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Kowloon Development Finance Ltd v Pendex Industries Ltd

10 May 2013

Court of Final Appeal

CFA

Final Appeal No 21 of 2012 (Civil)

FACV 21/2012

Citations: (2013) 16 HKCFAR 336


[2013] HKEC 704 English Judgment

Presiding Judges: Chan and Ribeiro PJJ, Bokhary, Hartmann and Lord
Hoffmann NPJJ

Phrases: Contract law - mistake - difference between mutual and


unilateral mistake - mutual mistake about whether document
correctly reflected terms previously agreed on an objective
assessment - unilateral mistake about mistaken belief of one
party, known to other, about what contract said -
oversimplification to say that common and unilateral mistake
mutually inconsistent
Remedies - rectification - mistake

Facts: P, a moneylender, settled a mortgagee action against D1 as debtor


and D2-3 as guarantors of the loan by two Tomlin orders in 2004
and 2005 (respectively the 2004 and 2005 Orders). Under the 2004
Order, Ds were to pay 12 monthly instalments to P with an annual
review of the monthly instalments thereafter, provided that Ds duly
paid the instalments and agreed legal costs (the Clause). The 2005
Order provided that Ds were to pay 12 further instalments in 2005
and that all further proceedings be stayed. It did not contain the
equivalent of the Clause. When Ds defaulted in paying instalments
under the 2005 Order, P sought to recover the entire loan. Ds
subsequently paid the instalments and claimed that the loan was
discharged under the 2005 Order. P claimed the Orders did not
discharge the loan; alternatively, the Orders should be rectified for
mistake to make clear that the loan was not discharged. The Judge
held in favour of P for rectification on the basis of both common and
unilateral mistake. The Court of Appeal dismissed Ds' appeal. Ds
appealed.
Held, dismissing the appeal, that:

The agreement embodied in the 2004 Order was only a


truce. If Ds complied with the terms, P would revert to
annual reviews of the instalments repayable. It was
improbable that a reasonable observer would have
concluded that the payment of instalments in 2005 would
have discharged the loan. The 2005 Order would have
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been construed as simply carrying forward the truce into


2005, substituting the new instalment amounts and, as
regards the 2004 Order, leaving the outstanding
indebtedness to be paid off in accordance with
subsequent annual reviews. (See paras.8, 14.)

In an action for rectification, mutual and unilateral mistake


dealt with different kinds of mistakes:

In the case of mutual or common mistake, the mistake


was about whether a written document correctly reflected
what the parties had, on an objective assessment,
agreed. In deciding what the parties had agreed, the
common law adopted its usual objective stance (
Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101
applied; Lovell & Christmas Ltd v Wall (1911) 104 LT 85,
Frederick E Rose (London) Ld v William H Pim Jnr & Co
Ld [1953] 2 QB 450 considered). (See para.19.)

Rectification for unilateral mistake was concerned with


the subjective states of the parties' minds. If the contract
contained a provision which one party knew the other
party thought was not there, or knew that the other party
was mistaken about its meaning, the court might either
refuse to allow him to enforce the contract as it would
ordinarily be construed or rectify the written agreement to
give effect to what the mistaken party thought had been
agreed (Hartog v Colin and Shields [1939] 3 All ER 566,
A Roberts & Co Ltd v Leicestershire County Council
[1961] Ch 555 applied). (See para.20.)

The difference between mutual and unilateral mistake lay


in what the mistake must be about. In mutual mistake, the
mistake was about whether the document correctly
reflected the terms previously agreed. In unilateral
mistake, it was about the mistaken belief of one of the
parties, known to the other, about what the contract said
or meant. (See para.23.)

Here, there was ample evidence for the Judge's


conclusion that there was a common mistake. On P's
evidence, an objective assessment of what the parties
had agreed did not include any term that the post-2005
debt was to be released. There was also ample evidence
for the conclusion on unilateral mistake. D2 always knew
P never intended to release its debt and it was
misconduct on his part to use the form of the Tomlin
order to support a claim that they had done so. (See
paras.29-30.)

It was an oversimplification to say that common and


unilateral mistake were mutually inconsistent. Obviously if
you assert that the mistake was common to both parties it
was inconsistent to say that it was on the part of one of
them. But the difference between the two types of
mistake did not lie only in whether one or both parties
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held a mistaken belief but also in what the mistake must


be about. There was no inconsistency in asserting that
the parties had made an agreement including a term
which the document had mistakenly left out, but if no
such objective agreement could be proved, the one party
knew both that the term had been omitted and that the
other party thought it had been included (George Wimpey
UK Ltd v Vic Construction Ltd [2005] BLR 135
considered). (See paras.32-33.)

