in the Judgment dated 26 February 2016 (“the Judgment”) by which R’s application for amendment of the consent order dated 18 February 2014 (“the consent order”) was dismissed. The amendment sought in that application was mainly in relation to the matrimonial home. The present application was, however, in relation to the Warehouse, another major item of the family’s assets. Since I have already set out the relevant factual background in the Judgment, it is not necessary for me to repeat them here.

3. As mentioned in the Judgment, the parties were able to settle the ancillary relief matters by way of the consent order but unfortunately they have since had immense difficulties in coordinating with each other in the carrying out of it. The application for amendment by R was one example and P’s present application was another.

The Application

4. By her application, essentially for a quia timet injunction, P sought the following orders in relation to the proceeds of sale of the Warehouse pursuant to Order 29, rule 1, RHC and section 38A of the District Court Ordinance, Cap 336. She also relied on the inherent jurisdiction of the court:

1. The Petitioner and the Respondent do within 7 days from the Order hereof, whether by themselves, their servants, agents or otherwise sign all necessary documents, including bank documents, board resolution and minutes, to change the mandate of the bank accounts of EIL (“the Company”), with the Hong Kong and Shanghai Banking Corporation and the Bank of China (Hong Kong) Limited, such that the mandate of both the Petitioner and the Respondent shall be sufficient authority and bind the Company in all transactions between the aforesaid banks and the Company;
2. The Petitioner and the Respondent do within 7 days from the Order hereof, whether by themselves, their servants, agents or otherwise sign all necessary documents, including board resolution and minutes, for the Company to instruct and to authorize Messrs. WKLL (or such solicitors of the Company) to use part of the sale proceeds (“the Sale Proceeds”) of HK$600,000,000.00 from the sale of “the Warehouse” (“the Property”) to repay and discharge the existing mortgage of the Property created in favour of the Bank of China (Hong Kong) Limited and all other encumbrances on the Property and expenses relating to the sale of the Property;
3. The Petitioner and the Respondent do within 7 days from the Order hereof, whether by themselves, their servants, agents or otherwise sign all necessary documents, including board resolution and minutes, for the Company to instruct and to authorize Messrs. WKLL (or such solicitors of the Company) to pay the net Sale Proceeds (after deduction of the payments in 2 above) in equal shares to the respective personal account of the Petitioner and the Respondent;
4. Failing to comply with the above orders, the Registrar of the High Court or such person as this Court nominate shall execute any documents or to endorse any negotiable instrument to distribute of the Sale Proceeds of the Property in the same manner as provided above and/or in the undertaking as contained in the paragraph I of the Consent Order made by Deputy District Judge I. Wong dated 18 February 2014; and
5. Leave to serve the Order herein on the Hong Kong and Shanghai Banking Corporation, the Bank of China (Hong Kong) Limited and Messrs. WKLL.

The Warehouse

5. The Warehouse was held in the name of EIL (“the Company”) of which each of the parties owned 50% of the shareholdings. By a provisional agreement for sale and purchase dated 3 October 2014 and a formal agreement for sale and purchase dated 12 November 2014 the Warehouse was sold for $750,000,000. Two sums of deposits, $74,000,000 and $76,000,000, were paid by the purchaser on 3 October 2014 and 30 October 2014 respectively. The sale was scheduled to complete by 31 March 2015.

6. By the time when P took out the application on 6 February 2015 she had already received her due share out of the deposits according to the consent order. From the correspondences of the parties adduced to court, it is quite clear that it was only after some exchange of blows and with some delays that she finally got her share. All these were said to have precipitated P’s application. The intention of the application was crystal clear. It was to secure P’s position. She wanted to ensure that she would be able to receive her share of the proceeds of sale within the time stipulated in the consent order. This is what she was entitled to.

7. As said, the application was disposed of in the first call-over hearing on 11 March 2015. It is fair to say that, as a matter of fact, Mr Lai, on behalf of R, did not really object to the application. I therefore gave orders in terms of paragraphs 2, 3, 4 and 5 of the summons. It was not necessary for the court to give an order in terms of paragraph 1 for the reason that shortly before the hearing R had signed the mandate for the HSBC account. In reliance of Mr Lai’s confirmation that HSBC did not require further steps to be taken or documents to be signed, P did not pursue her application in respect of the Bank of China account.

8. Since the 15-minute call-over hearing did not permit the court to deal with costs, the costs issue was reserved for the parties to have it sorted out amicably, if possible. Failing to come to any sensible solution, the parties now seek court’s adjudication. Both are seeking costs of the application.

Legal Principles

9. It is trite that issue of costs is a matter of discretion for the court. In ancillary relief cases, it has been said by the Court of Appeal that because of the special dynamics of family litigation, the discretion may be broader than in civil matters generally: Z v X & C, (unrep., CACV 166/2011, 8 March, 2013) § 10.

10. As far as the general principles are concerned, the relevant rules can be found in Order 62, rule 3, RHC. Sub-paragraphs (1) and (2A) of the rule state as follows:

(1) Subject to the provisions of this Order, no party shall be entitled to recover any costs of or incidental to any proceedings from any other party to the proceedings except under an order of the Court.
(2) ...
(2A) If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.

11. Sub-paragraph (2A) was introduced in the Civil Justice Reform in 2009. Thus, under the post CJR regime, the principle that “costs to follow the event” is no longer the prescribed usual order but is instead just an option as regards costs in interlocutory proceedings: Hong Kong Civil Procedure 2016 Vol 1, § 62/3/3B. The present position in this regard has been succinctly summarised by Hon To J in his judgment in Melvin Waxman v Li Fei Yu (unreported, HCA 1972/2012, 11 September 2013), which I gratefully adopt.

15. As for how the new rule 3(2A) operates in practice, I have not been referred to any decision in which this rule has been argued. I am not aware of any either. In view of the prominence given to the CJR, I assume that where the court ordered costs to follow the event in interlocutory proceedings, it must be a conscious decision of the court to adopt the general rule as the one which it thought best served the interest of justice in the circumstances of the case before it than ignorance of the new options available or a mis-application of the general rule which no longer exists. As observed by the Working Party on Civil Justice Reform, costs to follow the event would often be the case, though it is no longer the prescribed rule…
…
19. Summing up on the post-CJR position, I think the court has much wider discretion as to costs in interlocutory proceedings. Unlike other proceedings, the general rule of costs following the events do not apply. The court is entitled to take into account all the circumstances of the case, including those set out in rule 5, to make such order as it thinks fit. In the exercise of its discretion, the court may take the issue-based approach or may take into account merit of the parties’ case or the possible outcome of the action. The circumstances of interlocutory proceedings are so numerous that it is impossible to make any general rule. Costs to follow the event and costs be to the successful party’s costs in the cause are obvious options.

