KIN WAH J F CONSTRUCTION & ENGINEERING CO LTD v. L&M FOUNDATION SPECIALIST LTD

CACV 28/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 28 OF 2005

(ON APPEAL FROM HCA NO. 226 OF 2003)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. I agree with the reasons given by Woo VP.

Hon Woo VP:

Introduction

2. On 22 July 2005, after hearing counsel for the defendant, we dismissed the appeal, which was brought by the defendant against the judgment of Sakhrani J given on 9 December 2004, with costs.

3. The plaintiff’s claim against the defendant was for amounts owing by the defendant for work done and materials supplied by the plaintiff under a sub-contract for the construction of receiving shafts for the KCRC West Rail, Nam Cheong Station at Yen Chow Street.  The plaintiff’s works related only to a small portion of the works under the sub-contract that the defendant entered into with the main contractor.

4. The judge found that there was an oral agreement between the plaintiff and the defendant that payment for the plaintiff’s works would be made by the defendant within 15 days of submission of the plaintiff’s bills, and that the defendant was bound to pay the plaintiff for the works done irrespective of whether the defendant received payment from the main contractor.  

5. The judge concluded that the plaintiff was entitled to the following sums:

6. The judge also found that there was a settlement agreement made between the parties on 5 September 2001 that the plaintiff would accept a sum of $179,169.90 in full and final settlement of whatever he claimed against the defendant, with the express condition that payment would be made within ten working days.  The judge concluded, however, that the defendant did not observe the condition of payment within the stipulated time or at all and thus the settlement agreement came to an end and the plaintiff was not bound by it. 

The appeal

7. The appeal brought by the defendant is of very limited scope.  It challenges the judge’s finding that the settlement agreement did not bind the plaintiff. 

8. Counsel raised three grounds of appeal on behalf of the defendant.  

9. The first ground is simply that the judge erred in finding that the settlement agreement was not binding on the plaintiff.  The second ground alleges that there is no evidence that the plaintiff offered to enter into the settlement agreement with the defendant on condition that the defendant made payment of the sum of $179,169.90 within ten working days, or that the payment of the said sum by the defendant to the plaintiff was a condition precedent to the settlement agreement, or that the settlement agreement contained any term or condition that upon failure on the part of the defendant to pay the said sum to the plaintiff within ten working days, the settlement agreement would come to an end and the plaintiff would cease to be bound thereby, or that the plaintiff had accepted the defendant’s repudiation of the settlement agreement, or that the settlement agreement had been terminated for any other reason.  Thus the judge’s conclusion that the settlement agreement was not binding on the plaintiff was not supported by evidence.  The third ground of appeal contends that the judge’s conclusion of the plaintiff not being bound by the settlement agreement is inconsistent with his finding of fact that the plaintiff and the defendant had entered into the settlement agreement on 5 September 2001.

The law

10. Counsel drew our attention to certain passages in Chitty on Contracts, 29^th Edition, Vol 1 on the law of accord and satisfaction, and the authorities of Morris v Baron & Co. [1918] AC 1, at 35 and British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616, at 643-645, 652, 654-655, in support of his contentions.  I consider that the following passages in Chitty correctly summarise the law as borne out by those authorities:

Para 22-012

Definition.  “Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself.  The accord is the agreement by which the obligation is discharged.  The satisfaction is the consideration which makes the agreement operative.”…

Para 22-015

Executory satisfaction.  At one time, a number of cases appeared to establish the rule that satisfaction was of no effect unless it was executed.  While the satisfaction remained executory, that is to say, so long as the agreement to give satisfaction remained unperformed, the original claim was not discharged, nor would any action lie for breach of the accord.  Even a tender of performance of the satisfaction agreed upon was adjudged insufficient.  Only executed satisfaction would suffice.  This rule, however, was never completely accepted and it is now established that satisfaction may be executory.  The question is one of the construction of the accord: whether it was intended that the promise itself or the performance of the promise should discharge the original claim.  “The rational distinction seems to be, that if the promise be received in satisfaction, it is a good satisfaction; but if the performance, not the promise, is intended to operate in satisfaction, there will be no satisfaction without performance.”  In the modern law, therefore, a claimant may still insist upon the performance of some act by the other party in satisfaction of his claim.  In that case, there is no satisfaction until performance, and the other party remains liable on the original claim until the satisfaction is executed.  More often, however, the claimant will agree to accept the other party’s promise of performance in satisfaction of his claim.  The original claim is then discharged from the date of the agreement and cannot be revived.  The claimant’s sole remedy, in the event that the other party fails to perform, is by action for breach of the substituted agreement, and he has no right of resort to the original claim.  If he wishes to preserve his right to proceed with the original claim should the other party fail to perform, an express term should be incorporated in the agreement to that effect.

