LAI KAR YEE v. THE PRUDENTIAL ASSURANCE CO

CACV 233/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 233 OF 2014

(ON APPEAL FROM HCSD 1 OF 2014)

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J U D G M E N T

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Hon Barma JA (giving the Judgment of the Court):

1. This was an appeal by the applicant, Lai Kar Yee, against the decision of Deputy High Court Judge Lok (as he then was) dated 5 November 2014, dismissing her application to set aside the statutory demand that had been served on her by the respondent, the Prudential Assurance Company Limited. Shortly before the hearing of the appeal, the applicant sought leave to file additional evidence. That application was dismissed for the reasons given in the judgment of this court (differently constituted) dated 19 May 2015.

2. The background to the service of the statutory demand can be summarised as follows:

(1)  The applicant was employed by the respondent as an insurance agent between 1 May 2012 and 1 November 2013, when she was dismissed.  According to the respondent, the applicant was dismissed for failing to meet production requirements in accordance with the agreements that governed her employment with the respondent.

(2)  The relevant agreements included a Service Agreement set out in a letter to the applicant dated 12 March 2012 (but signed by her by way of acknowledgment and acceptance on 24 April 2012) and an Agency Agreement dated 24 April 2012, which stated that it would come into effect on 1 May 2012.

(3)  The applicant was paid a Sign-On Fee of HK$5,023,000 pursuant to clause 4A.1 of the Service Agreement.  However, clause 4A.2(a) of the Service Agreement provided that the Sign-On Fee was repayable in the event that the applicant’s employment with the respondent was terminated, by either party, and for whatever reason, before the end of 24 months from the effective date (i.e. before 30 April 2014).  This provision was reiterated in clause 6 of the Service Agreement, which provided for repayment of (among other payments) the Sign-On Fee on a sliding scale if the employment was terminated within 60 months, such scale providing for 100% repayment in the event of termination within 24 months.

(4)  So far as production requirements are concerned, the relevant requirement, on which the respondent relies to justify the termination of the applicant’s employment, is to be found at clause 13.2(i) of the Agency Agreement, which provides:

“… the [respondent] shall have the right to terminate the employment of [the applicant], with or without period of notice, in the event of [the applicant] not meeting training, production, persistency or other requirements in respect of the Business which may be set by [the respondent] and as amended from time to time, including … [the applicant] fails to introduce proposals resulting in the issue of at least two life assurance policies in any period of 45 consecutive days …”

(5)  The Service Agreement and Agency Agreement also contained other production requirements, but these are not material for present purposes.

(6)  On 1 February 2013, the respondent wrote to the applicant regarding a recent performance review, stating that her production was “off target” and requiring her to achieve certain production targets going forward starting with a target of HK$400,000 in February 2013, and setting cumulative monthly targets with a view to a cumulative total of HK$9,700,000 by the end of 2013.  The applicant was informed that her performance would be closely monitored, and that the respondent reserved its right to take further action, including termination of the applicant’s employment with the respondent, if the stated targets were not met.

(7)  It appears that the applicant did not meet the targets that had been set, as on 7 March 2013, the respondent issued a termination letter to her, terminating her employment with effect from 1 April 2013.  In response to this letter, the applicant had a meeting with officers of the respondent, after which she sent an email dated 18 March 2013 to a Mr Benny To of the respondent, asking for her employment to be continued in accordance with the terms of her “signed offer letter without any changes”.  She also sent Mr To a handwritten letter dated 20 March 2013, in which she explained the efforts she had made to generate business for the respondent, indicating that she had procured some nine signed policy proposals and expected to achieve a business volume of over HK$1 million within the following three months.  As a result, on 25 March 2013, the respondent withdrew its termination of the applicant’s employment with it by a letter in which the applicant was reminded of the need to meet the sales targets to which she was subject under the Service and Agency Agreements.  The applicant counter-signed this letter to acknowledge its contents.

(8)  It would appear that the applicant continued to fall short of the targets set for her, and failed to procure any life assurance policies to be issued in the period between 2 August and 30 September 2013, thus failing to meet the requirement set out in clause 13.2(i) of the Agency Agreement.  As a result, on 5 November 2013, the respondent issued a further termination letter to the applicant, terminating her employment with effect from 2 November 2013.

(9)  Thereafter, the respondent demanded repayment from the respondent of HK$5,013,395, representing the Sign-On Fee less certain amounts due to the applicant in respect of outstanding commission and other matters.  The applicant did not make any repayment, resulting in the issue of the statutory demand against her.

