Ftlife Insurance Company Ltd (Formerly Known As “Ageas Insurance Co (Asia) Ltd”) v. Ho Suk Yue
Read the full judgment text of DCCJ 6452/2019 on BabelCite. This District Court judgment was delivered on 31 March 2023.
1. This action concerns with a contractual dispute: the plaintiff, an insurance company, terminated the contract of the defendant, one of its insurance agents, by giving one month’s notice. The plaintiff is seeking a clawback of various performance bonuses advanced to the defendant. The defendant disputes her liability to repay.
Cited by 3 cases · Cites 8 cases
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DCCJ 6452/2019 [2023] HKDC 363 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 6452 OF 2019 ------------------------------------ BETWEEN
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----------------------- JUDGMENT ----------------------- 1.This action concerns with a contractual dispute: the plaintiff, an insurance company, terminated the contract of the defendant, one of its insurance agents, by giving one month’s notice. The plaintiff is seeking a clawback of various performance bonuses advanced to the defendant. The defendant disputes her liability to repay. Background 2.It is not in dispute that the plaintiff is authorised in the business of providing and selling life insurance policies in Hong Kong. On 13 July 2012, the plaintiff and the defendant signed two contracts: an Agent’s Contract for Selling Long Term Insurance Business (“the Agent’s Contract”) and a Side Agreement (“the Side Agreement”) (collectively “the Agreements”). 3.The Side Agreement, in essence, provides for various yearly bonus to be paid by the plaintiff to the defendant for the first 3 years of contract if certain performance targets were met (“the Performance Bonus”). It also provides for conditions and situations when the defendant would need to repay the plaintiff a certain percentage of such bonuses. 4.The defendant has reached and/or exceed the respective performance targets for the first 3 years so she has received the full sums of the yearly Performance Bonus. 5.By a letter dated 13 April 2016, the plaintiff gave notice to terminate the defendant’s appointment with effect from 13 May 2016 (“the Termination”). 6.The plaintiff claims recovery of the various Performance Bonus advanced to the defendant upon the Termination pursuant to the expressed terms of the Agent’s Contract and the Side Agreement. The defendant disputes her liability to repay by way of an alleged breach of implied terms by the plaintiff (paragraphs 3(d) and 4 of the Re-re-amended Defence, Trial Bundle p 59-60) and further, by way of estoppel because of her reliance on alleged representations and/or promises made by various persons on two occasions (paragraphs 5-9 of the Re-re-amended Defence, Trial Bundle p 60-67) The relevant terms in the Agent’s Contract 7.Clause 10.1 provides for the right to termination for either party without reason: -
8.Clause 6.7 provides for the obligation to repay, inter alia, bonuses to which an agent is not entitled: -
9.Clause 10.7 provides: -
10.Clause 10.8 provides: -
The relevant terms in the Side Agreement 11.The Side Agreement “is attached to and is intended to form part of the Agent’s Contract…” (see preamble of the Side Agreement, Trial Bundle p 368). 12.Clause 1 of Section I provides the following definition: -
13.Clause 2 of Section I specifies that: -
14.Clause 3 of Section II provides, inter alia: -
15.Clause 4 of Section II provides for interest to be charged in the event of failure of repayment by the agent: -
The plaintiff’s case 16.The plaintiff’s case is that the Termination was made pursuant to Clause 10.1 of the Agent’s Contract, that is, a 30 days’ notice in writing served to the defendant without the need to give any reason. Nevertheless, the plaintiff’s decision to terminate the defendant was because the defendant had persistently failed to meet the performance target required by the plaintiff as set out in an annual memo for 2015 (“the 2015 Memo”) (amongst other company documents) despite a warning letter issued to the defendant on 2 November 2015 (the “Warning Letter”, Trial Bundle p 385). 17.The Termination became effective on 13 May 2016, that is, between the 37th and 48th month from the commencing date of the Agreements (in other words, the event in bold and underlined in the table in paragraph 14 above). According to Clause 3(b)(B) of Section II of the Side Agreement, the defendant has to pay the following (paragraphs 10-14 of the Amended Statement of Claim, Trial Bundle p 8-9): -
The defendant’s case 18.The defendant basically raises two defence: -