Counsel in the Case: Mr Daniel Fung SC and Mr Frances Lok, instructed by


Robertsons, for the appellants.Mr Anthony Houghton SC and
Mr Li Chau Yuen SC, instructed by Vincent TK Cheung, Yap
& Co, for the respondent.

Cases cited in the Lovell & Christmas Ltd v Wall (1911) 104 LT 85
judgment: Smith v Hughes (1871) LR 6 QB 597

A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555,


[1961] 2 WLR 1000, [1961] 2 All ER 545

Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561

Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1


AC 1101, [2009] 3 WLR 267, [2009] 4 All ER 677

Daventry District Council v Daventry & District Housing Ltd [2011]


EWCA Civ 1153, [2012] 1 WLR 1333, [2012] 2 All ER (Comm) 142,
[2012] Bus LR 485

Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953]
2 QB 450, [1953] 3 WLR 497, [1953] 2 All ER 739, [1953] 2 Lloyds
Rep 238

George Cohen Sons & Co Ltd v Docks and Inland Waterways


Executive (1950) 84 Ll L Rep 97

George Wimpey UK Ltd v Vic Construction Ltd [2005] EWCA Civ 77,
[2005] BLR 135, 103 Con LR 67

Hartog v Colin & Shields [1939] 3 All ER 566

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989]


QB 433, [1988] 2 WLR 615, [1988] 1 All ER 348

Joscelyne v Nissen [1970] 2 QB 86, [1970] 2 WLR 509, [1970] 1 All


ER 1213

Judgment:

Chan PJ:
1. I agree with the judgment of Lord Hoffmann NPJ.
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Ribeiro PJ:
2. I agree with the judgment of Lord Hoffmann NPJ.
Bokhary NPJ:
3. I agree with the judgment of Lord Hoffmann NPJ.
Hartmann NPJ:
4. I agree with the judgment of Lord Hoffmann NPJ.
Lord Hoffmann NPJ:
5. This appeal arises out of two rather clumsily drafted consent orders which have resulted in a
straightforward claim for money lent turning into a litigation saga which has lasted ten years. The
answer to the point raised in this appeal is in my opinion tolerably clear and we did not find it
necessary to call upon Mr Anthony Houghton SC on behalf of the respondent. But the argument of Mr
Daniel Fung SC for the appellants, suggested that there are certain aspects of the law on rectification
which could usefully be clarified.
6. Kowloon Development Finance Ltd (KDFL) is a licensed moneylender. Between 1997 and 2002 it
advanced some $20 million to Pendex Industries Ltd (Pendex) on the terms of facility letters which
were from time to time revised and renewed. The loans were secured by the personal guarantees of
the directors, Chan Wah Sun (Mr Chan) and Yu Kah Yee, who were husband and wife, and by a
mortgage on a property at Shatin. Repayment was to be by monthly instalments in amounts which
KDFL, after consultation with Pendex, would fix from year to year.
7. In 2003 Pendex experienced financial difficulties and fell behind with its payments. It tried to
negotiate a rescheduling of the debt repayments but its initial proposals were not acceptable to KDFL,
which issued an originating summons claiming payment of the outstanding capital and interest.
Further negotiations resulted in an agreement as to discharge of the arrears and the amounts of the
monthly sums which would be payable in 2004. The agreement was embodied in a Tomlin order
made by consent by Master Lung on 8 January 2004. The relevant provisions are as follows:

All the Defendants do pay the Plaintiff the sums of money upon signing this summons
as follows:

$340,000.00 being part of the outstanding loan and interests accurred [sic ];

$28,000.00 being the agreed legal costs and disbursements incurred by the Plaintiff

$9,600.00 being the outstanding insurance premium of the Property.

All the Defendants do pay the Plaintiff 12 monthly mortgage instalments commencing
on 21st January 2004 by 24 post dated cheques and presented the same to the
Plaintiff upon signing of this summons as follows:
[There followed a table of sums for which the cheques were to be payable. For the first
six months the monthly payments were to be $170,000 and for the second six months
$190,000, making a total of $2,160,000 during the year.]

