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commercial agreements

How to Settle Civil Disputes: Importance of Tomlin Order

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Something must have gone wrong before parties commence civil litigation, whether the problem arises from breach of contract, unpaid invoices, or differing interpretations of terms of the contract. As civil litigation is costly, time-consuming, unpredictable, and at times excruciating for the parties’ peace of mind, it is not uncommon for parties to compromise and settle the civil dispute midway in the litigation proceedings. 

After years of advising and settling civil disputes, this series hope to shed light on the dos and don’ts for parties when they enter into settlement negotiations, and when they eventually sign and execute the settlement agreement. 

An important piece of consideration is to consider settling the civil action in Hong Kong by way of Tomlin Order. 

The nature of Tomlin Order 

In Hong Kong, Tomlin Orders are governed by the Rules of the High Court (Cap. 4A) and the Rules of the District Court (Cap. 336H). 

Provided under O.42 r.5A(2)(b)(iii) of the Rules of the High Court (Cap. 4A) and O.42 r.5A(2)(b)(iii) of the Rules of the District Court (Cap. 336H), Tomlin Order is a form of consent order which allows the parties to stay the proceedings upon the mutually agreed settlement terms which are scheduled to the Order but the terms of which do not otherwise form of the Order itself. 

Accordingly, Tomlin Order enables the parties to stay the proceedings, preserving the option to return to Court to enforce the settlement terms if one party fails to comply. This avoids the need for new legal action, making it an attractive option for settling a civil dispute. 

Further, the schedule, being a separate contractual agreement, can include terms that go beyond the ordinary terms typically ordered by the Court, and even go beyond the scope of the original dispute in the proceedings. 

In the Hong Kong case Shum Ho Seung v. Shum Foo Hang (As the Administrator of the Estate of Shum Kwok Hang, Deceased (18/12/2017, HCMP 3134/2016) [2018] 1 HKLRD 434, the Court clarified that it lacks general power to vary the terms in the schedule unless specific provisions for variation are included in the Order itself, or contractual law justifies it. In practice, the standard wording of a Tomlin Order in Hong Kong may include phrases like “all further proceedings be stayed except for the purpose of carrying into effect the terms of settlement,” with liberty to apply for enforcement. 

Here are the key benefits of settling a case via a Tomlin Order in Hong Kong: 

1. Enforceability without separate legal action 

If one party breaches the settlement terms in the schedule, the other can apply to the court to enforce the terms scheduled to the Tomlin Order directly, without starting a new legal action. 
 
For example, if a Defendant fails to pay an agreed sum as provided under the schedule to the Tomlin Order, the Plaintiff can seek enforcement by applying to a Judge/Master as appropriate. 
 
This is a way a more efficient and costs-saving route than settling the civil dispute by way of a separate settlement agreement, whereby generally, if a party breaches the terms of the settlement agreement, the other party will have to bring a fresh claim.

2. Flexibility in Settlement Terms 

The schedule can include terms which go beyond what the Court would typically impose in a judgment, e.g. ceasing certain actions not directly related to the original proceedings. In contrast, the terms which parties could enter by way of Consent Judgment (without Court’s leave) would be more limited under the straight statutory rules.
 
3. Preservation of Finality with Flexibility 

The stay of proceedings means the case is “paused”, but not dismissed. If the terms are fulfilled, the dispute ends without a full trial. On the other hand, if the settlement terms are breached, the innocent party can either enforce the scheduled terms or, in some cases, lift the stay to resume litigation (depending on how the Order is drafted). This balances closure with a safety net as opposed to a full withdrawal/dismissal, which may leave a party vulnerable if the other reneges. 

Conclusion 

The Tomlin Order must be carefully drafted to ensure enforceability and to prevent any pitfall compromising a party’s rights and interest. In summary, a Tomlin Order in civil litigation offers enforceability without separate legal action, flexibility, and preservation of finality with flexibility, making it ideal for parties seeking a practical binding settlement. For specific advice, as each case depends on its own facts, please consult a solicitor. 