19.The defendant also disputes contractual interest as being unenforceable penalty clause, and alternatively, the plaintiff is not entitled to claim such interest because the defendant alleged that she did not have notice of the plaintiff’s demand for repayment dated 3 May 2016 because she had moved to another place of residence in about February or March 2016 (paragraph 20B of the Re-re-amended Defence, Trial Bundle p 72-74) Implied terms 20.There is no dispute between the parties of the well-established legal principles regarding implied terms: any term to be implied must comply with the following conditions: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract (Kensland Realty Ltd v Whale View Investment Ltd [2001] 4 HKCFAR 381, Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742) 21.Mr Lee, counsel for the plaintiff, referred the court to the case of Shek Kin Pong & Ors v FTLife Insurance Co Ltd [2019] HKCFI 1781 (“the FTLife case”), which concerned a dispute in an agency agreement with provisions for termination identical to Clause 10.1 and 10.8 of the current case (see paragraphs 5 and 7 on p 4 and 5 of that judgment). 22.The plaintiffs in the FTLife case also raised a similar argument that Clause 10.1 should be subject to an implied term that, inter alia, the defendant should not “terminate the contract…unconscionably and without reasonable cause” and/or “…to seek repayment of the allowance and bonuses earned and received by each plaintiff…” (see paragraph 18 on p 8 of that judgment) 23.However, Mimmie Chan J firmly rejected this argument: -
24.Similarly, the defendant here is arguing that there ought to be an implied term in the Agreements not only that: -
25.It is obvious that this argument is directly contradictory to the express provisions of Clauses 10.1 and 10.8 of the Agent’s Contract and Clause 3 of Section II of the Side Agreement which provided for “termination without reason”, let alone the requirement for termination with a “bona fides” reason. Clause 3 of Section II in particular specified that there was an obligation for repayment by the agent “notwithstanding anything…implied to the contrary”. 26.On the other hand, Mr. Koo, counsel for the defendant, referred the court to the case of Tadjudin Sunny v Bank of America, National Association CACV 12/2015 (“the Tadjudin case”) and argued that, in some specific circumstances, for instance where a party to a contract is given an unequal contractual power or discretion, and there is a significant imbalance of power between the parties, the unqualified contractual power or discretion should generally be construed as being subject to some implied restrictions regarding the exercise of that power or discretion. Thus, the Court of Appeal in that case applied a legal principle that a “contractual discretion” must only be exercise in good faith, rationally and for a proper purpose. 27.However, the circumstances of the Tadjudin case were very different from the current case. 28.In the Tadjudin case, there was a provision in the contract that the employee was eligible to be considered for a bonus under the bank’s performance incentive program. The performance incentive program was for the purpose for competing for business and talent, and for the highest performers to receive the greatest rewards. Whilst the eligibility to be considered under the program was contractual, the bonus to be paid under the program was not (see paragraphs 7-11 of the judgment of that case). As such, the Court of Appeal upheld that there is an implied term that the bank “shall not exercise its right to terminate by giving one month’s notice … in order to avoid her being eligible for the performance incentive program”. 29.In other words, the implied term was to prevent the bank from evading an existing obligation to properly exercise a discretion to award bonus. It is against this narrow set of circumstances particular to that case that the judgment has to be understood. 30.As observed by Au-Yeung J in Cheung Li On v Sun Life Hong Kong Limited [2021] HKCFI 3784, under paragraph 119: -
31.Mr Koo, in his Closing Submission, urges the court not to adopt a mechanical process in considering the “5 conditions” (as stated in Kensland case etc.) but to construe the contract as a whole, to find what the contract actually means in the proper context of the background etc. 32.In conducting this exercise, I find that in the Tadjudin case, in summary, there is a contractual obligation that the employee be eligible for the performance incentive program, but her employment was terminated in order to prevent her from being eligible for such. 33.However, in the current case, the purpose of the Performance Bonus in the Agreements was to provide incentives to attract agents to work for the plaintiff. On the other hand, the purpose of the “repayment” or “claw back” provision was to encourage the agents to attain the specified performance not only in the first 3 years, but to maintain the performance after the first 3 years until the end of the contract period. 34.Indeed, there was no dispute that this Performance Bonus offered by the plaintiff was “particularly higher” than all other insurance companies at the time. The defendant admitted that the high bonus and the relatively easier-to-achieve validation target was the reason why she was attracted to join the plaintiff (paragraphs 9 and 11 of the defendant’s witness statement, Trial Bundle p 294 and 295) 35.This is entirely consistent with the evidence from Mr. Chau Kam Tim (“Chau”), the plaintiff’s witness, that the plaintiff was investing money into the agents and wanted them to work for the plaintiff for a longer duration. Indeed, Chau’s unchallenged evidence was that the benefit to the plaintiff in having an agent who could attain the specified performance in bringing in business throughout the contractual period was greater than early termination and for the plaintiff to “clawback” some of the Performance Bonus. 