Leung Yee and Another v. Ng Yiu Ming and Another

CACV 236/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 236 OF 2000

(On Appeal from Court of First Instance Action No. 7462 of 1998 and
High Court Miscellaneous Proceedings No. 1730 of 1999)

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HCA 7462 of 1998

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HCMP 1730 of 1999

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Coram: Hon Leong CJHC and Woo JA

Date of hearing: 17 January 2001

Date of handing down judgment: 5 February 2001

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J U D G M E N T

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Hon Woo JA (giving the judgment of the Court):

Background

1. This is an appeal arising out of a consent order dated 11 June 1999 in two actions which were consolidated and heard before Mr Recorder Kwok, namely HCA 7462 of 1998 and HCMP 1730 of 1999. The appellants are husband and wife and were defendants in the first action; the respondents are also husband and wife and were the plaintiffs in the first action. The first name appellant is a paternal cousin of the second named respondent, and they used to address each other as "the younger brother" and "the big sister". In the second action, the brother was the applicant and the sister's husband was the respondent.

2. Both actions related to the use of the name and trademark "Hoi Tin Tong" (海天堂). The first action was brought by the sister and her husband for relief in an alleged partnership business with the brother's couple in the manufacture and sale of medicinal tortoise jelly under the name of "Hoi Tin Tong". The brother and his wife denied any such partnership and maintained instead that in certain shops run by the sister and her husband, they were passing off their tortoise jelly as that of the brother's, wrongfully using that name. In the second action, the brother complained that the sister's husband had wrongfully registered the Trade Mark "Hoi Tin Tong" for tortoise jelly and that the goodwill subsisting in the Trade Mark belonged to the brother.

3. The two actions as consolidated came before Mr Recorder Kwok for trial and they were compromised. The terms of the compromise were embodied in a consent order of 11 June 1999. There was an undertaking given by the sister and her husband that they should use and apply the Trade Mark by specifying the words "Ng Yuk Kin" or "production supervised by Ng Yuk Kin" or "production supervised by big sister". The brother and his wife also undertook to use the Trade Mark by specifying the words "Ng Yiu Ming" or "production supervised by Ng Yiu Ming". These two undertakings were obviously for allowing both parties to use the Trade Mark but attempted to ensure that each party's product could be distinguished with the other party's. This is expressed to be so in paragraph 7 of the consent order which reads:

"7. Subject to the aforesaid undertaking in relation to the said Trade Mark, the parties do have liberty to use the said Trade Mark."

4. There were cross-undertakings by both parties to use and exhaust all existing packing and advertising material bearing or having the Trade Mark or "Hoi Tin Tong" now being used by them in their respective shops selling tortoise jellies and Chinese herbal teas within 1 year (save and except earthen wares bearing the said Trade Mark with 2 years). The material parts of the consent order that are the bones of contention between the parties are set out below:

"AND UPON the undertakings by Leung Yee and Ng Yuk Kin that they will add or cause to be added the words "Ng Yuk King" or "吳玉娟" or "大家姐" within one month from the date of this Order to including but not limited to all signs, advertising materials and publications, pamphlets bearing the words "Hoi Tin Tong" or "海天堂" with the restriction that the words "吳玉娟" or "大家姐" to be roughly the same size (de minimis rule applying) within one month from the date of this order and if due to insufficient space the aforesaid restriction shall not apply to the signs bearing the words "Hoi Tin Tong" or "海天堂" inside the shops. The style, materials, constructions and design of the aforesaid words shall be in accordance with the design and descriptions as per Schedule attached hereto (de minimis rule apply) ("the Further Undertaking").

The parties hereto make a joint application for an order by consent that in full and final settlement of the proceedings herein:-

1. That it be recorded that subject to Leung Yee and Ng Yuk Kin having fully complied with or discharged the Further Undertaking and upon Leung Yee and Ng Yuk Kin executing the sold note and instrument of transfer in relation to all their shares and interest in or of Regent Lake Investment Limited ("Regent Lake"), Ng Yiu Ming and Chiu Fung Yi shall simultaneously pay the sum of HK$6,500,000.00 to Messrs Paul Kwong & Co. solicitors for Leung Yee and Ng Yuk Kin and Leung Yee and Ng Yuk Kin agree to render full assistance to perfect the said transfer.

2. [parties waiving and abandoning claims relating to the name "Hoi Tin Tong"]

3. [parties waiving and abandoning claims relating to Regent Lake]

4. [parties paying their own costs for discharging their undertakings]

5. [parties paying their own legal costs in the proceedings]

6. That the Registrar of Trade Mark be directed to carry the Trade mark Register in respect of Trade Mark No. 00140 of 1999 registered in Class 5 in the name of Leung Yee of [address] by adding the names of Ng Yuk Kin of the same address and Ng Yiu Ming and Chiu Fung Yi both of [address] as registered proprietors thereof.

