RE LAU KA YAN

HCB 1001/2023

[2025] HKCFI 759

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1001 OF 2023

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JUDGMENT

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1.  Introduction

1.1  This is my judgment on the bankruptcy petition (“Petition”) presented by the creditor, YF Life Insurance International Limited (“Creditor”), against the debtor, Ms Lau Ka Yan (“Debtor”). The Petition is based on a statutory demand (“SD”) dated 30 September 2022 for a sum of HK$777,424.66 (“Petitioning Debt”).

1.2  The particulars of the Petitioning Debt are as follows:

Sign On Bonus	HK$359,694.00
Special Income (HK$19,983 x 15 months)	HK$299,745.00
Contractual interest at 3% per month from 1 April 2022 to 30 September 2022	HK$118,590.20
Less: Commission payable to the Debtor	(HK$604.54)
Total	HK$777,424.66

1.3  At the hearing before me, the Creditor was represented by Mr Dixon Tse and the Debtor by Mr Tasman Tam.

2.  Background

2.1  The Debtor first became an insurance agent in April 2014. At that time, she was recruited by Mr Yung King Tim (“Mr Yung”) to join Chubb Life Insurance Company Limited and had since worked as Mr Yung’s downline agent. At its peak, Mr Yung’s team comprised 80-90 downline agents.

2.2  Between 2016 and 2020, Mr Yung and his team of downline agents were recruited by and joined a number of different insurance companies, one of which was FTLife Insurance Company Ltd (“FICL”).

2.3  In March 2020, whilst working at FICL, Mr Yung was approached by Mr Ralph Lau (“Mr Lau”), the then Senior Vice President of the Creditor and a former colleague of Mr Yung at FICL. In May 2020, Mr Yung decided to join the Creditor and some of his downline agents, including the Debtor, decided to follow suit.

2.4  The following agreements were signed between the Creditor and the Debtor. Chronologically:

(1)  On 10 June 2020, Mr Lau on behalf of the Creditor and the Debtor entered into an Agent’s Agreement (“Agreement”);

(2)  On 16 July 2020, Ms Sylvia Tu[1] (“Ms Tu”) on behalf of the Creditor and the Debtor entered into a Memorandum on Special Income for Agent (“Memorandum”).

2.5  I shall return to the salient terms of the Agreement and the Memorandum below. For present purposes, suffice it to point out that, pursuant to the terms of the Memorandum, the Debtor had received from the Creditor the first 2 components of the Petitioning Debt set out above.

2.6  On 16 March 2022, the Creditor purportedly issued a warning letter to the Debtor (“Warning Letter”) by which the Debtor was given until the end of the month to meet the requirements stated therein (“Contract Maintenance Requirements”), failing which the Agreement would be terminated with immediate effect. There is a dispute whether the Debtor received the Warning Letter.

2.7  On 1 April 2022, the Creditor issued to the Debtor a letter (“Termination Letter”) terminating the Agreement pursuant to clause 9.2(g) of the Agreement and sought repayment of the Sign On Bonus and the Special Income less commission due to the Debtor (“Outstanding Sum”). As noted above, the Petitioning Debt comprises the Outstanding Sum plus accrued contractual interest.

2.8  As no payment was made by the Debtor, the Creditor issued the SD on 30 September 2022. Consistent with the Termination Letter, the SD asserts that (1) the Agreement was terminated pursuant to clause 9.2(g) thereof, and (2) upon the termination of the Agreement, the Debtor was obliged to forthwith repay the Outstanding Sum.

2.9  The Petition was subsequently presented in February 2023 and was eventually served on the Debtor by way of substituted service in April 2023.

2.10  The substantive evidence relied on by the parties is contained in the Debtor’s affirmation (“Debtor Aff”) and the affirmation of Mr Lee Hiu Lok (“Mr Lee” and “Lee Aff”). Mr Lee is the assistant manager of the Creditor.

3.  Overview of the Debtor’s case

3.1  There is no dispute between counsel that, in resisting the Petition, the Debtor bears the burden to raise a bona fide dispute on substantial grounds by adducing sufficiently precise evidence which is believable and must establish that she actually has a defence of substance, not just a fair probability of one. It is equally well-established that bankruptcy proceedings are summary in nature and are not intended to be used for the purpose of debt collection. Where there are bona fide disputes turning to a substantial extent on disputed questions of fact which require viva voce evidence, such disputes cannot properly be decided on a petition, in which case the petition should be dismissed: Re She Ka Kui [2018] HKCFI 601 §§9-10.