36.This is the important distinction between this and the Tadjudin case: in that case, it was, of course, for the greater benefit of the bank to terminate the employee in order to prevent her from being eligible for the performance incentive program, a contractual discretion for bonus. 37.Construing the contract as a whole, in the current case, the Agreements were such that the plaintiff would pay generous bonuses “upfront” in the first 3 years as an investment for its agents. This would make no commercial sense without the “clawback” provisions because the agents would otherwise be tempted just to achieve the target performance in the first 3 years, and, having pocketed the Performance Bonus, immediately exercise the termination-without-reason under Clause 10.1, thus taking advantage of the generous “investments” of the plaintiff. 38.Further, even if one needs to consider whether there was “imbalance of power between the parties” in the context of the Agreements, I find that there was none: the plaintiff was clearly at a disadvantage in making a generous investment “upfront” on the agents and therefore sought protection in the “clawback” provisions. 39.As such, any suggestion of an implied term that might “interfere” with this protection of the plaintiff’s side of the bargain could not have been the reasonable expectations of the parties or how a reasonable person would understand the contract to mean. 40.Given the above considerations, the decision of Mimmie Chan J in the FTLife case should be followed by this court. Estoppel by Representation 41.The defendant raises two defences regarding estoppel: -
42.The plaintiff disputes that no such representations were made by Tam or Young and further that, if any such representations were made, they were made without authorisation by the plaintiff. In any event, the Agreements contained “entire agreement clauses” which supersede any alleged representations or promises. First Defence of Estoppel 43.The defendant alleges that she entered into the Agreements on reliance on the representations or promises made by Tam and Young as follows: -
44.In her witness statement, the defendant provided more information regarding the situation on 13 July 2012 during the contract signing meeting: -
45.Even before one considers the laws of estoppel and authority, the obvious problem with defendant’s case is that all these alleged representations were mere bare assertions. 46.Indeed, as DHCJ Jin Pao SC observed in Leung Chin Sing, Rabo v Ko Chun Hay, Kelvin [2021] HKCFI 2242: -
47.In this case, according to the defendant, Tam had twice made a similar oral representation to her, the second time before the defendant as well as other insurance agents in a contract signing meeting. Yet the defendant has produced no email, text message and any other form of electronic communication between the defendant and Tam (or others) that even mention such oral representations either before or after the signing of the Agreements. 48.Further, these oral representations were clearly contrary to the content of the Agreements, and yet no one in the meeting on 13 July 2012 (including the defendant) apparently raised any queries, seek amendments of the Agreements or confirmation in writing with Tam, Young or anyone from the plaintiff at the meeting. 49.The defendant had been in the insurance business for more than 10 years and admitted, under cross-examination, that she was aware of the code of conduct of an insurance agent, including the importance of the need for good faith and proper explanation of the policy to the clients. 50.Thus, it is clear that the defendant must understand the importance in making sure that one must understand all the terms in a contract before signing it and the legal consequence otherwise: she must have been dealing with explaining legal insurance contracts to clients as part of her daily work. Indeed, the defendant admitted that she understood that once signed, the client has to abide by the terms of the contract and that if the client said that the contractual terms was not entirely clear to him/her after the defendant’s explanations, she would ask the client not to sign the contract. 51.Yet, her defence, in short, claims that the Agreements are in English but she is not good in English, and despite not understanding the terms well, she has signed them anyway because she trusted Tam etc. 52.This meant that, for all those more than 10 years of being an insurance agent and being aware of the importance of fully understanding the terms of a contract before signing it, when it came to signing her own contracts (which also contained the wordings: “… confirms that [she] has fully read, understood and agreed to the terms … and has been advised and given sufficient time to seek independent legal advice … before signing …”), the defendant suddenly turned into that naïve, simple-minded and trusting novice, easily pressurised into signing contracts she did not really understand. This simply flies in the face of common sense. 