Wing Lung Insurance Co Ltd and Another v. Victor Insurance Management Co Ltd

DCCJ 4726/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4726 OF 2003

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BETWEEN

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Coram  :  Deputy District Judge C.P. Pang in Chambers

Dates of Hearing  :  13 and 27 November 2006

Date of Handing Down Judgment  :  3 January 2007

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JUDGMENT

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1.This is the Defendant’s appeal against a Master’s decision dated 20 October 2006 (i)entering summary judgment for the 1^st Plaintiff under Order 14 Rule 1, and (ii)dismissing the Defendant’s application applying for an order to strike out the 2^nd Plaintiff’s claim under Order 18 Rule 19, or alternatively, for a determination under Order 14A, of the Rules of the District Court.

2.The appeal is heard by way of rehearing.

Background

3.This is a simple claim for unsettled premium of insurance policies undertaken by the 1^st Plaintiff.

4.The 1^st Plaintiff is an insurance company carrying on insurance business as an insurer.

5.The 2^nd Plaintiff is a company carrying on insurance business as an insurance agent.  By a General Agent Agreement dated 8 April 2002, the 1^st Plaintiff appointed the 2^nd Plaintiff as a general agent and authorized the 2^nd Plaintiff, among other things, to collect premium on its behalf.

6.The Defendant is also a company carrying on business as an insurance agent.  Mr Li Wai Ming, the representative of the Defendant in this hearing, is the director of the Defendant.

7.This action was initially brought by the 2^nd Plaintiff only against the Defendant in August 2003.  In its Statement of Claim, the 2^nd Plaintiff claimed in the capacity as an agent of Wing Lung Insurance Co. Ltd. (Wing Lung) claiming against the Defendant for the premium owing to Wing Lung.  The Defendant filed its defences saying, inter alia, that the 2^nd Plaintiff, being the agent of its disclosed principal (Wing Lung), had no right no collect the premium on behalf of Wing Lung, nor locus standi to sue the Defendant for the premium.  It also counter-claimed against the 2^nd Plaintiff for damages for intimidation, nuisance, assault and /or trespass by the debt collectors appointed by the 2^nd Plaintiff. Wing Lung then joined in as the 1^st Plaintiff in the action in April 2006. 

8.The Defendant took out its summons dated 6 June 2006 to strike out the claim by the 2^nd Plaintiff, or alternatively, for determination under Order 14A, whereas the Plaintiffs took out their summons dated 15 June 2006 for summary judgment against the Defendant. 

9.The two summonses were heard together on 20 October 2006 by the Master who refused to strike out the claim by the 2^nd Plaintiff.  The Master entered judgment for the 1^st Plaintiff against the Defendant, but he did not enter judgment for the 2^nd Plaintiff.

The Plaintiff’s case

10.The Defendant registered with Insurance Agents Registration Board (IARB) as an insurance agent of the 1^st Plaintiff on the 19^th September 2002 on his own application made through the 2^nd Plaintiff (see p.181 of the Defendant’s Bundle).  The Defendant was also informed by Mr. Derek Tsang, a Senior Manager of the 2^nd Plaintiff that (see p.196 of the Defendant’s Bundle):

(i) The 2^nd Plaintiff is the General Agent of the 1^st Plaintiff with the authority to administer the agents’ accounts and collect premium from the Defendant on the 1^st Plaintiff’s behalf.

(ii) The Defendant was required to account for the premium every 90 days.

11.An agent agreement signed by the 1^st Plaintiff (the “Agent Agreement”) dated 25 September 2002 was sent to the Defendant on or about 25^th September 2002 for signature by the Defendant.

12.Although the Defendant had failed to sign the same for return to the 1^st  Plaintiff, the Defendant did the following, showing that it agreed to act and acted as an agent of the 1^st Plaintiff and was well aware of the terms of the Agency Agreement, namely:

(i) The Defendant registered itself with the IARB as agent of the 1^st Plaintiff since 19 September 2002 (see p.181 of the Defendant Bundle). 

