AIA INTERNATIONAL LIMITED (formerly known as AMERICAN INTERNATIONAL ASSURANCE COMPANY (BERMUDA) LIMITED) V. LEE HOI YEE Defendant

DCCJ986/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 986 OF 2013

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DECISION

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Introduction

1.  This is an appeal of AIA International Limited (“AIA”) against the decision of a master made on 20 August 2013 whereby its summary application against Ms Lee Hoi Yee (“Lee”) by its summons dated was dismissed with costs to Lee summarily assessed at HK$4,000.  

2.  The master at the same time granted leave to Lee to file and serve an Amended Defence and Counterclaim within 28 days from 20 August 2013. Lee took out a summons dated 12 September 2013 to extend the time until 28 days after the determination of the appeal of AIA. This is also the hearing of her summons.

3.  Mr Lung, counsel for AIA, indicates that in the event that, after hearing the appeal, this court allows Lee to defend the action, AIA would have no objection to her application for an extension of time. I hence deal with the appeal of AIA first. There is no dispute that the appeal should be dealt with by way of an actual rehearing of the summary application of AIA: Hong Kong Civil Procedure 2013 Vol.1 §58/1/2 at p.1018.

Background Facts  

4.  The claim of AIA is contractual in nature and the background facts upon which its claim is found are largely not in dispute. They can be summarized as follows.

5.  AIA hardly needs introduction. By a written agreement entitled “Career Representative’s Contract” (“the Agreement”) dated 1 September 2008, Lee became an authorized agent of AIA. It was agreed between the parties that Lee was authorized to procure and transmit to AIA applications for all forms of life insurance, annuities and any other form of accident and health insurance business within Hong Kong. The remuneration for Lee’s procurement services under the Agreement was specified in a schedule to the Agreement.

6.  The relevant provision that AIA is seeking to enforce in this action is Clause 5, which provides as follows,

“If the Company (AIA) shall refund the premium to the policyholder on any policy and cancel the policy for any reason whatsoever the Career Representative shall repay to the Company (AIA) on demand the amount of Commissions and Bonuses received on the premiums so refunded.”

7.  Procured by Lee, one Mr Kwok Shu Tin (“Kwok”) purchased an insurance policy dated 9 February 2009 from AIA (“the 1^st Policy”).

8.  Kwok again through the procurement of Lee purchased another insurance policy dated 6 April 2009 from AIA (“the 2^nd Policy”).

9.  Pursuant to the Agreement, AIA paid Lee a total sum of HK$246,563.54 as her commissions in respect of the 1^st and 2^nd Policies. Lee does not dispute her receipt of the said commissions.

10.  By her letter to AIA dated 30 March 2010, Lee resigned from the post of Financial Planner and hence terminated the Agreement.  

11.  By a document dated 20 May 2010, Kwok opted not to pay increased premium in the sum of US$30,040.44 for an amendment of the 2^nd Policy and instead he opted to cancel the 2^nd Policy and ask for a refund.

12.  Likewise, by another document dated 3 June 2010, Kwok opted not to pay increased premium in the sum of US$6,207.00 for an amendment of the 1^st Policy and instead he opted to cancel the 1^st Policy and ask for a refund. 

13.  Accordingly, AIA cancelled the 1^st and 2^nd Policies and refunded to Kwok US$32,266.14 and HK$350,401.27 for the two Policies respectively.

14.  AIA then turned to Lee for a refund of all the commissions she had received on account of the 1^st and 2^nd Policies pursuant to Clause 5 of the Agreement. The total sum demanded was HK$200,117.78 (“the Sum”), after deduction of a sum of HK$272.16 to her credit.

15.  By a letter dated 15 July 2011 issued by the former solicitors of AIA and by another letter 4 January 2013 issued by AIA’s present solicitors, Messrs. Hom & Associates, AIA demanded Lee to repay the Sum but Lee has refused to make the refund. Therefore, on 22 March 2013, AIA commenced these proceedings to recover the Sum from Lee.

Legal Principles

16.   There is no dispute about the applicable legal principles relating to the summary judgment application of AIA. They are well-settled and I need only to be brief. Lee bears the burden to show a reasonable defence and/or triable issues by way of evidence condescending upon particulars. No trial on affidavit evidence is permissible. The question to be asked is whether Lee’s evidence is believable rather than whether it is to be believed.

17.  This application involves little credibility issue. The central question is the enforceability of Clause 5 in all the circumstances of the instant case.

