Manulife (International) Ltd v. Chong Wai Ling also known as Chong Wai Ling Frankie

DCCJ 4042/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4042 OF 2016

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D E C I S I O N

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Background

1.This is a summary judgment application brought by an insurance company (the plaintiff) against its former agent (the defendant) for the sum of HK$975,355.56 being an alleged loan rendered by the plaintiff to the defendant.  It is common ground that this is not an ordinary loan-recovery case.  The alleged loan in fact consists of (1) join‑in incentive bonus or handshake payment (according to the defendant), of an upfront payment of HK$242,000 and (2) monthly allowance of HK$37,000 per month for two years, totalling HK$888,000.   

2.The plaintiff relies on three contractual documents signed by the parties.  The first one is an offer letter dated 17 September 2012 which is a letter informing the defendant that the defendant was offered the position of unit manager as an insurance adviser with the plaintiff subject to certain conditions as stated in the letter and also provides that it would be subject to further documents to be signed, namely, one career agent’s agreement (“CAA”) and producer loan agreement (“PLA”).   

3.The CAA and PLA were signed subsequently on 8 October 2012.  Then the defendant commenced her service for the plaintiff on 25 October 2012. Eventually, she resigned by a letter dated 29 June 2015.  The plaintiff terminated the CAA on 22 July 2015.  In short, the defendant has worked for the plaintiff for less than three years.

4.There is no dispute that the plaintiff did advance the money claimed in the present case to the defendant during the time when the defendant was working for the plaintiff.  The main disputes are whether the money advanced by the plaintiff to the defendant was subject to some conditions of repayment according to the PLA.

5.The plaintiff said that the join-in incentive bonus and the monthly allowance paid to the defendant after she joined the plaintiff were loans advanced and are repayable in the event that the defendant terminated the CAA within the first four years from the effective date pursuant to the PLA.  The plaintiff also relies on the said contractual documents to deduct some commissions payable to the defendant.  Therefore, the plaintiff claims the sum after the set‑off.

6.The defendant filed her defence on 7 November 2016 and raised several defences.  Firstly, the defendant pleaded that she signed the three contractual documents, ie the offer letter, CAA and PLA, in reliance on the representations made by one Ray Fok and Ray did not mention the handshake payment and the monthly allowance were loans and subject to repayment.  Besides, there are several other lines of defences like illegality, restraint of trade, unconscionable contract and non est factum, and also the requirement to make repayment is a penalty clause in essence. 

7.In the defendant’s affirmation, the defendant raised another defence that has not been pleaded, ie there was no common intention to create legal rights and obligations arising out of the three contractual documents.

8.The counsel for the defendant, Mr Leung, confirmed that the defendant is now only relying on two lines of defences: first, the true nature of the agreement reached between the parties with respect to the remuneration package that the defendant would receive from the plaintiff upon joining the plaintiff. Alternatively, the alleged repayment obligation of the join-in incentive bonus and monthly allowance under the contractual documents is unenforceable because such repayment condition is in effect a penalty.   

Any Written Contract

9.Mr Leung for the defendant further clarified that in fact the defendant only relied on the oral agreement made between Ray for the plaintiff and the defendant herself during the second meeting on or about 17 September 2012 when Ray came to tell the defendant the terms to be offered by the plaintiff if she joined the plaintiff, and the other contractual documents are unenforceable because the parties had no intention to enter into binding written contracts, and the reason for the plaintiff to sign those documents is only for administrative purpose as requested by Ray.

10.The problem of this line of defence is firstly the oral agreement as suggested by the defendant could hardly cover all necessary details of the three documents.  Leaving aside the PLA, starting from the offer letter, the first and most important information provided by the offer letter is to confirm that the plaintiff being offered a position to the defendant as a unit manager.  According to the defendant’s affirmation, there is no mention of Ray telling the defendant what position she would be offered when she joined the plaintiff.

11.The CAA is a document defining the detailed rights and obligations of the insurance company and the agent respectively.  Also, there is no mention of such discussion between Ray and the defendant at that meeting. 

12.The main dispute as to the conditions of repayment and the entitlement of such payment also have not been mentioned by Ray, but the defendant did acknowledge that she would need to achieve certain business volume in order to earn the monthly allowance.  However, in her affirmation, she did not mention that Ray had expressly told her the exact figures or the exact target business volume to be met.

13.Then the defendant deposed in paragraph 42 of her affirmation that she “consistently met and exceeded the requisite business volume for the Monthly Allowance”. According to the evidence before the court, the target of earning the monthly allowance could only be found in the offer letter and the PLA.