7. [already cited above]

8. [parties' acknowledgments that each had no interest in the other's shops]

9. That there be liberty to apply generally. " (emphasis added)

5. It is to be noted that the Further Undertaking relating to the advertising signs, etc was to be fulfilled by the sister and her husband within one month from the date of the consent order. The deadline for compliance was therefore 11 July 1999.

Further proceedings

6. The consent order was not the end of the dispute between the parties.

7. By a summons dated 13 October 1999, the sister and her husband sought a declaration from the court that they had duly complied with the terms of the consent order and sought an order that the brother and his wife comply with the term relating to the payment of $6.5 million.

8. The summons was heard on 29 October 1999 and on 8 November 1999 Deputy Judge Wesley Wong gave judgment. The Deputy Judge found that the sister and her husband had not complied with the Further Undertaking in relation to two kinds of signboards and advertising materials, namely,

(a) certain signboards overhanging the roadway outside some shops on which the name of "Hoi Tin Tong" had been removed and replaced with the registered trade mark bearing the same name, but the characters "大家姐監製" were not roughly of the same size as the characters of "Hoi Tin Tong" in the trade mark in accordance with the style and design shown in the schedule to the consent order; and

(b) the addition of the characters "大家姐監製" to the signboards overhanging the wall above the shop front of certain shops were not roughly of the same size as the characters of "Hoi Tin Tong" on those signboards.

9. As a result, the Deputy Judge decided that the sister and her husband were not entitled to have the payment of $6.5 million from the brother and his wife for the transfer of shares in Regent Lake. He dismissed the summons with costs.

10. By a summons dated 27 March 2000, the sister and her husband sought an order that the two actions be restored for hearing with necessary directions. By another summons dated 25 May 2000, they sought the time to comply with the Further Undertaking to be extended and in the alternative sought an order that the Registrar of Trade Mark be directed to vary the Trade Mark Register in respect of the Trade Mark by registering the same back to the sole name of the sister's husband, ie, to undo what had been done under paragraph 6 of the consent order, and for an order that the two actions be restored for hearing and directions therefor.

11. The summonses were heard on 31 May 2000 and Beeson J gave her decision on 16 June 2000. She noted that the signs complained of by the brother and his wife accorded with the changed text required in the consent order, but did not accord exactly with the sizes of the lettering thereunder. She granted an order that the time for compliance with the Further Undertaking by the sister and her husband be extended to one month from the date of the order. She also ordered that costs of the application be to the brother and his wife, with a certificate for two counsel, to be taxed if not agreed.

The appeal and grounds

12. Against the orders of Beeson J, the brother and his wife now appeal. The grounds of appeal are that

(1) The Judge had no power to grant an extension of time in which to comply with the Further Undertaking in the consent order, as the Further undertaking was part of a contractual disposition of the disputes between the parties as contained in and recorded in the consent order.

(2) Alternatively, if the Judge had such power, it was a wrongful exercise of discretion to grant such extension as the sister and her husband were knowingly in breach of the Further Undertaking after Deputy Judge Wong had ruled on 8 November 1999 that they had failed to comply with the Further Undertaking. Yet they did not take any steps to purge their contempt.

(3) As the sister and her husband were knowingly in breach of the Further Undertaking and took no steps to purge their contempt before the issue of their summonses, and remained in contempt at the time of the hearing on 31 May 2000, the costs of the summonses and of this appeal be paid by them on an indemnity basis.

Jurisdiction

13. Counsel for the appellants argue that Beeson J had no jurisdiction to vary the terms of the consent arrangement which "is not less a contract and subject to the incidents of a contract because there is superadded the command of a Judge". They refer to the 1999 Supreme Court Practice Vol 2, p 1462 para 17A-124, Wentworth v Bullen [1982] 9 B 7 C 841 (109 ER 313) and Conolan v Leyland [1984] 28 Ch D 632 for support. Where there is a contract, the court will not vary the consent order by giving a party who is in breach extra time to perform its terms: the same passage in the Supreme Court Practice and Tigner-Roche & Co Ltd v Spiro [1982] 126 Sol Jo 525. It is argued that the term by which the brother and his wife agreed to purchase the shares of the sister and her husband in Regent Lake was conditional upon the former fulfilling their part of the bargain, which was within one month of the consent order to qualify the use of the name of "Hoi Tin Tong" or the Trade Mark for advertising their product. It was no part of the bargain that they might seek an extension of time from the court to fulfil their contractual obligation. Otherwise, they would be allowed to substitute a different type of performance from that which the parties had agreed.