3.2  The Debtor relies on the following grounds to resist the Petition:

(1)  The termination of the agreement was wrongful (“Ground 1”);

(2)  Relatedly, the Agreement contains an implied term that the power to terminate the Debtor must be exercised by the Creditor in good faith and not for arbitrary, capricious, perverse or irrational reasons, and not with the dominant intention of triggering the claw-back provisions in the Memorandum (“Anti-Recoupment Term”), which implied term the Creditor has breached (“Ground 2”);

(3)  An estoppel has arisen as a result of a representation (“Representation”) made by Mr Lau to the Debtor on 22 April 2020 to the effect that the Outstanding Sum was not required to be repaid unless the Debtor joined a competing insurance company within the first 2 years of her appointment (which she did not), which representation was confirmed by Ms Tu on 16 July 2020 before the Debtor signed the Memorandum (“Ground 3”).

3.3  In order to understand Grounds 1 and 2, it is necessary to first set out the contractual framework in the Agreement and the Memorandum.

4.  The contractual framework

(i)   The Agreement

4.1  The following are the relevant terms of the Agreement.

4.2  Clause 1.1 provides, inter alia, as follows:

“For the purpose of this Agreement, "Commencement Date" shall mean the date of appointment as shown on the confirmation by the Insurance Authority or a date to be agreed by the Company [ie the Creditor] and the Agent [ie the Debtor].”

4.3  Clause 1.3 provides:

“It is hereby agreed that the Agency Manual issued by the Company and amended from time to time is incorporated into this Agreement and the Agent shall at all times comply with all legislation, statutory rules or regulations, provisions set out in the Agency Manual issued by the Company and the rules and regulations of the Company now or hereinafter in force, including the Handbook for Insurance Agents issued by the Company and as amended from time to time. The Agent shall also strictly comply with all terms and conditions of this Agreement.”

4.4  Clause 9.1 provides:

“Either party to this Agreement may terminate the Agreement without any reason being given thereof, by giving 15 days' notice by letter to that effect delivered, if to the Agent personally or, to the last notified address of the Agent or the Company (as the case may be).”

4.5  Clause 9.2 provides:

“This Agreement shall forthwith be terminated without the need for any notice to be given by the Company if:

(e) the Agent is in breach of any of the terms of this Agreement; or …

(g) the Agent does not meet training, production, persistency or other requirements in respect of the Agent's operations which may be set by the Company from time to time; or …” (emphasis added)

4.6  Clause 12.3 provides:

“This Agreement thereto constitute the entire agreement between the parties hereto with respect to the subject matter hereof as at the date hereof and supersede any prior agreement or understanding.”

(ii)  The Memorandum

4.7  The following are the relevant terms of the Memorandum.

4.8  Clause 1 provides:

“Subject to the terms herein and the Agreement having taken effect and remaining valid and in full force, the Company shall pay to the Agent a sum of HK$359,694.00 (the "Sign On Bonus") upon the signing of this Memorandum and has registered with the Insurance Authority as an insurance agent of the Company.”

4.9  Clause 2 provides:

“The Agent understands and agrees the Sign On Bonus is paid in advance on condition that the Agent shall meet the persistency and production requirements as set out in Clauses 3 and 5 below. In the event that the Agent does not meet the persistency or production requirements as set out in Clauses 3 or 5 below, the Company shall be entitled to claw-back the Sign On Bonus paid in accordance with the terms of this Memorandum.” (emphasis added)

4.10  Clause 3 provides:

“The Agent hereby agrees to meet the persistency and production requirements as stated below at the end of the twelve complete months from the Effective Date (as defined in Clause 32).