All the Defendants do pay the Plaintiff interests on the outstanding loan in the sum of
$21,591,264.12 at the rate of 10 per cent per annum from the date of arrears up to
18th December 2003 and at the rate of 8 percent per annum thereafter;

This arrangement will be commenced from the date of this Summons till 21st
December 2004. If all the Defendants do pay the plaintiff the total sum of
$2,537,600.00 [being the sum total of the amounts payable by the end of 2004] during
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the aforesaid period, the Plaintiff will review the amount of repayment of Mortgage
instalments annually thereafter;

8. Paragraph 6 makes it clear that although the claim was for the full amount of $21,591,264.12
outstanding at the date of issue of the originating summons, and although Master Lung's order
provided that "all further proceedings herein be stayed except for the purpose of carrying this Order
into effect ", the agreement in the Schedule was in the nature of a truce rather than a general treaty
of peace. The truce would expire at the end of 2004. If the defendants complied with the terms, KDFL
would revert to annual reviews of the instalments repayable. If they did not, cl.6 implied that hostilities
could recommence. Whether this would take the form of an application to lift the stay or the
commencement of a fresh action was not spelled out. During the negotiations, KDFL's solicitor
proposed the insertion of a clause which read:

If all the Defendants do not comply with any term of the aforesaid arrangements during
any time of the aforesaid period, the Plaintiff shall be at liberty to restore this action
and all the legal costs and disbursements arising therefrom shall be borne by the
Defendant on an indemnity basis.

9. The defendants' solicitors objected to this clause. It is not clear what exactly they objected to.
Perhaps it was the prospect that a single dishonoured cheque would be fatal, even if they could find
the money. Perhaps it was the costs. At any rate, KDFL's solicitor advised his client that it would do
them no harm to remove it and it was deleted. The solicitor appears to have advised KDFL that they
could always start a fresh action. I think that this was sound advice. Clause 6 clearly showed that
compliance with the 2004 terms was not to discharge the post-2004 indebtedness. In the event, the
defendants complied with the 2004 terms and no difficulties arose.
10. Further negotiations took place after October 2004 to agree the monthly amounts to be repaid in
2005. What the parties said to each other during these negotiations was a matter in dispute at the trial
of this action and I shall return to it later. For the moment it is sufficient to say that they bore fruit in the
shape of another Tomlin order dated 20 January 2005 in the same action which KDFL had
commenced in 2003. This time the order was made by Master S Kwang. The operative part read as
follows:

The Defendants do pay to the Plaintiff $9,600.00 being the Fire Insurance Premium of
the property

The Defendants do pay the Plaintiff $325,000.00 in 12 equal monthly instalments, by


way of 12 post-dated cheques commencing from 21 January 2005;

Notwithstanding the order of Master Lung dated 8th January 2004, all further
proceedings in this action be stayed, save that the Plaintiff be at liberty to apply for the
purposes of carrying into effect of this Order; and

The Defendants do pay the Plaintiff $8,000.00 as the costs of this application.