14. It is trite that a consent order can contain an agreement between the parties to it. Parke J said in Wentworth v Bullen at p 850:

"Now though there is no remedy for disobedience of a Judge's order (as such) by one of the parties against another by action, but by attachment merely, yet if it be made by the consent of both, and is founded on a binding agreement, an action will not the less lie upon that agreement, though it have also the additional sanction of a Judge's order. The contract of the parties is not the less a contract, and subject to the incidents of a contract, because there is superadded the command of the Judge."

The dictum was followed by Chitty J in Conolan v Leyland.

15. How a court is entitled to deal with a consent order is summarised in the notes on Order 3, rule 5 of the RHC in the High Court Practice 2001, para 3/5/1 as follows:

"Where the order is expressed to be by consent it is necessary to decide whether the words 'by consent' mean that the order evidences a real contract between the parties or merely that the parties do not object to the order being made, see Lee Hung Yam v Lee Sai (sic) Fai [1985] H.K.L.Y. 788. Even if the order did evidence a real contract it is necessary to determine whether the agreement ousted the court's jurisdiction to extend time under this rule. Where there is a real contract the court will interfere only on the same grounds as it would with any other contract, see Siebe Gorman & Co. Ltd. v. Pneupac Ltd [1982] 1 W.L.R. 185; [1982] 1 All E.R. 377, CA (Eng.)."

16. We will consider the authorities referred to in the above passage and counsel's skeleton submissions in a chronological manner to discern what the applicable law is on the topic in issue.

17. In Cristel v Cristel [1951] 2 KB 725, by agreement between a husband who sought possession of the matrimonial home which was occupied by the wife he had deserted and their three children, a master made an order for possession but suspended it until the husband provided suitable alternative accommodation in the form of a two or three-bedroomed "house or bungalow". The order also gave "liberty to apply". Subsequently, the husband, having secured a two-bedroomed flat, applied by summons to the master vary the order to order to wife to give up possession of the house. The master refused but on appeal, Devlin J referred back to the master the question whether the flat was suitable alternative accommodation. The Court of Appeal held that the judge had no power to vary the order of the master. The judgments of the Lord Justices concentrated on the ambit of "liberty to apply". Somervell LJ concluded that the word "house" in the order could not include a flat and what the husband sought was an alteration of the order. Then he dealt with the effect of "liberty to apply". He said at p 731 of the report:

"It is quite true that, where an order requires working out, those words will be implied; but it is very usual, as we all know, for counsel, when an order does require working out, to ask that these words should be inserted. On the fact of the order obviously a dispute might arise whether the accommodation offered was suitable alternative accommodation. If that happened, then the court would have to provide how that dispute could be resolved; but, for the reasons which I have given, I think that this appeal must be allowed and the order of the master restored."

18. Denning LJ, as he then was, said at p 731:

"... 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. I agree that the appeal should be allowed."

19. In Purcell v F. C. Trigell Ltd [1971] 1 QB 358, a consent order was made that the defence in a personal injuries action be struck out unless answers to the interrogatories served by the plaintiff were delivered within 10 days. Full answers were not delivered by the deadline and judgment was ordered to be entered for the plaintiff with damages to be assessed. On a judge setting aside the order, the plaintiff appealed. It was held that there was no ground for not to enforce or setting aside the order. While Lord Denning MR stated @ 364B that the court had always a control over interlocutory orders and it might, in its discretion, vary or alter them even though made originally by consent, he found that the defendants' conduct had been "deplorable" and the delay had caused prejudice to the plaintiff. He allowed the appeal.

20. Buckley LJ agreed and stated further at p 366D:

"The terms of the order were terms which were arrived at by bargaining between the parties. There was clearly consideration for the agreement on each side and the order must in my judgment have contractual effect."

21. He then referred to the observations of Sir George Jessel MR in Mullins v Howell (1879) 11 Ch D 763 and stated the following @ p 367B:

".. he was not in any way disregarding the contractual effect of the arrangement arrived at between the parties. On the contrary, he was saying that there was an agreement but that it was an agreement which in the circumstances of the case the court would not enforce against the defendants; that is to say, he was saying that on equitable grounds, although there was a contract, it was one which ought not to be enforced in its specific terms. In my judgment, nothing in that case conflicts in any way with the view that I have expressed, that a consent order must be given its full contractual effect even if it relates to an interlocutory step in the action."

22. In Siebe Gorman & Co Ltd v Pneupac Ltd [1982] 1 AER 377, the parties made an order "by consent" in which there was a provision that in default of compliance of the order for discovery to be made by the plaintiffs within 10 days, the plaintiffs' claim would be struck out. The plaintiffs applied to the master and were granted an extension of the time limit. The defendants appealed to a judge who allowed the appeal on the grounds that the consent order evidenced a contract between the parties. The Court of Appeal reversed the judge on two grounds. The first ground was that the words "by consent" in an order were ambiguous and could be taken to mean that the order evidenced a real contract between the parties or merely that the parties did not object to the order being made. Having regard to the circumstances, the oral agreement between the parties' solicitors was neither intended nor apt to create a contract and merely meant that the plaintiffs did not object to the order (per Lord Denning MR and Templeman LJ); Percell v Trigell was distinguished. The second ground was that adumbrated by Eveleigh LJ, who said at p 381d-g:

"The order sought was for further discovery within ten days of hearing the application, but the plaintiffs agreed to give it ten days after the inspection of the defendants' documents; and this was the core of the discussion between the parties: from what date should time run? Having resolved that question, they told the court that they were agreed, and the order was drawn up. There was no specific agreement that the court would never be asked to exercise its discretion under RSC Ord 3, r 5 to grant an extension of time.