12. In the exercise of its discretion, the court will have to take into account, where appropriate in the circumstances, the special matters set out in Order 62, rule 5, RHC. I do not think I need to set them out here.

P’s Case

13. P says her application was justified. She feared that the sale proceeds would not be distributed on time or worse still, would not be distributed at all and she might eventually be liable to the mortgage secured by the Warehouse. Her fear was founded on R’s track record of persistent and deliberate breaches of his undertakings as contained in the consent order. She relies on the following incidents to justify taking out of the application:

1. R’s failure to comply with § H(iv) of his undertaking to accept the first purchase offer reaching not less than $500 million for the sale of the Warehouse.
2. R’s refusal to change the mandate to HSBC such that both signatures of P and R are required for dealing with the proceeds of sale.
3. R ignored her proposal to give instructions to WKLL, solicitors for the sale of the Warehouse, to transfer the proceeds to P and R by way of split cheques.
4. R delayed in crediting her due share of the deposits. It was not until early December 2014 that she received the monies.
5. R failed to comply with his undertakings in paying off the mortgage. Quite to the contrary, he created further encumbrance on 9 December 2014.
6. R credited the initial and further deposits into her personal account before HSBC’s confirmation with her.

14. Since R refused her requests as set out in the inter parte correspondence, P had no choice but to take out the summons. In light of the underlying objectives in Order 1A, Rule 1, RHC, R could have agreed to the summons without having to trouble the court.

R’s Case

15. In gist, R says that P’s fears are groundless. At all times, P was protected by his undertakings. There is no evidence to suggest that the distribution of the sale proceeds would not be completed in accordance with his undertakings. The measures sought by her under the application were unnecessary and did not in fact impose any “extra” security to the distribution of the sale proceeds. P’s application was a waste of time and money. The so-called repeated breaches of undertakings were either irrelevant to the issue or had all been clearly explained in R’s affirmations.

Discussion

16. To start with, P should be regarded as the successful party in the application. As such, she is assisted by the general rule of costs to follow the event. The evidential burden is on R to adduce sufficient evidence or argument that some other or lesser order is appropriate. In the absence of evidence or convincing argument to the contrary, P would also have discharged the legal burden: see Melvin Waxman & Anor v Li Fei Yu & Anor, § 20.

17. The parties came to an amicable resolution of the matter in the 1^st call-over hearing as a result of the court’s intervention. During the hearing, the court invited Mr Lai to indicate whether, without considering the costs consequences, R would be willing to accept the orders sought by P. That was positively responded to; and it was under such circumstances that the orders were made. Ms Yip, SC, now acting for R, submitted that R agreed to the proposals purely in the interest of settling the matter and that he had no intention of not making the distribution as P alleged. There is certainly no suggestion that R agreed to P’s allegations.

18. With what happened in the hearing, it is necessary to consider whether the taking out of the application was justified. This entails an examination of the grounds that P alleges to have caused the application. In the course of doing so, I remind myself that I have not heard any oral evidence. What I have before me are the diametrically opposed affirmation evidences of the parties. My task thus is to assess the veracity of their versions only on the basis of the affirmation evidence before me.

(1) R’s failure to comply with § H(iv) of his undertakings to accept the first purchase offer reaching not less than $500 million for the sale of the Warehouse.

19. R accepts that he was ‘technically’ in breach of the undertaking in not accepting the $500 million offer but he did so for the benefit of the parties because eventually the Warehouse was able to fetch a price of $750 million.

20. I do not need to comment on whether the breach was a technical one or not. Suffice for me to say is that though there is some truth in R’s saying that it resulted in the happy increase of $200 million on the parties’ economies, this, however, is indicative of R’s attitude towards the compliance of the consent order – the very order that he consciously and willingly agreed to but subsequently chose to ignore it, at least in part. I accept his behaviour undermined P’s confidence that he would strictly comply with his undertakings in relation to the Warehouse.

(2) R’s refusal to change the mandate to HSBC such that both signatures of P and R are required for dealing with the proceeds of sale.

21. P requested for the change of the mandate as early as on 6 October 2014. The initial response was positive. By his solicitors’ letter dated 10 October 2014, R said he was agreeable to the change. He confirmed his agreement once again on 14 October 2014. But by 31 December 2014, it is abundantly clear that he reneged on his words. As set out in his solicitors’ letter, R claimed that he was “agreeable” to the change, as opposed to “agreed”, that there was no refusal; only that there was no agreement. His stance changed again shortly before the hearing: between 17 February 2015 and 6 March 2015, R signed the change of mandate and it was only on 6 March 2015 that P was told of this fact. No reason was proffered as to why there was such a drastic change of stance. I consider P has made out this ground.

22. I also need to mention that in the same letter of 31 December 2014, R claimed that he was not obliged to agree to P’s proposal regarding the joint instructions to be given to WKLL and that it would be sufficient for him to have made deduction of money out of the proceeds of sale for the repayment of the mortgage. The consent order did not oblige him to redeem the mortgage ‘before or upon” distribution of the dividends to the parties. It is clear that by then R adopted an argumentative approach, probably because of the freezing of the HSBC account upon P’s notification to the bank of her interest in the proceeds of sale. I need to return to this letter in the later part of this Ruling.

(3) R ignored her proposal to give instructions to WKLL, solicitors for the sale of the Warehouse, to transfer the net proceeds of sale to P and R by way of split cheques.

23. The first time P made the proposal was on 17 October 2014, sending R’s solicitors her draft instructions but there was no response until 31 December 2014 when R’s solicitors turned it down, saying that the proposed instructions were merely proposals; as such, he was not obliged to agree to them. Since then, as far as the correspondences exhibited in the affirmations are concerned, there was a complete silence on the matter. It was only during the hearing that R was agreeable to the joint instructions.

(4) R delayed in crediting her due share of the deposits. It was not until early December 2014 that she received the monies.

