K.S. LIU & CO., C.P.A. LTD. v. ON DAK CHRISTMAS & DECORATION MANUFACTORY LTD.

HCSA 8/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 8 OF 1999

(On Appeal from Small Claims Tribunal Claim No. SCTC 051952 of 1998)

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J U D G M E N T

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The Appellants were granted leave by me to appeal against the award by the Small Claims Tribunal made on 4th June 1999 in a series of 6 claims for various amounts being unpaid audit fees. Although the parties in each of the claims are not the same, it was accepted by both sides that the parties on each side are connected and should be treated as one.

2. The defence of the Appellants to the claims was that the parties had a settlement agreement evidenced in writing. The Small Claims Tribunal found that there was such an agreement. Since this is a matter of fact, neither the parties before me nor myself can go behind such finding.

3. The settlement agreement is very simple. It contains a schedule of accounts receivable and payable between the parties. In total, there was $147,500 owing to the Respondents. On the other hand, there was $140,000 due from the Respondents by reference to a number of credit notes. After set-off, the balance of $7,500 due to the Respondents was paid by the Appellants by a cheque. A photocopy of the cheque was appended to the settlement agreement underneath the schedule of accounts. It is common ground that the cheque was paid into the Respondent's banking account and cleared.

4. However, the learned Adjudicator held that the credit notes (not the settlement agreement) were conditional ones. Because the conditions were not fulfilled, the settlement agreement was further held to be invalid.

5. Miss Tsang for the Appellants took a short point. By way of general proposition, counsel referred to Chitty on Contracts (27th Edition), page 1079: -

"22-018 Ineffective accord. An accord may be vitiated by any circumstance that would render a contract void or voidable, for example, by misrepresentation, 71mistake, 72 or duress.73

22-019 Evidence of accord. The question whether there has been an accord and satisfaction is a question of fact.74 Thus, retention and use by a creditor of a cheque sent by a debtor in full and final satisfaction of a larger claim does not, as a matter of law, constitute an accord and satisfaction.75 The intention of the creditor in cashing the cheque must be objectively ascertained. Cashing a cheque or retention of a cheque without rejection is strong evidence of assent by the creditor but it is not conclusive evidence so that a creditor who, at the moment of paying in the cheque, makes clear that he is not assenting to the conditions imposed by the debtor will not be held to have entered into an accord and satisfaction.76 The construction of any correspondence which, it is alleged, evidences the accord is, however, a question of law."

6. According to counsel, since a valid settlement agreement as found by the learned Adjudicator cannot as a matter of law be vitiated or impeached on the ground of unfulfilled conditional credit notes, and because there had been satisfaction by payment of the outstanding balance of $7,500, the Small Claims Tribunal should not have given judgment on the amounts already set off as provided by the settlement agreement.

7. The Respondent's argument was that the credit notes were conditional upon his own agents collecting outstanding debts and accounting to him and so the cheque payment could only be applied to pay off two items in the set-off schedule. Now, even assuming that the credit notes were conditional, the settlement agreement was not conditional. The learned Adjudicator, with respects, confused terms of the credit notes with those of the settlement agreement. There are in fact no conditions apparent on the settlement agreement or the credit notes. If the credit notes were conditional, there is nothing to prevent the Respondent from suing on the credit notes; but that would be a matter between the Respondents and his debt collection agents.

8. In the premises, the awards and orders made by the Small Claims Tribunal were quashed and the Respondent ordered to pay the costs of the appeal to be taxed if not agreed