An order of this kind when made by the court itself after argument is always subject to Ord 3, r 5, that is to say, the power of the court under Ord 3, r 5 to extent the time. Is the court's discretion under the rules of court be excluded because there was consent to the order? To ask for an extension of time in accordance with Ord 3, r 5 is not going back on the agreement that the order should be made. The plaintiffs are only asking the court to exercise a discretion, to prevent injustice, which it has under Ord 3, r 5. If the court's power under Ord 3, r 5 can be excluded by agreement of the parties and if the intention was to exclude this jurisdiction, then to my mind it must be made abundantly clear. I am not satisfied on the facts of this case that the parties did agree to exclude the discretion of the court to extend time."

23. Eveleigh LJ then distinguished two cases. The first one was Purcell v Trigell on which he stated at pp 381h-382a:

"that case was concerned with the question whether or not there was a contract and whether the court had power to set aside the order itself. It does not seem to me to have been concerned with the question of the power of the court under the very order that was made. The question there also before the court was whether there was a difference between an interlocutory order and a final order; and the court came to the conclusion that there was not, and that in each case the agreement between the parties would only be set aside on the principles on which a contract can be set aside. But in this case the plaintiffs do not ask for the order to be set aside; they ask for the court to exercise its discretion under it. That being so, I do not see that this present case is governed by any binding authority which prevents the court exercising its discretion to extend the time."

24. He went on, at p 382c-d:

"... in The Supreme Court Practice 1982, vol 1, p 16, para 3/5/1 it states that 'there is an inherent jurisdiction (apart from this rule) to extend the time (unless the order was by consent ...' The Australasian Automatic Weight Machine Co case is quoted as an authority for that. The judgment of North J in that case is merely recorded in the terms that he refused to make an order on the motion on the ground that an order made by consent could not be altered without consent. Again it seems to me that that case does not specifically cover this problem. No one is asking for the order to be altered in relation to the undertaking to give discovery. What is being asked is that the extension of time should be granted."

25. The Order 3, rule 5 of the Supreme Court Rules referred to by Eveleigh LJ is identical to Order 3, rule 5 of our RHC, which reads:

"(1) The Court may, on such terms as it thinks just, by order extend or abridge the period within which a person is required or authorized by these rules, or by any judgment, order or direction, to do any act in any proceedings."

26. In Tigner-Roche, Pain J granted interlocutory injunctions and made a final order which was expressed to be by consent upon the defendants giving undertakings by their counsel including (1) delivery up to the plaintiffs of the documents described, and (4) by a certain date to give full and proper discovery by list of all documents which had been in their possession relating to their dealing with the plaintiffs' customers or agents. It was ordered that all the proceedings be stayed upon the terms of the schedule to the order which provided, inter alia, that the defendants would pay 50% of all profit realised by them as a result of dealing with any of the plaintiffs' present or former customers, but that in the event of their failing to comply with the undertakings or the order or the terms of the schedule they would submit to judgment for 100% of the profits realised by them. Twenty-two days after the expiration of the time limit under undertaking (4), the plaintiffs issued a summons claiming 100% of the profits on the basis that the defendants had failed to comply with certain of the undertakings. They also sought committal of the defendants for breach of the undertakings. At the hearing of the summons Boreham J found that there had been a breach of undertaking (1), but that that had now been complied with, but that there was a continuing breach of undertaking (4). He did not grant the relief sought, made no order on the motion, and extended the time for compliance with undertaking (4) by seven days. On appeal, Templeman LJ, with whom Cumming-Bruce and O'Connor LJJ agreed, was reported to say:

"that in granting the extension of time the judge was exercising the power conferred by RSC ord 3, r 5. It had been submitted for the plaintiffs that a consent order was a contract between the parties and the judge had no power to alter the terms of the contract. He had relied on Purcell v Trigell Ltd [1971] 1 QB 358, and Inrevale Group of Companies v Knighton (unreported), 30 June 1976, Court of Appeal transcript no 302. Boreham J had distinguished both cases in reliance on the later case of Sieve (sic) Gorman & Co Ltd v Pneupac [1982] 1 WLR 185, but in that case Lord Denning MR had pointed out that 'by consent' might evidence a real contract between the parties, or the words might mean 'the parties hereto not objecting'. In the case of a contract the court would only interfere with such an order on the same grounds as it would with any other contract. In the latter case the order could be altered or varied by the court, just as it could with any other order which the court made with the consent of the parties. In the present case there was a contract, the terms of the schedule embodied the negotiations between the parties and were part of the terms of the contract. The defendants had failed substantially to comply with the undertakings they had given, and the judge had no power to alter the contract and deprive the plaintiffs of the relief which they had bargained to obtain and had obtained by their contract. Reading the order as a whole, time was intended to be of essence, and the plaintiffs would never have consented to waive their requirement and forgo the 100 per cent of the profits if the defendants were able to persuade the judge to grant an extension under RSC ord 3, r 5. The defendants had not complied with the undertakings and they must accept the consequences. The judge fell into error when he decided that the present case was distinguishable from Purcell's case."

27. Templeman LJ distinguished the case of Siebe Gorman by stating that the order "by consent" in that case might mean "the parties not objecting" only and did not evidence a real contract. That was the ratio of the judgments of himself and Lord Denning MR in Siebe Gorman. He also distinguished Eveleigh LJ's judgment in Siebe Gorman by holding that in respect of the order in Tigner-Roche time was intended to be of essence. He did not say anything to indicate that Eveleigh LJ's judgment was wrong or should not be followed.

28. In Lee Hung Yam v Lee Sou Fai [1985] HKLY 788, Deputy Judge Nazareth (as he then was), following the dictum of Eveleigh LJ in Siebe Gorman, held that the power of the court to extend time under Order 3, rule 5 would not be ousted by a real contract unless the intention of the parties to exclude such power was made abundantly clear.

29. 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.

30. While we accept that there was a true agreement contained in the consent order of 11 June 1999, we are not persuaded that Beeson J had no jurisdiction or power to grant the extension of time to comply with the Further Undertaking by the sister and her husband. The consent order was made with the undertakings by all parties involved. Those undertakings, albeit part and parcel of the agreement between the parties, were given to the court because they were included as part of the consent order. On behalf of the brother and his wife, it is argued that failure to comply with the Further Undertaking is a contempt of court, which must mean that the court has its part to play in the event of non-compliance. This is also consistent with the view expressed by Parke J in Wentworth v Bullen cited above. It is implicit in this argument that the consent order evidences a contract that is intended to be superadded the powers of the court for its enforcement. The "liberty to apply" provision in paragraph 9 of the consent order reinforces this view that at least the court's power to intervene is clearly envisaged by the parties. It is common ground that under "liberty to apply", the court's powers to work out the order and to give effect to the terms of the order are reserved. It is also clear that "the court would have to provide how that dispute could be resolved" as stated in Cristel, where "that dispute" meant "whether the accommodation offered was suitable alternative accommodation". In the present case, for example, whether the size of the added characters is too small, or whether 10 July or 11 July 1999 is the end of the time limit of the Further Undertaking, must be a dispute that is covered by the "liberty to apply" provision. We are satisfied that whether the Further Undertaking had been complied with, and if not complied with within the time limit specified whether that time limit can be extended, are within the court's jurisdiction, because of the liberty to apply provision and because it is not plain from the language used in the consent order that the time for the performance of the Further Undertaking is of the essence or that the court's jurisdiction and power under Order 3, rule 5 of the RHC is ousted. In what follows in this judgment, we also consider the circumstances of this case under which it cannot be said that the court's jurisdiction to extend time has been ousted.

Exercise of discretion

31. It is well established that this Court will not interfere with the exercise of discretion of a judge unless it can be shown that the judge had exercise that discretion wrongly, by having regard to matters which he should not have regard or by disregarding matters that he should have taken into consideration.

32. The brother and his wife complain that the sister and her husband had deliberately refused to comply with the Further Undertaking. They rely on Deputy Judge Wong's comment that regarding the shop-front signboards it was a lame excuse of the sister and her husband that the signboards did not have sufficient space for having the size of the added characters "production supervised by big sister" as large as that of "Hoi Tin Tong". The Deputy Judge's observation was premised on the reasoning that if they spent money to add the characters and also removed the name of "Hoi Tin Tong" on the signboards overhanging the roadway, even if the shop-front signboards did not have sufficient space to include large size characters for "production supervised by big sister", they could have replaced these signboards with proper-sized characters. The brother and his wife also complain that the sister and her husband had not complied with the Further Undertaking within almost 6 months after the decision of the Deputy Judge. They submit that their continued breach of the Further Undertaking amounted to contempt of court because the Further Undertaking was given to the court.