3.1 Persistency requirement (measured by the method as specified in the Agency Manual)

Personal Persistency: 85% or above

3.2 Production requirement

Contract-to-Date Personal AFYC[2] HK$143,877.60 or above” (emphasis added)

4.11  Clause 4 provides:

“In the event that the Agent fails to fulfill the persistency or production requirements as stated in Clause 3 above at the end of twelve complete months from the Effective Date, the Agent is required to immediately repay the Company the full amount of the Sign On Bonus paid to him.” (emphasis added)

4.12  Clause 5 provides:

“In addition, the Agent further agrees to meet the persistency and production requirements as stated below at the end of the twenty-four complete months from the Effective Date (as defined in Clause 32).

5.1 Persistency requirement (measured by the method as specified in the Agency Manual)

Personal Persistency 85% or above

5.2 Production requirement

Contract-to-Date Personal AFYC HK$431,632.80 or above”

(emphasis added)

4.13  Clause 6 provides:

“In the event that the Agent fails to fulfill the persistency requirement as stated in Clause 5.1 above at the end of twenty-four complete months from the Effective Date, the Agent is required to immediately repay the Company the corresponding percentage of Sign On Bonus paid to him in accordance with the following table:-

Personal Persistency	Percentage of Sign On Bonus to be repaid by the Agent
84.99% or below	100%

”

(emphasis added)

4.14  Clause 7 provides:

“In the event that the Agent fails to fulfill the production requirement as stated in Clause 5.2 above at the end or twenty-four complete months from the Effective Date, the Agent is required to immediately repay the Company the corresponding percentage of Sign On Bonus paid to him in accordance with the following table :-

Contract-to-date Personal AFYC	Percentage of Sign On Bonus to be repaid by the Agent
HK$287,755.19 or below	100%
HK$287,755.20 to HK$335,714.39	30%
HK$335,714.40 to HK$383,673.59	20%
HK$383,674.60 to HK$431,632.79	10%

”

(emphasis added)

4.15  Clause 8 provides:

“In the event that the Agent fails to fulfill the persistency and production requirements as stated in Clause 5 above at the end of twenty-four complete months from the Effective Date, the Percentage of Sign On Bonus to be repaid by the Agent shall be, in any event, the higher percentage as stated in Clauses 6 or 7 above.” (emphasis added)

4.16  Clause 9 provides:

“Subject to the terms herein and the Agreement having taken effect and remaining valid and in full force, the Company shall with effect from the Effective Date (as defined in Clause 32) pay to the Agent in arrears a monthly sum of HK$19,983.00 for a period of l2 months in the first contract year (the "First Year Special Income") on condition that the Agent has met the persistency and production requirements as stated below.

9.1 Persistency requirement (measured by the method as specified in the Agency Manual)

Personal Persistency 85% or above

9.2 Production requirement in the first contract year

Contract Month	Personal AFYC (Contract-to-date in HK$)	Contract Month	Personal AFYC (Contract-to-date in HK$)
1st	-	7th	119,898.00
2nd	-	8th	139,081.68
3rd	43,163.28	9th	158,265.36
4th	62,346.96	10th	177,449.04
5th	81,530.64	11th	196,632.72
6th	100,714.32	12th	215,816.40

”

4.17  Clause 10 provides:

“In the event that the Agent fails to meet (i) the persistency or (ii) the production requirements in any month during the first contract year, the monthly special income shall not be payable. Once the Agent meets the validation requirements again in the subsequent month, payment of the monthly special income may be resumed. If the Agent is able to achieve the validation requirements at the end of the first contract year, any unpaid monthly special income for the preceding months will be payable.” (emphasis added)

4.18  Clause 11 provides:

“ Subject to the terms herein and the Agreement having taken effect and remaining valid and in full force, the Company shall from the 13^th Contract Month pay to the Agent in arrears a monthly sum of HK$19,983.00 for a period of 12 months in the second contract year (the "Second Year Special Income") on condition that the Agent has met the persistency and production requirements as stated below.

