Lau Wai Kwong v. Lau Cheung Kam Ling Margaret Née Cheung, Kam Ling Margaret
Read the full judgment text of HCA 2085/2017 on BabelCite. This High Court CFI judgment was delivered on 5 May 2023 before Cheng J.
Rectification – Common Mistake – Unilateral Mistake – Consent Order – Matrimonial Home – Whether there was common mistake in entering into paragraph K(i) of the Consent Order – No – Whether there was unilateral mistake – No – Whether Mr Lau entitled to rectification – No – Counterclaim for damages for delay in transfer of shares – No breach – Claim and counterclaim dismissed – Costs order nisi
Legal issues: Common mistake in entering into paragraph K(i) of the Consent Order · Unilateral mistake in entering into paragraph K(i) of the Consent Order · Whether Mr Lau is entitled to rectification of the Consent Order · Whether there was any breach by Mr Lau of his duty under undertaking K · Whether Ms Cheung is entitled to any damages, and if so, the quantum of such damages
Outcome: Claim and counterclaim dismissed
Cited by 2 cases · Cites 4 cases
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HCA 2085/2017 [2023] HKCFI 1097 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 2085 OF 2017 ____________
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_______________ J U D G M E N T _______________ A. INTRODUCTION 1.On 19th August 2011, the Defendant (“Ms Cheung”) presented a petition for divorce from the Plaintiff (“Mr Lau”) in FCMC 11425/2011. A decree nisi was granted on 25th October 2011. 2.On 18th February 2014, by the parties’ consent, Deputy District Judge I Wong (“the Judge”) made an order (“the Consent Order”), settling the parties’ claims in the ancillary relief proceedings in FCMC 11425/2011. 3.Mr Lau now claims, in these proceedings, for rectification of the agreement between the parties as set out in the Consent Order, on the grounds of common mistake or unilateral mistake. 4.The part of the Consent Order in issue relates to the former matrimonial home of the parties (“the Matrimonial Home”). 5.Ms Cheung counterclaims against Mr Lau for damages for the delay in transferring to her his shares in the company holding the Matrimonial Home, so that she was unable to rent out the Matrimonial Home for the period between 31st March 2015 and 28th November 2017. B. THE BACKGROUND 6.Unless otherwise indicated, the following is not in dispute, and I find such undisputed matters as facts. 7.On 29th January 2014 and 18th February 2014, Mr Lau and Ms Cheung participated in two financial dispute resolution hearings before the Judge (“the 1st FDR Hearing” and “2nd FDR Hearing” respectively) regarding the distribution of the parties’ matrimonial assets and potential settlement in the ancillary relief proceedings. 8.The key assets which were the subject of the parties’ negotiations were:
The 1st FDR Hearing 9.What happened at the financial dispute resolution hearings was summarised in the Judge’s judgment dated 26th February 2016 regarding Mr Lau’s application to amend the Consent Order pursuant to RHC O.20 r.11 (“the Slip Rule Judgment”) at [49] to [50].[1] In relation to the 1st FDR Hearing:
Events during the adjournment 10.On 11th February 2014, Messrs Ernest Li & Co (“ELC”), solicitors for Ms Cheung, sent a draft consent summons to Messrs Lam & Lai (“LL”), solicitors for Mr Lau, under cover of a letter marked “Without Prejudice to Respective Parties’ Rights & Subject to contract” (“the ELC 11.02.2014 Letter”). The letter stated that:
11.The enclosed draft “minutes of consent order” (“the ELC Draft”) provided for the dismissal of the parties’ respective claims upon the giving of various undertakings. Undertakings J and K were as follows.
12.The unchallenged evidence of Ms Cheung is that she is the one who came up with the mechanism by which she was to acquire Mr Lau’s shares in ELI, including how the ELI Loan and the Hang Seng Bank mortgage was to be repaid. From her point of view, Mr Lau had a responsibility to preserve a home for use of Ms Cheung and the Son who was still studying at the time. 13.The ELC Draft was provided to Ms Yip SC who provided her comments to LL in her email of 17th February 2014. Amongst other things, she suggested amending undertaking K so that whilst the acquisition of Mr Lau’s interest in ELI was to be made upon completion of the sale of the Warehouse, there was no need to satisfy any other conditions precedent. In manuscript annotation beside the deleted conditions precedent (c), (d) and (e), she wrote “No need to repeat, already mentioned under J(a) to (b) above, Besides, there’s no personal liabilities. At any rate, upon completion, the liabilities under J(a) to (b) will / must be discharged.” 14.In addition, Mr Raymond Kwan, the accounting manager for Mr Lau’s companies, pointed out to Mr Lau that either Ms Cheung should pay to Mr Lau 50% of the market value rather than the “Net Value” of the Matrimonial Home; or, if he was to be paid the “Net Value”, then there would not be any need for him to also pay 50% of the loans, or else this would result in “double counting” of his contribution to the loans and liabilities in respect of the Matrimonial Home, such that it would not be a genuine 50:50 division. Mr Lau passed on this observation to Mr Elden Lai so that the ELC Draft could be amended.[2] 15.Later in the day on 17th February 2014, LL sent a letter to ELC (“the LL 17.02.2014 Letter”), with a revised draft “minutes of consent order” (“the LL Draft”). The letter, which was marked “Without Prejudice to Respective Parties’ Right & Subject to contract”, stated that:
16.In the LL Draft, LL had marked up changes to undertakings J and K as follows.[3]