Should you have any enquiries regarding civil litigation and commercial agreements, please contact our firm. 

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

How to Settle Civil Dispute: Importance of Payment by Instalment Clause

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Something must have gone wrong before parties commence civil litigation, whether the problem arises from breach of contract, unpaid invoices, or differing interpretations of terms of the contract. As civil litigation is costly, time-consuming, unpredictable, and at times excruciating for the parties’ peace of mind, it is not uncommon for parties to compromise and settle the civil dispute midway in the litigation proceedings.

After years of advising and settling civil disputes, this series hope to shed light on the dos and don’ts for parties when they enter into settlement negotiations, and when they eventually sign and execute the settlement agreement.

An important consideration is to consider having payment of settlement sum by instalments. In our experiences, this option has proven to be a game-changer, enabling parties to reach amicable resolutions more effectively. The practical benefits of having payment by instalment clauses in your settlement agreement are listed below:-

1. Alleviating Financial Flexibility for the Paying Party

When a party is required to pay a large settlement amount upfront, it can strain its cash flow, potentially forcing them to reject the settlement entirely.

By having payment by installment clauses in the agreement, the paying party gains room to better manage its finances. This flexibility can make the difference between a stalled negotiation and a signed deal, as it allows the debtor to commit to a resolution without jeopardizing their operational stability.

For instance, a small business facing a HK$1,200,000 settlement sum might struggle to pay it all at once. Spreading that amount over 12 monthly installments of HK$100,000, however, transforms an overwhelming burden into a manageable expense. This practicality often encourages parties to agree rather than prolong the dispute through litigation.

2. Ensuring enforceability of the Settlement Agreement

In cases involving a one-off payment, the settlement agreement carries a heightened risk of being contested down the line, as the paying party may later claim they were misled, poorly advised, or coerced into accepting the terms under economic duress—arguments that could potentially unravel the deal in court. A lump-sum payment, often made under pressure to resolve a dispute quickly, can leave the payor feeling cornered, especially if their financial situation deteriorates shortly after, prompting them to challenge the agreement’s validity by asserting they had no real choice but to comply at the time.

In contrast, a payment-by-instalment clause significantly mitigates this risk by spreading the financial obligation across multiple, manageable payments over an extended period, creating a built-in mechanism that strengthens the agreement’s practicality.

As long as the paying party adheres to some of the instalment schedule (i.e. making certain payment instalments), it is arguable that it effectively elects to affirm to the terms. This repeated compliance undermines any later attempt to overturn the agreement, as it creates a hurdle for the payor to convincingly argue misrepresentation or economic duress when their actions over months or years have indicated voluntary commitment.

By reducing the immediacy of the financial burden and providing a track record of commitment, such clause discourages post hoc legal challenges, offering both parties greater certainty in the resolution process.

3. Building Trust between Parties

Incorporating instalment payments into a settlement agreement can help build trust between parties. The paying party’s commitment to making regular payments reflects reliability and good faith, while the receiving party can appreciate the structured approach to fulfilling the agreement. The continued fulfillment of payment instalments can serve as a positive spiral for both parties to develop trust and positive interactions moving forward.

4. Preserving Business Relationships

Many business disputes occur between parties with ongoing or potential future dealings—suppliers and clients, partners, or vendors. A lump-sum demand can sour these relationships irreparably, whereas an installment plan demonstrates mutual accommodation. By agreeing to terms that work for both sides, the parties signal a willingness to maintain civility and cooperation, which can pave the way for future collaboration once the dispute is resolved.

Conclusion

Incorporating payment by installment into settlement agreements is more than a financial workaround—it’s a strategic tool that bridges gaps, builds trust, and expedites resolutions. For the paying party, it offers a lifeline to meet obligations without crippling their operations. For the receiving party, it ensures compensation with manageable risk. This approach transforms disputes from adversarial standoffs into opportunities for mutually agreeable solution.

Should you have any enquiries regarding civil litigation and commercial agreements, please contact our firm.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.