11.1 Persistency requirement (measured by the method as specified in the Agency Manual)

Personal Persistency 85% or above

11.2 Production requirement in the second contract year

Contract Month	Personal AFYC (Contract-to-date in HK$)	Contract Month	Personal AFYC (Contract-to-date in HK$)
13th	235,000.08	19th	359,694.00
14th	254,183.76	20th	383,673.60
15th	273,367.44	21st	407,653.20
16th	292,551.12	22nd	431,632.80
17th	331,734.80	23rd	455,612.40
18th	335,714.40	24th	479,592.00

”

4.19  Clause 12 provides:

“In the event that the Agent fails to meet (i) the persistency or (ii) the production requirements in any month during the second contract year, the monthly special income shall not be payable. Once the Agent meets the validation requirements again in the subsequent month, payment of the monthly special income may be resumed. If the Agent is able to achieve the validation requirements at the end of the second contract year, any unpaid monthly special Income for the preceding months in the first and second contract years will be payable.” (emphasis added)

4.20  Clause 20 provides:

“The Company shall be entitled to cease or withhold payment of the monthly special income… and the Agent shall be liable to immediately repay the Company in full, without set-off, crossclaim or counterclaim, the aggregate amount of the Sign On Bonus, the First Year Special Income, the Second Year Special Income … the Agent has received pursuant to this Memorandum, if: …

20.3 the Agent is in breach of any provisions as stated in the Agreement and/or herein.”

4.21  Clause 21 provides:

“In the event that the Agreement is terminated for whatever reasons (save as those reasons as set out in Clause 20 above) within the period as listed below, the corresponding percentage of the aggregate amount of the Sign On Bonus, the First Year Special Income, the Second Year Special Income … paid to the Agent shall become immediate repayable in full without set-off, cross-claim or counter-claim by the Agent to the Company:

Period counting from the Effective Date	Percentage repaid by the Agent
Within 1st month to 24th month	100%
Within 25th month to 36th month	80%
Within 37th month to 48th month	60%
Within 49th month to 60th month	40%

”

4.22  Clause 28 provides:

“In the event that the Agent becomes unable to pay all or any part of the amount repayable hereunder, interest is chargeable on such unpaid amount at 3% per month or an annual rate of 3% over the best lending rate of the Hongkong and Shanghai Banking Corporation Limited (as well after as before judgement), whichever is higher.”

4.23  Clause 32 provides:

“For the purpose of this Memorandum, "Effective Date" means the commencement date of the Agreement.”

(iii)  Observations

4.24  According to the SD, the Effective Date under Clause 32 of the Memorandum (and the Commencement Date under the Clause 1.1 of the Agreement) is stated to be 2 July 2020. This has been verified by Mr Lee Shui Ying[3], the manager of the Creditor. However, Lee Aff §8 asserts that the Effective Date should be 26 June 2020, being the date on which the Debtor was appointed as the Creditor’s agent by reference to the first limb of Clause 1.1 of the Agreement. It seems to me that Lee Aff §8 is incorrect, as the monthly statements prepared by the Creditor[4] (“Monthly Statements”) all show that the Debtor commenced work (入職日期) on 2 July 2020.

4.25  As has been pointed out above, the Termination Letter and the SD both assert that the Agreement was terminated pursuant to clause 9.2(g) of the Agreement, namely on the basis that the Debtor had failed to meet the training, production, persistency or other requirements which were set by the Creditor from time to time. As I understand the evidence, the Creditor’s complaints against the Debtor were based only on the production and persistency requirements (as opposed to any training requirement or other requirements contemplated under clause 9.2(g)). The Warning Letter is in the following terms:

“According to our records, your total AFYC for the period January 2022 to mid-March 2022 was HK$0.00, and for the immediate past 12 months was HK$253,440.71. Furthermore, your personal persistency was 26.18%.

You are hereby notified that by the end of March 2022, you are required to have: (i) at least HK$12,000.00 AFYC for the immediate past 3 months; (ii) at least HK$118,000 AFYC for the immediate past 12 months; and (iii) personal persistency of 75% or above. Should you fail to meet the above [Contract Maintenance Requirements], your Agent's Agreement will be terminated by the Company with immediate effect.

We sincerely hope that you will be able to increase your production accordingly.

Please discuss your action plan with your upline manager as soon as possible.” (emphasis added)

4.26  Prior to the Warning Letter, the only production and persistency requirements were those set out in the Memorandum. In my view, it is plainly arguable that the words underlined above at clauses 3, 4, 5, 6, 7, 10 and 12 have the effect that the production and persistency requirements were to be measured at the end of 12 or 24 months (as the case may be) from the Effective Date. In other words, the effect of the Memorandum was such that the Creditor was strictly not concerned with temporary “blips” or failure to comply with the persistency and production requirements set out in the Memorandum from month to month, as long as the Debtor was able to meet the requirements at the end of 12 or 24 months from the Effective Date.