24. It would appear that the initial deposit and the further deposit were eventually distributed to the parties on 2 December 2014. According to P, they should have been paid within 14 days of receipt, ie by 23 October 2014 and 19 November 2014 respectively. Both parties are pointing their fingers against each other on why there was a delay in the distribution of the deposits. R says the delay was mainly attributed to the time taken up for the parties to agree on the amount of dividends payable (in particular, whether the estate agent’s commission, the legal costs of the sale and certain outstanding payments should be taken into account), to agree on the terms of the Company’s resolution and also due the suspension of the HSBC account caused by P.

25. I consider there is some truth in R’s explanations. It appears from the correspondences that there had been discussions between the parties on the contents of the draft board minutes and on the items to be deducted and it was not until 27 November 2014 that P returned her signed board resolutions for the disposal of the deposits. Prior to that, it was not until 20 November 2014 when agreement was reached on how the estate agent’s commission was to be paid; and as late as 24 November 2014 P still had further amendments to the draft. I accept that the payment of deposits was further complicated and delayed by the “freezing” of the HSBC account. This could not be said to be due to R’s fault.

(5) R failed to redeem the mortgage for the Warehouse

26. P says despite the fact that the initial deposit of $74 million was more than sufficient to pay off the mortgage, R failed to do so in compliance with his undertakings. Quite to the contrary, he created a further encumbrance with the mortgagee bank on 9 December 2014.

27. It is true that R just made deduction an amount of money sufficient to discharge the mortgage out of the initial deposit but did not proceed to redeem the mortgage immediately. This triggered P’s letter of 24 December 2014 setting out her complaints including the redemption issue and that was responded to by R’s letter dated 31 December 2014 in which it was mentioned that deduction did not mean ‘redemption’. This is contrary to what he suggested, via his solicitors’ letter dated 14 October 2014, to pay off the loans ‘now’ and distribute the balance immediately thereafter.

28. In my view, the redemption issue must be approached objectively. The objective fact is that the mortgage, the assignment of rentals and the second legal charge, all in favour of the Bank of China, were registered against the Warehouse at the Land Registry and specifically mentioned in the Eighth Schedule to the formal Agreement for Sale and Purchase. According to Clause 34(b) of the Agreement, the Company as the vendor should discharge the Warehouse from these encumbrances on or before completion. There is certainly no suggestion nor is there any evidence indicating that R was prepared not to complete the sale according to the terms of the Agreement.

29. Seen in this light, it may be that the letter of 31 December 2014, in so far as it related to the redemption of the mortgage, served no useful purpose but only added fuel to the antagonism and worries of P. P’s complaint appears to be that if R had already made a deduction sufficient for the redemption of the encumbrances, he should have redeemed the mortgage well before the completion. It may well be her preferred way but in my view, R cannot be said to be in breach of the undertaking if deduction was made before distribution and redemption took place later but on or before the completion.

30. P’s another complaint is that R created a further encumbrance with the Bank of China on 9 December 2014. I have carefully considered the facility letters dated 16 December 2013 and 16 December 2014. What I can gather is that the facility was originally on an annual basis and was secured by the Warehouse. The 2013 facility was to mature on 31 December 2014 and the 2014 facility letter, which was to replace the 2013 facility, provided for the maturity date to be on 30 April 2015. Though I have not heard evidence in this regard, I can infer that the facility was only extended to 30 April 2015 due to the anticipated redemption of the Warehouse by 31 March 2015. It is also striking to note that P too endorsed her signature on the relevant banking documents for the continuance of the facility beyond 31 December 2014. Given that P had been so cautious in protecting her interest and she was all along being advised and represented by her solicitors who at all times were unwavering in asserting P’s stance, it is hard to believe that she did not agree with the creation of the facility but merely signed the documents to avoid any animosity and potential hostile confrontation with R. In any event, I agree with WKLL’s confirmation that the facility was not a new encumbrance. It is also important to note that the facility was not secured by the Matrimonial Home. For these reasons, I do not find any substance in the complaint.

(6)R credited the initial and further deposits into her personal account before HSBC’s confirmation with her

31. P complains that despite HSBC’s confirmation that no withdrawal from the Company’s account would be allowed unless with the consent from P and both signatures of the parties appeared in any negotiable instruments, the initial and further deposits were credited to her personal account contrary to this confirmation.

32. I see little merit in the complaint. To start with, it was entirely HSBC’s own decision as to whether to process the transaction. Further, as HSBC explained in their letter dated 6 January 2015, all the cheques in question were signed by P and R, signifying their consent and agreement that they would not dispute the substance of the payment. HSBC considered this represented joint instructions for them to process the payments.

33. Thus analysed, P only succeeds in establishing some of the grounds. This, however, does not necessarily mean that her worries or fears were entirely ill-found. Quite to the contrary, I can see her fears were more than imaginary in light of R’s letter dated 31 December 2014. Of course, I understand that according to R despite that letter, there was nothing that P needed to worry.

34. It was most unfortunate that R retracted from his previous position on some of the matters and sternly rejected the others. These further polarized the parties. After having rejected P’s various proposals on 31 December 2014, R could have made his own suggestions upon which the parties might work towards their goal of distributing the proceeds within 14 days of completion of sale. On the contrary, I do not find R had ever made any suggestions on how to implement the sale; for instance, there was no draft minutes of board resolution on the disposal of the proceeds of sale nor was there anything from him on how to work out the undertakings as regards the distribution of the proceeds. That remained to be the situation up to the hearing. On the evidence before me, it is quite clear that Mr Kwan, the Company’s accountant, was the one responsible for preparing the necessary documentations and overseeing the procedure for the parties but he worked under the directions of R only. I have no doubt that R was very much in control of the process. That naturally would have a decisive impact on when the proceeds were to be distributed. Against this background and also with the ‘pick and choose’ attitude of R in the compliance of the consent order, coupled with what were stated on the 31 December 2014 letter, the apparent stalemate since 31 December 2014 and R’s absence of his own suggestions, notwithstanding that P failed to convince the court on some of her grounds for taking out the application, I am driven to the conclusion that it was not unreasonable for her to have come to court for assistance.

35. It should also be noted that the orders sought were against both parties, not just against R. The intention is crystal clear: this was meant to be for the implementation of the sale, to ensure that the sale would go smoothly so that both parties would receive half of the net proceeds of sale in good time. In a way the application benefits both parties. In the absence of his own suggestions, R could have readily agreed to the steps proposed by the other side but he only did so during the hearing.