Para 22-023

Pleading.  Both the accord and the satisfaction should be specifically pleaded. 

The facts as borne out by the defendant’s documents

11. The settlement agreement made on 5 September 2001 was pleaded in the defendant’s Defence, which was denied by the plaintiff in its Reply.  The averment of the defendant was that at a meeting held at the defendant’s office on or about 5 September 2001 attended by Mr Yeo Hui Peng (“Mr Yeo”) of the defendant, Mr Andrew Tin (“Mr Tin”) of the plaintiff and a male staff of the plaintiff (Sam), the plaintiff agreed to accept the sum of $179,169.90 in full and final settlement of the charges for all the plaintiff’s works. 

12. The witness statement of Mr Yeo read:

“	5.	On or about 5 September 2001, an appointment was made to meet with a Mr Andrew Tin (“Mr. Tin”) and a male staff of the Plaintiff called ‘Sam’ at the office of the Defendant in Hong Kong.
	6.	During the meeting, we discussed the amount of the Plaintiff’s entitlement on its Works.  At the conclusion of the meeting, Mr. Tin, Sam and I agreed that the claims between the Plaintiff and the Defendant shall be settled based on the payment received from the Main Contractor less retention and deduction of materials etc.  The balance of which shall be paid to the Plaintiff within 10 working days.
	7.	On or about 11 September 2001, I sent an email to Mr. Tai Hok Hoi [“Mr Tai”], the Manager of the Defendant and informed him the result of the said meeting and the amount payable to the Plaintiff, the breakdown of which are as follows:-

	Amount received from Main Contractor	$366,063.22
	Less:
	Retention 10%	($ 36,606.32)
	Material (sheet pile)	($103,220.00)
	The Defendant’s overhead	($ 47,067.00)
		$179,169.90

I told Mr. Tai in the email that I had agreed to pay the Plaintiff within 10 working days and asked him to arrange payment.
	8.	By a letter dated 5 October 2001, Mr. Tai sought to confirm the agreement reached with Mr. Tin but I understand that the plaintiff did not even reply to the letter.”

13. The email of 11 September 2001 sent by Mr Yeo to Mr Tai stated as follows:

“This is to confirm that on 5^th September 2001, it was agreed between Kin Wah’s Andrew Tin, his partner Sam and me that the following calculation was acceptable by them.  Please arrange payment for Kin Wah. 

[Particulars of the sums and calculations as set out in Mr Yeo’s statement, resulting in the outstanding balance of $179,169.90]

I have agreed with them to pay within ten working days.”

14. The material part of letter dated 5 October 2001 sent by the defendant to the plaintiff reads:

“With reference to the above captioned subcontract, we have pleasure in setting out below the Statement of Final Account for the works executed under the above Subcontract. 

[Particulars of the sums and calculations as set out in Mr Yeo’s statement, resulting in the outstanding balance of $179,169.90]

Acceptance of the amounts indicated in the above statement and receipt of the Outstanding Balance shall represent full and final settlement of all claims due in connection with the subcontract other than the amount of retention specified herein which shall be dealt with unless otherwise agreed in accordance with the conditions of subcontract. 

Kindly confirm acceptance of this amount and the foregoing declaimer by signing this letter and returning the same to this office as soon as possible.  Upon receiving confirmation of your agreement, a final certificate will be issued soonest. …”

15. In his judgment, the judge set out the full content of the email of 11 September 2001, which he described as “contemporaneous documentary evidence confirming that a settlement was arrived at with the plaintiff”.  The judge continued:

“	49.	In my judgment this confirms that there was a settlement agreement with the plaintiff reached on 5 September 2001 with the express condition that payment would be made within ten working days. Instead of making payment within the stipulated time, Tai on behalf of the defendant wrote to the plaintiff by letter dated 5 October 2001 asking for confirmation of the settlement in the said amount.  No payment was tendered or made to the plaintiff within ten working days or at any other time.
	50.	On the issue of fact as to whether there was a settlement agreement, I prefer the evidence of Yeo to that of Tin.  I believe Yeo and disbelieve Tin on this matter.  However, it is clear that the express condition of the agreement that payment would be made within ten working days was not observed by the defendant as it made no payment to the plaintiff within the stipulated time or at all.  In the circumstances, the settlement agreement came to an end and the plaintiff is not bound by the same.  The settlement agreement does not prevent the plaintiff from claiming the amounts that I have found that the plaintiff is entitled to.”