4.27  The foregoing is underscored by clauses 10 and 12 of the Memorandum. Whilst a temporary failure to meet the persistency or production requirements in any month during the first or second contract year would lead to a suspension of the payment of special income, pursuant of those clauses, as long as the Debtor was able to meet the validation requirements at the end of the first or second contract year, all unpaid or suspended special income would become payable. Indeed, the evidence shows that the foregoing did happen in the present case. As shown in the Monthly Statements, the Debtor was paid special income in August and September 2020. No special income was paid between October 2020 and June 2021 (9 months). Yet, in July 2021, HK$199,830 (equivalent to 10 months special income) was paid on the basis that the Debtor had achieved the validation requirement at the end of the first contract year (Debtor Aff §19).

4.28  It is notable that, whilst the persistency requirement (85%) remains constant throughout in the Memorandum, the production requirements are different in respect of the Debtor’s entitlements (1) to retain the Sign On Bonus and (2) to be paid special income. Whilst under clauses 3 and 5, the production requirements for the Debtor to be entitled to retain 100% of the Sign On Bonus were HK$143,877.60 and HK$431,632.80 in personal AFYC respectively for the first and second contract years, the production requirements were higher for the Debtor to qualify to be paid special income under clauses 9 and 11, respectively HK$215,816.40 and HK$479,592.00 in personal AFYC for the first and second contract years.

4.29  It is also pertinent to note that, by the Termination Letter, the Agreement was terminated on 1 April 2022, which was 3 months prior to the end of the second contract year. The Creditor categorically says that its reliance on Clause 9.2(g) of the Agreement is based on the Contract Maintenance Requirements set out in the Warning Letter and not on the production and requirements set out in the Memorandum (Lee Aff §§14 and 20).

4.30  The key question in relation to Grounds 1 and 2 is whether there is a bona fide dispute on the propriety of the Creditor’s reliance on the Contract Maintenance Requirements to terminate the Agreement under Clause 9.2(g). The Contract Maintenance Requirements have the effect of (1) affording the Debtor only 2 weeks to meet the stipulated targets and (2) depriving the Debtor the opportunity to “catch up” on meeting the requirements set out in the Memorandum until the end of the second contract year.

5.  Grounds 1 and 2

5.1  In my view, Grounds 1 and 2 raise a bona fide dispute for the following reasons. As an overarching observation, it seems to me that Mr Lee only has very limited personal knowledge of the relevant events. As stated at Lee Aff §7, Mr Lee’s evidence on the circumstances leading to the termination of the Agreement is only based on his perusal of the Creditor’s business records.

5.2  First, it is the Debtor’s evidence that during her appointment as agent of the Creditor, she had never received any complaint or warning from the Creditor. It seems to me that whether the Creditor had sent and the Debtor had received the Warning Letter cannot be resolved in these proceedings. The Warning Letter (1) was stated to be a computer-generated letter and therefore was not signed by anyone and (2) did not state the Debtor’s address. Lee Aff §12 asserts that the Warning Letter was sent to the Debtor by courier. However, no supporting document has been produced.

5.3  Secondly, it does not appear that the Contract Maintenance Requirements had been specifically discussed with the Debtor prior to the issuance of the Warning Letter. One of the Contract Maintenance Requirements was that at least HK$118,000 AFYC was required to be achieved for the immediate past 12 months. Yet, according to the Creditor’s own production record for March 2022 (and as noted at the first paragraph of the Warning Letter itself), the Debtor had already achieved HK$253,440.71 AFYC for the past 12 months, well beyond what was required under the Contract Maintenance Requirements. Indeed, Lee Aff §15 confirms that the Debtor had only failed to meet the other 2 targets stipulated by the Contract Maintenance Requirements, namely AFYC for the immediate past 3 months of at least HK$12,000 and personal persistency of 75% or above.