36. With the conclusion that I have come to, I am satisfied that the costs should be in P’s favour. However, for the reason that she failed in some of her grounds, I consider it would only be fair that she is to get half of the costs. I also agree with Ms Yip that the application did not warrant the instruction of two counsel when R was attended by his solicitor only.

Costs Order

37. I give an order that the respondent do pay the petitioner half of her costs of the application, with certificate for one counsel, to be taxed if not agreed.

	( I. Wong )
	Deputy District Judge

Ms Audrey Eu, SC and Mr Au Lut Chi, instructed by Ernest Li & Co, Solicitors for the petitioner

Ms Anita Yip, SC and Ms Cindy K S Lee, instructed by Lam and Lai, Solicitors for the respondent

103377-EN-2016-02-26

LCKLM nee CKLM v. LWK

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FCMC 11425/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11425 OF 2011

----------------------------

BETWEEN
	LCKLM nee CKLM	Petitioner
	and
	LWK	Respondent

----------------------------

Coram: Deputy District Judge I Wong in Chambers (Not open to public)

Date of Hearing: 5 January 2016

Date of Handing Down Judgment: 26 February 2016

________________________

JUDGMENT
(Amendment of Consent Order)

________________________

1. This is a big money case but quite dissimilar with the usual case of this kind, the battle between the parties is not on how their assets are to be distributed. This has been amicably dealt with by way of settlement in Financial Dispute Resolution (“FDR”) hearings and the terms of the settlement are embodied in a consent order. The battle is being fought on its aftermath. The parties now have dispute over the terms of the consent order; resulting in the present application taken out by the respondent husband for the amendment of the order.

2. For convenience, I shall refer the petitioner wife as “P” and the respondent husband “R” in this Judgment.

3. Before coming to the contents of R’s application, I need to set out the background to the present application, which, I believe, is not in dispute.

The Background

4. Both the husband and the wife are local Chinese. They married in July 1990 and raised a son, born in April 1991. Thus, at the time of the FDR hearings, the son was 23 years old and was receiving education in the United States. The couple ran a very successful logistics business via a group of about 10 relating companies of which R was the managing director and P the executive director and they had generated substantial assets over the years, comprising mainly:-

1.  A block of warehouse building (“the Warehouse”) purchased in the name of EIL of which P and R each owned 50% of the shares;
2.  The matrimonial home on the Peak (“the Matrimonial Home”) purchased in the name of another company 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 P; and
4.  A group 10 relating companies. By and large, on record each owned an equal share in the business and the assets.

5. The main issue in these divorce proceedings was how the matrimonial assets should be distributed upon divorce. Their FDR hearing took place before me on 29 January 2014. Due to the progress gained, it was adjourned to 18 February 2014. In the interim, the parties actively engaged in negotiation and eventually, they were able to come up with a settlement which was encapsulated into a Minutes of Consent Order (“the Minutes”) submitted to court for approval in the late afternoon of the 2^nd FDR hearing. I was told the Minutes was drawn up on that day. Ms Yip SC, who appeared for R in the FDR hearings and in this application, emphasized that the Minutes was drawn up under pressure and haste; consequentially it contains some mistakes. I will return to this point in later part of this Judgment.

6. The Minutes was endorsed by the court on the same date, ie 18 February 2014, in the form of a consent order. It was sealed by P on 30 April 2014.

The Consent Order dated 18 February 2014

7. As is usual in settling financial matters of this scale, the consent order contains rather lengthy and extensive undertakings given by the parties. Indeed, essentially all the terms are contained in the undertakings part of the order rather than in the formal orders.

8. Thus, there are undertakings by the parties that they would contribute equally to the living and education of the son up to the completion of his first bachelor’s degree. After that, if the son continues with his education, R undertakes to be responsible for the expenses solely until the son obtains his first doctoral degree (Undertaking G).

9. The Warehouse is to be sold in open market, with the proceeds, after having the outstanding mortgage and liabilities repaid, to be shared equally between P and R (Undertakings H and I).

10. Undertakings J and K deal with the Matrimonial Home and they constitute the subject matter of the present dispute. I will deal with them in due course.

11. The Tung Chung property is to be retained by P. The net value of this property is agreed as $5.1 million minus the outstanding mortgage sum. She has to pay R half of the net value for the acquisition of the entire ownership (Undertaking L).

12. Finally, as regards the 10 relating companies, R has to pay half of their aggregate values as assessed by their single joint expert that amount to $30,168,000. These are in Undertakings M and N.

13. The formal order is a usual one. It is that upon the parties’ respective compliance with the undertakings, any claims which the parties may have against each other be dismissed (para 1 of the Order). There is also a provision giving the parties liberty to apply as to the implementation of the terms of the order (para 2 of the Order).

14. As of today, the consent order is part-performed: the Warehouse was sold and the proceeds of sale distributed; but when it came to the Matrimonial Home, problems emerged that led to the present application.

R’s Summons

15. By his summons dated 3 August 2015, R seeks to amend various parts of the consent order under Order 20, rule 11 of the Rules of the High Court or the inherent jurisdiction of the Court.

16. Further or alternatively, the relevant parts are to be construed and clarified by the Court under the “liberty to apply” provision in order to implement the consent order.

17. As said above, the subject matter of the dispute is in respect of Undertakings J and K, which read as follows, with the proposed amendments underlined for easy reference,

“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. An 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.”

18. The amendments sought in respect of Undertaking J(v)(b) (para 1(a) of the summons) is not in dispute. They are clearly typos and ought to be amended. There are also two other minor amendments in Undertakings O and Q, being paras 1(c) and (d) of the summons. Again, they are clearly typos and not in dispute. It is not necessary to set them out or say further on these. I would give an order for their amendments accordingly.

19. What is hotly disputed is the amendment in respect of § K(i). One can readily see there is a world of difference between the two versions, if I may call it. According to the order on its present wording, P only needs to pay half of the Net Value of the Matrimonial Home for the acquisition of the entire property. The Net Value is already net of the mortgage, the ELI Loan and other liabilities (“the Liabilities”). It is common ground that according to this version, P only needs to pay R about $9,418,000 while at the same time R has to pay half of the Liabilities. Apparently, there is a “double counting” of the mortgage of the ELI Loan. It is not in dispute that as far as arithmetic goes, this would have a difference of as much as $15 million. On the other hand, if R’s amendment is allowed, this would result in the equal sharing of the Liabilities and the equal split of this property.