Analysis

16. He who asserts must prove.  It was the defendant who pleaded the settlement agreement in its defence and the onus is squarely on it to prove the existence of the settlement agreement and that it was binding on the plaintiff.  It is to be noted that no satisfaction was pleaded.  This could mean that the defendant intended to plead the accord as the satisfaction, but on the other hand, it could mean that no satisfaction was expressly pleaded or relied upon by the defendant.

17. The judge found that the settlement agreement had been reached on 5 September 2001 between Mr Yeo of the defendant and Mr Tin of the plaintiff.  He also found that there was an express condition of the agreement that payment would be made within ten working days, which had not been performed by the defendant; thus the plaintiff was no longer bound by the agreement.  There is nothing inconsistent between these two findings, as contended by the third ground of appeal. 

18. Whether the settlement agreement was executory in nature or provided for executed performance as satisfaction is entirely a matter of construction.  For a proper construction of the agreement, all the surrounding circumstances, which sometimes are called the matrix of facts, must be considered.

19. Latest by 9 June 2000, the plaintiff had completed the first four items of works set out in paragraph 5 above and submitted two bills to the defendant the later of which was dated 24 May 2000, which made, according to the judge’s finding that the defendant was obliged to pay within 15 days of submission of the bills, 8 June 2000 the deadline for payment.  Those four items of works claimed by the plaintiff totalled $694,428.20, the major parts of which were allowed by the judge, amounting to $625,146.20.  When Mr Yeo met with Mr Tin on 5 September 2001, those sums had been long overdue for 15 months.  If the two other items for idling period and loss of profit for the omission of the jacking shaft were to be taken into account, an additional sum of $201,701 would also have been due.  It is, to say the least, surprising for the plaintiff to have accepted the sum of $179,169.90 in substitution for its just claim as found by the judge of $826,847.20, or at least $625,146.20 if the $201,701 is not taken into account.  Be that as it may, there is no appeal against the judge’s finding that the parties had reached the settlement agreement on 5 September 2001.  The monies at least totalling $625,146.20 commenced to be due and owing on 8 June 2000, but the plaintiff had still not been paid by the defendant as late as 5 September 2001.  

20. According to Mr Yeo’s testimony in cross-examination, he agreed that there was a condition for payment within ten working days.  He explained that payment of the agreed amount of $179,169.90 was to be made within ten working days because the representatives of the plaintiff were saying that they were short of cash.  The irresistible inference to be drawn is that the time of payment was made of essence by the parties and so understood by the parties.  It is also to be noted that in Mr Yeo’s own witness statement, the words “shall be paid to the Plaintiff within 10 working days” were used.  Counsel contended that “shall be paid” is ungrammatical.  However, I consider that those words were used to accentuate the importance of the time of payment. 

21. In the email of 11 September 2001, Mr Yeo asked Mr Tai to arrange payment for the plaintiff, and had specifically informed Mr Tai that he had “agreed with them to pay within 10 working days.”

22. By 5 October 2001, the date of the letter sent by the defendant to the plaintiff, the ten working days time limit for the payment had already expired.  However, the letter still asked the plaintiff to “confirm acceptance of this amount and the foregoing disclaimer by signing this letter”, ignoring the time limit for payment altogether.  Even in this letter, it is stressed that “acceptance of the amounts indicated in the above statement and receipt of the Outstanding Balance shall represent full and final settlement of all claims due”.  The full and final settlement was treated as a “disclaimer”.  Moreover, it could not be over-emphasised that the letter took “receipt of the Outstanding Balance” as representing full and final settlement of all claims due, but did not even intimate that the promise to pay the outstanding balance by itself amounted to a full and final settlement. 

23. It is crystal clear that all the surrounding circumstances material to the construction of the settlement agreement point to the inevitable conclusion that the time limit for the payment was of essence and that the agreement was firmly based on executed performance of payment within the agreed time for it to be binding on the plaintiff.  There was an abundance of evidence supporting the judge’s finding that the settlement agreement was no longer binding on the plaintiff.

24. The grounds of appeal have no substance and were rejected.

Conclusion

25. For the above reasons, the appeal must be dismissed with costs.

Hon Le Pichon JA:

26. I agree.