33. We find that the Deputy Judge's observation was valid. The inability to avoid using the much smaller-sized characters on both kinds of signboards was a lame excuse. However, there was evidence before Beeson J, but not before the Deputy Judge, that the sister and husband had received advice from their solicitor that the signboards were in order in complying with their undertakings. The advice was given by the solicitor after the alteration works on the signboards for all their six shops had been completed and when he visited one of these shops on 9 July 1999 to view the signboards there. The Judge accepted that they were acting on legal advice. Counsel for the brother and his wife argue that the legal advice was limited to the signboards overhanging the roadway as those related to the use of the Trade Mark logo. Having looked carefully at the affidavit evidence on this point, we do not agree. The legal advice was in respect of all the altered signboards in one of the shops complained of. The solicitor when providing the advice might have only remembered the undertakings in the consent order other than the Further Undertaking or he might have simply misunderstood what was required under the Further Undertaking. The second alternative explanation may be more probable because his firm prepared the summons dated 13 October 1999 to seek a declaration that the sister and her husband had fully complied with the terms in the consent order.

34. Be that as it may, when exercising her discretion to extend time the Judge said:

"... Unfortunately those signs, for whatever reason, accorded with the changed text, but did not accord exactly with the sizes of the lettering agreed. ...

From the available evidence it is not correct to say, as the Defendants do, that the Plaintiffs are seeking in some way to be relieved from their bargain. They were prompt in carrying out their part of the bargain, albeit erroneously, and the signs were changed, and have remained changed since that time thus ensuring that devotees of tortoise jelly know that at specified outlets, under a recognised trade mark, it is prepared according to big sister's supervision. It is highly unlikely (and was not suggested) that there has been any loss of custom since the signs were altered because the size of the lettering does not accord exactly with the Schedule. The Plaintiffs are prepared to correct the letter sizes and recognize their liability for costs. ...

Since the qualifying words were added to the signs the Defendants' interests have been protected, vis-à-vis their customers, even if the character sizes are incorrect. Further the Defendants have been placed on the Trade Mark Register in respect of a trade mark which is of special and, no doubt, commercially valuable significance to their business. It would be unconscionable to allow the Defendants to stand on the letter (or in this case the characters) of their bargain and retain the undoubted benefits of being registered as holders of the trade mark without concomitant purchase of the Plaintiffs' shares of the property company, when a simple extension of time will enable proper force and effect to be given to the contract evidenced by the Consent Order."

35. There are various other matters that are relevant for the court to exercise its discretion, to which we will turn now.

What should happen where there is non-compliance with the Further Undertaking?

36. In this case, it is not disputable that the sister and her husband had not complied with the Further Undertaking. They have not appealed the Deputy Judge's decision and therefore his finding of the non-compliance is not open to dispute. The compliance of the Further Undertaking is a prerequisite for the brother and his wife to comply with the term for payment of $6.5 million for the transfer of the shares in Regent Lake in their favour. It follows that without the extension of time for complying with the Further Undertaking there would be a stalemate as to the parties' further obligations and rights under the consent order.

37. Looking at the matter under the law of contract, the non-compliance with the Further Undertaking amounts to a breach of a term of the contract. The term may be a condition entitling the innocent party to treat the breach as constituting a repudiation of the contract and accepting the repudiation to terminate the contract. The term may be a warranty only entitling the affected party to damages. It may also be an "innominate" or "intermediate" term, the breach of which may also entitle the innocent party to have the contract terminated.

38. In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, at pp 69-70, Lord Diplock said:

"No doubt there are many simple contractual undertakings, sometimes express but more often because of their very simplicity ('It goes without saying') to be implied, of which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. And such a stipulation, unless the parties have agreed that the breach of it shall not entitle the non-defaulting party to treat the contract as repudiated, is a 'condition.' So too there may be other simple contractual undertakings of which it can be predicated that no breach can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and such a stipulation, unless the parties have agreed that breach of it shall entitle the non-defaulting party to treat the contract as repudiated, is a 'warranty.'

There are, however, many contractual undertakings of a more complex character which cannot be categorised as being 'conditions' or 'warranties,' if the later nineteenth-century meaning adopted in the Sale of Goods Act, 1893, and used by Bowen L.J. in Bentsen v. Taylor, Sons & Co. be given to those terms. Of such undertakings all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a 'condition' or a 'warranty.'"

39. Lord Diplock repeated the same idea in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 with respect to stipulations as to time, where he said at p 928B:

"Stipulation as to the time at which a party was to perform a promise on his part were among the contractual stipulations which were not regarded as 'condition precedent' if his failure to perform that promise punctually did not deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract ..."

40. Lord Simon of Glaisdale said at p 940F:

"I have had the privilege of reading in draft the speech delivered by my noble and learned friend on the Woolsack. I agree with his arguments culminating in the propositions that, in general, in modern English law time is prima facie not of the essence of a contract, and that there is nothing in the two leases the subject of the instance appeals which rebuts that presumption so as to make the stipulation as to time essential to the operation of their rent review clauses."