R’s Case

20. R says that the settlement, and for that matter the consent order, was premised upon the notion of an equal division of the family assets and liabilities between the parties. This was the common and overarching intention of the parties when the settlement was reached and the Minutes was consented to. However, taking the wordings of §§ J and K as they are, an equal division of the interest in the Matrimonial Home appears to be impossible to achieve. The present anomaly is the result of an accidental mistake caused by the mutual oversights of the parties’ legal representatives when agreeing on the wordings of the consent order. P now seeks to take advantage out of the mistake. The proposed amendment is necessary to reflect the manifest intention and true agreement between the parties in achieving an equal division of their interest in the Matrimonial Home and in order to implement the consent order.

P’s Case

21. P denies R’s contention that all family assets are to be distributed and all liabilities are to be borne equally. Quite to the contrary, the agreement or for that matter the various undertakings given by the parties was not a simple 50/50 split but was a compromise/settlement between them; for instance, there was no distribution of other properties owned by them such as their personal valuables. R’s application is akin to re-opening the entire matter.

22. From the correspondence adduced in the parties’ affirmations, it is quite clear that P never conceded that there was any mistake on her part. Not only this, she maintained that she had given serious thoughts before agreeing to the terms of the settlement and that the consent order reflected her true intention in terms of the manner of distribution of assets and the mechanism involved.

23. I now turn to R’s grounds.

Order 20, rule 11, RHC (the Slip Rule) and the Inherent Jurisdiction of the Court

Legal Principles on Slip Rule and Inherent Jurisdiction

24. I do not think counsel have any arguments over the authorities. It is trite that the court has the power to revisit an order in certain discrete situations that do not violate the principle of functus officio, one of which is pursuant to Order 20, rule 11, RHC or the slip rule, which applies only in cases where there is a clerical mistake in a judgment or order or an error arising from an accidental slip or omission: see Hong Kong Civil Procedure 2016, Vol 1, § 20/11/1; the Court of Final Appeal judgment in Man Ping Nam v Man Fong Hang (No 2) (2007) 10 HKCFAR 140, [2007] 1 HKLRD 763 and the recent District Court case Poon Ching Man v Lam Hoi Pun [2015] 3 HKLRD 57, §§ 13, 34 and 36. The court’s power to amend its order under the slip rule also applies to consent order: TYCZ v SKY (unrep., FCMC 6549 of 2002, 30 September 2014).

25. The court can amend its order under the slip rule only if the error or omission was an error in expressing the manifest intention of the court or it was truly inadvertent or accidental error: Li Tze Cho (No 3) v Ching Hua Co (HK) Ltd [1961] HKLR 201, 205 per Reece; and Yau Wah Hing & Anor v Yuen Kay Ming (unrep., CACV 46 of 2012, 19 March 2013), § 52. A party cannot use the slip rule to insert into the original order a provision which was not there, not because of any slip in expressing the court’s intention but because it was not originally asked for: Bank of China v Xinyuan Trading Co (unrep;, CACV 276 of 1998, 21 June 2000), at page 3; Falcon Insurance Co (Hong Kong) Ltd v Flagship Underwriting Management Ltd (unrep., HCA 312 of 2010, 11 June 2013) § 16.

26. Apart from the rule, the court has an inherent power to vary its own orders so as to carry out its own meaning and to make its meaning plain and such power of amendment extends to cover accidental slips and omissions of the legal representatives: see Hong Kong Civil Procedure 2016, Vol 1, § 20/11/1.

27. On the manifest intention of the court, Ribeiro PJ said the following in Man Ping Nam v Man Fong Hang (No 2):-

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. As Lord Penzance stated in Lawrie v Lees (1881) 7 App Cas 19 at 34-35:
“I cannot doubt that under the original powers of the Court, quite independent of any order that is made under the Judicature Act, every Court has the power to vary its own orders which are drawn up mechanically in the registry or in the office of the Court - to vary them in such a way as to carry out its own meaning, and where language has been used which is doubtful, to make it plain. I think that power is inherent in every Court.”
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.
…
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.

R’s Submissions

28. Ms Yip argued that the intention of the parties to have an equal division of all family assets and liabilities are manifest throughout the consent order. The parties’ mutual agreement is both in principle and in substance the kind of Charman agreement, referring to the English Court of Appeal case Charman v Charman (No 4) [2007] 1 FLR 1246. She drew my attention to the parties’ equal sharing of (1) the son’s education and living expenses, (2) the net proceeds of sale of the Warehouse, (3) the other assets and liabilities of ELI as shown on ELI’s latest audited accounts (§ K(i)(d)), (4) the proceeds of sale of the Matrimonial Home should P sell it within 3 years at a price exceeding $49 million (§ K(iii)), (5) the companies, and (6) the Tung Chung property. On that footing, it is evidently clear that there should not be any exception for the Matrimonial Home.

29. She argued that the way §§ J and K were drafted amply suggested an accidental slip of writing “Net Value” (which is wrong) in § K(i) as opposed to market value or current market value (which is right). If P is correct, one wonders why § K(i)(b), (c) and (d) were there and what they meant. Indeed, paragraphs (b) and (d) clearly stated that the parties were to share equally the ELI Loan. They also agreed to share equally all the rest of the assets and liabilities of ELI. Paragraph (c) was odd and had no place in the consent order. It is absurd that after deducting the mortgage loan when arriving at the Net Value in § K(i) R would be asked to pay back 50% of the mortgage to P, when paragraph (c) was juxtaposed with paragraphs (b) and (d). Paragraph (c) clearly means, as do paragraph (b) and (d), that each of P and R would share one half of the mortgage loan. If P’s interpretation is correct, R would be solely responsible for the repayment of the mortgage loan. This would cause severe prejudice against R.

P’s Submissions

30. The answer of Ms Eu, SC, who appeared in this application but not in the FDR hearings, is a short one: the present case does not come within the slip rule. There is no manifest error of the court. The manifest intention of this court was no more than to adopt the terms of the parties and there is nothing unclear in the Undertakings or the consent order. The parties should adhere to the ordinary and natural meaning of the undertakings which is clear. R should not be allowed to vary the ordinary and natural meaning of the undertakings. P only needs to pay R half of the Net Value of the Matrimonial Home and the calculation of the Net Value is clearly set out in § J(v).