(ii) From November 2002 to April 2003, the Defendant had requested the 1^st Plaintiff through the 2^nd Plaintiff to issue various insurance policies which the 1^st Plaintiff did (see pp. 59-108 of the Plaintiff Bundle for Defendant’s instructions to issue policies).

(iii) The Defendant collected premium from the insured and issued receipts to them.

(iv) The Defendant made two payments to the 2^nd Plaintiff on two occasions, one in February 2003 and one in March 2003 to settle the premium of policies (see pp.130, 186-187 of the Defendant Bundle).

13.The Defendant failed to pay at the end of April 2003 and never made any payments to the 2^nd Plaintiff since then.  As of the 18^th June 2003, total outstanding premium due by the Defendant to the 2^nd Plaintiff was HK$153,949.65 (See p.40 and p.128-129 of the Plaintiff Bundle).

14.By a letter dated 7^th July 2003, the 2^nd Plaintiff through its solicitors demanded payment from the Defendant for the outstanding sum of HK$153,949.65.  (See p.261 of the Defendant Bundle for the letter before action.)  However, the Defendant failed to respond to the said letter and failed to pay the said sum of HK$153,949.65 or any part thereof to the 2^nd Plaintiff.

Summary of the Plaintiff’s case

15.In a summary, the Plaintiff’s case is that the Defendant was an insurance agent of the 1^st Plaintiff.  On behalf of the 1^st Plaintiff, the Defendant issued insurance policies to and collected premium from the insured.  The Defendant had collected the premium from the insured and failed to return the premium to the 1^st Plaintiff.  The 2^nd Plaintiff was the General Agent of the 1^st Plaintiff with the right to collect premium on behalf of the 1^st Plaintiff.

16.Ms Liang, solicitor for the Plaintiffs, abandons her previous argument before the Master on the issue of res judicata.  However she has raised in this hearing a new argument on jurisdictional point.  She relies on Order 58 Rule 2 of the Rules of District Court to argue that a judge in the District Court has no jurisdiction to hear an appeal from a Master's decision.  She says since final judgment has been given by the Master, any appeal from the Master shall be heard by the Court of Appeal.  I think the application is misconceived and it will be convenient for me to deal with this point first.

Appeal from Master’s Decision

17.Order 58 Rule 1(1) provides “Except as provided by rule 2… an appeal shall lie to a judge in chambers from any judgment, order or decision of a master.”

18.Order 58 Rule 2(2) provides: “Subject to the provisions of this rule, an appeal shall lie to the Court of Appeal from any judgment, order or determination of a Master on the hearing or determination of any cause, matter, question or issue tried or assessed before him under Order 14, Rule 6(2)........”.

19.Order 14 Rule 6(2) provides: “In particular, and if the parties consent, the Court may direct that the claim in question and any other claim in the action be tried by a master …..”

20.In my judgment, the Master's decision being the subject matter of this appeal is not a determination under Order 58 Rule 2(2).  The Master has not tried the matter as he has not heard the evidence of the witnesses in the case.  The Master's decision is not one within Order 14 Rule 6(2).  Order 58 Rule 2 is simply not applicable.  The Master's decision is one falling within Order 58 Rule 1, the appeal against the Master's decision shall therefore lie to a judge in chambers in the District Court, instead of to the Court of Appeal.

The Defendant’s case

21.As against the 2^nd Plaintiff, the Defendant’s case is that the Defendant is not bound by the General Agent Agreement between the 1^st Plaintiff and the 2^nd Plaintiff.  The 2^nd Plaintiff, as an agent, has no standing to sue the Defendant on behalf of its principal, the 1^st Plaintiff.  The Defendant has never been informed by the 1^st Plaintiff that the 2^nd Plaintiff has the legal authority to collect the premium on behalf of the 1^st Plaintiff.  There is simply no contractual relationship between the 2^nd Plaintiff and the Defendant.  It is plain and obvious that the 2^nd Plaintiff has neither a cause of action, or locus standi in this action.  On this basis, the Defendant seeks to strike out the claim by the 2^nd Plaintiff.

