HAPPY DYNASTY LTD v. WAI KEE (ZENS) CONSTRUCTION & TRANSPORTATION CO LTD AND OTHERS

1995, No.CON 41

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT IN RESPECT OF THE THIRD PARTY
ACTION BETWEEN THE PLAINTIFF
(DEFENDANT IN THE COUNTERCLAIM)
AND THE THIRD PARTY

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1. The background to this Third Party Action is already stated in the Main Judgment delivered on 22 January 1998 and I shall not repeat them here. Suffice to say that the 1st and 3rd Defendants in the Main Action counterclaimed against the Plaintiff, Happy Dynasty, for about $1.8 million in respect of certain drilling and blasting works in March 1993 ("the 1st Counterclaim").

2. Happy Dynasty denied their liability for the same. They third-partied the Third Party herein ("Dyno") for an indemnity or contribution in respect of the 1st Counterclaim in the event that Happy Dynasty was found to be liable to the two Defendants on the ground of breach of contract and/or contractual duty of care in respect of explosives used between January and March 1993 at the Tai Ho Section of the Lantau Expressway leading to the new airport ("the first five emulsion blasts").

3. Dyno, in their Third Party Defence contended that there was a full and final settlement of Happy Dynasty's claims against Dyno arising out of the first five emulsion blasts.

4. Happy Dynasty in their reply on the Settlement Agreement contended that the same was not a binding compromise and it was only intended to compensate them for additional costs of Pourvex explosives and delivery charges as a result of the five emulsion blasts.

5. Dyno applied under O.33, r.3 and O.3, r.5 for the determination of the Court at the beginning of the trial as a preliminary issue as to whether the Settlement Agreement was a binding full and final settlement.

6. On 4 September 1997, after hearing submissions from Counsel for Happy Dynasty and Dyno, I have decided that the Settlement Agreement was a full and final settlement and the Third Party Action by Happy Dynasty against Dyno was dismissed. It was also stated that my written reasons therefor would be given after I have passed judgment on the Main Action which I shall set out herein below.

7. The Settlement Agreement relied on by Dyno could be found in two letters exchanged between the two parties and I shall set them out herein below in full.

8. By a letter dated 13 May 1993, Dyno wrote to Happy Dynasty for the attention of Mr Randolph Law as follows :

"Dear Randolph,

This is to confirm what was agreed in today's meeting, that DHE [i.e. Dyno] will reimburse Happy Dynasty for HK$65,000 without prejudice, and offer you a discount of HK$1.00/kg on our emulsion product delivered to Tai Ho starting from 17th of May, 1993 for an amount of up to 80 tons [i.e. 80,000 kg for $80,000] of emulsion only.

Please issue a letter to DHE as discussed.

Your accounts with DHE shows a total amount of HK$1,015,542.58, of which HK$499,943.31 is due for payment tomorrow, 14th May 1993. Please see enclosed summary and copies of invoices due for payment. The HK$65,000 will be deducted from the HK$499,943.31 as agreed, leaving HK$434,943.31 to be paid by Happy Dynasty tomorrow.

We thank you for your prompt attention to this matter, and we will arrange for the cheque to be collected tomorrow.

Finally, Randolph, I am happy that all outstanding issues have been resolved, and we look forward to continuing our good relations with you at Tai Ho and in general.

Best regards,

Sd (Roy Tveiten)"

9. In reply, Dyno wrote back on 19 May 1993 in the following words :-

"Attn : Mr Rov Tveiton

Dear Sirs,

We refer to your letter of May 13, 1993, Ref DHHO/221/931305/v.t.

We confirm we agree to accept the arrangement stated in your above letter as the final settlement to the Tai Ho dispute on the first five emulsion blasts. We would also confirm there will not be anymore claim against DHE on this specific event.

Yours faithfully,
Happy Dynasty Ltd.

Sd.(Randolph Law)
Director"

Thereafter, the aforesaid $65,000 was deducted from Happy Dynasty's account and the $1/kg. discount up to 80 tons of emulsions as stated in paragraph 1 of the letter dated 13 May 1993 was given to Happy Dynasty as appeared in the invoices and credit notes issued to Happy Dynasty.

