Ageas Insurance Company (Asia) Ltd v. Lam Hau Wah Inneo

CACV 65/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 65 OF 2014

(ON APPEAL FROM HCA NO. 1840 OF 2009)

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J U D G M E N T

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Hon Lam VP:

1.I agree, for the reasons given by Kwan JA that the appeal be dismissed. I would make an order in terms of paragraph 76 below.

Hon Kwan JA:

Introduction

2.The plaintiff insurance company brought this action against the defendant, its former regional director and agency manager, for advances made to him which were due upon the termination of his appointment.  Summary judgment was granted by a Master and upheld by a Judge but was set aside by the Court of Appeal with unconditional leave to defend[1], upon leave given to the defendant to adduce further evidence on appeal.  In gist, the defence was that the advances contained in or evidenced by documents signed by the parties were not what they purported to be, because of oral agreements, assurances and promises made by representatives of the plaintiff to the defendant at various times.

3.After a trial of ten days before Deputy High Court Judge B Chu in November 2013, in which the judge heard evidence of six witnesses from the plaintiff and five witnesses from the defendant, on 28 February 2014 judgment was given in the plaintiff’s favour of $31.39 million odd and the counterclaim was dismissed.  The defendant brought this appeal to overturn the findings of fact made by the judge.

Background

4.The relevant background matters, taken largely from the judgment below, may be stated as follows.

5.The plaintiff had undergone several changes of name in the relevant period with changes in its investors, starting with New Zealand Life, then Top Glory Insurance Company (Bermuda) Limited, Pacific Century Insurance Company Limited, Fortis Insurance (Asia) Limited, to its present name AGEAS Insurance (Asia) Limited.  It became a publicly listed company in July 1999.

6.In 1993 or 1994, the plaintiff was acquired by one Andrew Yang (“Yang”) and other investors.  Yang was the Chief Executive Officer of AXA Life Insurance Hong Kong Limited (“AXA”) before he joined the plaintiff.  Seven senior agency leaders at AXA left at the same time to join the plaintiff.  They included the defendant, Raymond Chau (“Chau”), Oliver Mak (“Mak”), Samuel Lau (“Lau”).  They were referred to in the judgment as “Founding Agency Leaders” (“FALs”).

7.Yang had left the plaintiff in 2003 and he and the plaintiff ended up suing each other.  He was not called to testify.  Of the FALs, the defendant gave evidence and called Mak and Lau to give evidence on his behalf.

8.It was the defendant’s case that to entice the FALs to join the plaintiff, an agreement was reached between Yang on behalf of the plaintiff and the defendant and Chau on behalf of the FALs.  This was referred to as “the 1994 Agreement”, the terms of which were summarised in §§71 and 72 of the judgment:

“71. … the terms of the 1994 Agreement … contained partly oral terms and partly written terms reflected in documents which each FAL later signed with the Company [the plaintiff]. The terms of the 1994 Agreement as set out by [the defendant] in his 1^st witness statement consisted of:

(i) The 7 FALs would each receive Overriding Commissions and other income or benefits from the Company according to the same formula/percentage and other terms that they used at AXA, calculated according to the income generated by the pool or “family” of agents trained, recruited and supervised by each FAL (i.e. his family of agents) (“Contractual Benefits”);

(ii) The Company would guarantee that the 7 FALs collectively would not suffer financially for departing AXA and joining the Company. Therefore, each year if the collective Overriding Commissions paid by the Company to the 7 FALs was less than the collective income earned by the 7 FALs during their last year at AXA, the Company would arrange payments which would at a minimum make up that shortfall. This was subsequently referred to by the parties under various different names, including “Revised Income” or “R.I.”, “Special Non-Contractual Benefits”, “Non-Contractual Benefits”, “NCBs”, “NC elements” and “Ex-Family Head Benefits” ( “Top Up Payments”);

(iii) In accordance with industry practice and/or the practice at AXA, each of the FALs would be responsible for their own team of agents as if building their own business, with the majority of administrative expenses and training expenses to be borne individually by each of the 7 FALs;

(iv) In accordance with industry practice and/or the practice at AXA, in addition to the commission income from the Contractual Benefits and the Top Up Payments, the 7 FALs would also be duly compensated on retirement or on termination of the 1994 Agreement for the creation of such family of agents as a persistent income-generating asset or business for the benefit of the Company. Effectively, the family of agents created by each FAL was regarded as an “asset” that the Company was required to “buy-out” on the retirement or termination of each FAL (“Buy Out Entitlement”);

(v) On top of and notwithstanding the Contractual Benefits and the Top Up Payments, the Company would also supplement the income of the 7 FALs in any year with one-off bonuses such as rental bonuses, growth bonuses, loyalty bonuses, or bonus stock options, so as to give the FALs extra incentives to work hard and promote and generate business and revenue for the Company, as much as for the FALs (“Discretionary Bonuses”).

72. To summarise, [the defendant’s] case was under the alleged 1994 Agreement, he would be responsible for building up his team/family of agents and also be responsible for the majority of such related administrative and training expenses, and apart from the Contractual Benefits and Discretionary Bonuses, he would be entitled to:-

(i) Guaranteed Top Up Payments for the income of the 7 FALs to match the level of their last year’s income at AXA, and these were later referred to as Ex Family Head Benefits; and

(ii) Buy Out Entitlement upon termination of his contract with the Company.”

9.On 21 February 1994, the defendant commenced his appointment as an insurance agent and agency manager of the plaintiff.  His appointment was terminated by the plaintiff giving him one month’s notice in writing on 11 May 2009, to take effect on 10 June 2009.  The writ in this action was issued on 26 August 2009, claiming a total of $34.9 million odd for advances made to the defendant under six documents.  Liability under four of them was disputed at the trial, they were the manager’s financing agreement signed on 2 January 1996 (“1996 MFA”), the manager’s financing agreement signed on 1 June 1998 (“1998 MFA”), the loan agreement signed on 26 April 1999 (“1999 Loan Agreement”) and the second loan agreement for $20 million signed on 15 December 2008 (“2^nd 2008 Loan Agreement”).