41. Lord Fraser of Tullybelton also said at p 958B:

"... the law is correctly summarised in the following passage from Halsbury's Laws of England, 4th ed., vol. 9, para. 481:

'The modern law, in the case of contracts of all types, may be summarised as follows. Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied with; or (2) the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence; or (3) a party who has been subject to unreasonable delay gives notice to the party in default making time of the essence.'"

42. What is the position of the brother and his wife now since there has been a breach of the Further Undertaking? If it is treated as a warranty, the brother and his wife can claim damages for its breach. If it is treated as a condition or innominate term, they can seek termination of the contract by reason of the breach.

43. If the brother and his wife do not take action on the breach, and that is their position up till now, the sister and her husband can take steps to seek a declaration that the Further Undertaking is a warranty that will only entitle the brother's side to damages and offer damages, and at the same time seek performance of the payment of $6.5 million under paragraph 1 of the consent order, subject to other requirements under that term being fulfilled. As an alternative, the sister and her husband can seek a declaration that the Further Undertaking is a condition or innominate term and that their breach of it constitutes a repudiation of the contract entitling the brother's side to accept the repudiation and treat the contract as terminated. Thereupon, the consent order and the contract that it embodied for the full and final settlement of the two actions will be discharged. The parties will then revert back to the position where the two actions were still extant, which will have to be fought again. In that event, the sister and her husband may seek relief, such as an injunction, relating to the transfer of the Trade Mark on the basis of unjust enrichment and failure of consideration. On the other hand, even if the brother and his wife refuse to accept the repudiation (and they are entitled to do that) and continue to treat the contract as continuing, they can claim damages for the breach of the Further Undertaking, whether it is a condition, innominate term or warranty. The contract will still be afoot, and the sister's side can insist on the performance of the term for payment of the agreed price for their transfer of the shares in Regent Lake.

44. Counsel for the brother and his wife submit that paragraph 1 of the consent order is a term of the contract that stands alone and has nothing to do with the other terms of the contract. It is the only paragraph of the consent order subject to the performance of the Further Undertaking. It follows, so the argument runs, that non-compliance with the Further Undertaking excuses the brother and his wife from performing paragraph 1, while all the remaining terms of the contract are still binding on the parties. We do not agree. It is the common ground between the parties before us that the $6.5 million for the transfer of the shares in Regent Lake was an enhanced price, which meant that that amount exceeded the amount that in normal and ordinary circumstances, but for the compromise, would not have been agreed to be paid by the brother's side. That enhanced price must have been part and parcel of the whole compromise agreement and therefore cannot be viewed alone or treated by the parties as separate from the other terms as argued. From a careful reading of the terms of the contract, it is in our view most probable that the price was enhanced for the Trade Mark being agreed to be transferred from the sole name of the sister's husband to the four persons including the brother and his wife.

45. Based on the analysis of the parties' positions above, it would be most unsatisfactory and unjust if the court did not intervene and decide on the nature of the Further Undertaking, whether the time stipulation in it was a condition, an innominate term or a warranty one way or the other to overcome the impasse that has been created by the brother's side in not doing anything towards payment of the $6.5 million, by relying merely on the non-compliance of the Further Undertaking by the sister's side. As mentioned by the Judge, the sister's husband had complied with paragraph 6 of the consent order so that the Trade Mark now has been registered in the names of the four persons involved. While the brother and his wife are apparently enjoying the benefit of the Trade Mark so obtained, they have not been complying with their part of the bargain in paying the $6.5 million under paragraph 1. We cannot say that the Judge was wrong in taking into account this element of unjust enrichment in the exercise of her discretion.

46. The facts do not show that the delay in compliance with the Further Undertaking had deprived the brother and his wife of substantially the whole, or indeed any, benefit which it was intended that they should obtain from the contract. Sir John Swaine is unable to tell us what disadvantage his clients have suffered from the late compliance of the Further Undertaking. His only point is that the non-compliance within the stipulated one month's time entitles his clients not to buy the shares in Regent Lake at the agreed enhanced price. That, in our view, cannot reasonably have been intended by the parties to be the benefit that his clients should obtain from the contract. The extension granted by the Judge for the compliance cannot be said to be wrong in any way.

47. These circumstances described above, in our view, are also relevant in considering whether the court has jurisdiction to work out the consent order and give effect to it, and assist us to conclude, as we did above, that "the liberty to apply" provision also gives the Judge the power to intervene in the circumstances. The "liberty to apply" provision confers on the Judge the power to construe the terms of the consent order and decide on their true meaning and effect. Obviously she construed the time for compliance with the Further Undertaking as merely a warranty. There is no express term in the contract embodied in the consent order that time shall be of the essence, and there was no evidence before her about the circumstances surrounding the making of the contract that suggests that the delay in the performance of the Further Undertaking had deprived the brother and his wife of substantially the whole benefit which they were intended to obtain from the contract. We hold that her construction of the term is correct. Similarly there is nothing in the consent order or the surrounding circumstances that even hints at the court's power to extend time under Order 3, rule 5 of the RHS for the performance of the Further Undertaking being intended to be ousted.