5.4  Related to the above is that the Warning Letter was issued at a time when social distancing measures were still in place as a result of the COVID-19 pandemic[5]. According to the Memorandum, the persistency requirement was to be measured by the method specified in the Agency Manual. Whilst the Agency Manual has not been adduced into evidence, as I understand the position, the persistence ratio in the insurance context generally relates to the percentage of customers renewing their insurance policy. Mr Tse says that, in imposing the Contract Maintenance Requirements, the Creditor was simply exercising its rights under clause 9.2(g) of the Agreement to set performance requirements from time to time. However, in my view, what was the reason, and whether it was reasonable, for the Creditor to impose a 2-week period for the Debtor given the then circumstances to meet those Contract Maintenance Requirements, namely to generate business and to ensure customers to renew their policies to achieve the persistency requirement, cannot be resolved in these proceedings. Whilst I note that the Contract Maintenance Requirements can be said to be less onerous than the validation requirements set out in the Memorandum, the fact remains that the Warning Letter only gave a very short period of 2 weeks for the Debtor to meet those targets. Against the Debtor’s evidence that she had never received any complaints or warning, the Creditor has not adduced any evidence that the Debtor’s performance was ever discussed prior to the issuance of the Warning Letter. As noted above, the Warning Letter has the effect of depriving the Debtor until the end of the second contract year to meet her target (see also §5.7 below).

5.5  I also note that Debtor Aff §21 states that prior to the date of the Warning Letter, in early March 2020, all agents within Mr Yung’s team (including the Debtor) were already denied access to the internal online portal of the Creditor (not controverted in Lee Aff), which calls into question whether a decision was already made to terminate the Debtor, irrespective of the Warning Letter.

5.6  Thirdly, it is the Debtor’s evidence that the Creditor was suffering from financial difficulty as a result of the COVID-19 pandemic, as its agents were unable to travel to the Mainland to solicit and meet with the then existing and new customers. At around the same time of the Debtor’s termination, the entire team of agents under Mr Yung, comprising of about 80 agents were all terminated one after the other. It is the Debtor’s evidence that the mass termination was, in her view, an attempt on the Creditor’s part to claw-back sums from those agents, as in the present case from the Debtor. The Debtor has adduced a number of termination letters[6] of other agents which show that the Creditor was terminating them pursuant to provisions equivalent to clause 9.1 of the Agreement, namely by giving 15 days’ notice. In Lee Aff, the foregoing evidence only received cursory treatment (Lee Aff §25).

5.7  Fourthly, it seems to me that there is a believable case that there was no apparent justification for the sudden imposition of the Contract Maintenance Requirements and that the real reason for the imposition was to trigger the claw-back provisions in the Memorandum, for the following reasons:

(1)  As noted above, it does not appear that the Contract Maintenance Requirements were specifically discussed with the Debtor prior to the issuance of the Warning Letter. There is certainly no direct evidence from Mr Lee to suggest that, prior to the Warning Letter, the Creditor had raised any concerns;

(2)  According to the Monthly Statements, the Debtor failed to meet the production target as specified under the Memorandum for an extended period during the first contract year, but she managed to generate substantial first year commission in July 2021 (ie the end of the first contract year), whereupon she was paid 10 months of special income as noted at §4.27 above. In fact, the Debtor was also paid special income for August, September and October 2022;

(3)  Whilst there was admittedly a period of failure to meet the production requirement from November 2022 to March 2023, given the Debtor’s previous performance history, it is not beyond peradventure that she would be able to catch up by the end of the second contract year;

(4)  In any event, there is no dispute that Debtor had been paid 15 months’ special income. According to clause 11.2 of the Memorandum, the Debtor would have achieved personal AFYC in the sum of HK$273,367.44 to be entitled to those payments. Had the Debtor not been terminated, it was not unrealistic, given her past performance, for her to reach the bracket of HK$287,755.20 to HK$335,714.39 by the end of the second contract year (ie [HK$287,755.20 - HK$273,367.44] = HK$14,387.76 in 3 months) stipulated in clause 7 of the Memorandum, whereupon she would only be obliged to repay 30% (as opposed to 100%) of the Sign On Bonus, subject to Clause 8;

(5)  Further, as pointed out by the Debtor, had the Agreement been terminated after the second contract year, she only had to return 80% of the Sign On Bonus and the monthly special income.