11. Despite the rather awkward language of cl.1, it appears to have been accepted that $325,000 was
the sum payable each month and not the total for the year. The former was a considerable increase
over the $190,000 payable in each of the last six months of 2004, but the latter would have been an
improbably large reduction compared with the total of $2,160,000 which had been payable and paid in
the previous year. I shall come back later to the reason why the instalments had been increased. The
defendants provided post-dated cheques in the sum of $325,000 each but the February and later
cheques were dishonoured. In September 2005, KDFL decided to recommence proceedings.
12. On 13 September 2005 KDFL issued a summons in the 2003 action, seeking an amendment of
Master Kwang's order by substituting something along the lines of the deleted para.7 from the draft of
the 2004 order, or alternatively giving KDFL liberty to execute for the unpaid balance of the 2005
instalments, or alternatively setting aside the order for mistake or irregularity. None of these
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applications was very promising. It was hard to see how the Master could simply amend the consent
order. Rectifying it or setting it aside would be a matter for a fresh action rather than a summons in
the existing one. On 12 December 2005 the summons came before Master de Souza and he gave it
short shrift.
13. On 31 December 2005 KDFL sent the defendants a letter before action, demanding repayment of
the full capital and interest outstanding. On 12 January 2006 Pendex wrote back expressing surprise.
They said that in their view, the effect of Master S Kwang's order was that payment of the 2005
instalments discharged the whole debt and they asked for the mortgage to be released.
14. Pausing at that point, it seems to me that KDFL could simply have commenced an action for the
whole outstanding debt. The court would then have had to decide whether, as a matter of
construction, Master S Kwang's order had the effect claimed by the defendants. I think it is very
improbable that a court would have concluded that a reasonable observer, reading the order against
the background known to the parties and in particular the scheme of repayment under the facility
letters and the 2004 order, would have come to such a conclusion. The 2005 order says nothing
about the discharge of any debt. It would, I think, have been construed as simply carrying forward the
2004 truce into 2005, substituting the new instalment amounts and, as in the case of the 2004 order,
leaving the rest of the indebtedness to be paid off in accordance with subsequent annual reviews.
15. On 12 April 2006, KDFL commenced new proceedings claiming to have the order of Master S
Kwang set aside on the ground of mistake and payment of the sum of $19,394,898.73, said to have
been outstanding as at 20 March 2006, with interest thereafter. The statement of claim was
afterwards amended and re-amended to include a claim for rectification of the order, substantially to
make it clear that the remaining debt had not been discharged.
16. At the trial before Deputy High Court Judge Simon Mayo, which lasted 6 days, KDFL advanced
four alternative cases. First, that as a matter of construction, the two Tomlin orders had not
discharged the outstanding debt. Secondly, that one should imply a term into the orders to the effect
that they did not discharge the outstanding debt. Thirdly, that the orders should be rectified to make it
clear that they did not discharge the outstanding debt. Fourthly, that the 2005 order should be set
aside on the ground of mistake and the plaintiff allowed to enforce the agreement as contemplated in
the 2004 order.
17. I have already indicated that in my opinion the first argument should have succeeded. But the
judge said (at [175] of his written judgment) that "the interests of justice will be better served" if he left
this point open and decided the rectification case instead. He did not enlarge upon his reason, but I
think he probably meant that the rectification case gave him the opportunity to express views on the
merits and the credibility of the witnesses which would not have been relevant if he decided the case
simply as a question of construction. In the particular circumstances of the case, in which the judge
had heard all the evidence on rectification and was in a position to make findings of fact, that was a
reasonable decision. He also did not deal with the implied term argument, which was really the
construction argument dressed up in different clothes.
18. The third argument was that the 2004 and 2005 orders ought to be rectified on the grounds of
mutual, or alternatively unilateral mistake. As we have seen, the 2004 order did not require any
rectification. Clause 6 was inconsistent with a discharge of the post-2004 indebtedness. It was the
2005 order upon which the defendants relied and which KFDL needed to rectify.
19. I will come in a moment to the judge's findings of fact, but first I should say something about the
legal requirements of mutual and unilateral mistake in an action for rectification. They sound like two
varieties of mistake about the same thing, made in the one case by both parties and in the other by