The 2nd FDR Hearing 17.On 18th February 2014, the parties and their legal teams met in the morning in the court building to continue their negotiations, in advance of the 2nd FDR Hearing which was fixed for 2:30pm. Each camp occupied a separate room. Negotiations were conducted between Ms Yip SC and/or Mr Elden Lai on behalf of Mr Lau, and Ms Annie Lai and/or Mr Ernest Li[4] on behalf of Ms Cheung, although Ms Lai left at about lunch time. Mr Lau and Ms Cheung did not themselves take part in the negotiating process. The parties did not start the hearing at the scheduled time of 2:30pm. They asked for further time from the court, and it was not until after 5:00pm that the hearing before the Judge commenced. 18.What happened at the 2nd FDR Hearing is summarised in the Slip Rule Judgment at [50]. The parties submitted to the court a revised version of the minutes of consent order, which bore various amendments in the form of handwritten additions, deletions, reinstatements, and some points awaiting verification. The Judge noted that he was not told whether or not there was any guiding principle or overall agreement that the family assets and liabilities were to be shared equally, and what had happened in the negotiations between the parties during the adjournment and on the day of the 2nd FDR Hearing. He noted that the final product (the minutes of the consent order) was quite different from what was said to have been agreed on 29th January 2014, the notable differences being that Ms Cheung was to acquire the Matrimonial Home, and that each party was to keep their other properties. 19.The minutes which were submitted to the court were signed by Ms Cheung and her solicitor Mr Ernest Li, and Mr Lau and his solicitor Mr Elden Lai. At the trial, a colour print out of the photographed pages of the original set of minutes filed with the court was produced (“the Signed Minutes”). The Signed Minutes were endorsed by the Judge on the same day. 20.In undertakings J and K of the Signed Minutes:
21.In other words, the effect of the amendments in red pen to undertakings J and K were that:
The formal drawing up of the Consent Order 22.On 28th February 2014, ELC sent to LL an edited, typed-up version of the Signed Minutes for approval. The covering letter put on record Ms Cheung’s understanding that her agreement to the Clawback Provision was to be operative only if the Matrimonial Home was sold for redevelopment. 23.On 12th March 2014, ELC sent a chaser letter to LL, seeking approval of the typed-up version of the Signed Minutes. 24.On 13th March 2014, LL sent to ELC a marked up copy of the typed-up version earlier provided by ELC (on 28th February 2014). There were amendments proposed to undertaking I. The letter also noted that there appeared to be some discrepancies between the Signed Minutes and ELC’s typed-up version in relation to particulars of certain of the Companies. One of these was that ELI had been omitted from the list of companies in respect of which Ms Cheung was to transfer her shares to Mr Lau. The letter ended “Save as to the aforesaid, we confirm that the draft minutes of consent order are in order.” 25.On 14th March 2014, ELC replied to LL, explaining that the deletion of ELI from the list of companies was to give sense to the order, as under undertakings J and K, Ms Cheung was to acquire Mr Lau’s shares in ELI. Inclusion of ELI in the list of companies in respect of which Ms Cheung was to transfer her shares to Mr Lau would conflict with this agreement. ELC indicated agreement with LL’s proposed amendments (to undertaking I) and requested a final confirmation of the order prior to submission to the court. 26.On 27th March 2014, ELC sent a chaser to LL asking for its confirmation of the version of the order sent on 14th March 2014. 27.LL replied on the same day: “We confirm that the contents of the Minutes of Consent Order are in order.” 28.On 31st March 2014, ELC submitted the revised minutes of consent order to the court for approval, drawing the court’s attention to the changes made and indicating that Mr Lau’s solicitors had approved them. 29.On 4th April 2014, the court asked the parties to file a consent letter regarding the amendments. 30.On 15th April 2014, a joint letter signed by ELC and LL confirming the parties’ agreement to the amendments to the minutes of consent order was sent to the court. The letter enclosed the final version of the minutes of consent order. 31.The Consent Order, which is the subject of Mr Lau’s claim, was sealed on 30th April 2014. Events after the sealing of the Consent Order 32.The sale of the Warehouse as provided for under paragraphs H and I of the Consent Order was completed on 31st March 2015. 33.Prior to this, on 26th March 2015, LL wrote to ELC, noting that the Matrimonial Home, Tung Chung Property and the Companies were to be dealt with either on completion of sale of the Warehouse or upon the receipt by the parties of the sale proceeds thereof. LL proposed setting off the various amounts due by the parties to each other, with Mr Lau paying the balance due to Ms Cheung upon completion of sale of the Warehouse. The letter stated that the amount payable by Ms Cheung to Mr Lau for acquiring his interest in the Matrimonial Home was $17,493,214.83 (which was calculated as half of the market value of $49m in paragraph J(i) of the Consent Order after deduction of the $14-m odd bank loan as at 1st April 2015). The letter further noted that the ELI Loan would have to be repaid by Mr Lau and Ms Cheung equally, so that each would have to issue a cheque of $7,653,515.86 to OLL to settle the loan. 34.On 30th March 2015, ELC wrote to LL, taking “great exception” to the calculations in LL’s letter, in particular the amount which Mr Lau considered should be paid for the acquisition of his interests in the Matrimonial Home, as these departed from the agreed calculations under the Consent Order. 35.On 2nd April 2015, LL wrote to ELC, noting the disagreement regarding the calculations of the payment amount relating to the Matrimonial Home, and stating that they were taking instructions from Mr Lau in this regard. 36.On 10th April 2015, ELC wrote to LL, setting out the calculations for payment regarding the Matrimonial Home, with Ms Cheung paying Mr Lau $9,418,115.73 (half of the market value of $49m after deduction of the Hang Seng Bank loan and the ELI Loan), and Mr Lau paying Ms Cheung $7,501,751.91, being half of the Hang Seng Bank loan. 37.On 15th April 2015, LL wrote to ELC, demanding that Ms Cheung transferred her shares in the Companies to Mr Lau and paid him the amount due for the Tung Chung Property. 38.On 17th April 2015, ELC wrote to LL, pointing out that LL had yet to revert regarding the calculations for the Matrimonial Home. 39.On 20th April 2015, there was a meeting between Mr Lau, Mr Raymond Kwan (the accounting manager of Mr Lau’s companies), Ms Yip, and Mr Elden Lai. Mr Raymond Kwan sent a summary of what was discussed at the meeting to Mr Lau by an email of 28th April 2015. The email noted that “Anita & Elden found it curious that certain paragraphs were crossed out but have ticks at the same time but without initials.” 40.On 23rd April 2015, LL wrote to ELC, stating that the spirit behind the Consent Order was to achieve an equal split of the family assets between the parties, and that the parts of the Consent Order dealing with the Matrimonial Home were “inherently problematic, if not absurd, and do not at all reflect the true intentions of the parties”, as Mr Lau had to assume all the liabilities of the Matrimonial Home but that Ms Cheung did not have to so contribute. The letter went on:
41.It was then said that Ms Cheung should pay Mr Lau $9,839,698.97 for his interest in ELI which in turn held the Matrimonial Home. 42.On 30th April 2015, LL wrote again to ELC, enclosing proposed amendments to undertakings J and K, “so as to bring it in line with the common intention of the parties to achieve an equal split of the family asset”. It was suggested that:
43.The effect of the amendments proposed in LL’s letter of 30th April 2015 would have been to require Ms Cheung to pay half of the $49m fixed as the Market Value of the Matrimonial Home in paragraph J(i), upon Ms Cheung and Mr Lau each repaying half of the ELI Loan and Mr Lau paying half of the outstanding Hang Seng Bank loan to Ms Cheung. 44.On 6th May 2015, ELC wrote to LL, declining to amend the Consent Order, as the terms correctly reflected Ms Cheung’s intentions, she having reviewed them before agreeing to them. 45.On 2nd June 2015, LL wrote to ELC, saying that the transcript of the 1st FDR and 2nd FDR Hearings showed that it was Ms Cheung’s intention to achieve an equal division of the family assets, and inviting Ms Cheung to make a joint application to the court. 46.On 5th June 2015, ELC wrote to LL, asking for the basis for making an application to clarify or vary the Consent Order. 47.On 15th July 2015, LL wrote to ELC, pointing out that there were various typographical errors in the Consent Order which arose from accidental slips. It was said that paragraph K(i) similarly suffered from an “accidental slip” and that the reference to “Net Value of the Matrimonial Home (as defined above)” in paragraph K(i) should be replaced by “the current market value of the property as mentioned in Paragraph J(i)”. Amendments to paragraph J(i) and J(v) were no longer proposed. Again, there was no suggestion that the Reinstated Conditions Precedent be deleted. The Slip Rule Application 48.On 3rd August 2015, Mr Lau applied for amendment of paragraphs J(v)(b), K(i), O and Q of the Consent Order pursuant to RDC O.20 r.11. The application to amend paragraph K(i) was as indicated in LL’s letter of 15th July 2015, namely, to replace the words “Net Value of the Matrimonial Home (as defined above)” by “the current market value of the property as mentioned in Paragraph J(i)” (“the Slip Rule Application”). 49.The application was determined by the Judge. He allowed the proposed amendments to paragraphs J(v)(b), O and Q, which were “clearly typos” and not in dispute.[6] He refused the proposed amendment to paragraph K(i), rejecting the argument that the manifest intention of the parties, as contended for by Mr Lau, was clearly shown on the face of the Consent Order.[7] The Judge left open the possibility that Mr Lau might pursue other avenues of redress.[8] 50.By a judgment dated 4th May 2017, the Court of Appeal dismissed Mr Lau’s appeal. Lam VP was of the view that not all the requisite evidence had been placed before the court, and the parties’ disputes could not be summarily resolved in an application under the slip rule or the inherent jurisdiction of the court to amend its orders; the appropriate course was to have the issues properly canvassed in a fresh action. Cheung JA (with whom Kwan JA agreed) was of the view that Mr Lau had not made out a case of accidental omission or that the court’s intention as recorded in the Consent Order had not been properly manifested. Transfer of shares in ELI 51.On 28th November 2017, Mr Lau transferred his shares in ELI to Ms Cheung. Rental value of the Matrimonial Home 52.The parties agree that for the purposes of the counterclaim, the rental for the Matrimonial Home should be taken to be $55,000 per month. C. THE PARTIES’ CASES C1. Mr Lau’s case 53.It is Mr Lau’s case[9] that at all material times up to and including the signing of the Signed Minutes, it was the common intention of the parties that they would divide their interests and liabilities in the Matrimonial Home equally, on a 50:50 ratio. Specifically, Ms Cheung would acquire Mr Lau’s interest in the Matrimonial Home by paying half of the Net Value of the Matrimonial Home (as defined in undertaking J), which was approximately $9,418,115.73. However, the Reinstated Conditions Precedent were wrongly included in the Signed Minutes. 54.It is Mr Lau’s alternative case[10] that at the time of signing of the Signed Minutes:
55.The essence of Mr Lau’s case is that under the terms of the Consent Order, he has to make a net payment to Ms Cheung of $5.7m (approximately), rather than receiving $9.4m (approximately), and yet also have to transfer his interests in the Matrimonial Home to Ms Cheung. He says that this results from the duplication of his obligation to repay the ELI Loan and the Hang Seng Bank loan. 56.Mr Lau therefore seeks rectification of the Consent Order by deletion of the words “the satisfaction of the following conditions precedent” in paragraph K(i) and the Reinstated Conditions Precedent.[11] C2. Ms Cheung’s case 57.As regards the claim of common mistake, it is Ms Cheung’s case that:
58.As regards the claim of unilateral mistake, it is Ms Cheung’s case that there is no basis for the allegation that she deliberately took advantage of Mr Lau’s mistake.[14] 59.Ms Cheung counterclaims for loss of rental income arising from Mr Lau’s failure to use his best endeavours, as required by paragraph K(ii) of the Consent Order, to procure the transfer of his shares in ELI to Ms Cheung, the transfer not being completed until 28th November 2017.[15] D. THE ISSUES 60.The parties agreed that the following issues arise for determination. Mr Lau’s claim
Ms Cheung’s counterclaim