10.Under the 1996 MFA, the plaintiff agreed to pay the defendant $237,887.56 for January 1996, and from February 1996 onwards for 11 months $176,101 as advance payment against all his earnings under the Agent’s Contract and the Agency Manager’s Contract.

11.Under the 1998 MFA, the plaintiff agreed to pay the defendant $150,000 a month as advance payment against all his earned remuneration.  The financing period of the 1998 MFA was a maximum of 12 months from 1 June 1998, and the last payment should be May 1999.

12.By the 1999 Loan Agreement, the plaintiff agreed to grant the defendant a loan in the total sum of $1,692,000 by 12 equal monthly instalments of $141,000 commencing from 30 April 1999, and the plaintiff was authorised to deduct the repayment instalments from the defendant’s commissions, compensation, and other benefits and entitlements payable by the plaintiff to the defendant.  The last instalment should be on 31 March 2000 and the repayment of the 1999 Loan was stated to be on 30 April 2004.  By a letter dated 13 August 2004 (“1^st 13.08.04 Letter”) which was signed by the defendant in acceptance of its terms, the plaintiff agreed to extend the time for repayment of the 1999 Loan until the date of termination of the Agent’s Contract and to write off the indebtedness subject to the fulfilment of certain conditions upon termination (which the defendant was not able to satisfy due to the termination of his Agent’s Contract by notice given by the plaintiff).

13.It was the defendant’s case that the advance payments under the 1996 MFA, 1998 MFA and the 1999 Loan Agreement were guaranteed Top Up Payments under the alleged 1994 Agreement to compensate for the shortfall in Overriding Commissions of the FALs and were not repayable by him.  He alleged that the payments were described as loans in the relevant documentation for the plaintiff’s own accounting purposes, in particular as the plaintiff was intending to be publicly listed.

14.In January 2004, as evidenced by a memorandum dated 8 January 2004 sent by Peter So (“So”), the Chief Operating Officer of the plaintiff, and signed by the defendant to acknowledge acceptance, agreement was reached between the plaintiff and the defendant in relation to the payment of a “Special Non-Contractual Bonus” as from 1 January 2004.  So set out a summary of the defendant’s remuneration package (“the New Package”) as a Family Head in a letter dated 16 February 2004, and it was made up of (i) his Contractual Benefits calculated in accordance with his Agent’s Contract and Agency Manager’s Contract; (ii) his Non-Contractual Benefits, also called the Ex Family Head Benefits, in accordance with the memorandum dated 8 January 2004; and (iii) his Other Benefits.

15.By the 2^nd 2008 Loan Agreement, the plaintiff agreed to lend $20 million to the defendant as a lump sum with interest at 6% per annum, and repayable monthly, over a three-year period from 15 December 2008 until 11 December 2011, in accordance with a schedule attached to the agreement.  The defendant agreed to the plaintiff withholding and applying all Ex Family Head Benefits payable to him for a three-year period from 1 January 2009 to set off the repayment instalments.  There was a provision that the entire amount of the outstanding indebtedness shall immediately become repayable if the Agent’s Contract was terminated for whatever reason.  On the same day, the defendant executed a deed in favour of the plaintiff relinquishing all his Ex Family Head Benefits from 1 January 2012 onwards (“Deed of Relinquishment”).

16.It was the defendant’s case that the $20 million paid to him under the 2^nd 2008 Loan Agreement was not repayable as it was not a genuine loan but represented the settlement sum in full and final settlement for his Ex Family Head Benefits, being part of the Buy Out Entitlement he would be entitled to on termination under the 1994 Agreement as alleged.  He counterclaimed $26.3 million odd as his Buy Out Entitlement following the plaintiff’s termination of his services, pursuant to the alleged 1994 Agreement, as representing the compensation he would become entitled to receive for the family of agents trained and recruited by him and left behind for the benefit of the plaintiff.

Salient findings

17.The key question for the judge was whether the 1994 Agreement had existed.

18.The judge analysed the evidence on this in §§80 to 137 of the judgment.  Although she accepted there were verbal promises from Yang that the defendant and the other FALs would not be financially worse off in joining the plaintiff[2], she found that such verbal promises made by Yang were vague, and that there was no sufficient evidence that such verbal promises resulted in any concrete agreement between the plaintiff and the defendant containing those detailed terms as set out by him, in particular in relation to any guaranteed Top Up Payments or the Buy Out Entitlement[3].

19.The judge concluded it was not at all clear how the Top Up Payments were to be calculated under the alleged 1994 Agreement.  It was not inherently plausible and did not seem to make commercial sense for the plaintiff to agree to guarantee Top Up Payments linked to a 1993 collective income figure for an indefinite period without any conditions, and without any proper record of what that 1993 income of all or each of the FALs was[4].

20.As for the Buy Out Entitlement, the judge found it inherently implausible for Yang to agree to a Buy Out Entitlement for the defendant or any other FALs in 1994 with no conditions and no “lock in” period, and it would seem odd that Yang would be contemplating a termination or discussing the Buy Out Entitlement with the FALs in 1994 when he was enticing them to join the plaintiff[5].  She did not find the defendant’s evidence credible – that he would simply sign documents or contracts without reading them as he seemed to claim[6].

21.The judge held that the financing documents signed by the defendant concerning advance payments were indicative of the plaintiff’s practice to pay to the defendant a sum calculated in accordance with certain formulae or projections by monthly instalments, as an advance payment against his earned remuneration, and whether those excess advances were repayable would depend on the terms of each of the financing documents[7].  On the face of the 1996 MFA and 1998 MFA, any excess of the advance payments under these two MFAs would clearly be accountable and repayable by the defendant[8]. The same applied to the 1999 Loan Agreement[9].

