PACIFIC CENTURY INSURANCE CO LTD v. LEUNG MOON SUN

DCCJ3278/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3278 OF 2005

D E C I S I O N

1.  The plaintiff applies by Order 14 summons for summary judgment against the defendant for the sum of $735,174.13, consisting of an upfront advance payment of $352,080 and legal costs and disbursements paid on the defendant’s behalf in the consolidated proceedings in HCMP1780/2004, in the sum of $403,651.05, less the defendant’s commissions for May and June 2005. 

2.  The plaintiff is a company engaged in  insurance business in Hong Kong and the defendant is an experienced insurance agent with 20 years of experience in the trade.

3.  The plaintiff claims against the defendant under an agent’s contract and a manager’s contract, both dated 12 August 2004, engaging the defendant as the plaintiff’s insurance agent.  The plaintiff further relies on a side agreement signed on the same date as the agent’s and manager’s contract under which the plaintiff agreed to pay the defendant an advance payment of $352,080 upon signing of the side agreement.

4.  Clause 3 of section 3 of the side agreement provided that:

“Notwithstanding anything contained herein or implied to the contrary, the agent shall forthwith repay the whole upfront advance to the company if

(1)  the agent’s contract is terminated for any reasons within the first year or the second year.”

5.  The plaintiff further relied on clause 10.1 of the agent’s contract which provided that the plaintiff “may terminate the agent’s contract at any time and without giving any reason for so doing by giving 30 days’ notice to the other in writing.”

6.   On 9 July 2004, the defendant commenced working for the plaintiff.  He signed the agent’s contract and the manager’s contract and the side contract on 4 August 2004 and 12 August 2004.  His contract of service was terminated on 26 June 2005 by a letter giving notice of termination dated 27 May 2005 from the plaintiff, pursuant to clause 10.1 of the agent’s contract.

7.  It is the defendant’s defence against the plaintiff’s claim that the defendant, together with two other colleagues, were approached by the plaintiff’s top executives in June 2004 to leave their then employer, CMG, and to join the plaintiff.  During this period, various discussions took place between the plaintiff’s top executives and the defendant, and his two other colleagues.

8.  It is the defendant’s case that he was promised that the plaintiff would unconditionally defend any claims taken up by CMG against him and that he would be paid an upfront advance payment to compensate for the loss suffered by him for leaving his then employment under which he should be receiving commissions from old policies handled by him.  It is further the defendant’s case that this is a trade custom and also that the upfront advance payment would be repaid if the new employment were to be terminated less than two years due to the defendant’s fault, or that the defendant should quit the plaintiff’s employment within two years.

9.  The defendant, therefore, claimed that since the termination of agreement was not attributed to the fault of the defendant, or terminated by the defendant, he is therefore not liable to repay the said sums.

10.  The defendant further claimed that in reliance of the assurances of plaintiff’s senior staff, he gave up his employment at CMG to join the plaintiff in July 2004.  Therefore, he was induced to join the plaintiff under mistake and the plaintiff’s representation.  He claimed he had little choice at the time because he had by then left CMG’s employment and he was given the agent’s contract and the manager’s contract, and the side agreement to sign a month after he started work with the plaintiff.

11.  Mr Chain, counsel for the defendant, submitted that the defendant was put in an unequal bargaining position at that time.  Mr Ma, counsel for the plaintiff, submitted that the defendant had failed to condescend upon particulars to support his claim of misrepresentation by giving particulars on the circumstances and the exact representations made to the defendant by the plaintiff.

12.  It is the plaintiff’s case that the plaintiff relies on clause 12.3 of the agent’s contract which provided:

          “This agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, as at the date hereof, and supersedes any prior agreement or understanding.”

13.  The plaintiff further relied on the side agreement, section 3, clause 6, which provided:  “This side agreement supersedes all previous agreements and understanding made by the parties to this effect.” 

14.  Mr Chain argued that the courts have allowed pre-contract assurances and representations and warranties to be part and parcel of the terms of the contract, and he referred to the case of 1406 Pub Company v Hall.