31. Ms Eu argued that the parties must be held to their bargain as expressed in the consent order. It is now too late for R to re-open the matter by selectively picking on what counsel said or what the court said at one time or the other in the course of the proceedings. None of these can be relied on to construe the undertakings.

32. She also cited Lui Sik Kuen v Lee Suk Ling [1992] 2 HKLR 371 where the Hong Kong Court of Appeal, following the Privy Council’s decision in de Lasala v de Lasala [1980] AC 546, [1976] 3 WLR 390, [1979] 2 All ER 1146, held where a party seeks to challenge a judgment or order that finally disposes the ancillary relief issues between the parties on the ground that it was obtained by fraud or mistake, the only way of doing so was by appeal or by bringing a fresh action to set the judgment or order aside and that the expression “fresh action” cannot embrace an application in proceedings already instituted.

33. Ms Eu also submitted that it was after lengthy negotiations between the parties and their legal teams that they reached an overall compromise or settlement. It is not open to R to rewrite a certain part of the overall compromise or settlement relating only to the Matrimonial Home.

34. As I see it, R’s application is to amend the consent order; he is not seeking to set aside or rewrite the order. If R is able to avail himself of this application, the principles set out in Lui Sik Kuen v Lee Suk Ling and de Lasala v de Lasala would not be an impediment to him.

Discussion

35. To start with, looking at §§ J and K objectively, it is quite clear that they are pregnant with problems.

36. First, the “current market value” of the Matrimonial Home is stated to be $49 million in § J(i) but there is no further reference to this term or to this figure in other parts of the consent order. It is unclear why this provision is needed.

37. Secondly, and this is in relation to the first point, instead of referring to the current market value which has been defined earlier on, the term “the sale price” is used in §J(v) as the basis upon which the “Net Value of the Matrimonial Home” is to be obtained. Obviously, the use of the term “the sale price” implies that the Matrimonial Home is to be sold but if that is the case, it brings us back to the question of why it was necessary to include the term “the current market value”. Ms Yip submitted that § J(v) stipulated a scenario where the Matrimonial Home is to be sold but with respect, this would not assist her because the agreement is clearly that Matrimonial Home is not to be sold but to be acquired by P. At the same time, if the ordinary and natural meaning of the word is to be used, § J(v) (ie the calculation of the Net Value) is not workable because there would never be a “sale price”. It is totally unknown as to why “the sale price” was used. Interestingly, clearly out of their own agenda, P agreed that “the sale price” should mean $49 million; and this is in line with R’s stance that the “sale price” must be equivalent to “the current market value” of $49 million as stated in §J(i).

38. With the consensus that the figure of $49 million is to be adopted, §§ J and K are not merely literally intelligible but also workable as evident from the fact that the parties are able to work out their own calculations, only with the ramification that it would work against R. This is exactly what R is complaining about. His complaint is that taking the wordings of §§ J and K at their face value, or put it another way, if §§ J and K are implemented according to their natural and ordinary meaning of the word, it would defeat the overarching intention of the parties behind the consent order.

39. As held in Man Ping Nam v Man Fong Hang (No 2), the court has jurisdiction to clarify an ambiguous order by reference to the manifest intention of the court set out in the body of the judgment. This, however, cannot be done in the present case for the simple reason that the order sought to be amended did not arise from a judgment of this court. The manifest intention of the court was simply to adopt the agreement of the parties as embodied in the Minutes.

40. The grave conundrum which faces me is to discern what the manifest intention of the parties regarding the disposal of the Matrimonial Home was when the agreement was concluded on 18 February 2014. The answer has to be obtained upon a proper construction of the consent order as drawn.

41. As set out above, Ms Yip highlighted the way in which §§ J and K were drafted to argue that there was an accidental omission. That is denied by P. I accept that Ms Yip’s criticisms over the way in which the undertakings were drafted are relevant but the question is: are they sufficient? In my view, they are not. The reasons are as follows.

42. First, on the equal division point, I think it is correct for Ms Eu to point out it is a fact that the consent order makes no reference to an equal division other than those expressly agreed. Nor are all the assets or matrimonial assets referred to in the Order. R’s argument that the undertakings are not an overall compromise or settlement runs counter to § A of the Undertaking which stipulates that the terms of the consent order are in full and final settlement of any claim which the parties may have against each other. Further, R is also to be solely responsible for the son’s post-bachelor degree education.

43. Secondly, § B of the Undertaking provides that save for the provisions in the consent order, each party shall retain his or her own real properties registered under his or her sole name, or under the name of a corporate vehicle controlled or owned by him or her, all personal chattels and effects now in his or her possession or under his or her sole and absolute control and shall not make any claims against the other in respect of such properties, personal chattels and effects.

44. Thirdly, there is a provision that if P is to sell the Matrimonial Home within 3 years for redevelopment at a price exceeding $49 million, the amount of proceeds in excess of that sum would be shared equally between the parties. Ms Yip said this supports her contention regarding the parties’ manifest intention. I find some force in Ms Eu’s argument that there could be a long list of reasons for this, for instance, R may just want to ensure that P is not going to sell the property; 50/50 split is not the only inevitable conclusion.

45. Fourthly, Ms Eu drew my attention to a letter dated 30 April 2015 by R’s solicitors that his initial proposal regarding amendment was to have the whole of § J(v) (ie the paragraph setting out how the net value of the Matrimonial Home is to be calculated) deleted and the term “Net Value” in § K(i) be changed to “Market Value”. R’s present version as appeared on his summons is to preserve the paragraph but the amendment prayed for if allowed would render this paragraph otiose. Ms Yip accepted this would be the case but argued that the presence of § J(v) would not render other parts of the consent order ineffective or inoperative. With respect, I am not able to agree. Parties were assisted by their legal representatives in the drafting of the consent order, there must be a reason for § J(v) to be there. There is no suggestion that § J(v) ought to be removed but inadvertently omitted to do so. It is trite that in construing a contract all parts of it must be given effect where possible, and no part of it should be treated as inoperative or surplus: Lewinson, The Interpretation of Contracts (5^th Ed), pp 342 – 344.