only one of them. But they are actually the expression of quite different principles. They deal with
different kinds of mistakes. In the case of mutual or common mistake - the adjectives are in this
context interchangeable - the mistake is about whether a written document correctly reflects what the
parties had, on an objective assessment, agreed it should contain. As Denning LJ said in the
well-known case of
Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450
, 461: "Rectification [for mutual mistake] is concerned with contracts and documents, not with
intentions". In
Lovell & Christmas Ltd v Wall (1911) 104 LT 85
, 88, Cozens-Hardy MR described rectification for common mistake as "a branch of the doctrine of
specific performance". By this he meant that if parties have agreed to execute a document in certain
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terms and by mistake it contains different terms, the court can specifically perform the prior
agreement by rectifying the document. There was accordingly at one time a view that the remedy of
rectification was available only if the prior agreement was itself actionable (like an agreement to grant
a lease) and not, for example, an agreement subject to contract. But this was disavowed by the Court
of Appeal in
Joscelyne v Nissen [1970] 2 QB 86
. Nevertheless, it is true to say that the concept of rectification for common mistake involves carrying
into effect what the parties appear to have actually agreed that the document should say. And in
deciding what the parties have agreed, the common law adopts its usual objective stance, looking at
what a reasonable observer would have understood the parties to mean and not concerning itself with
their uncommunicated states of mind:
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101
.
20. Rectification for unilateral mistake, on the other hand, is very much concerned with the subjective
states of mind of the parties. If the contract contains a provision which one party knows that the other
party thinks is not there, or knows 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 (
Hartog v Colin & Shields [1939] 3 All ER 566
) or go further and rectify the written agreement to give effect to what the mistaken party thought had
been agreed (
A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555
). A civilian system of law would deal with such a case as a breach of the principle of good faith in
contractual negotiations. To claim to enforce a contract in terms to which you know the other party
never meant to agree is a breach of good faith. The common law has no such general doctrine of
good faith in negotiation but a number of individual rules which provide remedies against specific
forms of bad faith. Rectification for unilateral mistake is one of these: compare Bingham LJ in
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433
.
21. The difference between the two grounds for rectification may be illustrated by the facts of Rose v
Pim . The plaintiff was a London merchant who placed a written order for Moroccan horsebeans in the
belief that his Egyptian buyer would accept them under the description "feveroles". He had discussed
this with the seller, another London merchant who was of the same opinion. But the parties were
mistaken. In Egypt, horsebeans and feveroles are different. The Court of Appeal refused to rectify the
order by substituting "feveroles" for "horsebeans" because the document did not differ from what, to
all outward appearances, the parties had agreed. They had agreed on a sale of horsebeans and the
order document said "horsebeans". On the other hand, if the seller knew that the buyer mistakenly
thought that it was a term of the contract that horsebeans could be sold as feveroles, a court might
have thought he had contracted in bad faith and that the order should be rectified on the ground of
unilateral mistake.
22. Some commentators have expressed surprise that a party might find that, as a result of
rectification on grounds of mutual mistake, he is bound by a contract which is not only different from
the terms of the final document but is one which, subjectively, he never intended to agree to. That is
what happened in Chartbrook . But Chartbrook was by no means the first time that this had
happened: see, for example,
George Cohen Sons & Co Ltd v Docks and Inland Waterways Executive (1950) 84 Ll L Rep 97
. Objective interpretation of contractual agreements is a fundamental principle of the common law. In
Daventry District Council v Daventry & District Housing Ltd [2012] 1 WLR 1333
, Toulson LJ (as he then was) expressed some sympathy with these academic comments on
Chartbrook . However, he also quoted the well-known passage from the judgment of Blackburn J in
Smith v Hughes (1871) LR 6 QB 597
, 607, which is the classic statement of the principle of objective interpretation:
If, whatever a man's real intention may be, he so conducts himself that a reasonable man would
believe that he was assenting to the terms proposed by the other party, and that other party upon
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that belief enters into the contract with him, the man thus conducting himself would be equally
bound as if he had intended to agree to the other party's terms.

