In its recent decision in Kong Colin Chung Ping v Kong Chun Ip [2023] HKCFI 2495, the Court had the opportunity to consider the limits of a “liberty to apply” provision, in the context of an application to vary a consent order.
The Relevant Facts
The Plaintiff and the Defendant were tenants in common of commercial building on Nathan Road, Kowloon (“Property”). In early 2021, the Plaintiff commenced proceedings to seek an order for sale of the Property. Shortly thereafter, the parties reached settlement and agreed to a sale of the Property. The settlement was documented in a consent order sanctioned by the Court.
Under the consent order, the parties agreed to accept the offer of the highest offeror provided that the offer has met the reserve price (“Reserve Price”). The parties also agreed that, if no offer reaching the Reserve Price was received within time, a 5% discount shall be applied to the Reserve Price at each time (“Price Reduction Mechanism”).
In 2023, the Plaintiff applied to vary the consent order. The Plaintiff claimed that, since 2021, there has been a significant downturn in the real property market. The Plaintiff further claimed that due to the absence of willing purchasers, the settlement would be rendered nugatory. This warranted a reduction of the Reserve Price to reserve the current market value.
The Plaintiff relied upon two bases, namely, “liberty to apply” under the consent order and an implied term to similar effect
The Court’s Decision
The Court rejected the Plaintiff’s application. It held that it had no jurisdiction to entertain the variation.
The Court observed that, generally speaking, a reserve price represented the minimum price at which a property owner was willing to sell his property. However, it was not the price at which he would sell. In the present case, it was the plain intention of the parties that the Reserve Price should only be reduced gradually and at a specific pace. To accede to the Plaintiff’s application would amount to rewriting the agreement reached by the parties.
There is also no room for an implied term. This is because, the parties have opted for certainty and they have no intention for the Reserve Price to closely track or catch up with the prevailing market price. In fact, the incorporation of the suggested implied term would go against the express terms of the parties.
Finally, whilst the Plaintiff may have different subjective intentions as to the Reserve Price, such has no part to play when the Court was to deduce the parties’ objective intention.
Key Takeaways
The decision reaffirms the limitations of the Court’s jurisdiction under the “liberty to apply” provision. Under the “liberty to apply” provision, the power of the Court to revisit a previously made order is limited to working out the previous order. This does not provide a deus ex machina to rewrite the parties’ agreement or to add and supplement new terms to it.
It is also noteworthy that, when working out the meaning of a consent order, the Court would be concerned with the parties’ objective intention. The objective intention was to be gathered from the express wordings used in the agreement as well as the surrounding background facts. The parties’ subjective statements of belief would only be of limited probative value.
From a practical angle, the decision serves as a timely reminder for parties negotiating for, and drafting, settlement agreements. Very often, parties intending to settle their dispute would only be able to come to terms on their “highest common factor” – without working out each and every detail. This may transpire to be undesirable because, if the parties fail to document their objective intent clearly, the settlement may be liable to be impeached. Future disagreements and satellite litigation may also arise by reason of ambiguities in the settlement agreement.
Moreover, in terms of “forwarding looking” settlement agreements which implementation may occur across a period of time, practitioners should also factor in uncertainties which may arise during the pendency of the settlement. Appropriate provisions should be made to ensure that, should unexpected contingencies arise during the implementation period, the parties’ settlement agreement can still operate commercially and effectively.
John Hui and Martin Lau acted for the Defendant.