22.In the alternative, Defendant would seek a determination under Order 14A that, as a question of law,  even accepting all allegations of the Plaintiffs, it is entitled to judgment in its striking out application against the 2^nd Plaintiff.

23.Insofar as the 1^st Plaintiff’s Order 14 application is concerned, the Defendant’s case is that while it admits that the Defendant was since 19 September 2002 registered as a General Insurance Agent of the 1^st Plaintiff, it denies any contractual relationship with the 1^st Plaintiff.

24.In his affirmations and submissions in court, Mr Li says he did not receive the Agent Agreement with the 1^st Plaintiff in September 2003 as Mr Derek Tsang of the 2^nd Plaintiff says in his affirmations.  The Defendant’s case is that in about September 2002, there was communication between Mr Derek Tsang, Marketing Senior Manager of the 2^nd Plaintiff, and Mr Li about introducing the Defendant to be an agent for the 1^st Plaintiff. 

25.However the Defendant had never filed any written agent application to the 1^st Plaintiff nor the 2^nd Plaintiff.  The Defendant had never signed the Agent Agreement with the 1^st Plaintiff.  It was only until May 2003 when they learnt that Mr Li was bankrupted  that the Agent Agreement was sent to Mr Li, attached thereto a compliment slip written “please return this copy on/before 9/5/03”.  Mr Li was asked to sign the contract but he refused.  That is the reason why the Plaintiffs could not produce any signed copy of the Agent Agreement. Since then, P2 appointed debt collectors to make harrassment to the Defendant and the family of Mr Li until September 2003.

26.Mr Li says that at the material time when the relevant insurance policies were taken out from the 1^st Plaintiff, the Defendant was still negotiating the terms with the 1^st Plaintiff and had not concluded any contract.  It was the suggestion of Mr Derek Tsang that Mr Li could take out for his clients the insurance polices in his “personal capacity”.  Therefore all the relevant transactions in respect of the policies issued by the 1^st Plaintiff were only transactions between the 2^nd Plaintiff and Mr Li in his personal capacity, instead of transactions between the 1^st Plaintiff and the Defendant.

27.In support of this argument, Mr Li says when two payments were made to settle the premium with the 1^st Plaintiff, he only used his personal cheques.

28.As regards the receipts issued to his clients which bore the Defendant company chop, Mr Li says as he had not been registered as an agent of the 1^st Plaintiff, it was an offence for him to hold out himself as an insurance agent of the 1^st Plaintiff.  He therefore issued the receipts in name of the Defendant as a cover-up to prevent from his being de-registered in case such misconduct should be discovered. The receipts are therefore not determinative in the case.

29.While the Defendant admits there was a registration record with the IARB that the Defendant had been registered with the 1^st Plaintiff, Mr Li argues that the registration does not mean that the Defendant has acted as an insurance agent for the 1^st Plaintiff.  The registration cannot prove the contractual relationship between the 1^st Plaintiff and the Defendant.  The registration record of the IARB only means that the 1^st Plaintiff could appoint the Defendant as its insurance agent upon an agreement having been reached by both parties. Mr Li also cited Re: Chow Yuen Man and Ex Parte: CMG Asia Ltd HCB 753/2001 in support of his argument.

30.These transaction made by him, Mr Li says, are prohibited by the Insurance Companies Ordinance, Cap 41 and the Code of Practice(the Code) issued by the Hong Kong Federation of Insureres (HKFI).  Because Mr Li has neither registered himself as an insurance agent of the 1^st Plaintiff nor the 2^nd Plaintiff as required by the law and the Code, the transactions are therefore illegal.

31.Further, Mr Li also argues that the activities of the debt collectors appointed by the 2^nd Plaintiff amount to torts to Mr Li and his family members.  Both the Plaintiffs are liable vicariously for the acts of the debt collectors and the Defendant is therefore entitled to a counter-claim against the Plaintiffs.