5.8  There are a number of cases dealing with situations analogous to the present.

5.9  First, in Re Shing Pui Keung, HCB 686 of 2017, 20 December 2017, it was held at §8 and 14 that it was sufficiently arguable that the following terms should be implied into a contract between an insurance company and its agent:

(1)  the insurance company shall not conduct its performance evaluations in respect of its agent and/or exercise its right to amend the contract in an irrational, perverse or arbitrary manner that was not bona fide;

(2)  the insurance company shall not administer its policy in relation to the measure of the persistency rate and/or recruitment of new agent in an irrational, perverse or arbitrary manner that was not bona fide;

(3)  the insurance company would not be entitled to recover the bonuses paid to the agent under the repayment clause if the relevant agreement was terminated in consequence of the insurance company’s repudiatory breach.

5.10  Secondly, in So Sheung Hin Ben v Chubb Life Insurance Co Ltd [2018] HKCA 209, the Court of Appeal, in the context of an application to set aside a statutory demand, considered what was termed the Bad Faith Argument (at §3(2)), namely the insurance company exercised its power to terminate the agent’s agreement in bad faith with the dominant intention of triggering a claw-back clause, in breach of an implied term that the power to terminate by notice without cause would not be exercised with such dominant intention. It was held at §§39-40, and 49-50:

“[39] I come back to the first broad point, whether the anti-recoupment term should be implied in the Agent’s Agreement. As mentioned earlier, the judge disposed of this briefly. He distinguished the decision of the Court of Appeal in Tadjudin Sunny v Bank of America National Association, CACV 12/2015, 20 May 2016 on the facts and the formulation of the implied terms there. Although he rejected Mr Chan’s argument there should be no implied term as to how the Agent’s Agreement could be terminated to invoke the claw-back provision as it was expressly provided in the claw-back clause it would operate in the event the Agent’s Agreement is terminated “for any reason” during the specified period, he did not think the anti-recoupment term should be implied for two reasons. First, it sounds absurd that So could ever have any dominant intention to trigger the Claw-Back Clause thereby obliging himself to repay his remunerations to Chubb, in other words the term sought to be implied must apply reciprocally to both parties. Second, even if Chubb had an obvious desire to recover the remunerations pursuant to the claw-back provision, it does not necessarily follow that it had exercised its right in an irrational, perverse or arbitrary manner that was not bona fide. This would seem to go to causation, that Chubb’s basis for terminating So was causally unconnected to terminating him in bad faith and for the dominant purpose of triggering the claw-back clause.

[40] Mr Chan did not defend the reciprocity requirement. Mr Hui cited Tadjudin and Shing Pui Keung as examples in support of his contention that this should not pose a hurdle to an implied term in respect of a power that is necessarily one-sided. Suffice it to say this is reasonably arguable. Indeed, for the purpose of the bankruptcy proceedings in Shing, it was accepted by Chubb that the implied terms contended for should be implied into the contract.

[49] In my view, Mr Chan’s arguments are plainly not such that one can safely conclude at this stage (and bearing in mind we do not have the input of the judge on most of them) that they are obviously correct and any arguments to the contrary are clearly untenable. This is plainly not the platform to rehearse such legal arguments. Each of the factors he advanced to distinguish Tadjudin and Shing Pui Keung must be properly considered to arrive at a view if they are truly relevant and material, for the court to gauge the impact of such factors on the determination of the point of law. Nor is this the proper occasion to discuss whether his criticism of the Court of Appeal decision in Tadjudin is justified at all. Moreover, some of his arguments cannot be considered in vacuo without regard to the factual basis and this is not the kind of situation that even if all the factual disputes are presumed in favour of the opposite party, it would have made no difference to the legal conclusion.

[50] For all the above reasons, I hold that the judge was also in error on the first broad point, namely, that no substantial dispute was raised in respect of So’s contention that the anti-recoupment term should be implied in the Agent’s Agreement.” (emphasis added)

5.11  Indeed, at So Sheung Hin Ben §30, the Court of Appeal said as follows:

“I have dealt with the Notice Argument at some length as I think it is untenable and should be put to rest. I do not propose to address the submissions on the other two arguments in similar detail, as they involve difficult questions of law and substantial disputes of fact and it would not be appropriate to express my views at this stage other than to give a succinct explanation why I think they are bona fide disputes on substantial grounds. They are matters of some importance to the insurance industry, given the common use of claw-back provisions in agent’s agreements and the not infrequent occasions they have been invoked. It is inappropriate to resolve such disputes summarily, whether in bankruptcy proceedings or in a writ action. They should be resolved in a trial after conflicting evidence has been tested in cross-examination and upon mature reflection with the benefit of full arguments on the questions of law.”