46. Fifthly, it is almost certain that both parties must have given serious thoughts on the settlement and both were well advised by their legal representatives before putting their pen on the paper. It was argued by Ms Yip that the accidental mistake was caused by the mutual oversights of the parties’ legal representatives when agreeing on the wordings of the consent order. She also submitted that the legal representatives of the parties were working under haste and the mistake was caused by “the cut and paste” from the paragraph dealing with the Warehouse. There is however no affirmation evidence from any of these persons on how the mistake was committed. There is virtually no evidence before me in this regard. R has filed his affirmations but apart from reiterating the common intention of equal sharing of family assets and the mistake was caused by the mutual oversights of the parties, there is absolutely nothing from him to explain how or at what stage the mistake was committed. It is also somewhat unclear as to whether it is R’s case that it was one of mutual mistake or a unilateral mistake. In his solicitors’ letter dated 23 April 2015, mutual omission/mistake was put forward as the cause for the problem. But in the hearing, at one stage Ms Yip accepted that if it was R’s mistake only, then P knew about it but took an inequitable approach in not drawing it to his attention.

47. The burden is on R in establishing P’s knowledge of his mistake and it is a heavy one, akin to convincing proof, although probably not as high as beyond reasonable doubt: Citilite Properties Ltd v Innovative Development Co Ltd [1998] 4 HKC62, at 67A-B. Apparently, counsel saw it fit that oral evidence was not necessary and hence, the parties were not called to give evidence and subject to cross-examination. Thus, without the benefit of oral evidence I can only construe the meaning of the consent order on the basis of the materials before me. This situation is quite different from LPKP v PTPR (unrep., FCMC 11056 of 2005, 19 November 2009) that was referred to me in the hearing. In that case, HH Judge Melloy amended a consent order in order to rectify a mistake on a maintenance order. The original order was that the husband was to pay monthly maintenance to the wife during the joint lives of the parties until the husband shall remarry, whichever is the shorter. The learned judge found that the true bargain between the parties was that the maintenance was payable until the wife shall remarry. Though the judgment does not expressly say so, one reading the judgment can readily see that the learned judge came to this conclusion after having heard the witnesses’ evidence on how the agreement was reached and how the mistake occurred in the course of preparing the consent summons, for instance, the reference to the clerk’s evidence in § 13 of the judgment. Anyhow, it seems to me that this case is more in the nature of rectification rather than amendment.

48. The general rule remains to be that declarations of subjective intent, prior negotiations and subsequent conduct of the parties are inadmissible in the construction and interpretation of a contract but regard has to be given to its background and surrounding circumstances: McMeel, The Construction of Contracts (2^nd Ed) §§ 1.81 – 1.83.

49. I was the FDR judge. The parties, with their counsel, came before me for FDR on 29 January 2014. At the beginning, R raised stellar contribution as a departure factor but P insisted upon equal division of the family assets. In the afternoon, Ms Lai, counsel for P then, put forward an offer that P was to buy out R’s interest in the business. Later on, the parties were apparently agreeable with 50/50 split, with an indication from Ms Lai that 50/50 split was her client’s bottom line. Thereupon, the case was stood down for negotiation for the rest of the day. According to the court’s file, when the parties returned at the end of the day, Ms Yip outlined the parties’ agreement which was in principle a 50/50 split. The Warehouse was to be sold with equal division between the parties. Likewise, the Matrimonial Home was to be sold in market at an asking price of $55 million, with the proceeds of sale to be divided equally between the parties. The Tung Chung property was to be acquired by P by paying 50% of its value to R, R was to buy out P’s shares in the companies on the basis of the expert’s valuation and finally, the personal assets were also to be split on 50/50 basis. As for the son’s expenses, I was told there was still room for negotiation but it should not be deterrent against settlement. For the reason that the parties were making progress, the FDR was adjourned to February 2014.

50. On 18 February 2014 the parties requested more time to finalize their agreement out of court and so it was not until after 5:00 pm that the parties appeared before me with the Minutes embodying the terms of settlement submitted for approval. The Minutes contained a number of amendments in form of handwritten additions, deletions, and reinstatement and even some of the figures regarding the percentage of shareholdings owned by the parties needed to be verified and filled out later. It should be noted that during the hearing, I was not told by counsel of whether or not there was any guiding principle or overall agreement that the family assets and liabilities were to be shared equally. There was a lapse of approaching 3 weeks’ time between the 2 FDR hearings, during which the parties had had a lot of negotiations. I do not know what happened during this period of time. Nor do I know what happened on 18 February 2014. The final product was quite different from what was said to have been agreed on 29 January 2014, the notable ones being that P was to acquire the Matrimonial Home and that each party was to keep their other properties.

51. For the above reasons and on the materials before me, I am not able to agree with Ms Yip that when objectively construed, the manifest intention of the parties as contended by R is clearly shown on the order as drawn. R’s application under the slip rule limb must fail. Similarly, with the conclusion reached, there is also no basis for the court to invoke its inherent jurisdiction to vary its own orders.

Liberty to Apply

The Law

52. Somervell LJ said the following in Cristel v Cristel [1951] 2 KB 725 at 728,

“Prima facie, "Liberty to apply" is expressed, and if not expressed will be implied, where the order drawn up is one which requires working out, and the working out involves matters on which it may be necessary to obtain the decision of the court. Prima facie, certainly, it does not entitle people to come and ask that the order itself shall be varied.”

53. In Cristel v Cristel [1951] 2 KB 725, a husband agreed to provide his wife with a house or bungalow. He sought to vary the consent order, relying on a “liberty to apply” provision to add to the order, by way of an alternative to a house or bungalow, a flat. The application was refused for the reason that the word “house” did not cover a flat, and the insertion of the words “a flat” would amount to a variation of the order.

54. And Denning LJ remarked at 731:-

“If there were an unforeseen change of circumstances, for instance, if the wife were left by will another house, or if she took an adulterer to live with her in this house, I should have thought that the "Liberty to apply" would enable the court to remedy the position. Abbott v. Abbott would appear to be sufficient authority for that. But when there is no change of circumstances, I do not think that the court can alter or vary the agreement of the parties under the "Liberty to apply". It can only do what is necessary to carry the agreement into effect.”