Summary of the Defendant 's case

32.The Defendant 's case can be summarised as follows:

(i) The 2^nd Plaintiff is only an agent of its disclosed principal, the 1^st Plaintiff.  The 2^nd Plaintiff has no locus standi to sue the Defendant.

(ii) The relevant insurance policies were only transactions of Mr Li, in his personal capacity. The Defendant is therefore not liable to pay the premium of the relevant policies.

(iii) Since Mr Li has not been registered as an insurance agent of the Plaintiffs, it is against the law for him to act as an insurance agent of the Plaintiffs.  The transactions in relation to the relevant policies are illegal.

(iv) The Defendant is entitled to a counter-claim against the Plaintiffs for their vicarious liability of the acts of the debt collectors.

Undisputed Facts

33.There is no dispute as to the amount of the outstanding premium being claimed by the Plaintiffs.

34.The Defendant was registered as an insurance agent of the 1^st Plaintiff on 19 September 2002.  From November 2002 to April 2003, the 1^st Plaintiff issued policies to clients who made their applications through either to the Defendant or Mr Li, in the case of the Defendant (summary of unpaid policies at page 28 of the Defendant bundle).

35.The insured had all paid their premium.  They were given receipts which bore the stamp of the Defendant 's company chop. 

36.The premium received from the insured, except two payments made in February and March 2003, had not been returned by the Defendant or Mr Li to the Plaintiffs.  The two payments of settlement were paid by way of personal cheques of Mr Li.

The Factual Dispute

37.While there is hot argument between the parties, there is not much factual dispute in the case. The major dispute of fact is whether the Agent Agreement was sent to the Defendant on or about 25 September 2002.  There is no dispute that the Agent Agreement has only been signed by the 1^st Plaintiff, but not by the Defendant.

38.Mr Derek Tsang of the 2^nd Plaintiff says, in September 2002,  Mr Li, as Manager of the Defendant, attended the 2^nd Plaintiff 's office and he personally explained to Mr Li the relationship between the Plaintiffs and the usual commission terms and credit period offered to agents.  In order to register as an insurance agent of the 1^st Plaintiff, the Defendant then completed a Form B-C of the IARB for registration with the signature of Ms Wong Yuk Han being the Responsible Officer of the Defendant, and the Defendant's company chop on it (page 181 of the Defendant bundle). The Form was then submitted to the HKFI for and on behalf of the Defendant.  The Defendant's registration as the 1^st Plaintiff's agent was approved on 25 September 2002 and the Defendant became an insurance agent of the 1^st Plaintiff since then.  Two original copies of the Agent Agreement dated 25 September 2002 were then sent by the 2^nd Plaintiff to the Defendant for its signature, one of which was intended to be kept by the Defendant.  However, the Defendant did not return any original duly signed by them.  However, for the sake of business efficacy, the Defendant was allowed to conduct its business as the 1^st Plaintiff 's agent despite the failure of the Defendant's return of their signed copy of the Agent Agreement. As the Defendant failed to return the signed Agency Agreement, the 2^nd Plaintiff sent the agreement with the compliment sheet to the Defendant again asking the same be signed and returned before 9 May2003.

39.Mr Li of the Defendant says the Defendant did not receive the Agent Agreement on or about 25 September 2003. He only received the Agent Agreement in May 2003.  In fact, at the material period, the Defendant was negotiating the terms of the contract with Mr Tsang. Mr Li refers to his letter to Mr Tsang dated 24 February 2003,  a fax reply by Mr Tsang dated 27 February 2003, and the compliment sheet attached to the Agent Agreement to support his case.  In the former letter (page 263 of the Defendant bundle), Mr Li said he had not received a reply whether the 1^st Plaintiff would accept the terms they requested.  In the latter fax reply (page 265 of the Defendant bundle), Mr Tsang said he would follow up the matter.  In the compliment sheet, it was written “pls. Return this copy on/before 9/5/03”(page 317 of the Defendant bundle).