22.The judge accepted that the advances under the MFAs were different from the loans the defendant requested from the plaintiff for his personal purposes, but this did not mean there was no genuine indebtedness created under the MFAs or the 1999 Loan Agreement.  The plaintiff only agreed to write off those indebtedness subject to the conditions in the 1^st 13.08.04 Letter and the letter dated 9 May 2007 (“09.05.07 Letter”), which were not met by the defendant as his Agent’s Contract was not terminated by sole reason of his attaining the age of 65 or his having retired at an earlier age by mutual agreement in writing between him and the plaintiff.  Thus, in the present circumstances, the indebtedness under the 1996 MFA, the 1998 MFA and the 1999 Loan Agreement were clearly repayable by the defendant[10].

23.The defendant alleged that he had signed the 1996 MFA, the 1998 MFA, the 1999 Loan Agreement, the 1^st 13.08.04 Letter and the 09.05.07 Letter on various oral assurances given by Yang and So that the money to be paid under those financing documents was not repayable.  The judge had found that Yang had made vague verbal assurances to the defendant and the other FALs prior to their joining the plaintiff that they would not be financially worse off and she accepted that after joining, the defendant and the other FALs had raised with Yang the matter of repayment of advances under the financing documents arising out of Yang’s oral promises as alleged by the FALs.  This was what was called the “historical problem” that So, who was described as the “company doctor”, was charged with the responsibility to resolve.

24.Having considered the evidence, in particular those documents signed by Yang, the judge did not find there was sufficient evidence that Yang had on behalf of the plaintiff made any assurances to the defendant that the amounts outstanding under the MFAs or the 1999 Loan Agreement were not repayable[11].  And having observed So in the witness stand, the judge found his evidence clear, she did not find him evasive or unreliable as a witness[12].  Having heard So’s evidence, the judge did not find it inherently plausible that he would make the oral assurances as alleged by the defendant.  She did not find what the defendant said was credible and rejected his evidence regarding the oral assurances[13].  She concluded there had been no assurances by Yang and So as alleged to create any estoppel.

25.As to whether the loan in the 2^nd 2008 Loan Agreement was a genuine loan, the judge had concluded there was no 1994 Agreement containing any Buy Out Entitlement on retirement or on termination of the 1994 Agreement as alleged by the defendant.  The defendant further alleged that the $20 million paid under the 2^nd 2008 Loan Agreement was not a repayable loan as he had agreed with Stuart Fraser (“Fraser”), the plaintiff’s Chief Executive Officer, that the plaintiff was to buy out his Ex Family Head Benefits for $20 million and grant him a special loan of $10 million[14].  He also alleged that to induce him to sign the relevant documents, Fraser made oral assurances to him that the $20 million was not repayable and it was described as a loan purely for the plaintiff’s accounting purposes.

26.The plaintiff had maintained that the Ex Family Head Benefits were discretionary benefits to which the defendant had no strict entitlement, but the judge found that after the New Package, the defendant was entitled to be awarded such Ex Family Head Benefits[15].  She also accepted that the 2^nd 2008  Loan Agreement was a buy out of the defendant’s Ex Family Head Benefits structured by the plaintiff as a loan, but the buy out was clearly subject to the conditions of that agreement[16].  This did not mean had the conditions not been met, the $20 million was not repayable by the defendant[17].  She accepted the evidence given in this regard by the plaintiff’s witnesses, Fraser, its Chief Commercial Officer EdwinYung (“Yung”), its Chief Financial Officer Paul Headey (“Headey”) and a regional director and agency leader Paul Ng Wing Keung (“Ng”), whom she found to be reliable witnesses[18].  She found that no oral assurances were made by Fraser as alleged by the defendant[19].  She held that the defendant should know what he was signing and must have been aware of the significance of what he was signing[20].

Approach to appeals on fact

27.Mr Strachan, SC, who appeared for the defendant in this appeal[21], acknowledged he has a heavy burden to discharge in seeking to upset the judge’s findings of fact based on the credibility of witnesses or the preference of the evidence of one witness for another or the assessment of inherent probability, as it is well established that the appeal court would only interfere with such findings if it is satisfied that the trial judge’s conclusion on the facts is plainly wrong.  If it is not so satisfied, the appeal court should defer to the trial judge’s conclusion even if it is in some doubt as to its correctness, as it does not enjoy the advantages enjoyed by the trial judge who received the evidence at first hand.  Having lived with this case in a ten-day trial, the insight the judge had gained of the evidence would be far deeper than this court.

28.It is also well established that the appeal court will not re-try the case.  As we have indicated to Mr Strachan several times in the course of argument, parts of his submissions should have been made in the closing submissions before the trial judge.  They were clearly out of place in this appeal, as they did not inform this court in what way the judge had erred in her evaluation of the facts or in preferring to accept the evidence of the plaintiff’s witnesses to those of the defendant’s.

29.Mr Strachan sought to persuade us that many of the findings he wished to challenge are inferences of fact drawn from primary facts, so the appeal court may be more inclined to disturb such inferences because it should be in as good a position as the trial judge to draw inferences.  But as the Chief Judge has explained in Pang Ketian Sally v Tam Yuk Hung Annie, CACV 147 of 2013, 25 April 2014, the “plainly wrong” test in Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 is nonetheless applicable, unless the finding of fact is based purely on inferences, or otherwise has nothing to do with the witnesses’ demeanour or the trial judge’s having received the evidence at first hand.  The reasoning is as follows:

“26.  It has to be appreciated that nowadays, very rarely can a finding of fact be entirely based on the demeanour of the witnesses, except in “the simplest of cases”: Tradepower (Holdings) Ltd v Tradepower (Hong Kong) Ltd (2009) 12 HKCFAR 417, para 140 (per Litton NPJ).  One situation where demeanour alone may be decisive is where neither rival account is appreciably more inherently probable or improbable than the other, and there is little or no evidence other than the testimony of the protagonists, each with an interest to serve.  In such a situation, “there may be little or nothing for the fact‑finding judge to go on apart from demeanour”: Ting Kwok Keung, para 38.  That represents one “extreme” end of the possible situations.

