Lcklm Nee Cklm v. Lwk

FCMC 11425/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11425 OF 2011

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JUDGMENT
(Amendment of Consent Order)

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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.

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