40.Another major factual dispute only relates to the Defendant’s counter-claim for nuisance.  Mr Li says he and his family members have been harrassed and threatened by the debt collectors.  The Plaintiffs are vicariously liable for the debt collectors' illegal acts.  The Plaintiffs deny these allegations.

41.There is a further dispute as to whether Mr Tsang had explained to Mr Li that the 2^nd Plaintiff had the power to collect premium for and on behalf of the 1^st Plaintiff. 

42.I shall first deal with the Defendant's application of striking out of the P2's claim.

The Principles of Order 18 Rule 19

43.It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule.  There should be no trial upon affidavit.  Disputed facts were to be taken in favour of the party sought to be struck out.  Nor should the court decide difficult points of law in striking out proceedings.  The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out (Ha Francesca v. Tsai Kut Kan (No. 1) [1982] 1 H.K.C. 382, CA).  See para. 18/19/4 Hong Kong Civil Procedure 2007.

The 2nd Plaintiff has no locus standi to sue the Plaintiff

44.The 2^nd Plaintiff relies on the General Agent Agreement between the two Plaintiffs to sue the Defendant for the outstanding premium owed to the 1^st Plaintiff.  It is trite law that in the absence of other indications, when an agent makes a contract, purporting to act solely on behalf of a disclosed principal, whether identified or unidentified, he is not liable to the third party on it.  Nor can he sue the third party on it.  When an action is brought for another by an agent authorized to do so, it should be brought in the name of the principal (see paras. 9-001 and 9-010, Bowstead & Reynolds on Agency ,Eighteenth Edition).

45.In my judgment, the Defendant is not a party to the General Agent Agreement and is therefore not legally bound by this agreement (Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [1915] AC847).  It does not matter whether Mr Tsang has explained to Mr Li the relationship between the Plaintiffs.  Even though the 2^nd Plaintiff has the power to collect premium on behalf of the 1^st Plaintiff, such power to collect premium does not confer a right to the 2^nd Plaintiff, in its own capacity as agent, to institute proceedings against the Defendant for the outstanding premium due to the 1^st Plaintiff.  The 2^nd Plaintiff therefore has no locus standi to sue the Defendant.

46.The claim by the 2^nd Plaintiff, disclosing no reasonable cause of action against the Defendant, must therefore be struck out.

47.As a result of this ruling, I do not need to consider the Defendant's alternative application under Order 14A.

The Principles of Order 14

48.Order 14 places the threshold onus on the Defendant to show that there is a triable issue.  The Court will test the credibility of an affidavit asserting a triable issue against the conduct of the Defendant and contemporary documents.  See Murjani v. Bank of India [1990] 1 HKLR 586.

49.However, Order 14 is not appropriate where there is a real dispute of fact or the factual matrix is unclear.  Per Litton JA in Sin Hua Bank Ltd. v. Sung Foon Kee Ltd. [1993] 1 HKC 65 at 67I:

When there are real disputes of fact, or where the factual matrix is unclear, it would be a strong remedy for a court to give summary judgment to the plaintiff.  By giving unconditional leave to defend, the court is, in effect, postponing judgment for the plaintiff if the plaintiff turns out to be right.  Any delay can be compensated for in interest.

50.In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 Godfrey J.A. said:

“… I would sound a note of caution about Murjani which has come to be cited in almost every case under O 14 or O 86 to justify the plaintiff in asking the court to embark on a mini trial of the action on affidavit evidence.  That is not a proper course for the court to take.  It will in future be sufficient for the court to ask itself the simple question: ‘Is what the defendant says credible?’.  If so, he must have leave to defend, if not, the plaintiff is entitled to summary judgment.  The issue is not whether the defendant’s assertions are to be believed, it is whether those assertions are believable.”