27.  “At the other extreme”, there can be situations such as where the judge found that he could get nothing from the demeanour of the witnesses, and expressly proceeded to choose between their rival accounts according to the inherent probabilities – see the real example given by Bokhary PJ in paragraphs 38 and 39 of Ting Kwok Keung.

28.  But, as the learned judge pointed out, most cases fall somewhere in between these two extremes.  In fact, unless the contrary is expressly said, one proceeds on the basis that demeanour or credibility did play some part in the finding of fact made by a trial judge, irrespective of whether the judge made any observation with regard to credibility or not.  Ting Kwok Keung, para 39.

29.  he reality, as explained in paragraph 40 of that case, is that no judge can afford to be complacent about his ability to arrive at the truth by assessing demeanour; but, likewise, no judge can afford to be complacent about his ability accurately to say which story is more probable.  Therefore, in practice, almost invariably trial judges are expected to and indeed do take into account both demeanour and inherent probability in arriving at their findings of fact, save in those exceptional circumstances falling within either of the two extremes explained above.

30.  It was in the context of that discussion that Bokhary PJ, in Ting Kwok Keung, came to the conclusion that as a general rule, the Court of Appeal, which does not enjoy the advantages enjoyed by the trial judge who received the evidence at first hand, should only disturb a finding of fact if it is satisfied that the same is “plainly wrong”: paras 41 and 42.

31.  This “plainly wrong” test, in other words, is applicable unless the finding of fact is based purely on inferences, or otherwise has nothing to do with the witnesses’ demeanour or the trial judge’s having received the evidence at first hand.  In this regard, it is worth remembering that when Bokhary PJ referred to the dichotomy between a finding of primary fact and a finding of fact made by a process of inference in paragraph 34 of the judgment, he referred to Benmax v Austin Motor Co Ltd [1955] AC 370 as an example to illustrate the second category of finding of fact based on inference.  As explained by the judge, the issue of fact in that patent case was whether the invention claimed involved an inventive step.  No question of credibility arose.  By a process of inference, the trial judge found that the invention claimed involved an inventive step. Also by such a process, the Court of Appeal reversed the finding.  The House of Lords affirmed the Court of Appeal’s decision and pointed out that whilst there is a universal reluctance to reject a finding of specific fact, particularly where the finding could be founded on the credibility or bearing of a witness, there is no less a willingness to form an independent opinion about the proper inference of fact, subject only to the weight which should, as a matter of course, be given to the opinion of the trial judge (per Viscount Simonds at page 374).

32.  Paragraph 14(b) of Tin Kwong International Enterprise[22]should therefore be understood in the light of the above discussion.  There, this court (differently constituted) was not giving a definition of a finding of primary fact, nor was it defining a finding of primary fact as limited to one based only on the credibility of the witnesses or the preference of the evidence of one witness to that of another.  For that would have been an extremely narrow definition of a finding of primary fact which could seldom be satisfied, given the rarity of situations where a finding of fact could justifiably be made on the basis of credibility or demeanour alone.  A finding of primary fact includes, of course, a finding which is based entirely on credibility or demeanour (where that is appropriate).  But, in my view, it also includes a finding of fact which is partly based on demeanour and partly based on inherent probabilities, which is the commonest of all situations.  To challenge such a finding of primary fact, the appellant must succeed in persuading this court that the finding is “plainly wrong”.”

30.The present case comes within the majority of situations where the trial judge took into account the demeanour of the witnesses and the inherent probabilities in arriving at her findings, which are findings of primary fact.  Where her findings of fact were arrived at by a process of inference drawn from findings of primary fact, it is clear that such findings were not based on inferences alone without involving any question of credibility or the demeanour of witnesses. So for this court to overturn such findings of fact, the defendant would have to satisfy us that the findings are “plainly wrong”.

31.The other point taken by Mr Strachan on the general approach was that the judge had erred in first using the demeanour of the witnesses to form an overall view as to their credibility, and then utilising this general impression in determining the issues in dispute.  He contended that this approach to the evidence was fundamentally flawed, as the judge should have considered all the materials in the case, including the documentary evidence and inherent probabilities, as part of the overall process of assessing credibility.  He submitted that this error caused the judge to err in generally making favourable findings as to the credibility of the plaintiff’s witnesses and unfavourable findings as to the credibility of the defendant and his witnesses.

32.In support of this, Mr Strachan cited Tradepower (Holdings) Ltd v Tradepower (Hong Kong) Ltd (2009) 12 HKCFAR 417, in which Ribeiro PJ passed these comments at §24 on what the trial judge had said in finding certain witnesses credible:

“… The Recorder found them both to be credible witnesses. He concluded:

…I am satisfied that I should accept their evidence unless any particular aspect of their evidence is shown to be wrong by undisputed contemporaneous documents or other incontrovertible evidence.

I would comment in passing that this is an unusual and somewhat unsatisfactory approach. Inconsistencies between the testimony of a witness and other items of evidence have to be evaluated as part of the overall process of assessing credibility. It is not satisfactory first to form the view that the witness is generally credible and then to carve out exceptions in areas where inconsistencies with other evidence are found. Such an approach casts doubt on the initial assessment of credibility.”

33.Mr Strachan submitted that the judge fell into the same error in §§60 to 62 of the judgment.  These paragraphs read as follows:

“60. I have had the chance of observing the demeanour of each witness, and will deal with their evidence later in this judgment. The Company’s 6 witnesses joined the Company after the FALs and they would not have any personal knowledge of the alleged 1994 Agreement or the discussions which D said he had with Yang. Notwithstanding this, I do not find those witnesses unreliable.