53.Even more baffling is: not only that the defendant has suddenly transformed into this “naïve novice” at the contract signing meeting, her fellow insurance agents (who signed similar contracts in the same meeting) must have all underwent such remarkable transformations, because they would have heard the same representations from Tam and yet, as the defendant claimed, signed their contracts immediately “without raising any questions”. 54.Further, if the defendant has placed such amount of trust and reliance on Tam (and Young) on signing the Agreements, one would reasonably expect that, when it became known to her that those representations were wrong (eg when she was terminated by the plaintiff and repayment sought etc), she must have been extremely upset at such a “betrayal of trust”. It would be almost unimaginable that she would not raise any complaints to Tam (and Young), questioning why they represented and promised her as such. 55.The defendant provides no evidence that she has ever raised such complaints and has produced no such evidence, not even one angry WhatsApp message to Tam or Young. So one must question why the defendant, having been so wronged by Tam and Young, prefers, as it seems, to suffer in silence. 56.More importantly, if Tam and Young have truly made such representations to the defendant, one would also think that a reasonable person would at least contact them to investigate the matter further: eg who in the plaintiff (if any) have Tam and Young talked to regarding these alleged positions of the plaintiff on the Agreements? Are there any documentations, email, WhatsApp or records of any communication with this person? What is the name and position of this person in the plaintiff company? When and where did this person inform Tam and Young of such a position…etc. This would have been the first (and most obvious) line of investigation that any reasonable person would think of for a possible defence. 57.Yet, when asked whether the defendant has ever contacted Tam or Young to investigate such matters, the defendant admitted that she had never done so. The defendant claimed that she did not know that she could call witnesses or produce evidence because she did not know legal procedures. 58.This again flies in the face of logic and common sense: the defendant has legal representation all along and even if she has none, such line of investigation would have been obvious even to a layperson. 59.There are more problems with the defendant’s case: the plaintiff has disclosed a “conditional offer” letter to the defendant in a letter dated 12 April 2012 (Trial Bundle p 146-148) and under Clause (f) of this letter, it was stated: -
60.The defendant’s evidence makes no mention of this letter, and of course, it would be rather strange that, as she originally alleged in the pleadings and witness statement, she was first approached by Tam in June 2012 inviting her to join the plaintiff when she had already received this “conditional offer” letter from the plaintiff two months before in April. 61.The actual date is not important: the court would give the benefit of doubt to the defendant that she might have simply remembered the date wrong. 62.The more important implication is that, by receiving this letter, the defendant must be aware of the “repayment of Performance Bonus on termination without reason” provision as early as April 2012, and if Tam and Young have actually given any representations to the contrary in April, June or any time before the signing of the Agreements, one would expect that the defendant would have questioned them. 63.Indeed, the defendant could not use the “naïve novice under pressure” defence here: she did not sign the Agreements until 3 months later in July 2012, so there should be more than reasonable time for she to comprehend the terms in this letter even if she claims that her English is not good. 64.When questioned, the defendant then raised a new factual account: she now claimed that she was aware of this provision and further, she did query Tam about it, but Tam had reassured her: -
65.If this was true, it would have clearly supported the defendant’s case of misrepresentation by Tam, and this important piece of fact would not likely be left out in any pleadings and witness statement, only be told first time in court under cross-examination. 66.Further, this scenario, if true, would have completely changed the defendant’s case. 67.The defendant’s case, as pleaded, was that she did not understand the content of the Agreements and was the “naïve trusting novice under pressure” when signing the Agreements on 13 July 2012. So, in a nutshell, she was claiming that she was all along not aware of the “repayment of Performance Bonus on termination without reason” provision and she signed in the Agreements in total ignorance of such. 68.However, the defendant now admitted that she was actually aware of this provision as early as April 2012. As such, the defendant has now deviated from her pleaded case. 69.Furthermore, she now also claimed that she had queried Tam who told her that the provisions were there because the letter was a “pro-forma” and “must be written this way”. 