51.In Manciple Ltd. v Char On Man [1995] 3 HKC 459, Mortimer JA said at page 466D:

Order 14 proceedings for summary judgment when there is no defence to a claim are an important feature of the legal process.  It enables plaintiffs in cases where there is no defence to obtain expeditious summary judgment to avoid unnecessary delay.  When applied for, it is for the defendant to show that there is a triable issue or an arguable defence if he: is to be allowed his day in court.  To deny him his day in court, if he shows a triable issue or an arguable defence, is indeed a fearful injustice.  On the other hand, if he has no defence and he obtains leave to defend, equally, there is injustice to the plaintiff.

There is a difficulty because the court cannot resolve issues of fact on affidavits.

However, there are some cases in which the defendant’s own case, although apparently it raises issues which, if found in his favour, would provide him with a defence, are so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that his defence is a sham.

52.Godfrey J.A. put the matter in a nutshell in Man Earn Limited v Wing Ting Fong [1996] 1 HKC 225:

“Unless it is obvious that the defence put forward by the defendant is ‘frivolous and practically moonshine’, Order 14 ought not to be applied”: see Codd v Delap (1905) 92 LT 510 per Lord Lindley at 511.

53.However, this does not mean that the court must disregard the background.  To the extent that it can look at the Defendant’s own conduct and the contemporaneous documents, without embarking on a mini-trial on affidavit evidence, Murjani is still good law.  Or, as Bokhary JA put it in Re Safe Rich Industries Limited, Civil Appeal No. 81 of 1994, unreported, 3^rd November 1994:-

“The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable.  But it must be recognized – because failure to recognize it would create a debt-dodgers’ charter – that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.”

No Triable Issue

54.The Defendant disputes that it did not receive the Agent Agreement in September 2002.  In my judgment, whether this agreement was sent to the Defendant is not immaterial in the case.  The crux of the matter is whether it was the Defendant or Mr Li who acted as agent of the 1^st Plaintiff when the relevant insurance policies were issued by the 1^st Plaintiff to the insured. 

55.In my judgment, the undisputed evidence in the case is overwhelming against the Defendant.

56.The Defendant signed on the Application for Confirmation of Registration (Form B-C) with the IARB.  Although the date of application cannot be seen in the form, it is clear that IARB confirmed that the Defendant was registered as an insurance agent of the 1^st Plaintiff on 19 September 2002.  The date of registration and date of cancellation of registration can also be seen in the website of HKFI (page 184 of the Defendant bundle).

57.Mr Li argues that the registration is not determinative of the issue.  I should first indicate that the case Mr Li relies on was decided on a different factual background.  Yuen, J. in that case was deciding the date the insurance agent  joined another insurance company for the purpose of a certain clause of the guaranteed income agreement signed by the insurance agent.  The court was  to decide whether the insurance agent had to repay the guranteed income “if (the insurance agent) joins another insurance company in Hong Kong within 12 months after(the insurance agent) ceases to be an Appointed Insurance agent of the (previous insurance company)”.  That case was decided in a totally different context and therefore irrelevant to the present case.

58.However I would still agree that the registration is not conclusive evidence of the relationship between the 1^st Plaintiff and the Defendant.  The mere fact that IARB has registered the Defendant as an agent of the 1^st Plaintiff is only a piece of evidence, albeit a very strong evidence.  One must still look at the whole circumstances.

59.There is no dispute that all the insured in the relevant policies received receipts with stamp of the Defendant's company chop. The representation made by the receipts was that it was the Defendant which was dealing with the insured, not Mr Li in his own capacity. 

60.There is no evidence from the Defendant as to who signed the receipts.  However one will easily find that the signatures are same as the one signing the Application for Confirmation of Registration for the Defendant (see page 181 of the Defendant bundle) and the one signing the same registration application for Victor Insurance Management Services, a firm related to the Defendant with its address same as the Defendant's (see page 173-176 of the Defendant bundle).  The signatory can be identified as one Wong Yuk Han.

61.Mr Li says the receipts were issued as a cover-up to prevent himself from being de-registered.  He is therefore prepared to say at any time that the premium were received by the Defendant when it suits him.