61. So far as D is concerned, he was already an experienced insurance agency leader/manager when he joined the Company, and as Fok J, as he then was, had said of D, he must have been aware of the significance of written contractual arrangements and I find it incredible that he was not able to produce any note or record or any documents in support of his case. Mak and Lau were also experienced agents when they joined the Company and their evidence must be viewed in the same light. As for Chan and Fung, their evidence was not really challenged. I find them both reliable witnesses.

62.  For the avoidance of doubt, insofar as the matters set out in this judgment differ from the evidence of a witness, this is because I have preferred the evidence of another witness, or because I consider that the documents produced confirm my finding of fact.”

34.I am wholly unable to read the above paragraphs as indicative of the judge first forming an overall view that the plaintiff’s witnesses were generally credible and then carving out exceptions where their evidence was inconsistent with undisputed or incontrovertible evidence.

35.These three paragraphs appeared under the heading of “The Factual Witnesses” in the judgment. In §60, the judge recorded that she had observed the demeanour of each of the witnesses called on both sides, and went on to say she would deal with their evidence later in the judgment.  She then mentioned one particular aspect about the evidence of the plaintiff’s witnesses, that they had no personal knowledge about the alleged 1994 Agreement or the defendant’s discussions with Yang, and expressed her view that she would not find their evidence unreliable notwithstanding that.

36.The judge turned her attention to the defendant and his witnesses in §61.  She singled out for mention one notable aspect concerning the evidence of the defendant, Mak and Lau, namely, that they were not able to produce any note, record or document in support of the case advanced by the defendant.  She viewed this against their background, that they were all experienced insurance agents and found it incredible that none of them were able to come up with any supporting document.  As for the other two witnesses called by the defendant, the judge noted that their evidence was not really challenged and she found them reliable witnesses.

37.In §62, the judge stated for the avoidance of doubt that insofar as the matters set out in the judgment differed from the evidence of a witness, this was because she had preferred the evidence of another witness or she had accepted documentary evidence to the contrary.

38.I can see nothing to criticise about these paragraphs.  Moreover, when the judge came to analyse the evidence for each of the disputed issues in the ensuing paragraphs of the judgment, one can clearly see that she had evaluated the evidence as an overall process, by taking into account her observations of the demeanour of the witnesses, the inherent probabilities, the documentary evidence or the lack of it, before reaching her conclusion on the findings of fact.  In §84, she cited Lee Fu Wing v Yan Po Ting Paul [2009] 5 HKLRD 513 at §53 for a similar approach in assessing the credibility of a party’s case on a particular issue.

39.I turn to consider the arguments challenging the specific findings.  They fall under three headings: the 1994 Agreement[23]; the recoverability of the purported loans[24]; and the 2^nd 2008 Loan Agreement[25].

The 1994 Agreement

40.Mr Strachan made a number of points to challenge the judge’s finding that the defendant failed to establish the existence of the 1994 Agreement with the terms as alleged.

41.Firstly, he took issue with the judge’s holding that Yang’s verbal promises were vague, that there was insufficient evidence such verbal promises resulted in any concrete agreement, and that the alleged agreement was not inherently plausible and lacking in commercial sense[26].  He submitted that the judge had misapprehended the defendant’s case, which was that Yang had made verbal promises that the FALs would not suffer financially and the details were to be sorted out each year in discussions between Yang and the defendant.  He contended that the arrangement was entirely consistent with commercial sense, as after having reached a broad agreement, Yang and the FALs chose to leave the details of the Top Up Payments to further discussions on a year-to-year basis, given their relationship of trust and the fact that the performance of the FALs would vary from year to year.

42.Secondly, Mr Strachan contended that the judge was in error in accepting So’s evidence as reliable notwithstanding that So had not asked Yang to clarify the “historical problem” or kept a note or record of his conversation with the then chairman of the plaintiff’s board, Francis Yuen, who was not called by the plaintiff to testify[27].  He submitted that the judge should have found So’s explanation unconvincing.  The judge unjustifiably drew an adverse inference against the defendant due to the lack of any record in relation to the 1994 Agreement, as this could be explained by the relationship of trust between Yang and the defendant.  She ought to have drawn an adverse inference against So for the lack of record on his part.

43.Thirdly, Mr Strachan contended that even if the judge should find that the 1994 Agreement were not a fully enforceable binding agreement, she should have considered her finding that Yang had made verbal promises to the FALs they would not suffer financially in joining the plaintiff would be a critical element of the context and background and strongly supportive of the defendant’s case that the advances were not recoverable.  The judge should have found further that building on such initial verbal promises, Yang had given express assurances to the FALs that the advances under the 1996 MFA, 1998 MFA and the 1999 Loan Agreement were not repayable.

44.Fourthly, he criticised the judge’s finding that it was inherently implausible for Yang to have agreed a Buy Out Entitlement with no conditions and no lock-in period and that it seemed odd for the same to be discussed when Yang was persuading the FALs to join the plaintiff[28].  He submitted that the judge had failed to consider properly it was the defendant’s case that it had been specifically negotiated and agreed that the FALs would be entitled to be bought out with no conditions attached, and that it was the defendant’s case the Buy Out Entitlement was agreed for the very reason the FALs did not receive any buy out on leaving AXA.  He laid emphasis on the evidence of Mak and Lau (that they regarded themselves as entitled to be bought out but finally agreed to conditions only to co-operate with the plaintiff) and Yung (that the plaintiff had an obligation to buy out the families of agents of Mak and Lau) and submitted that the judge had failed to consider such evidence properly.  For good measure, he relied on the defendant’s closing submission at the trial why the Buy Out Entitlement was inherently plausible.