E. THE RELEVANT LEGAL PRINCIPLES 61.There is no dispute as to the applicable principles.[16] E1. Common or mutual mistake 62.In the case of common or mutual mistake, the mistake is about whether a written document correctly reflects what the parties had, on an objective assessment, agreed it should contain. If parties have agreed to execute a document in certain terms and by mistake it contains different terms, the court can order specific performance of the prior agreement by rectifying the document. See Kowloon Development Finance Ltd v Pendex Industries Ltd (2013) 16 HKCFAR 336 at [19] (Lord Hoffmann NPJ). 63.The party seeking rectification must show that:
See Kowloon Development Finance Ltd at [31], approving the analysis of the Court of Appeal in that case. Lam J (as he then was), giving the judgment of the Court of Appeal in [2012] 5 HKLRD 11 at [25], cited Peter Gibson LJ’s summary of the requirements in Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71 at 74 (Peter Gibson LJ). 64.In ascertaining the common intention, the approach is an objective one. The question is what a reasonable observer would have understood the parties to mean. See Kowloon Development at [19]. See also Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [60] (Lord Hoffmann):
65.In claims for rectification for contracts for common or mutual mistake, it is necessary for the court to be confident that the formal document does not reflect what was previously agreed. In commercial contracts, at least, one does not construe preceding heads of agreement as if they were a contract and simply compare them with the final document. If there is room for ambiguity in the heads of agreement or if they might have been varied in the course of subsequent negotiations, a claim for rectification must fail. See Kowloon Development Finance Ltd at [24]. E2. Unilateral mistake 66.Unilateral mistake is concerned with the subjective states of mind of the parties. If a contract contains a provision which one party knows that the other party thinks is not there, or that the other party is mistaken about its meaning, the court may, as a matter of discretion, either refuse to allow him to enforce the contract as it would ordinarily be construed, or go further and rectify the written contract to give effect to what the mistaken party thought had been agreed. See Kowloon Development Finance Ltd at [20]. 67.The party seeking rectification must show that:
68.If these requirements are satisfied, the court may regard it as inequitable to allow Party B to resist rectification to give effect to Party A’s intention on the ground that the mistake was not, at the time of execution of the document, a mutual mistake. See Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Limited [1991] 1 WLR 505 at 516A-C (Buckley LJ). 69.The conduct of the defendant must be such as to make it inequitable for him to object to the rectification of the document. Sharp practice is not necessary. The question is the equity of the position. The conduct must be such as to affect the conscience of the party who has suppressed the fact that he has recognised the presence of a mistake. See Thomas Bates and Son Ltd at 515H. 70.The graver the character of the conduct involved, the heavier the burden of proof will be. See Thomas Bates and Son Ltd at 515H; Citilite Properties Ltd v Innovative Development Co Ltd [1998] 2 HKLRD 705 at 710I. 71.As to knowledge, the various mental states which may be involved were analysed by Peter Gibson J in Baden v Société Générale pour Favouriser le Développement du Commerce et de l’Industrie en France SA (Note) [1993] 1 WLR 509:
72.The knowledge on the part of the defendant which is required in order to satisfy the conditions for rectification for unilateral mistake is that in the first three categories: Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 at 280D to 281E (Stuart-Smith LJ), 292F-G (Evans LJ). 73.In cases that fall within the second and third categories, dishonesty is a requirement of establishing that the defendant had sufficient knowledge: Global Display Solutions Ltd v NCR Financial Solutions Group Ltd [2021] EWHC 1119 at [454] to [455] (Jacobs J). E3. The distinction between common / mutual mistake and unilateral mistake 74.It is important to bear in mind that the distinction between the two types of mistake. As Lord Hoffmann NPJ said in Kowloon Development at [19], “they are actually the expression of quite different principles”. He went on to explain:
75.Rectification for mutual mistake is on the ground of an objective common continuing intention, whereas rectification for unilateral mistake is on the ground that the defendant was aware or ought to have been aware that the claimant enetered the formal contract under a mistake. The defendant’s culpability being is irrelevant in a claim for rectification for mutual mistake, but essential in a claim for rectification for unilateral mistake. See Daventry DC v Daventry Housing Ltd [2012] WLR 1333 at 91 (Etherton LJ, who dissented in the result). F. COMMON / MUTUAL MISTAKE F1. The agreement in principle reached at the end of the 1st FDR Hearing 76.In cross-examination, Mr Ernest Li (the solicitor acting for Ms Cheung in the FDR Hearings) accepted that at the end of the 1st FDR Hearing, the hearing was adjourned on the basis that the parties had agreed to a 50:50 division of the four key assets in principle, on a non-binding basis. Ms Cheung accepted that there was agreement on how the four key assets were to be dealt with. Both accepted that for the Matrimonial Home, the agreement in principle was for it to be sold on the market, and the net proceeds divided equally between the parties. 77.Ms Anita Yip SC accepted that the negotiations on the occasions of the 1st and 2nd FDR Hearings were conducted under a clear appreciation on her part that the parties’ various negotiations, expressions of aspiration, indications of preparedness to accept proposals and so on were all made freely, without prejudice to their respective rights, and were subject to contract, with both parties being free to change their positions. Mr Elden Lai (the solicitor acting for Mr Lau) agreed that all the negotiations were conducted on a “without prejudice” basis, with the parties not being bound by any exchange of ideas, and being free to change their minds on any aspect of the negotiations. 78.At the trial, Mr Victor Dawes SC (leading Ms Sheena Wong), counsel for Mr Lau, placed emphasis on the fact that the parties had reached agreement, albeit that it might be of an “in principle” nature only. Mr Jason Pow SC (leading Mr Au Lut Chi and Ms Hannah Tang), counsel for Ms Cheung, placed emphasis on the fact that any agreement between the parties was not of a binding nature. Whilst there was a difference of emphasis, in my view there was no difference of substance. I find that at the end of the 1st FDR Hearing, the parties had reached an agreement in principle, on a non-binding basis, that the Matrimonial Home would be sold, and the proceeds divided between Mr Lau and Ms Cheung equally. F2. ELC’s 11.02.2014 Letter and the ELC Draft 79.A common intention, even if non-binding, is capable of founding a claim for rectification for common mistake. However, in the present case, it is clear that objectively, any common intention formed at the end of the 1st FDR Hearing did not continue up to the time of execution of the Signed Minutes. ELC’s 11.02.2014 Letter made it clear that Ms Cheung had changed her mind as how she wanted the Matrimonial Home to be dealt with.