55. Thus, “liberty to apply” is not the same as the slip rule. Even where a consent order provides expressly for the “liberty to apply”, the court cannot provide any further direction or order the effect of which would be to change or vary the substantive nature of the order: Wing Fai Construction Co Ltd v Fitzrova Finance Co Ltd [2007] 1 HKLRD 229, §§ 9 and 10.

56. Where there was a true contract contained in a consent order, the court has no power to set aside or to vary its terms. In Leung Yee & Another v Ng Yiu Ming & Another [2001] 1 HKLRD 309, after a thorough analysis of the authorities, Woo JA, set out the following principles in 321H to 322B.

“From the above authorities, the following principles are discernible:
(1) A consent order may evidence a contract: Wentworth v Bullen and Conolan v Leyland.
(2) On the other hand, a consent order may only mean the parties to it not objecting to the order being made, and the court can alter its terms: Siebe Gorman, per Lord Denning and Templeman LJ.
(3) Where there is a true contract contained in a consent order, the court has no power to set it aside or to vary its terms: Purcell v Trigell and Tigner-Roche.
(4) In matrimonial financial relief cases, the court will not alter the terms of an agreement contained in a consent order unless there are changed circumstances: Cristel.
(5) However, where the consent order founded on a true contract is not sought to be set aside or altered, unless it is plain that time was intended to be of essence or that the jurisdiction of the court under Order 3, rule 5 of the RHC to extend time is ousted by agreement, the court can grant extension of the time: Siebe Gorman, Tigner-Roche and Lee Hung Yam.”

57. In Cathay Pacific Airways Flight Attendants Union v Cheung & Choy (a firm) (unrep., HCMP 1863 of 2007, 3 February 2009), it was found by Deputy High Court Judge Au (as he then was) that the taxation consent order in that case evidences an agreement between the parties and is not a case where the defendant simply not objecting to the order sought by the plaintiff. As a matter of general legal principles the court cannot vary the consent taxation order sought by the plaintiff. The learned judge then held that the further direction sought by the plaintiff is in nature and substance not a mere direction as to the mechanics of implementation or for the purpose of carrying out the effect of the consent taxation order. The direction sought, if granted, would substantively change the nature of the agreement and the effect of the consent taxation order. Short of an appeal, it is doubtful whether the court has jurisdiction to change the nature and effect of its own order, as it has become functus officio concerning the taxation order. Even where the consent order provides expressly for the liberty to apply, the court cannot provide any further direction or order the effect of which would be to change or vary the substantive nature of the consent order: see §§ 51 – 56.

Discussion

58. Ms Yip relied on Leung Yee v Ng Yiu Ming at 322C-G to argue that the parties can refer the matter back to the court under the provision of “liberty to apply” for clarification of the terms in order to implement the consent order. The inclusion of a “liberty to apply” provision in a consent order suggests that the court’s power to intervene is clearly envisaged by the parties.

59. I accept this must be correct but the question remains to be to what extent the court may intervene under the “liberty to apply” provision. It should be noted that in that case the Court of Appeal was concerned with the construction of the nature of the undertaking, namely, whether it was a warranty or a condition or innominate term so that extension of time for the compliance of the undertaking could be given under Order 3, rule 5 of RHC. The court was not asked to amend or vary the undertaking.

60. Ms Yip also argued that the “liberty to apply” provision confers on the court the power to construe the terms of the consent order and decide on their true meaning and effect. Plainly, even if the court has the power this has already been done in R’s application for amendment.

61. The undertakings are part and parcel of the agreement between the parties, were given to the court because they were included as part of the consent order. In my view, R is essentially seeking a variation of the consent order; he is not seeking the working out or the implementation of it. His position is no different from the husband in Cristel v Cristel or the plaintiff in Cathay Pacific Airways Flight Attendants Union v Cheung & Choy (a firm). For this reason, this limb also fails.

Orders

62. The result is, apart from the non-contentious paras 1(a), (c) and (d) of the summons in respect of which I give an order, the remaining parts of the summons are dismissed.

63. The door is not closed to R. As a matter of fact, I doubt very much this would be the end of the matter. There are possibly other avenues that R may resort to such as seeking rectification of the agreement or the consent order. Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 All ER 1077, a case on rectification, has been referred to me in the hearing. A consent order on ancillary relief may also be set aside on any one of the following grounds, namely, fraud, mistake, non-disclosure or misrepresentation of material facts at the time of the order was made; and new events have occurred since the order was made which have invalidated the basis upon which the order was made: see Rayden (18^th Ed), § 18.30. There is also a recent discussion by Poon J (as he then was) in Wong Oi Han v Sin Wai Chung (unrep., HCMP 276 of 2012, 11 May 2012) on the procedural routes to be adopted; see also WTOL v WYPP (unrep., CACV 241 of 2011, 18 July, 2012) at §§ 34 & 35.

Costs

64. Ms Eu seeks costs to be paid by R on an indemnity basis with certificate for two counsel. She submitted that in the post CJR era, the court enjoys a “greater flexibility to give indemnity costs when the conduct of the parties so justified” under Order 62, rule 5(1)(e), RHC and the conduct of the party against whom indemnity costs are sought is “cogently relevant”: Technicom Interiors Design Engineering Ltd v Tse Yuet Yi and Lam Chuen Chee Peter (unrep., DCCJ 5965 of 2008, 2 November 2010) § 159 and Hugo Drago Corp Ltd v The Incorporated Owners of Lung Man Oasis [2014] 3 HKLRD 286, § 13.

65. It was argued that R’s conduct of seeking to vary the ordinary and natural meaning of the undertakings that he has given is cogently relevant to the court’s consideration to award costs on an indemnity basis. It was also argued that R had always been uncooperative in honouring his undertakings and that he failed to file the hearing bundle and the skeleton submission on time.

66. I am not persuaded that this is an appropriate case to award costs on indemnity basis. This is not an application devoid of merits or one unreasonably and unjustifiably persisted. I give an order that the costs of this application be paid by the respondent on a party and party basis with certificate for two counsel, to be taxed if not agreed.

	( I. Wong )
	Deputy District Judge

Ms Audrey Eu, SC and Mr Au Lut Chi, instructed by Ernest Li & Co, Solicitors, appeared for the petitioner

Ms Anita Yip, SC and Ms Cindy K S Lee, instructed by Lam and Lai, Solicitors, appeared for the respondent