45.I am not persuaded by any of the above submissions of Mr Strachan that there is valid basis to interfere with the judge’s finding that the defendant had failed to establish the 1994 Agreement as alleged.  Repeating the submissions made for the defendant in the court below or putting a slightly different slant to those submissions whilst glossing over the weaknesses in the defendant’s evidence as the judge had analysed simply failed to show in what way the judge had gone wrong, let alone plainly wrong.  Nor do I think the judge had misapprehended the defendant’s case in any way.  In §73 of the judgment, she had clearly set out the defendant’s case that pursuant to the 1994 Agreement, details were to be sorted out for subsequent years and that he and Chau had discussions with Yang during 1995 to 2000 on the amount of Top Up Payments each year in the form of purported loans.  This is a bad point in any event, because even if the plaintiff and the FALs did have an “agreement to agree”, that would not have been contractually binding.

46.The judge was fully entitled to take the view that the alleged agreement was lacking in commercial sense, both as regards the Top Up Payments and the Buy Out Entitlement, for the cogent reasons given in §§118, 122 and 123 of the judgment.

47.As for the criticisms on the evidence of So, these criticisms were duly noted in §99 of the judgment.  The judge did have regard to those criticisms in deciding to accept So’s evidence.  Having observed him in the witness stand, she found his evidence clear and did not find him evasive or unreliable[29].  There is just no room to interfere with her finding on So’s testimony.

48.Mr Strachan’s attempt to make something of the finding that Yang had made initial verbal promises to the FALs, even if that did not amount to a binding agreement, was ill conceived.  As analysed by the judge, the promises were far too vague and lacking in substance to be given effect to.  That was why there was dispute even before Yang left the plaintiff and it became necessary to enlist So’s help to sort out the “historical problem”.  The judge was entitled to find on the totality of the evidence that neither Yang nor So had given any assurances to the FALs that the advances under the 1996 MFA, 1998 MFA and the 1999 Loan Agreement were not repayable when they signed these documents to acknowledge acceptance of the terms, and that whatever might have been promised by Yang was resolved initially by a letter from the plaintiff to the FALs and regional directors including the defendant dated 9 May 2003 (“09.05.03 Letter”), and subsequently by the 1^st 13.08.04 Letter and then the 09.05.07 Letter.

49.The evidence of Mak, Lau and Yung mentioned by Mr Strachan on the Buy Out Entitlement and practice was not sufficient to cast doubt on the judge’s finding in this regard.  As pointed out by Mr Bleach, SC[30], Yung had no part to play in the negotiations which led to the FALs leaving AXA and joining the plaintiff and Yung did not join the plaintiff until November 2007.  In any event, the relevant evidence of Mak, Lau, the defendant, as well as the evidence of Johnny Fung, the plaintiff’s former Chief Agency Officer, was mentioned in the judgment[31].  The judge was entitled to give such weight to their evidence as she thought fit.

Recoverability of the purported loans

50.The analysis of the evidence on this issue likewise took up a substantial part of the judgment.  The judge first examined the documentary evidence and arrived at the conclusion that according to the terms of the documents signed and acknowledged by the defendant, the debts under the financing documents were clearly repayable.  She then considered the evidence relating to the alleged oral assurances given by Yang and So that the advances were not repayable notwithstanding the financing documents, and concluded that no assurances were given by Yang and So to create any estoppel.

51.Mr Strachan attacked the findings of fact in this manner.

52.Firstly, he said that the judge had failed to consider the evidence of all those witnesses who could give direct evidence on what Yang said about the recoverability of the purported loans.  These witnesses were the defendant, Mak and Lau.  He then mentioned parts of their evidence which supported the defendant’s case that the plaintiff required the advances be presented as purported loans for its accounting purposes, particularly in view of the public listing of the plaintiff’s shares planned in 1999.

53.It is not a good argument to simply repeat or single out those parts of the evidence favourable to the defendant.  What the judge did was to look at the evidence of these witnesses in the totality[32], against the documentary evidence or the lack of it and testing their evidence by the inherent probabilities.  Mr Strachan has simply not shown any basis for this court to interfere with the judge’s finding in this respect.

54.Next, Mr Strachan submitted that the judge failed to consider that the manner in which the defendant was remunerated from the commencement of his engagement by the plaintiff in February 1994 until 2003 (when the income of the FALs exceeded their collective income for the last year at AXA, as alleged by the defendant[33]) provided compelling evidence that the 1994 Agreement had been implemented.  Thus, during 1994 to 2003, the defendant was paid according to a continuous sequence of financing documents, some of which were consistent only with his being paid irrecoverable Top Up Payments (being the Manager’s Guarantee Finance Schedule signed in 1994 (“1994 MGFS”) and the Manager’s Guarantee Finance Schedule signed in April 2001 (“2001 MGFS”)) and all of which were consistent with his being paid irrecoverable Top Up Payments.

55.I also reject this submission.  It is plain that the judge had fully taken into account the pattern and mode of the financing paid to the defendant during 1994 to 2003[34].  The judge accepted Yung’s evidence in this regard[35] and found that this pattern and the financing documents signed were equally consistent with the plaintiff’s case and they were only indicative of the practice of the plaintiff to pay to the defendant a sum calculated with certain formulae or projections, by monthly instalments, as an advance payment against his earned remuneration.  It was also the practice at AXA that the agents were given “commission advance” to be adjusted at the end of each year.  The judge found that such practice had nothing to do with the alleged 1994 Agreement and whether any excess of the advance payments would be accountable and repayable would depend on the terms of each of the financing documents[36].  Having conducted a thorough review of the terms of the 1996 MFA, the 1998 MFA and the 1999 Loan Agreement, she concluded that the indebtedness under these agreements was clearly repayable[37].