80.In my judgment, an objective, reasonable observer would have understood this letter to be a change of stance on the part of Ms Cheung from her previously agreed position of sale, and a new offer to acquire Mr Lau’s interest in the Matrimonial Home “in the manner proposed in the enclosed draft summons”. 81.Mr Dawes submitted that:
82.In my view, notwithstanding that Mr Lau and Ms Cheung had previously agreed to sell the Matrimonial Home and split the proceeds, an objective, reasonable observer would nevertheless consider that the ELC 11.02.2014 Letter, together with the ELC Draft, sought to re-open the previous agreement, and not simply to provide for the mechanics of implementing the previous agreement.
83.I do not agree that the language and structure of the ELC Draft indicated that undertakings J and K were intended to effect an equal division of the parties’ interests in the Matrimonial Home.
84.I therefore consider that by 11th February 2014, there was no longer any common intention to sell the Matrimonial Home and divide the proceeds equally between the parties. F3. LL’s 17.02.2014 Letter and the LL Draft 85.The response to ELC’s 11.02.2014 Letter was LL’s 17.02.2014 Letter. In my judgment, an objective, reasonable observer would have understood this to be continuing the process of negotiation regarding the treatment of the Matrimonial Home, and acknowledging that there was no common intention regarding the property at that stage.
86.The three proposals in the LL Draft were as follows.
87.I do not agree that these proposals show that treatment of the Matrimonial Home continued to be governed by the non-binding agreement reached at the end of the 1st FDR Hearing that the Matrimonial Home would be sold, and the proceeds divided between Mr Lau and Ms Cheung equally. Two of the proposals did not involve such a sale. 88.Even if one were to ignore the element of sale involved in the agreement, and describe the agreement reached at the end of the 1st FDR Hearing as an agreement between Mr Lau and Ms Cheung to divide the Matrimonial Home on a 50:50 basis, I do not agree that objectively, the proposal for the parties to execute a declaration of trust in favour of the Son and eventually transfer their ELI shares to him constituted such a proposal to divide the property or its proceeds between them; rather, it was a proposal to transfer the property to a third party in the future, for nil consideration, with the parties continuing to (indirectly) jointly hold an interest in the property in the meantime rather than achieving a “clean break”. Of course, it could be said that under this proposal, neither Mr Lau nor Ms Cheung would benefit more than the other. But this focusses on only one aspect of the of the proposal and ignores other aspects which are inconsistent with the agreement reached at the end of the 1st FDR Hearing. 89.In any event, even if I am wrong about this, and even if it could be said that Mr Lau’s three proposals all simply sought to implement the agreement reached at the end of the 1st FDR Hearing, there was nevertheless, objectively, no consensus between the parties by this stage, as I explain in the next section. F4. No continuing common intention by the 2nd FDR Hearing 90.In my view, by the time of the 2nd FDR Hearing (18th February 2014, a day after the LL 17.02.2014 Letter) an objective, reasonable observer would have understood that there was no longer any agreed consensus between the parties as to how the Matrimonial Home was to be dealt with. Instead, there were three proposals on the table for the parties to consider. There was Ms Cheung’s proposal of acquiring Mr Lau’s interest on certain terms, to which Mr Lau had counter-proposed amendments. There was also Mr Lau’s proposal of holding the interests on trust for the Son, with a view to eventually transferring the entire interest to him upon his reaching a certain age. Finally, the original proposal had not been abandoned altogether, and remained as the third option proposed by Mr Lau for the parties to consider. 91.In fact, the lack of consensus is effectively acknowledged in the closing submissions for Mr Lau. In the section on unilateral mistake, it is said that:
92.Of course, these submissions were made in the context of the issue of unilateral mistake, and were therefore directed at the parties’ subjective intentions rather than what an objective, reasonable observer might think. However, there is no reason why an objective, reasonable observer would not take the same view: the lack of consensus, and the parties’ respective positions, are plain from the correspondence. Indeed, in the course of closing submissions, Mr Dawes acknowledged that going into the day of the 2nd FDR Hearing, the parties were “obviously” miles apart, and objectively were not in agreement in relation to the treatment of the Matrimonial Home. 93.It is not Mr Lau’s case that there was any new common intention regarding the Matrimonial Home reached on the day of the 2nd FDR Hearing. The consensus he relies on is the one reached at the end of the 1st FDR Hearing, but this was clearly overtaken by the parties’ further negotiation prior to the 2nd FDR Hearing. 94.It is Mr Lau’s case that there was no discussion on the day of the 2nd FDR Hearing regarding the Reinstated Conditions Precedent, so that the in-principle agreement reached at the end of the 1st FDR Hearing continued to govern. I do not agree.