62.There is no evidence from the Defendant as to who kept the premium received from the insured.  But there is evidence from the Plaintiffs to prove that the premium was deposited into the bank account of the Defendant (see the deposit slip at page 138 of the Defendant bundle).

63.When one looks at the instructions faxed to the 2^nd Plaintiff asking for issue of the relevant policies, one will see that the instructions were given by a “Fax Cover” purportedly sent by a “Sara Wong” of “Victor Insurance”.  There is no indication at all that the requests for the policies were made by Mr Li personally.

64.I have also considered the evidence that there were two occasions that the personal cheques of Mr Li being used for settlement of the premium due to the 1^st Plaintiff.  However it is only too common in a small company, especially where the directors are the de facto owners of the company, that directors may issue their own cheques to settle for their own company, and vice versa.  Therefore the fact that Mr Li had used his own cheques to settle the premium has little bearing in the issue.

65.All the documentary and contemporaneous evidence in this case is therefore against the Defendant's case and support the 1^st Plaintiff’s case that the Defendant was acting as agent of the 1^st Plaintiff in relation to the relevant insurance policies.

66.In my judgment, there cannot be any argument that when the relevant policies were issued by the the 1^st Plaintiff, the 1^st Plaintiff and the Defendant were in a contractual relationship.  The Defendant handled the transactions and received the premium from the insured as agent of the 1^st Plaintiff.  Whether or not the Defendant received the Agent Agreement in September 2002 is immaterial or was negotiating with the 1^st Plaintiff on the terms , the Defendant by conduct has clearly agreed to be an insurance agent of the 1^st Plaintiff. The Defendant, being an agent of the 1^st Plaintiff, gave instructions to the 1^st Plaintiff through the 2^nd Plaintiff for the relevant insurance policies to be taken out by the insured from the 1^st Plaintiff.  The Defendant, being an agent authorized to accept premium on behalf of the 1^st Plaintiff, must account for the premium received.

67.I find there is no triable issue in the relationship between the 1^st Plaintiff and the Defendant.

Illegality

68.This defence of the Defendant is in my view untenable.

69.Mr Li refers to some of the provisions relating to the registration of insurance agents in Part X of the Insurance Companies Ordinance, Cap. 41 governing insurance intermediaries and the Code of Practice for the administration of insurance agents (“the Code”) issued by the HKFI with the approval of the Insurance Authority pursuant to section 67 of Cap. 41.

Provisions relating to the registration of insurance agents

70.It is provided in section 65(1) of Cap. 41 that a person shall not hold himself out as an insurance agent unless he is an “appointed insurance agent” and this term is defined in section 2(1) to mean “an insurance agent appointed by and registered with an insurer as an agent”.    Section 67(4) provides that an insurer is required to comply with the Code.  An insurer commits an offence under section 77(9) if he confirms the appointment of an insurance agent without the confirmation of the Board set up by the HKFI.

71.The Board was established by the HKFI to administer the Code.  One of the functions of the Board is to keep and maintain a register of insurance agents whose appointments have been confirmed by the Board.  The relevant provisions in the Code dealing with registration may be described as follows:

(1) A principal (i.e. an insurer) shall obtain the confirmation of the Board before confirming the appointment of any person as its insurance agent (clause 10);

(2) The Board, on behalf of the relevant principal, shall register an insurance agent as soon as practicable after receiving the application for registration of such agent by that principal (clause 11);

(3) The Board shall give the Insurance Authority details of the registration and cancellation of registration of insurance agents within seven days of registration or cancellation (clause 14);

(4) The principal shall ensure that each of its insurance agents is confirmed by and registered with the Board in accordance with the Code and is appointed as an insurance agent in writing by an agency agreement (clause 18);

(5) The principal shall be responsible to submit the application for the confirmation of appointment and registration of an insurance agent in the prescribe form, the principal and the proposed agent shall provide to the Board such additional information as the Board may require, and the proposed agent shall satisfy the Board that he is fit and proper to act as such (clause 22);

(6) The principal is required to appoint an insurance agent under a written agency agreement that meets the minimum requirements of a model agency agreement adopted by the HKFI (clause 31).