56.To back up his submission that the purported loans were not repayable, Mr Strachan pointed to the fact that the plaintiff did not seek repayment of the excess on the expiration of the 1996 MFA or the 1998 MFA and submitted that it was the evidence of Kelly Chan, a former senior manager of the plaintiff, that she received instructions not to take action to enforce repayment of any of MFAs.  He prayed in aid this question and answer in the cross-examination of Kelly Chan[38]:

“Q. You mentioned a few moments ago that you were told not to take any action in respect of the 1995 MFA. Is it the case that you were also given a similar instruction not to take any action in respect of the 1996 or the 1998 MFA?

A. I believe I did receive the instruction.”[39]

57.What the judge said about the evidence of Kelly Chan was that “she did not receive instructions” from the plaintiff to take action against the defendant to recover any outstanding amounts[40], not that she had received instructions not to take recovery action. Mr Strachan submitted the judge was in error about this.

58.There was no error in the judge’s understanding of this witness’ evidence, as shown by the relevant parts of the transcript:

“Q. For example, the statement of account in 2003, did you take any follow-up action when you saw amounts outstanding there?

A. Not at that time, because at that time my knowledge was that the company would not take any action regarding that outstanding amount.

Q. Where did you get that knowledge from?

A. I was informed by my then direct or indirect supervisor.

…

Q. … What were you told by the supervisor who told you that these loans could remain outstanding?

A. Of course, I would not remember the exact wording I was told at that time. For example, at the end of the financial year of 1995, regarding that sum of money, well, it had to be repaid so the then supervisor informed me that the action might have to be pending. And from that time on, I had not received any further instructions for me to take any further action. So at the time when I prepared this 2003 statement, up to that time on, I had not yet taken any debt collection action.”[41]

59.This was then followed by the exchange relied on by Mr Strachan after another question and answer.  Quite clearly, counsel did not summarise correctly the witness’ answer relating to the 1995 MFA when he put the question to her in respect of the 1996 or 1998 MFA in that exchange quoted by Mr Strachan.  Kelly Chan did not say she had received instructions not to take action to chase for repayment.

60.In any event, in making a finding whether Yang and So had given the alleged assurances, the judge had taken into account Kelly Chan’s evidence that she was never instructed by the management to take action against the defendant to enforce repayment of the advances under the financing documents.  She did not find Kelly Chan’s evidence of much help in deciding whether the alleged 1994 Agreement existed[42].  There is nothing in this point.

61.Mr Strachan further submitted that the plaintiff had a well established practice of dressing up transactions as loans for accounting purposes, pointing to the buy outs of Mak and Lau being structured as cash loans, and the $5 million special payment made to Ng and the defendant in November 2008 as a result of a recruitment scheme they had worked on.  In contrast with genuine loans where the plaintiff had required the defendant to provide security, the defendant was not required to provide any security for the 1996 MFA, the 1998 MFA or the 1999 Loan Agreement.  Further, although interest was charged in the 1999 Loan Agreement, it was waived by the third letter dated 15 October 2002 (“3^rd 15.10.02 Letter”) to the defendant signed by Yang as from October 2002 and interest charged on the 1999 Loan from April 1999 to September 2002 amounting to $484,968.06 was cancelled by a “chargeback deferment” as seen from the commission statement for October 2002.  The defendant’s evidence on the waiver of interest was accepted by the judge[43].

62.That was also a submission that had been made to the judge, albeit not in exactly the same terms.  She had considered the contention that the plaintiff had a well established practice of dressing up transactions as loans and the examples of the buyouts of Mak and Lau and the $5 million special payment made to Ng and the defendant[44].  She noted that the buy outs and the special payment of $5 million were subject to conditions (unlike the Top Up Payments alleged by the defendant which were not subject to conditions), and took the view whether the plaintiff had structured the transactions as loans for accounting purposes was irrelevant, as the recipients had agreed to those payment conditions[45].  I do not think there can be any valid criticism here.

63.As for the plaintiff adopting different types of financing documents for the advances, and charging interest and requiring security to be furnished in some instances, the judge did not think this would be sufficient to support the defendant’s case that the outstanding amounts under the 1996 MFA, the 1998 MFA and the 1999 Loan Agreement were not repayable[46].  She recognised that the advances under the MFAs were different in nature from the loans the defendant requested from the plaintiff for his personal purposes, but held that this did not mean there was no genuine indebtedness under the MFAs or the 1999 Loan Agreement, as agreed and acknowledged by the defendant in the 1^st and 2^nd 13.08.04 Letters and the 09.05.07 Letter[47].

64.The judge had considered the waiver of interest, and took the view that the 3^rd 15.10.02 Letter, whilst confirming that interest was waived on the 1999 Loan as from October 2002, also referred to the amount paid under the 1999 Loan Agreement as a loan and stated specifically that the waiver of interest should not prejudice any accrued rights of the parties under that agreement.  She was entitled to find this letter as clear evidence that Yang regarded and the defendant acknowledged the 1999 Loan as repayable from the defendant[48].

65.Mr Strachan contended that the 1^st 13.08.04 Letter and the 09.05.07 Letter (by which the defendant acknowledged his indebtedness under the 1996 and 1998 MFAs and the 1999 Loan Agreement and the plaintiff agreed to write off the indebtedness subject to the fulfilment of conditions, which did not include the termination of the Agent’s Contract on 30 days’ notice) have no or minimal evidential value as the plaintiff just required the defendant to sign these letters knowing that the defendant did not accept them as true.  This is contrary to the evidence accepted by the judge, who found the defendant a shrewd and meticulous character[49] and rejected his explanation why he had not insisted on having something in writing or why he had not kept a contemporaneous record of what he alleged was assured by So[50].

66.Lastly, it was contended for the defendant that the judge failed to consider (as this was not mentioned in the judgment) the defendant’s arguments that the rationale put forward by So how the arrangements in the letters issued by the plaintiff and countersigned by the defendant in 2002, 2003, 2004 and 2007 were structured was nonsensical or not readily comprehensible, such as capping the special year-end bonus.  Those arguments were advanced in support of the defendant’s case that the letters were signed on the assurance of So they were for accounting purposes only.