F5. No continuing common intention up to the time of the execution of the Signed Minutes and making of the Consent Order 95.In these circumstances, Mr Lau cannot show that there was a common intention between the parties that “they would divide their interests in the Matrimonial Home equally on a 50:50 ratio”[24] which continued up to the time when the parties executed the Signed Minutes. It simply cannot be said that the Signed Minutes (or Consent Order) fails to reflect the agreed common intention when there was no objective common intention at the time of the Signed Minutes (or Consent Order). G. UNILATERAL MISTAKE G1. Mistake on Mr Lau’s side 96.The evidence given on behalf of Mr Lau is that he and his legal team erroneously believed that there had not been any reinstatement of the Reinstated Conditions Precedent in the Signed Minutes.
97.However, Mr Pow submitted that Mr Lau’s claim of a mistake was not credible, given that his case as to what the mistake was about has shifted over time. The letter from LL of 23rd April 2015 did not mention any discovery that the Reinstated Conditions Precedent had been wrongly reinstated, and instead complained about the financial implications of the Consent Order. The letter from LL of 30th April 2015 proposed amendments to undertakings J and K by changing “Net Value” to “Market Value”; there was no suggestion of deleting the Reinstated Conditions Precedent. There was correspondence between the solicitors in formally drawing up the Consent Order, during which the Reinstated Conditions Precedent ought to have been discovered. The Slip Rule Application sought to make similar amendments without deleting the Reinstated Conditions Precedent, on the basis that there was a mutual mistake of the parties. The Statement of Claim still continued to describe the mistake as one of a “mutual oversight”. 98.Notwithstanding these challenges, I accept that Mr Lau and his legal team erroneously believed that there had not been any reinstatement of the Reinstated Conditions Precedent in the Signed Minutes on the day of the 2nd FDR Hearing.
G2. Ms Cheung’s side not aware of any mistake on Mr Lau’s side 99.However, I do not accept the submission that Ms Cheung and her team (1) knew that Mr Lau had not agreed to the Reinstated Conditions Precedent, and (2) must have known that the Reinstated Conditions Precedent were slipped in or reinserted as a result of Mr Lau’s mistake and oversight, at the point in time of execution of the Signed Minutes.[25] 100.It is not in dispute that Mr Lau bears the burden of proving this allegation, and that there needs to be “convincing proof”, albeit not one beyond reasonable doubt: Citilite Properties Ltd v Innovative Development Co Ltd [1998] 2 HKLRD 705 at 710H-J. The graver the character of the conduct being alleged, the heavier the burden of proof will be: Thomas Bates and Son Ltd at 515H. 101.In oral closing submissions, Mr Dawes clarified that it was not being said that Ms Cheung herself was aware of any mistake on the part of Mr Lau. Ms Cheung’s unchallenged evidence was that she was not herself involved in the negotiations on the day of the 2nd FDR Hearing, so that whatever she learned would have been relayed by her lawyers. She said that her instructions were for the conditions precedent to be reinstated. She was told at some point that this had been done, and she saw herself that this was the case at the time of signing. It was not put to her that she was aware of any mistake on Mr Lau’s side. 102.Mr Dawes also clarified that it was not being said that Mr Ernest Li was aware of any mistake on the part of Mr Lau. Mr Ernest Li’s unchallenged evidence was that he was not involved in negotiating the Reinstated Conditions Precedent. Ms Lai left at around lunchtime on the day of the 2nd FDR Hearing, and Mr Ernest Li says that he asked her whether the Reinstated Conditions Precedent were agreeable to Mr Lau’s side. He says that Ms Lai told him to look at her working draft, and he saw that she had placed ticks against the Reinstated Conditions Precedent. Based on this, he assumed that the issue had been discussed with Mr Lau’s side and that he was agreeable to the reinstatement. 103.Mr Dawes further clarified that the reference to the knowledge of Ms Cheung and her legal team was a reference to the knowledge of Ms Lai, with such knowledge being imputed to Ms Cheung and Mr Ernest Li. The submission was that the evidence was that there had not been any discussions regarding the Reinstated Conditions Precedent on the day of the 2nd FDR Hearing, so that Ms Lai must have known that Mr Lau’s side had not agreed to the reinstatement and that its inclusion must have been due to a mistake on Mr Lau’s side. 104.However, first of all, I find that Mr Lau fails to establish, as a positive fact, that there were no discussions regarding the Reinstated Conditions Precedent on the day of the 2nd FDR Hearing.