70.If so, when it came to the signing of the Agreements, one would expect a reasonable person to be alerted to raise query and seek confirmation with Tam: “You told me that those provisions were only in the pro-forma letter, so I take it that they are not in the Agreements?”; and would not have signed the Agreements without making sure under the circumstances. As stated before, it would be even more unlikely that the defendant, being an experienced insurance agent, would have failed to ask and simply signed the Agreements. 71.Of course, the defendant never gave evidence that she had raised any such queries to seek confirmation from Tam. 72.Clearly, the defendant’s new evidence attempts to advance an even more extreme case of the “naïve novice” defence and it is even more unbelievable. 73.It also goes without saying that this would have been an even more serious case of “betrayal of trust” under the circumstances, and it would be even more mystifying that there was a total absence of any evidence of any complaint raised by the defendant against Tam. 74.As such, I find the defendant not a credible witness at all. On balance of probability, there is no convincing evidence to support that there were such alleged representations and promises made by Tam (and alleged failure to explain by Young etc.) at all. 75.With this factual finding, I need not proceed further. However, for the sake of completeness, I will proceed to consider whether Tam or Young had actual or apparent authority to make any alleged representations on behalf of the plaintiff, and as such, whether a defence of estoppel by representation could be raised. 76.The undisputed background was that Tam was a Senior Agency Manager of the plaintiff and the defendant’s direct supervisor, or an “up-line” as known in the industry. The defendant told the court that she and Tam had a long-term working relationship in that Tam had been a direct supervisor of the defendant for over 14 years in the insurance industry, and Tam would bring the defendant along as her “down-line” as she switched insurance companies. At all material times, Young was the regional director of the plaintiff and the supervisor of Tam. Young did not have an “up-line” and would report to the Agency Development Department of the plaintiff. 77.Importantly, it is not disputed that those working in the Agency Development Department of the plaintiff were the staff/employees of the plaintiff, but neither the defendant, Tam nor Young were staff/employees of the plaintiff: they work as a team of agents for the plaintiff. 78.With regard to the legal principle in the issue of authority, In Re Wong Lo Fung (HCB 1864/2013, 29 August 2014). Ng J stated: -
79.There was clearly no actual authority from the plaintiff for Tam or Young to make such representations on behalf of the plaintiff. This was supported by the evidence from Chau (paragraph 25-28 of the witness statement of Chau, Trial Bundle p 135-136) and the plaintiff’s internal document titled “Authorisation Limits for Distribution Services and Support” (showing that neither Tam nor Young would have been designated authorised signatory of contract) (Trial bundle p 496-497). 80.As for apparent authority, the law is well settled that it is “a legal relationship between the principle and the contractor created by a representation, made by the principle to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the apparent authority, so as to render the principal liable” (Thanakharn Kasikorn Thai Chamkat v Akai Holdings Ltd (2010) 13 HKCFAR 479). 81.In this case, there is no evidence, and it is not pleaded by the defendant, that the plaintiff has ever made any expressed representation to the defendant that Tam and/or Young has such authority. Further, none of the contracts ever signed by Tam or Young were “for and on behalf of” the plaintiff. It is also clear that neither Tam or Young recruited the defendant for the plaintiff: the Application for Agent’s Contract of the defendant clearly stated that Tam only “recommend the Company to enter into agent’s contract with this applicant” (Trial Bundle p 152). 82.Under cross-examination, the defendant maintained that she believed that Tam was not merely an insurance agent but became part of the management of that insurance company whenever she switched insurance company. This is clearly absurd. 83.The defendant also claimed that Tam was part of the management of the plaintiff because her title contained the word “manager”. As such, it was asked that, since the defendant own title also contained the word “manager” (her title was “Unit Manager”), whether she would consider herself part of the management of the plaintiff and have the authority to recruit “down-line” agents for the plaintiff? This proposition was clearly absurd and the defendant finally admitted that the insurance agent could only recommend but not recruit other agents for the plaintiff. 