3. At the hearing below, the applicant contended that she disputed the debt on which the statutory demand was based.  In essence, although she accepted that she had signed the Service Agreement and Agency Agreement (and certain other agreements with the respondent), and that such agreements contained the terms referred to above, she had been assured on many occasions (at least 10) by representatives of the respondent that they were aware that her mode of conducting business and bringing in policies was to bring in “jumbo”, or very high value, policies, producing substantial revenue for the respondent, notwithstanding that these might be few in number, that the respondent would not seek repayment of the Sign-On Fee as long as she could reach her sales target within 24 months of joining the respondent, and that the respondent would not terminate her agency contract within the first 24 months, so as to enable her to have the fullest amount of time to reach her sales target.  The applicant said that such assurances were important to her, as she had had a bad experience at her previous agency, Integrity Financial Advice Network Co Ltd, where her contract (along with those of other agents) was terminated in breach of oral assurances she had been given.  She said that she believed the real reason for her termination was her unwillingness to participate in illegal insurance promotion activities in the Mainland, and certain money laundering activities in which her team leader and her team leader’s husband were involved.

4. The applicant’s evidence was contained in a number of affirmations.  In her first two affirmations, which she prepared herself without assistance from legal advisers, the applicant simply stated that she disputed the debt, without providing details as to the basis on which she did so.  Her third affirmation was produced with the assistance of a colleague, and represented the first occasion on which the applicant suggested that there had been an agreement with representatives of the respondent that the production targets or requirements stated in the agreements would not apply to her (notwithstanding the terms of the agreements) and that she would have the full period of 24 months in which to meet her production targets.

5. Thereafter, she filed two further affirmations, and the respondent filed some eight affirmations from various members of its management denying that any representations of the nature alleged by the applicant had been made to her, denying the allegations of wrongdoing made against her team leader and her team leader’s husband, and pointing to various suggested deficiencies in the applicant’s case, including the facts that notwithstanding her previous unhappy experience with Integrity Financial Advice Network, she had still entered into agreements containing requirements as to production of stated levels of business in terms of value, and also in terms of number of policies to be procured within a stated period, that she had not obtained any of the alleged assurances in writing and that she had not suggested that there had been any representations made to her whether when she was first told that her performance had been unsatisfactory, or when requesting that her first termination be rescinded, or at the time of her eventual termination, or indeed at any time until (at the earliest) the filing of her third affirmation.

6. One week before the hearing below, the applicant filed a sixth affirmation, prepared with the assistance of legal advisers, in which she set out her case and responded to various of the criticisms made of her case by the respondent.

7. The judge considered all of the evidence before him, and came to the conclusion that the applicant’s case was quite incredible, and was not worthy of belief.  He took the view that what she had put forward was no more than a cloud of objections without any real substance, and as such did not suffice to demonstrate the existence of a genuine or bona fide dispute as to the debt on substantial grounds.  The judge came to these conclusions for a number of reasons.  First, he noted that the applicant’s case was contrary to the express terms of the agreements, observing that despite her previous experiences, she relied only on oral representations (similar to those she had received from Integrity Financial Advice Network in the past) but had not sought to have such assurances recorded in writing or reflected in the agreements signed by her. Second, he expressed doubt as to the commerciality of the alleged assurances from the respondent’s point of view, on the basis that it would make little sense for the respondent to agree to wait for as long as 24 months before being able to terminate the agency of the applicant if she were not producing business at a satisfactory level.  Third (and in his view most significantly), he considered that the applicant’s reaction when first notified of her failure to meet production targets, and when first terminated in March 2013, was inconsistent with the case she now put forward, in that she did not then suggest that there had been any such assurances made to her, but had agreed to try to meet various production targets going forward.  The judge took the view that the applicant’s claim to have accepted repeated oral assurances in the face of the steps being taken by the respondent was not believable, and therefore did not give rise to a bona fide dispute of substance as to the debt relied upon.  He also dismissed the allegations of wrongdoing on the part of her team leader as lacking in particularity and substance.

8. Shortly before the hearing of the appeal, the applicant applied for leave to adduce further evidence.  This application was dismissed as the court (consisting of Cheung and Barma JJA) considered that the evidence sought to be adduced did not satisfy the first criterion in Ladd v Marshall, as it could with reasonable diligence have been obtained for use at the hearing below (see the Reasons for Decision dated 19 May 2015).  At the beginning of the hearing, the respondent applied to adduce in evidence a notice of appeal lodged by it against a decision of Anthony Chan J dismissing a bankruptcy petition against a colleague of the applicant, on the basis of allegations similar to those relied on by the applicant to set aside the statutory demand here.  Mr Chan, for the respondent, submitted that it would be appropriate to allow this material to be adduced, as the applicant sought to rely on the decision of Anthony Chan J, and that it was therefore appropriate that the court should be aware that the respondent was appealing against that decision.  Given that the notice of appeal was in any event a public document, we allowed it to be adduced before us.