105.At this juncture, I should refer to a related piece of evidence. A copy of the LL Draft, marked with what Mr Elden Lai described as appearing to be three different sets of handwriting, was found in ELC’s files (by Ms Cheung’s current solicitors) (“the Other Draft”). One set of the handwriting (in black ink) was identified by Mr Lai as being Ms Yip’s handwriting. There were ticks (in blue ink) against the deleted conditions precedent, although there is no direct evidence as to who made the ticks. Mr Elden Lai said that it was possible that a copy of the LL Draft (not necessarily this particular one) was passed to and fro between the parties, with various amendments marked up, in the course of negotiations on the day of the 2nd FDR Hearing. Mr Ernest Li said that the Other Draft was the one given to him by Ms Lai before she left. Mr Pow in his closing submissions carried out an exercise to show that many of the amendments marked up in the Other Draft ended up in the Signed Minutes, suggesting that this was an “intermediate” draft which represented the position which the parties reached at some time during their negotiations. However, there is no direct evidence as to who placed the ticks against the deleted conditions precedent, and when and for what purpose this was done, so this document carries little evidential value as to whether there were discussions between the two sides on the day of the 2nd FDR Hearing regarding the Reinstated Conditions Precedent. 106.Second, even if Ms Lai did not take part in discussions regarding the Reinstated Conditions Precedent with Ms Yip and Mr Elden Lai, it does not follow that Ms Lai must have known that Mr Lau’s side had not agreed to the reinstatement and that its inclusion must have been due to a mistake on Mr Lau’s side.
107.Mr Dawes submitted[31] that I should draw adverse inferences, by reason of the fact that Ms Lai was not called to give evidence at trial, that (1) Ms Lai actually knew that the Reinstated Conditions Precedent were included in the Signed Minutes due to Mr Lau’s mistake, (2) Ms Lai wilfully shut her eyes to the obvious, and/or (3) wilfully and recklessly failed to make such enquiries which an honest and reasonable man would make. 108.Before an adverse inference can be drawn, there must have been some evidence, however weak, adduced on the matter in question before the court is entitled to draw the desired inference; there must be a case to answer on that issue. See Pacific Electric Wire & Cable Company Ltd v Texan Management Ltd, unreported, CACV 90-91, 93-96/2012, 17th September 2013 at [106] (citing Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340) (Kwan VP). 109.As to what a “case to answer” means, in Prest v Petrodel Resources Ltd [2013] 2 AC 415 at [44], Lord Sumption said:
110.I do not consider that there is any case to answer on the issue of whether Ms Lai knew that the inclusion of the Reinstated Conditions Precedent in the Signed Minutes was due to Mr Lau’s mistake. As analysed above, I do not see that there is a reasonable basis for the hypothesis that Ms Lai knew[32] that (a) the Reinstated Conditions Precedent were in the Signed Minutes and (b) they were there because of Mr Lau’s mistake. I therefore do not agree that any adverse inference can be drawn. 111.For completeness, I should also record my view that I accept Mr Pow’s submission that in any event, given the way in which the evidence developed, it cannot be said that Ms Lai was a witness who might be expected to have had material evidence to give.
G3. Third and fourth requirements for establishing a case of unilateral mistake 112.It is therefore not necessary for me to go further to consider the third and fourth requirements for establishing a case of unilateral mistake.[34] It is also not meaningful to do so, as the requirements presuppose that the defendant was aware of the wrongly omitted or included term, and that it was due to a mistake on the part of the claimant. 113.For example, in relation to the third requirement, it is not meaningful to say that anybody on Ms Cheung’s side omitted to draw the mistake to the notice of Mr Lau’s side when nobody on Ms Cheung’s side had the requisite knowledge, at the relevant time, to be in a position to do so. Furthermore, for Ms Lai, she was not even physically present at the time of the execution of the Signed Minutes. G4. Unilateral mistake not established 114.I therefore find that the claim of unilateral mistake fails. H. THE COUNTERCLAIM 115.The sale of the Warehouse was completed on 31st March 2015. However, Mr Lau did not transfer his shares in ELI to Ms Cheung until 28th November 2017. Ms Cheung has therefore counterclaimed for Mr Lau’s failure to use his best endeavours, as required by paragraph K(ii) of the Consent Order, to transfer his shares to Ms Cheung. It is said that she suffered loss and damage in not being able to rent out the Matrimonial Home between 31st March 2015 and 28th November 2017. Ms Cheung refers to a letter from LL of 7th January 2017 which said that Mr Lau was not willing to sign a written resolution of ELI to let out the Matrimonial Home. 116.Mr Lau put forward a number of defences.