72.The main argument of the Defendant is that the transactions were made by Mr Li personally.  He committed an offence in dealing with the transactions because he had not been registered as an agent of the 1^st Plaintiff.  With my finding that the only conclusion which can be reached in this case is that the transactions were made by the Defendant as agent of the 1^st Plaintiff, this argument is unsustainable. 

73.In any case, even if there was a breach of the Insurance Companies Ordinance and/or the Code in procedures of registration and/or appointment, the breaches are only concerned with formalities as between the 1^st Plaintiff and the Defendant.  The performance of the contract in the provision of insurance by the 1^st Plaintiff through the Defendant to the insured is not illegal. The non-compliance of the Code as between the 1^st Plaintiff and the Defendant will not affect the validity of the insurance policies taken out by the insured.  The contract between the 1^st Plaintiff and the Defendant cannot be rendered illegal and unenforceable.

74.Analogy can be drawn with an omission to register contract according to statute.  Where a statute imposes an obligation to register contracts of a particular kind and provides penalties for failure to register, the non-registration of such a contract has been held not to render the contract itself unenforceable (see para 16-151 of Chitty on Contracts, Vol 1,Twenty-Ninth Edition).   It follows that this argument of the Defendant must fail.

Counter-claim

75.The Defendant contends that even though any of the claim of the Plaintiffs is awarded, the Defendant and/or its director will still claim for damages against not only the 2^nd Plaintiff, but also the 1^st Plaintiff under the counter-claim for the torts committed by the debt collectors.  In my view, the alleged tort committed by the debt collectors arises out of a totally separate and distinct transaction which has no connection whatsoever with the present claim by the 1^st Plaintiff.

76.The position is summarized in Halsbury’s Law of England， Vol. 42, 4^th Ed. (Reissue), §430

“Where a cross-claim for a sum of money is so closely connected with the claim that it goes to impeach the Plaintiff’s title to be paid and raises an equity in the defendant, making it unfair that he should pay the plaintiff without deduction, the general rule is that the defendant may deduct with impunity the amount of the cross-claim, or raise it by way of equitable defence when sued.”

77.It cannot be said that the counter-claim by the Defendant and/or a potential claim by its directors goes to impeach the Plaintiff’s entitlement to be paid.  In the circumstances, if the Defendant is minded to pursue any claim in respect of the acts of the debt collectors, it is incumbent on the Defendant’s directors to start a fresh legal action and for the Defendant to pursue its counter-claim against the Plaintiff.  The Defendant cannot rely on it as an excuse to impeach the 1^st Plaintiff’s entitlement to the premium for the policies it has issued.

Conclusion

78.The Master has come to a correct decision in ordering summary judgment for the 1^st Plaintiff against the Defendant.  However the 2^nd Plaintiff’s claim must also be struck out.

79.I therefore allow the Defendant’s appeal to the extent that the judgment entered for the 1^st Plaintiff against the Defendant is affirmed but  the order refusing to strike out the 2^nd Plaintiff’s claim is set aside.  I order  that the 2^nd Plaintiff’s claim be struck out.

Costs

80.I will also make cost order nisi that:

(i) Save and except the order in respect of the costs awarded to the 2^nd Plaintiff in the striking out application, the Master’s costs order do stand.

(ii) The Defendant’s costs in defending the action by the 2^nd Plaintiff, including the striking out application, be paid by the 2^nd Plaintiff, to be taxed if not agreed.

81.Unless application has been made to vary, the order nisi will become absolute after 14 days from today.

Representation:

Ms Susan Liang, of Susan Liang & Co., for the 1^st & and 2^nd Plaintiffs.

Mr Li Wai Ming, representing the Defendant, in person.

Defendant's application for leave to appeal dismissed. Please refer to DCCJ4726/2003 dated 16 February 2007