9. Before us, Ms Yu made two main submissions:

(1)  that the judge had erred in finding that the debt was not disputed on substantial grounds, on the evidence before him; and

(2)  that the judge had erred by in effect conducting a “mini-trial” of the matter, and embarking on an examination of the actual validity of the debt, rather than simply seeking to decide whether or not the debt was disputed on substantial grounds.

10. The second of these submissions can be readily disposed of.  In our view, the judge did not err in the manner suggested.  It is quite clear from the judgment below that the judge’s focus was throughout on whether or not the case put forward by the applicant was believable, and not whether or not it should actually be believed.  In so doing, the judge was doing no more than assessing whether or not the grounds put forward by the applicant for disputing the debt were capable of belief, and thus of giving rise to a dispute of substance.

11. Turning to Ms Yu’s first point, the key issue is whether or not the applicant’s case is credible, or capable of belief.  The nature of the case being put forward is that there was a collateral agreement to the effect that the applicant would be afforded a full 24 months in which to achieve the production targets set for her, and that periodic targets, or production requirements in a stated period, would not apply (notwithstanding that they formed part of the written terms of the contracts signed by her).

12. While it may be that, viewed in isolation, the suggestion that certain assurances were made as to the time which the applicant would have to achieve production targets would not of itself be incapable of belief, it remains necessary to consider the case being put forward with a reasonably critical eye, testing the case against the other background facts and circumstances.  When this is done (as the judge did), the difficulties in the way of the applicant’s case become manifest, and give rise to good reason to question the credibility of the case she has advanced.

13. The first difficulty relates to the failure to have the alleged assurances recorded in writing in the first place, either by causing the Service Agreement and Agency Agreement to reflect the agreement which the applicant says was reached, or by the applicant recording such assurances in correspondence with the respondent at or around the time the agreements were entered into.  Ms Yu contended that the applicant’s track record of bringing in relatively few but very large policies, and her previous experiences with Integrity Financial Advice Network, were matters which went to support the applicant’s case that oral assurances had indeed been made to her.  But while these matters might make it likely that the applicant would seek assurances of the nature alleged by her, they do not explain why she seemingly made no attempt to have them incorporated as part of the agreements signed by her, or have them otherwise recorded in writing.  Indeed, having regard to her previous problems with Integrity Financial Advice Network, one would have thought that there was good reason why she would have obtained written assurances, or a convincing explanation advanced for why this had not been done.

14. But even if this deficiency were to be overlooked, it seems to us to be impossible, when assessing the believability of the applicant’s claim to dispute the debt on substantial grounds, to disregard the applicant’s failure to record any protest when she was put on notice in February 2013 regarding her failure to meet the targets, or when she had her agency terminated the first time in March 2013, or in her correspondence when seeking the rescinding of that termination later the same month, or even when she was eventually terminated as an agent of the respondent at the beginning of November 2013.  It is difficult to accept that as an experienced insurance agent, the applicant would not have protested at being treated in a way that was seriously at variance from assurances she had allegedly received.  One would have expected such protests to be made, and made in writing, at the earliest opportunity, but even after the applicant was terminated for the second time in November 2013, she did not raise these matters until her third affirmation in these proceedings, some considerable time later.

15. The applicant claims to have lodged oral protests.  However, it was in our view entirely open to the judge to conclude that the absence of any contemporaneous written protest was a matter that cast such serious doubt on the applicant’s case as to render it not worthy of credit, and to be lacking the substance required to establish the existence of a genuine dispute as to the debt on the basis of which the statutory demand was served.

16. We have also considered whether the fact that the respondent did not take any action earlier than February 2013 (some 9 months into the applicant’s agency with the respondent) might lend some support to the applicant’s case.  However, this was not a point taken by the applicant in her evidence or submissions, and was therefore not one which the respondent had addressed.  In those circumstances, we do not think that this point can assist the applicant.

17. For the foregoing reasons, we are of the view that the judge was right to find that the applicant had not established the existence of a bona fide dispute of substance.  It follows that the appeal must be dismissed, with an order nisi that the costs of the appeal should be paid by the applicant to the respondent, to be taxed if not agreed.