84.Therefore, even if Tam and Young have made the representations to the defendant as alleged, I find no evidence to support that they had any authority, expressed or apparent, to bind the plaintiff. 85.In addition, Clause 14.3 of the Agent’s Contract and Clause 8 of the Section II of the Side Agreement were “entire agreement clauses” stating to the effect that the agreement constitutes “the entire agreement between the parties” and “supersedes all previous communications, agreements and understandings made by the parties in respect of the subject matter” etc. Both contracts in the Agreements also contain wordings confirming that the person signing has “fully read, understood and agreed to the terms … and given sufficient time to seek independent legal advice before signing” etc. 86.As such, even if such alleged representations were made, it could not be said that the defendant could reasonably relied upon such alleged representations or promises by Tam and Young in signing the Agreements to her detriment. The classic requirement to establish estoppel by representation or promissory estoppel (as stated in Steria Ltd v Hutchinson [2007] ICR 445) cannot be established. The Second Defence of Estoppel 87.First of all, and most importantly, this defence of estoppel only applies if the defendant was terminated under Clause 10.2(h) of the Agent’s Contract, ie that the defendant was terminated because “the Agent does not meet the … persistency … in respect of the Agent’s operation which may be set by the Company from time to time.” 88.However, all along, it was clear that the defendant was terminated under 10.1 (ie termination “without giving any reason for doing so”) so this defence was entirely irrelevant and not applicable. 89.Nevertheless, for the sake of completeness, I will discuss this defence further. 90.Clause 6.1(a)(i) and (ii) of the Agent’s Contract (Trial Bundle p 361) provides that “… the Agent shall be entitled to remuneration calculated in accordance with the agency manual applicable to the Agent from time to time … as amended from time to time …” and that “the Company reserves the right at any time to revoke, alter, add, amend or modify in its sole and absolute discretion the Agency Manual by notice in writing to the Agent …” There is also a similar term under Clause 3 of Section II of the Side Agreement (Trial Bundle p 370-371). 91.As such, I found nothing improper when the plaintiff issued a memo on 23 December 2014 in respect of the change in the applicable metric for AFYC persistency of its agents (Trial Bundle p 495). This memo was issued by the plaintiff to all regional directors and managers (eg Young) by email and intended for the regional managers etc. to notify their “down-line” agents (“2014 Memo to Managers”). 92.Further, I accept the evidence from Chau that there are memos issued each year (including the 2015 Memo) by the plaintiff concerning target performance for promotion, demotion and termination (Trial Bundle p 233-242 show such memos from 2012 to 2016) on the plaintiff’s internal network which are assessable for downloading by all agents in accordance with the requirement of Clause 16(a)(ii) of the Agent’s Contract. 93.In particular, the 2015 Memo is at Trial Bundle p 239-240 which stated (as I translate): -
94.The Agency Compensation Manual was amended subsequently by the plaintiff in May 2015 (“2015 Manual”, Trial Bundle p 456-494) which set out the 19-month AFYC persistency (“19-m”) as a performance indicator (which was changed from the previous 13-month AFYC persistency (“13-m”)). 95.As I understand, this means that the agent has to achieve a certain percentage of clients paying the premium for at least 19 months (instead of the previous 13 months) in order to hit the target performance required. And, as explained by Chau, this metric would measure the ability of the agent to match good potential clients to the insurance product so that they would persist to pay the monthly premium beyond a certain period of time. Of course, if that period of time was increased from 13 to 19 months, this would require the agent to match the product to the client even better. 96.The 2015 Manual required the defendant to achieve a minimal of 70% of her clients persisting to pay monthly insurance premium for at least 19 months. I also accept that the 2015 Manual was also uploaded to the plaintiff’s internal network and was assessable for downloading by all agents in accordance with the requirement of Clause 16(a)(ii) of the Agent’s Contract. 97.However, the defendant had all along failed to achieve this target since January 2015. In fact, by June 2015, her 19-m dropped to 0% and continued to be at this level. 98.On 2 November 2015, the plaintiff issued the Warning Letter (Trial Bundle p 243) which gave her a: -