14.Counsel for the defendant invited me to draw an inference that Ray must have discussed with the defendant as to the exact business volume to be achieved in order to meet the target during that meeting.  But reading along the lines in the defendant’s affirmation, paragraph 24(2):

“I would also be entitled to the monthly allowance so long as I maintained a certain business volume which he assured me that I would easily accomplish based on my track record that he was aware of.”

the defendant seems to suggest that because of the assurance given by Ray, she did not make further enquiry as to what exactly was the business volume to be achieved in order to earn the monthly allowance.  I do not see any basis to draw the inference that Ray did tell the defendant the exact figures to be achieved.  Therefore, by acknowledging that the defendant has achieved the target and even exceeded the target, the defendant is regarded as acknowledging the PLA.  

15.Further, the plaintiff being a multinational insurance company, it is plainly unbelievable that it would adopt a policy to recruit agents by oral agreement only and the signing of documents which define the detailed rights and obligations between the parties as administrative procedures only.  

16.As Mr Leung for the defendant has confirmed that the defendant is now only relying on the oral agreement and it is not a partly-oral-and-partly-written-contract situation and no longer relying on the representation made by Ray as pleaded and there is no dispute as to the legal principles of entire contract clause, there is no need for the court to consider the argument of the entire contract clause in the PLA.  

17.So it is either the court accepts that the contract between the plaintiff and the defendant rests only on an oral agreement reached by Ray on behalf of the plaintiff and the defendant at their second meeting and all the documents are of no legal effect, or only the three contractual documents are deemed entire contract between the parties.

18.For the above reasons, I find that the first line of defence raised by the defendant is incredible.

Penalty Clause

19.The defendant raises the second line of defence of penalty clause, arguing as an alternative.  It is submitted that if the court finds the three contractual documents binding, the repayment obligation under clause 5.2 of PLA is in effect a penalty clause for the breach of clause 17.1 of the CAA.  Thus, it is unenforceable.   

20.Clause 17.1 of the CAA provides that:

“The Company or the Agent may terminate this Agreement at any time and without explanation by giving the following notice in writing:

(a) Fifteen (15) days notice if the Agent has less than ten (10) years of service with the company; and

(b) Thirty (30) days notice if the Agent has more than ten (10) years of service with the company.

Notwithstanding the foregoing, the Agent shall not be able to exercise the right of termination under this clause if there is any debt, obligation or liability due or owing or likely to become due or owing by the Agent to the company.”

21.Clause 5.2 of the PLA provides that:

“Notwithstanding anything to the contrary contained in this agreement, the agent shall repay 100% of the Loans immediately if the Agent’s Career Agent’s agreement is terminated for whatever reason within the first 4 years from its effective date.”

22.Mr Leung argued that since the join-in incentive bonus and the monthly allowance were regarded as loan to the defendant, therefore the defendant was all along indebted to the plaintiff.  According to the proviso in clause 17.1, since the defendant was indebted, she could not exercise her right of termination according to 17.1.  When she did so and tendered her resignation, she was in effect in breach of 17.1, and the combining effect of clauses 5.2 and 17.1 being that the defendant was punished for breaching 17.1 to pay 100% of the loans.

23.Mr Ma for the plaintiff drew my attention to clause 2.2 of the PLA regarding the repayment as stated in subparagraphs 2.2.1 to 2.2.4.  The time for repayment of the loan being at the end of 36^th contract month or 60^th contract month accordingly.

24.There is no dispute that when the defendant tendered her resignation, it was less than three years from her joining of the plaintiff.  Therefore, the defendant was not indebted to the plaintiff at that time, and the termination of her contract with the plaintiff is not wrongful.  There is no suggestion of breach of clause 17.1 on the part of the plaintiff.  Parties agree that in the absence of any breach, the payment could not be regarded as penalty.

25.Mr Ma also submitted that the penalty clause only applies to sums payable followed from a breach of contract but not on primary obligations.  The clause 5.2 was only invoked after the termination as the defendant was obliged to repay the loan after the termination.   

26.I agree with Mr Ma that such contractual obligation for repayment is not a penalty payment.  Therefore, I find that the second line of defence raised by the defendant is not a triable issue.

Conclusion & Order

27.As the burden is on the defendant to show a triable issue and her defence is credible, and I have found that the first line of argument is not credible and there is no triable issue in respect of the second line of argument, the defendant therefore has failed to show any triable issue at all.

28.I order that judgment be entered for the plaintiff against the defendant for the sum as claimed, ie HK$975,355.56, with interest at judgment rate from the date of writ until full payment.  I also order the defendant to pay the plaintiff costs of the action.

(Discussion re costs)

29.Upon reading the plaintiff’s statement of costs for summary assessment and upon hearing parties’ submissions on costs, I summarily assess the plaintiff’s costs of the action at HK$167,086.

Mr Johnny Ma, instructed by Foo & Li, for the plaintiff

Mr Kaiser Leung, instructed by Tai, Tang & Chong, for the defendant