15.  Mr Chain further argued that his client has an arguable case and that the defendant’s mistake is known to the plaintiff, or that the defendant had relied on the plaintiff’s representation when he entered into the plaintiff’s employment and signed the three contracts.

16.  Mr Ma referred to the judgment of Lightman J in the case of Inntrepreneur v East Crown reported in [2000] 2 Lloyd’s Rep. 611.  At page 614, Lightman J held:

“Entire Agreement Clause

7.  The purpose of an entire agreement clause is to preclude a party to a written agreement from thrashing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty.  The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search.  For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in a document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document.  The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence as is suggested in Chitty on Contract:  it is to denude what would otherwise constitute a collateral warranty of legal effect.”

17.  This case was followed by Ma J (as he then was) in the case of Wing Siu Company Limited v Goldquest International Limited No. 2, reported in [2002] 4 HKC 420, where he held in paragraph 20 of his judgment, referring to the entire agreement clause in that case:

“20.  Finally I come to Ms Ismail’s reliance on clause 5(8) of the lease:  the entire agreement clause.  The clause states as follows:

“This lease sets out the full agreement reached between the parties and no other warranties or representations express or implied have been made or given by the landlord or by anybody on its behalf relating to the building or the premises and if any such representation or warranty has been given or implied the same is hereby withdrawn and is deemed to have been withdrawn immediately before the execution of this lease.”

21.  The lease was made subsequent to the alleged collateral contract.  Quite apart from its terms being completely inconsistent with the existence of the alleged collateral contract, in my view, Ms Ismail is right when she says that clause 5(8) operates to prevent the defendant from relying on this defence.  Although the clause does not in terms exclude the applicability of any previous agreement or promises, I am of the view that it is sufficiently wide to cover any reliance on the alleged collateral contract.  In Inntrepreneur Pub Company v East Crown Limited,  Lightman J had to deal with a clause that was more or less only stated that the written agreement in that case constituted the “entire agreement” between the parties.  Like clause 5(8) of the lease, there was no express exclusion of previous agreements or promises.  The learned judge held, however, that the words in that case were sufficient to exclude the application of any alleged collateral contract.  With respect, the reasoning of Lightman J in Inntrepreneur is compelling and I follow it.”

18.  Mr Chain submitted that the court must look at the circumstances of the case when considering the entire agreement clause.  That the defendant in the present case had already left the previous employment when the agent’s contract and the manager’s contract and side agreement was signed.  And in this context, consider further the custom of the trade.

19.  I take into my consideration the background of this case.  The defendant is an experienced insurance agent with 20 years of experience.   He dealt with and handled clients involving insurance contracts on a daily basis.  Furthermore, he was litigating with his former employer, CMG, at the time he signed the three agreements.  It begs the question, would the defendant, with such a background fail to consider the terms of the three agreements fully before signing these three agreements?  Is it likely that he was made to sign them in a hurry without an opportunity of reading the three agreements when he had already been in the plaintiff’s employ for over one month when these agreements were delivered to him?

20.   Further, the defendant, as Mr Ma observed, failed to particularise the representation or representations made to him in the negotiations and meetings prior to the offer letter or the three agreements by the senior executives of the plaintiff.  Particulars such as the date of the meeting, the venue and the time, and the contents of the representations, etc.

21.  I find the defendant had failed to satisfy the requirements to show the defendant has a good defence or an arguable defence to the plaintiff’s claim.  Although Mr Chain submitted an entire agreement provision does not preclude a claim in misrepresentation.  Such a misrepresentation must be particularised showing an arguable defence is available to the defendant.

22.  On the aforesaid basis, I allow the summary judgment on liability to the plaintiff.  I would order that the sum of the upfront advance payment of $352,080 be paid to the plaintiff, while I would order also that damages on the legal costs and disbursement to be assessed.  Interest at the rate of 3.3% per month on the sum of $331,523.08 from 28 June 2005 to the date of judgment and thereafter at judgment rate until payment.  Costs to the plaintiff, to be taxed if not agreed, with certificate for counsel.

(Mr Chain asked for leave to appeal)

23.  Leave to appeal is refused