10. It is trite law to say that the law will not permit either party to an accord in respect of a claim for which one party has been given and the other has accepted satisfaction to avoid the compromise on the ground either that the claim was invalid or that there was no defence to it. It is therefore a good defence to an action for breach of contract to show that the cause of action has been validly compromised. (See Chitty on Contracts (27th Ed.) Vol.1, 22-011, 012, pp.1076-7.)

11. The elements to be proved are that there has been a complete agreement certain in its terms and that consideration has been given (or compromised) in return for the forbearance to pursue the claim. (Again see Chitty 20-012, p.1077.)

12. Each of the above elements is a question of fact on the evidence, (Chitty 20-019, 020, p.1079).

13. The Court will construe the letters objectively identifying a definite offer by one party and a definite acceptance by the other as in the case of Gibson v. Manchester City Council [1979]1 WLR 294. In Gibson, no oral evidence was led and it was a matter of construction of the documents before the Court. In the case before me, both parties put in witnesses statements and dispute as to the circumstances as to why the two letters were written and the agreement entered into.

14. I accept Counsel for the Third Party, Mr Kat's submission that the parole evidence is inadmissible in the case before me. It has been said that once the transactions has been reduced to or recorded in writing by agreement of the parties, extrinsic evidence is inadmissible to contradict, vary, add to or subtract from the terms of the documents (Chitty 12-080; Phipson on Evidence para.37-11, 13, pp.1019, 1020).

15. The only exceptions are where there is a dispute as to the subject-matter, the parties or the true nature of the transaction, where the words used are unclear or ambiguous, the completeness of terms, due execution, collateral agreements and warranties, statutory exceptions or where the contract is invalid or conditional. (See Chitty 12-103, 104 at pp.610-611; Phipson para.37-19 to 41, pp.1023-1045.)

16. It has been decided in Prenn v. Simmonds [1971]1 WLR 1381 that the Court would receive extrinsic evidence only as to the genesis and aim of the transaction where it is necessary to put the transaction in its context. Happy Dynasty pleaded in their reply an intent directly contrary to or less than the full and final expressed terms of the Agreement. This, I agree with Counsel for the Third Party, is inadmissible.

17. They further disputed the effect of the Agreement between the parties. This is a question of construction of the two letters.

18. Upon reading the two letters, it is, to my mind, clear that in May 1993, Dyno offered and Happy Dynasty accepted $65,000 in cash and $80,000 discount on product purchased to settle Happy Dynasty's claims in respect of the first five emulsion blasts between 27 February and 10 March 1993.

19. Mr Graham, Counsel for Happy Dynasty, submitted that the actual or potential dispute between the parties cannot be discerned from the two letters. He agreed that parties may seek to compromise "potential" issues which have not become the subject of an actual dispute. But the intention of wording of that kind must be plain and clear that there should be a final compromise of all claims, not merely those that had been advanced, but those which might subsequently be advanced in connection with the incident that brought the parties into dispute. He therefore submitted that the parties had not clearly identified the subject-matter of the dispute between them.

20. However, the letter of Happy Dynasty themselves had already stated clearly that their acceptance was a final settlement in respect of "the Tai Ho dispute on the first five emulsion blasts". This is sufficient identification of the dispute between the parties and this is the very subject-matter of the Third Party Action. Happy Dynasty went on to say that they confirm there would not be any more claim against Dyno on this specific event. The specific event could only refer to the dispute on the first five emulsion blasts used at the Tai Ho section. Accordingly, it is clear that the subject-matter of the dispute has been sufficiently identified.

21. Consequently, Happy Dynasty could not be heard to say that the Claim or the Counterclaim of Wai Kee (Zens) against Happy Dynasty in respect of delays or other loss or damage caused by the first five emulsion blasts was not anticipated by any party until it first appeared in the Defence and Counterclaim filed in November 1995. Whether Happy Dynasty did or did not anticipate such a counterclaim is only commercial wisdom and decision for them. When they settled their own claim against Dyno in respect of the first five emulsion blasts, they should have taken that into account. Thus when they said there would not be any more claim against Dyno on this specific event, they have once and for all settled the dispute between the two parties albeit they eventually faced an enormous claim from Wai Kee. (Such a counterclaim was dismissed in the Main Action.)

22. In the end, I find that Happy Dynasty now cannot avoid their own compromise either at law or in equity when they failed to collect payment from Wai Kee for their drilling and blasting work and in November 1995 found themselves facing Wai Kee's counterclaim. Accordingly, the Third Party Action was dismissed with costs to the Third Party.