Reasonable defence/Triable issues?

18.  From the record of the proceedings before the master, the discernible reason for the dismissal of AIA’s application is that there is a doubt as to whether Clause 5 was still enforceable after the termination of the Agreement on 30 March 2010 resulting from Lee’s resignation.

19.  Apparently, Lee, who also then acted in person, did not raise this matter herself. At this hearing, Lee confirms that she relies on this contention in resisting AIA’s application.  I shall deal with this issue first.

20.  This issue involves a construction of Clause 5. The following dictum of A Cheung J (as he then was) in Chong Cheng Lin Courtney v Cathay Pacific Airways Ltd [2005] 2 HKC 477 (§24) is apposite:

“First of all, a matter of general principle, when the contract comes to an end by breach, it does not necessarily follow that all the terms in a contract must also come to an end at the same time. Depending on the nature of the terms and the intention of the parties to be gathered from the contract itself and the admissible factual matrix, some of the terms may survive the termination of contract by breach.”

21.  I note that the foregoing dictum concerned a contract terminated by breach. In the present case, the Agreement was termination with no fault of either party. However, in my judgment, the foregoing dictum should be equally applicable to the construction of Clause 5. Whether a particular term can survive termination should be a matter of inference taking into account the nature of the term and the intention of the parties and not really to be decided with regard to how the contract is terminated absent express provisions.

22.  Further, context is of cardinal importance to construction of contractual terms: Fully Profit (Asia) Limited v The Secretary For Justice for and on behalf of the Directors of Lands, unreported, FACV17/2012, 13.5.2013 per Chief Justice Ma at §15, adopting the statements of principle enunciated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (at 912H-913F) and Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCHAR 279 at 296D-I.

23.  Bearing these principles in mind, I turn to consider the background of the Agreement and the commercial purpose of Clause 5 to find out whether it can survive the termination and thus is still enforceable against Lee.

24.  The Agreement governs the relationship between AIA and its authorized agents. It dictates when and how its agents can earn their commissions. It is plain that AIA depends on its agents to procure business and hence make profits out of concluded insurance policies. Its agents are entitled to share the fruits by earning commissions with reference to such profitable businesses procured by them. In the event that the businesses so procured by way of insurance polices have to be cancelled and refund has to be made to those policyholders, AIA cannot reap any profits from such aborted businesses. It follows that no fruits can be shared with its agents out of such aborted businesses and the agents should refund any commissions previously received to AIA.

25.  I believe that this is the raison d’etre of Clause 5. Besides, it also serves an important function as pointed out by both Mr Lung and Lee. It can avoid an agent retaining unjust profit after his/her resignation by adopting dubious/underhanded tactics so as to procure businesses for AIA. But for Clause 5, an agent would have been entitled to retain commissions even out of a rightly rescinded policy due to his own faults such as misrepresentation.

26.  In my view, Clause 5 can also avoid any collusion between an agent and a policyholder causing loss to AIA.

27.  I should make it clear that in the present case, it is not the case of AIA and AIA does not make any allegation that Lee has committed any misconduct in respect of the two Policies.

28.  Given the clear purpose and functions of Clause 5, in my judgment, it must be intended by the parties that Clause 5 must survive the termination of the Agreement on its true and proper construction. I therefore reach the conclusion that Clause 5 is still enforceable despite Lee’s resignation in March 2010.

29.  For the avoidance of doubt, Mr Lung expressly indicates that he does not rely on any implied term of the Agreement to extend the life of Clause 5 beyond termination.

30.  I should add that Mr Lung also draws my attention to the decision of the Court of Appeal in Massmutual Asia Limited v Leung Kwok Key, unreported, CACV 158-159/2003, 5.5.2004 where a similar clause was enforced despite termination of the main insurance agency contract. Whilst the clause and the context of the relevant contract in that case do appear to be akin to those of the present case, I do not think I can derive much assistance from the authority. After all, I am dealing with the construction of a non-identical clause and there was no construction issue in that case.

31.  Mr Lung informs this court that all other contentions of Lee in her homemade defence and affirmations were rejected by the master. Be that as it may, given the nature of this hearing, I should proceed to assess their merits.

32.  Lee urges me to consider the fact that AIA is a sizable multi-national insurance corporation whereas she was a novice when entering into the Agreement. As such, she contends, that in the absence of AIA’s full explanation of the effect of Clause 5, she fell prey to the trap and it is unjust for AIA  to enforce the provision against her.