23. Thus in cases in which there is no intention to embody the agreement in some formal document, a
party may well find himself bound by terms which, subjectively, he did not intend to agree to. Why
should it be different because the parties have agreed to record those terms in a written instrument?
The function of the court is to make the document accord with what the parties objectively agreed. It is
not necessary for this purpose to show that in resisting rectification the other party is acting in bad
faith. He may have been entirely in good faith in thinking that the written document reflects what was
agreed, but that makes no difference. Importing notions of good faith into rectification for mutual
mistake does not recognise that the important difference between mutual and unilateral mistake lies in
what the mistake must be about. In mutual mistake, the mistake is about whether the document
correctly reflects the terms previously agreed. In unilateral mistake, it is about the mistaken belief of
one of the parties, known to the other, about what the contract said or meant.
24. Before leaving this discussion of general principles, I should emphasise that in claims for
rectification of contracts for mutual mistake, it is necessary for the court to be confident that the formal
document does not reflect what was previously agreed. As Denning LJ said in Rose v Pim, 461, "if
you can predicate with certainty what their contract was, and that it is, by common mistake, wrongly
expressed in the document, then you rectify the document; but nothing less will suffice". It is common
for commercial agreements to be preceded by heads of agreement, term sheets or the like, followed
by further negotiations to arrive at a final expression of the contractual obligations of the parties. As
Hobhouse LJ explained in
Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561
, you do not construe the earlier 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. The
heads of agreement are only part of the material upon which the court must decide whether it can
"predicate with certainty" what an objective observer would have thought that the parties had agreed
and continued to agree to record in the final document.
25. I come now to the evidence and the judge's findings of fact. The witnesses for KDFL were Monica
Wai (Ms Wai) and Cindy Yu (Ms Yu). Ms Yu reported to Ms Wai, whom she described in evidence as
"the decision maker", but the actual negotiations which led to the two consent orders were conducted
by Ms Yu for KDFL and Mr Chan for Pendex. Ms Yu reported these to Ms Wai, who gave KDFL's
consent to the Tomlin orders, but she had no independent knowledge of the negotiations. The judge
accepted Ms Yu as an honest and careful witness. Her evidence was supported by notes she had
made at the time. The object of the discussions was to agree upon an amount for instalment
payments which would enable the entire advances to be repaid within a time acceptable to KDFL.
Thus the discussions which preceded the 2005 order began with Ms Yu telephoning Mr Chan and
saying that the monthly payments would have to be substantially increased if the advances were to be
repaid within a reasonable time. Mr Chan offered $210,000 a month for the first 6 months of 2005 and
$230,000 for the second. After obtaining a valuation of the mortgaged property, Ms Yu calculated that
if repayments were made at the rate offered by Mr Chan, it would take nearly 8 years for the debt to
be reduced even to the value of the mortgaged property. She reported this to Ms Wai, who said it was
unacceptable and that the instalments should be in an amount sufficient to repay the debt within 5
years. That worked out at $325,000 a month.
26. Ms Yu reported these calculations to Mr Chan, who said he had no option but to agree. Ms Yu's
evidence was that there was never any question of the entire debt being discharged by the payments
in 2005. This would have been quite inconsistent with the basis upon which the amount of the
instalments had been calculated. Mr Chan, she said, knew this perfectly well.
27. Ms Wai also gave evidence to confirm those parts of Ms Yu's evidence which were within her own
knowledge.
28. Mr Chan gave evidence for Pendex. He said it had been agreed that if he made the payments for
2004 and 2005, no further payments would be required and the action would be discontinued. The
judge did not regard Mr Chan as an honest witness and rejected his evidence. He found that Mr Chan
at all times knew that KDFL had no intention of releasing the rest of the indebtedness.
29. The judge started his discussion by saying "it seems likely that it was a common mistake". In my
opinion there was ample evidence for this conclusion. First, on the evidence of Ms Yu, which the
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judge accepted, an objective assessment of what the parties had agreed did not include any term that
the post-2005 debt was to be released. Secondly, the parties appeared to have agreed that the result
of their agreement should be embodied in the Tomlin order. Therefore, so far as the Tomlin order
could be construed as implying such a release, it did so by mistake.
30. The judge went on to consider unilateral mistake. Having regard to the opinion he had formed of
Mr Chan, that was how he preferred to decide the case. He said Mr Chan always knew that it was
never the intention of KDFL to release its debt and that it was misconduct (sharp practice) on his part
to use the form of the Tomlin order (assuming it admitted of such a construction) to support a claim
that they had done so. Again, I think there was ample evidence for this conclusion.
31. The Court of Appeal (Tang V-P, Yuen JA and Lam J) upheld the judge's decision on the ground of
common mistake. They had some doubts about the finding of unilateral mistake. I entirely agree with
the reasoning and conclusions of the Court of Appeal on the question of common mistake. But in my
opinion, however, the evidence before the judge was also sufficient to justify rectification on the
ground of unilateral mistake.
32. Mr Daniel Fung's main submission before this Court was that common and unilateral mistake
were mutually inconsistent. KDFL was obliged to elect which one it wanted to rely upon. In making
this submission, I think that Mr Fung was inclined to assume that the difference was simply that in one
case the mistaken belief was shared by both parties and in the other it was held by only one.
Obviously, if you assert that the mistake was common to both parties, it is inconsistent to say that it
was only on the part of one of them. It would not be unreasonable to say that you should make up
your mind whether your case is the one or the other. But the reason why I have taken some time to
explain the difference between common and unilateral mistake is because this is an oversimplified
statement of the difference between them. The difference does not lie only in whether one or both
parties held a mistaken belief but also in what the mistake must be about. Accordingly, there is no
inconsistency in asserting that the parties had made an agreement including a term which the
document has mistakenly left out, but if no such objective agreement can be proved, the one party
knew both that the term had been omitted and that the other party thought it had been included. This
is what happened in
George Wimpey UK Ltd v Vic Construction Ltd [2005] BLR 135
, in which a claim for rectification for common mistake was abandoned at the opening of the case but
the claimant tried instead (unsuccessfully, in the end) to prove that he had made a mistake of which
the defendant knew.
33. Mr Fung said that in that case the claimant made his election in opening to rely on unilateral
mistake. But I see no reason why a party should not run both cases and submit to the judge that if he
finds that the facts do not justify rectification for common mistake, he should consider whether they
support a case of unilateral mistake.
34. I would therefore dismiss the appeal.
Chan PJ:
35. The Court unanimously dismisses the appeal with costs.
Reported by Ken TC Lee

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