67.The mere fact that the judge did not deal with this in her judgment of 69 pages does not mean she had not considered this.  So was cross-examined extensively on this topic[51].  The arguments made for the defendant in §31 of the closing submission at the trial are in essence the questions taken up with So in cross-examination, which he had answered and explained why he disagreed with the suggestion put to him repeatedly that the cap imposed was purely for accounting purpose.  He stood firm on his evidence that the solution devised was for all agents involved, not just for the defendant, he had to ensure fairness to all the agents and the solution must be approved by the management committee and the board.  The judge had earlier found his evidence “clear” and did not find him an evasive or unreliable witness[52].  Having read the relevant parts of the transcript, I am not persuaded that the judge was plainly wrong in accepting So’s explanation and rejecting the defendant’s contention that the arrangements stated in the letters of 2002, 2003, 2004 and 2007 were purely for accounting purpose.

The 2^nd 2008 Loan Agreement

68.The background to the 2^nd 2008 Loan Agreement was that the defendant needed a loan urgently at the time and the plaintiff seized this as an opportunity to discuss with the defendant and Ng (being the only two senior agents/agency managers who were still entitled to Ex Family Head Benefits) in relation to the cancellation of such of their benefits[53].  The judge found on the evidence that the 2^nd 2008 Loan Agreement was a buy out of the defendant’s Ex Family Head Benefits structured by the plaintiff as a loan, it was clearly subject to the conditions set out therein, and Fraser did not make any oral assurance to the defendant the money paid to him under that agreement was not repayable.  She accepted the evidence of the plaintiff’s witnesses the expectation was that the defendant would stay in service for the next three years, and would earn Ex Family Head Benefits during that period which would be used to pay off the loan of $20 million.  Hence, the Deed of Relinquishment was in respect of such benefits from January 2012 onwards.

69.Mr Strachan submitted that the judge failed to acknowledge the artificiality of the 2^nd 2008 Loan Agreement and should have held that it was a loan in form only for accounting purpose and not repayable.  The artificiality of buying out the defendant’s Ex Family Head Benefits resembled the plaintiff’s buying out of the interests of Mak and Lau in their family of agents in August 2008 in that these transactions were also structured as cash loans which were set off against consultancy fees to Mak and Lau and were written off in January 2012.  Mr Strachan further contended that as the 2^nd 2008 Loan Agreement was a buy out of the Ex Family Head Benefits, it made no commercial sense that the price should be repayable to the plaintiff under any circumstances, and, because of the lack of commerciality, there was high likelihood that Fraser would have given the oral assurance to the defendant as alleged.  He reiterated the defendant’s case that the defendant had an unconditional entitlement to have his Ex Family Head Benefits bought out under the alleged 1994 Agreement.

70.The judge was clearly aware of the background of this agreement and had considered the evidence on both sides how it came to be structured as a loan.  As the judge had remarked, there was no dispute the defendant needed to borrow $30 million.  So even assuming there were no buy out, or cancellation agreement, and the $20 million was a straightforward loan from the plaintiff to the defendant, like the loan of $10 million under the 1^st 2008 Loan Agreement, it would have been repayable by the defendant[54].

71.The judge had earlier rejected the defendant’s case he was entitled to be bought out without conditions under the alleged 1994 Agreement.  She was entitled to find the transaction was a buy out of the Ex Family Head Benefits but subject to conditions, and if the conditions had not been met, the defendant was obliged to repay the amount outstanding to the extent that the $20 million had not been paid off.  She was entitled to accept the evidence of the plaintiff’s witnesses that the arrangement to off-set the loan over a three-year period was to secure a lock-in period of the defendant as a valued agency head, which was important to the plaintiff[55].

72.There was no question that the transaction did not make commercial sense from the plaintiff’s position.  And as for the defendant, as submitted by Mr Bleach, it was not inconceivable that he was willing to give up his Ex Family Head Benefits as he had difficulty in financing properties he had purchased and would be getting his entitlements for three years in one lump sum up front.  The judge accepted the evidence of Ng, who had signed a similar document to the 2^nd 2008 Loan Agreement, that Ng did not think the plaintiff would terminate his appointment during the lock-in period of three years at a whim[56].

73.It is not sufficient merely to say that the judge had misapprehended the defendant’s evidence at §202 of the judgment.  There is no basis to interfere with the judge’s findings of fact relating to the 2^nd 2008 Loan Agreement.

Other matters, conclusion and costs

74.As I have rejected the defendant’s challenge to the judge’s finding that no oral assurances were given by the plaintiff’s representatives, it is not necessary to deal with the submissions on the entire agreement provision in the various documents signed by the defendant.

75.The arguments on the counterclaim may be dealt with shortly.  There is no factual basis to mount the counterclaim for $26 million odd representing the defendant’s compensation for the family of agents he left behind on the termination of his services, as the defendant has not established any valid ground for this court to interfere with the judge’s finding that there was no Buy Out Entitlement pursuant to the alleged 1994 Agreement.  There was no misapprehension of the defendant’s case which the judge had taken into consideration[57].  The judge was entitled to take the view that it was inherently implausible for Yang to agree to a Buy Out Entitlement for the defendant or any other FALs in 1994 with no conditions and no lock-in period[58].

76.I would dismiss the appeal and make an order nisi that the defendant should pay the plaintiff’s costs with a certificate for two counsel.

Hon Barma JA:

77.I agree with the judgment of Kwan JA.

Mr Mark Strachan SC & Mr Martin Kok, instructed by Leung & Associates, for the Defendant (Appellant)

Mr John Bleach SC & Mr Timothy Harry, instructed by Freshfields Bruckhaus Deringer, for the Plaintiff (Respondent)