33.  I cannot accept her contention. As rightly submitted by Mr Lung, relying on the dicta of Rix LJ in ING Bank NV v Ros Roca SA [2012] 1 WLR 472 at §92, AIA did not owe Lee any duty to explain to her the terms of the Agreement. It was a commercial contract and the parties of contractual capacity entered into the same by consent. I cannot see how such a duty could be imposed upon AIA. Moreover, I cannot accept that Clause 5 is intended to be a trap for the unwary. It is, in my view, perfectly justifiable to protect the legitimate interest of AIA.

34.  Lee further submits that the terms of the Agreement are to be interpreted by a reasonable person. A reasonable person, she contends, would add the word “reasonable” between the words “any” and “reason” in Clause 5. Hence, if a policy is cancelled for any unreasonable reason, an agent is not liable to refund any commissions and bonus received.

35.  She further develops her arguments by asserting that the 1^st and 2^nd Policies were cancelled because of the fault and negligence of AIA. In the first place AIA should not have granted the Policies without adequate consideration of Kwok’s medical condition. AIA should also not have asked Kwok to increase the premiums of the Policies merely because of unverified allegations of his physical woes. But for such unwarranted demands, Kwok could not have opted for cancellation of the Policies after they were in existence for some time.

36.  For the sake of completeness, I put it on record that AIA makes a bare denial of such allegations by Chung Kwok Kei, Assistant Manager, in his reply affirmation. I do not think I am in a position to decide on the veracity of such allegations. It is simply not necessary for me to do so for the following reasons.

37.  Lee is effectively relying on an implied term to the effect that a policy must be cancelled with reasonable reasons to trigger off the operation of Clause 5. I, however, do not think this implied term can satisfy the well-known 5 requirements of an implied term set out by Ribeiro PJ in Kensland Realty Ltd v Whale View Investment Ltd & Anor. (2001) 4 HKCFAR 381 at §59. For a term to be implied, it must (1) be reasonable and equitable; (2) be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) be so obvious that “it goes without saying”; (4) be capable of clear expression; and (5) not contradict any express term of the contract.  

38.  On the part of AIA, it cannot be intended that the soundness of the reason of the cancellation of a policy has first to be agreed upon by the agent involved before it can rely on Clause 5 to demand refund from the agent. If the obligation of an agent to refund is dependent on the soundness of the reason of the cancellation of a policy, AIA can easily becomes bogged down in litigations with its agents to establish such soundness.

39.  On the other hand, any cancellation of policies already granted and refund to the policyholders must be against the commercial interest of AIA. AIA, as a commercial entity, cannot be expected to cancel policies arbitrarily. Any decisions to cancel a policy and make refund is a commercial decision and its soundness is not to be judged by an agent or a court.

40.  In the premises, the implied term contended by Lee is not reasonable, equitable, obvious and/or necessary for the effective operation of the Agreement. I refuse to imply the word “reasonable” into Clause 5. The obligation to refund commissions and bonuses by an agent arises so long as a policy procured by him/her has been cancelled for whatever reasons and refund has been made to the policyholders by AIA.

41.  Lee further complains that Clause 5 is unfair to her since the Polices were only cancelled after they had been effective for quite some time. She asserts that there was a cooling off period in both Policies though this is not apparent on the evidence before me. Even if I accept that the Policies were cancelled outside the cooling period, I do not accept that Clause 5 is unfair to Lee though I can well understand her disappointment and frustration. For the reasons given above, Clause 5 is necessary to protect the legitimate interest of AIA. More importantly, even if Clause 5 causes hardship to Lee, this court is not in a position to rewrite the Agreement let alone setting the provision aside to assist Lee. Lee is contractually bound to perform her obligation under Clause 5 to the letter.

Conclusions and Orders

42.  In the premises, nothing advanced by Lee can amount to a valid and reasonable defence in law or give rise to any triable issues. AIA is plainly entitled to judgment. I hence allow AIA’s appeal and set aside the order of the master. I enter judgment in favour of AIA in the amount of the Sum. It follows that Lee’s application for an extension of time to file her pleadings falls to be dismissed.

43.  I see no reason why costs should not follow the event. I make a costs order nisi that Lee should bear AIA costs of this action including the hearing of this application both before this court and the master. Though impressed by Mr Lung’s succinct but powerful submission, I do not allow certificate for counsel. This action, after all, merely involves a straightforward enforcement of a contractual provision without any need to resolve factual disputes.

44.  Lastly, I thank Mr Lung for his assistance in this matter.