48. We are not satisfied that the Judge had exercised her discretion wrongly, and indeed, we would have exercised our discretion the same way, in order to resolve the impasse. The substantive appeal therefore fails.

The costs order

49. Beeson J granted the extension sought by the sister and her husband and awarded costs of the summonses against them with a certificate for two counsel. The complaint against this costs order is that the Judge refused to order the costs so awarded to be taxed on an indemnity basis. The appeal is based on the fact that the sister and her husband had breached the Further Undertaking continuously which amounted to a contempt of court and had taken no steps to purge their contempt before the issue of their summonses that were eventually heard by Beeson J, despite the finding of Deputy Judge Wong that they had failed to comply with it. As is stated in Wentworth v Bullen, the brother's side cannot bring an action for the non-compliance save to seek attachment by the court. The continuous non-compliance of the Further Undertaking, at least as from the date of knowledge of the Deputy Judge's decision, must be treated seriously by the courts, and the guilty party is subject to proceedings for contempt. On the facts of this case, we find Beeson J had erred when she said:

"The Plaintiffs may be guilty of delay in bringing this matter before the court, but they cannot be considered as being in contempt of court; or having shown wilful disregard of a court order; or being guilty of an affront to the court such as would justify a grant of indemnity costs."

50. She had failed to take into account the long period of non-compliance between 8 November 1999 when the Deputy Judge gave his judgment and May 2000 when the matter was heard by her. Her finding that the sister and her husband were not in contempt was based on her following observations:

"the Plaintiffs' failure to comply effectively with the Consent Order is acknowledged, but the Defendants' swift refusal to purchase the Plaintiffs' interest gives the impression that they may not have been serious about the original compromise";

"the Defendants decided to take advantage of what must be seen in the light of common sense and on any objective view as a technical breach"; and

"the tenor of this litigation and the court time spent on a matter which would have been cured by a simple consent application to amend the original order is an indication of the parties' residual ill-feeling".

51. All the above were valid points for exercising the discretion to extend time for the compliance of the Further Undertaking. However, they were not proper considerations on costs in view of the findings made by Deputy Judge Wong that there was non-compliance with the Further Undertaking and that the explanation proffered by the sister and her husband for the non-compliance was a lame excuse, against which there was no appeal. Although the new evidence that the sister and her husband had acted on legal advice regarding the alterations to the signboards already effected on 9 July 1999 was not available before the Deputy Judge but available before Beeson J and accepted by her, that could not have been a good or reasonable excuse for them not to comply with the Further Undertaking for such a long time after the decision of 8 November 1999 had been made known to them. Even Mr Griffiths before us is unable to proffer any reason for the procrastination in the compliance. Beeson J should have taken this aspect into consideration in considering costs. Moreover, she was wrong to consider the reaction of the brother and his wife to the non-compliance as a basis for supporting her view that there was no contempt. Since she extended the time for the sister's side to comply with the Further Undertaking and, as is shown in the evidence now adduced before us, when it has been complied with, it would be impracticable for the brother and his wife to take further proceedings to seek the court's imposition of punishment for the contempt, now purged, that was existent at the time of the hearing before her. All these matters could and should have been legitimately taken into account in considering costs. In all the circumstances of this case, particularly in view of the attitude of the sister and her husband as found by the Deputy Judge, the long delay thereafter in their complying with the Further Undertaking and in seeking indulgence from the court, we consider that they should be penalised to pay costs on an indemnity basis. We set aside the Judge's order on costs and make an order for costs of the summonses heard by the Judge to be paid by the sister and her husband to the brother and his wife on an indemnity basis.

Costs of this appeal

52. Before us the brother and his wife fail in the substantive appeal but succeed on the appeal against the costs order. We reckon that a major part of the time for the preparation and hearing on this appeal has been spent on the substantial appeal and only a small part of such has been spent on the costs appeal. We consider it just that the sister and her husband have three-quarters of their costs of this appeal against the brother and his wife, and such costs when taxed or agreed are to be set off against the costs of the summonses above mentioned. We make an order nisi for costs accordingly.

Representation:

Sir John Swaine SC and Mr B K Ho, instructed by Messrs Lo & Lo, for the defendants in HCA 7462/98 and applicant in HCMP 1730/99 (Appellants)

Mr John Griffiths SC and Mr C W Ling, instructed by Messrs Paul W Tse & Co, for the plaintiffs in HCA 7462/98 and respondent in HCMP 1730/99 (Respondents)