99.Despite this warning, the defendant still failed to improve as required: her 19-m remained at 0% so she was demoted to Senior Business Development Executive in January 2016. 100.In fact, her 19-m remained at 0% from then to March 2016. She was given a notice of termination by the plaintiff on 13 April 2016 (Trial Bundle p 386) and so the Termination was effective on 13 May 2016. 101.Against this background, the defendant claimed that the plaintiff was estopped in terminating the Agreements because she alleged that: -
102.The defendant also claimed that she did not receive or seen the 2015 Memo or the Warning Letter (paragraph 24 of the defendant’s witness statement, Trial Bundle p 301). Further, under paragraph 2 of her Supplemental Witness Statement, the defendant also denies receiving or seeing the 2015 Manual. 103.Again, such a defence suffers the same problems as the defendant’s First Defence by Estoppel: firstly, they are bare assertions without support by any documentations of communications etc, and secondly, that Tam and Young did not have the authority, expressed or apparent, to act on behalf of the plaintiff. 104.Further, this defence is also problematic. 105.Under cross-examination, when asked why she thought that Young represented the plaintiff, the defendant answered that Young represented the plaintiff by passing her the Warning Letter. 106.This was entirely inconsistent with paragraph 24 of her witness statement when she claimed she did not receive or seen the Warning Letter (until February 2019 when she received court documents in a bankruptcy action). When asked further, the defendant quickly changed her story and said that Young did not pass her the Warning Letter after all, but had only spoken to her. 107.This is entirely unconvincing: if it was true that the defendant has never received or seen the Warning Letter, it would be hard to imagine why she would suddenly blurt out in court that “Young passed me the Warning Letter”. Although she tried (unconvincingly) to correct herself when questioned on this inconsistency, I would think that, on balance, the truth must be that Young did pass her the Warning Letter and had a conversation with her about the content eg that she should pay attention to her low 19-m. Further, the date of the Warning Letter was 2 November 2015 which coincided with the defendant’s own evidence that the conversation took place in November 2015. 108.Further, I do not accept the defendant’s claim that she has not received or seen the 2015 Memo and 2015 Manual at the relevant time would support her defence even if it was true. 109.It was stated under Clause 14.7 of the Agent’s Contract that:-
110.As such, it was clearly the duty of the defendant to keep herself updated with all the plaintiff’s communications, and failure to do so would be entirely her own fault. 111.The defendant also attempted to make a case that there were some ambiguities in the 2014 Memo to Managers. Such alleged ambiguities concerned whether it was stated clearly that the 19-m should apply across the board to all insurance contracts or just to insurance contracts signed after 1 January 2015. Even if this was true, the same memo stated (as I translate): -
112.If the defendant’s case was that she was aware of the content of the 2014 Memo to Managers (which, as stated above, was sent by the plaintiff via email to Young and other managers for notification of all his “down-line” agents), she was already put on notice of the 2015 Manual. So if she really found the 2014 Memo to Managers unclear, she would reasonably be expected to pay particular attention to look out for the 2015 Manual to seek confirmation, and if she really could not locate it in the plaintiff’s “notice board(s) or system(s)” by any means, she could have simply asked her colleagues like Tam and Young to show it to her. The last thing one would reasonably expect her to do was to do nothing about it. 113.Of course, the 2015 Manual did clearly state that starting from 1 January 2015, 19-m applied across the board to all insurance contracts (and not just for insurance contracts signed after 1 January 2015) (Trial Bundle, p 268). 114.With regards to Tam’s two alleged representations as stated in paragraph 101(a) and (b) above, the defendant was asked if she ever thought of asking Tam if she had any communication or documentations with the plaintiff to support such alleged policies, and the defendant answered: -
115.This, again, is illogical. I would think that the most likely reason why the defendant did not contact Tam to investigate the matter and to look for possible evidence to support her defence was that she knew all along that Tam never made those representations in the first place. 116.As for Young’s alleged representation or conduct under paragraph 101(c) above, as I stated above, I find that, on balance, on that occasion in November 2015, Young was showing the defendant the Warning Letter and was telling her, amongst others, that she should pay attention to her low 19-m. 117.As such, it is highly unlikely that, when the defendant argued otherwise as she alleged, Young would not “comment or dispute with” her reply. If the defendant had actually raised any objections, Young could simply show her the 2015 Manual. 