117.It seems to me that as a matter of plain language, Mr Lau’s obligation to use his best endeavours to procure the transfer of his shares in ELI under paragraph K(ii) of the Consent Order goes hand in hand with Ms Cheung’s obligation in the preceding paragraph K(i) to acquire the shares by paying half of the Net Value of the Matrimonial Home, which payment was in turn to be carried out on satisfaction of the Reinstated Conditions Precedent in paragraph K(i). There is no need for an implied term in this regard. I do not read the Consent Order as suggesting a freestanding obligation on the part of Mr Lau to transfer his shares in ELI regardless of whether Ms Cheung fulfilled or was able to fulfil her obligations. 118.Given the interrelated nature of the obligations, I would accept that there is an implied term that Mr Lau’s (and indeed Ms Cheung’s) obligations to perform their obligations in paragraphs K(i) and K(ii) of the Consent Order are put on hold pending the resolution of the dispute between the parties as to the proper construction of the clauses and whether paragraph K(i) contains the Reinstated Conditions Precedent. It should go without saying that Mr Lau’s obligation is not a freestanding obligation, to be performed in circumstances where the nature of Ms Cheung’s corresponding obligations, and indeed Mr Lau’s obligations under the Reinstated Conditions Precedent if any, are unclear. 119.Accordingly, I agree that Ms Cheung fails to establish that there was a breach on the part of Mr Lau in not transferring the ELI shares to her at an earlier time. 120.In any event, it does not seem to me that the loss complained of is that of Ms Cheung. The Matrimonial Home is owned by ELI, so that the proper plaintiff to complain of loss is ELI, not Ms Cheung. The basis, if any, of Ms Cheung’s entitlement to complain of such loss has not been pleaded. 121.If I am wrong about all of the above, then Ms Cheung would have suffered a loss in the amount of $55,000 per month for the period from 1st July 2015 to 28th November 2017. Ms Cheung’s evidence in her witness statement was that she wanted to rent out the property since 31st March 2015, but she also said in cross examination that she did not move out of the Matrimonial Home until June 2015, and in her supplemental witness statement, she said that she only moved out in about the last week of June 2015. In the same statement, Ms Cheung says that she placed the Matrimonial Home on the market for rent in about July 2015; this was not challenged in cross-examination.[36] Insofar as there were unauthorised building works in the Matrimonial Home which would have prevented the renting, Ms Cheung’s evidence is that this would only have lasted a month from December 2016 to January 2017, and the other units in the building continued to be occupied during this time, showing that vacation of the property was not necessary. 122.As to the defence of remoteness, Mr Pow objected that it was not pleaded. I agree that it is not open to Mr Lau in the circumstances. Likewise with the defence of failure to mitigate. I. DISPOSITION 123.I dismiss both Mr Lau’s claim and Ms Cheung’s counterclaim. 124.I further make a costs order nisi that Mr Lau is to pay to Ms Cheung the costs of and occasioned by the action, save that Ms Cheung is to pay to Mr Lau the costs of and occasioned by the counterclaim, to be taxed if not agreed; with certificate for two counsel in both instances.
Mr Victor Dawes SC leading Ms Sheena Wong, instructed by Fan Wong & Tso, for the Plaintiff Mr Jason Pow SC leading Mr Au Lut Chi and Ms Hannah Tang, instructed by Alvin Cheng & Rosaline Choy, for the Defendant [1] Acknowledged by Ms Anita Yip SC, leading counsel then acting for Mr Lau, and a witness for Mr Lau in the present proceedings, to be a fair summary of events. [2] Mr Lau’s first witness statement paragraphs 22, 23. [3] It will be noted that some of the formatting in the LL Draft (such as the paragraph lettering) differed from that in the ELC Draft; this is of no consequence. [4] To avoid confusion, the full names of Mr Elden Lai and Mr Ernest Li will be used in this judgment. [5] By reason of formatting. [6] Slip Rule Judgment at [18]. [7] Slip Rule Judgment at [51]. [8] Slip Rule Judgment at [63]. [9] Opening Submissions paragraph 55. [10] Opening Submissions paragraph 56. [11] Opening Submissions paragraph 57. [12] Opening Submissions paragraph 33. [13] Opening Submissions paragraph 34. [14] Opening Submissions paragraph 37. [15] Opening Submissions paragraph 41. [16] Apart from the cases referred to in this section, the parties cited a number of other cases relating to mistake, as “illustrations”. I do not propose to deal with these here as counsel confirmed that they did not disclose any further principles being relied upon, and that each case is of course fact-specific. [17] Closing paragraphs 21, 26. [18] Closing paragraph 30. [19] Closing paragraphs 31 to 34. [20] Closing paragraphs 35 to 36. [21] Mr Lau’s first witness statement paragraphs 22, 23. [22] Closing paragraph 32. [23] Closing paragraph 34. [24] Statement of Claim paragraph 24.1. [25] Closing for Mr Lau paragraph 55, as clarified by Mr Dawes in oral closing submissions. [26] Mr Dawes clarified in oral closing submissions that he did not seek to suggest that the reinstatement was carried out after Mr Lau’s side signed the Signed Minutes. [27] Closing paragraph 56. [28] Witness statement of Lai Chi Chiu, Alfie Elden, paragraph 18. [29] In this regard, I would also note that it has not been suggested that Ms Lai was dishonest, as is required for establishing the second and third types of Baden knowledge. [30] As submitted by Mr Dawes in oral closing submissions. [31] Closing paragraph 62. [32] In any of the three relevant Baden meanings of “knowledge”. [33] Witness statement of Yip Hau Ki Anita paragraph 35; 2nd witness statement of Li Shiu Ki, Ernest. [34] That the defendant omitted to draw the mistake to the notice of the claimant, and that the mistake must be one calculated to benefit the defendant. [35] Amended Defence and Counterclaim paragraph 13A.1. [36] Answering Mr Lau’s suggestion that there was no evidence that the Matrimonial Home had been placed on the market for lease (Supplemental Witness Statement of Lau Wai Kwong, paragraph 24). | |||||||||||||||||||||||
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