118.In any case, if it was true that the plaintiff would only apply 19-m to insurance contracts signed after 1 January 2015, why would Young had this conversation with the defendant in November 2015? This was only 11 months into this new policy. Surely, at that date, everyone in the company (including Tam and Young) would have a 19-m of 0% and no review of performance could be done until July 2016, ie 19 months after 1 January 2015. 119.As such, the case advanced by the defendant is simply illogical and it is hard to imagine why the defendant would not think at that time, “Oh dear! Maybe my belief is wrong!” (even assuming that she actually held that belief). 120.And then, of course, when the defendant got demoted from Unit Manager to Senior Business Development Executive on 1 January 2016, it would be even more unbelievable that she would not question her (alleged) belief. 121.Incredibly, when questioned, the defendant claimed that she was not aware of her demotion at all. When it was pointed out to her that the monthly payment statement from the plaintiff to her clearly showed the change in her “Consultant Position” from the December 2015 statement to the January 2016 statement, (Trial Bundle p 221-222), the defendant claimed that she had not paid any attention, and thus she had never questioned her belief! 122.Further, under cross-examination, the defendant admitted that, even after receiving the termination letter, she had never made any complaints to the plaintiff even though she believed that she had no problem with her target performance. 123.All this shows again that the defendant is not a credible witness at all. 124.As such, the defendant was only putting up pure lies and fabrications to attempt to establish this defence, which in itself is not applicable and irrelevant in the first place. Contractual Interests 125.The defendant argued that upon a proper contraction of the Agreements, the clauses concerning interest constitute an unenforceable penalty clause and should be voided. 126.In addition, the defendant claimed that she did not receive or have notice of the plaintiff’s letter demanding repayment dated 3 May 2016 (the “Demand Letter”, Trial Bundle p 387) until September 2018 when the defendant was served with a copy of the Statutory Demand etc. 127.The defendant admitted that the address on the Demand Letter was the address she gave to the plaintiff but she had moved away in March 2016 without updating the plaintiff. I therefore would not see that as any ground of defence. 128.As for the laws regarding applicability of penalty clause, Lok J summarised the modern approach under paragraphs 43 and 47 in Ng Yan Kit Alfred v Ever Honest Industries Ltd [2022] 3 HKLRD 174: -
129.In addition, Lok J cited the classic principles as laid down by Lord Dunedin in Dunlop Pneumatic Tyre v New Garage [1915] AC 79 but commented that the penalty rule is an interference with freedom of contract, and some authorities after the case Dunlop sort to constraint the application: -
130.In the current case, Clause 4 of Section II of the Side Agreement (Trial Bundle p 371) charges interest at a contractually agreed rate: prime rate + 3% per annum or 7% per annum whichever is higher. 131.The defendant argues that this is higher than interest rate of prime plus 1.5% provided in clause 3.3 of the “Advance” Agreement dated 13 July 2012 (Trial Bundle p 170) and is thus unreasonable. 132.I am of the view that the “Advance” Agreement, which concerned an agreement to make advance payment of bonus to the defendant, also stated in the same clause: -
133.The Demand Letter must be deemed such written notice and it states: -
134.In applying the test in the Ng case, I find that the circumstances of this case is that the plaintiff has made particularly generous performance bonuses early on as an investment on the defendant. As such, the plaintiff’s legitimate interest is to seek protection in the Agreements for repayment of (all or part of) the Performance Bonus. Thus, charging a higher rate of interests when there was failure of repayment is part of this protection. 135.Therefore, I do not consider this rate of interest to be so out of proportion that it constitutes an unenforceable penalty clause. This is what the parties have agreed to and should not be disturbed under the circumstances. Order 136.I would therefore allow the plaintiff’s claim against the defendant for the sum of HK$477,523.50 plus interest on the said sum at prime rate (as quoted by The Hongkong and Shanghai Banking Corporation Limited) plus 3% per annum, or 7% per annum, whichever is higher, from 13 May 2016 until the date of this judgment, and thereafter the interest be at judgment rate until payment. 137.As for costs, there be a costs order nisi that the costs of the action be to the plaintiff to be taxed if not agreed, with certificate for counsel, and the defendant’s own costs be taxed in accordance with the Legal Aid Regulations.
Mr Jeffrey Lee, instructed by Kennedys, for the plaintiff Mr Ernest Koo, instructed by Simon C. W. Yung & Co, assigned by the Director of Legal Aid, for the defendant | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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