5.12  Thirdly, in FWD Life Insurance Company (Bermuda) Ltd v Poon Cindy [2019] 3 HKLRD 455, an appeal against a judgment after trial, the Court of Appeal said as follows:

“[38] Subsequently, the principle was applied by the Court of Appeal to a claw-back claim of performance bonus and allowances by an insurance company against an agent in So Sheung Hin Ben v Chubb Life Insurance, supra. The point arose in the context of an application by the agent to set aside a statutory demand issued by the insurance company. Kwan JA (as Kwan VP then was) (with whom Yuen and McWalters JJA agreed) held it was reasonably arguable that there was an implied term that the power of termination had to be exercised in good faith and set aside the statutory demand accordingly.

[39] In that case, Kwan JA also referred to the judgment of G Lam J in Re Shing Pui Keung Ex-p Chubb Life Insurance Co Ltd HCB 686/2017, 20 December 2017. G Lam J again held that it was reasonably arguable that the insurance company owed a duty to an agent not to conduct its performance evaluations in an irrational, perverse or arbitrary manner that was not bona fide.”

5.13  The above authorities show that, as a matter of legal proposition, it is arguable that the Anti-Recoupment Term should be implied into the contractual arrangement between the Creditor and the Debtor. I am also of the view that the existence of the entire agreement clause in the Agreement arguably does not exclude the implication of the Anti-Recoupment Term. First, as pointed out at Chitty on Contracts, 35^th Ed §17-020, an entire agreement clause does not generally affect or prevent the implication of a term. Secondly, there is no entire agreement clause in the Memorandum, which contains the claw back provisions.

5.14  Given what I have set out at §§5.2-5.7 above, I am of the view that there is a sufficiently believable factual and legal case for Grounds 1 and 2 to overcome the requisite merit threshold to resist the Petition. On the factual aspect, as I have noted above, Mr Lee does not appear to have any personal knowledge of the relevant matters. As remarked at So Sheung Hin Ben §37:

“Re Shing Pui Keung concerned a down-line agent of So, who was terminated within four years of his appointment and Chubb sought to recover part of the remuneration paid under the claw-back provision in clause 4.1 of the Remuneration Agreement. Shing opposed the bankruptcy petition claiming that Chubb had repudiated the agreements by breaching implied terms to the effect that Chubb should not conduct its performance evaluations and administer its policy in relation to the measure of the persistency rate in an irrational, perverse or arbitrary manner that was not bona fide. The complaint was that the persistency rate was suddenly changed from LIMRA 19 to LIMRA 25 without consultation or explanation and Chubb’s computer system could only generate persistency reports based on LIMRA 19, and without such reports Shing was unable to manage and improve on the persistency rate under the new standard. G Lam J held in §15 that Shing’s allegations could not be brushed aside summarily, noting that Chubb’s affidavits were silent on the bases for the new measures introduced and did not seek to justify them. He took the view that Shing’s claims of breach of implied terms cannot be dismissed as incredible or untenable and on this and other grounds dismissed the petition.”

5.15  For completeness, I should point out that Mr Tse relies heavily on Re Chu Wai Lun, HCB 9235 of 2002, 29 September 2003 §11:

“… The debtor's complaint in paragraph 18 of his affirmation that his appointment has been wrongfully terminated, even if accepted, is of little assistance to him. For contrary to his assertion, the notice period under the Agency Agreement was 15 days. There is nothing in the evidence to suggest that he had or might have suffered any loss and damage arising out of any wrongful termination by the petitioner by not giving the requisite 15 days' notice.”

5.16  In my view, there are a number of difficulties with Mr Tse’s reliance on Re Chu Wai Lun. First, that case was decided before the authorities cited above. Secondly, the proposition is difficult to reconcile with the third implied term in Shing Pui Keung cited above. Thirdly, the SD (and therefore the Petition) does not rely on termination pursuant to clause 9.1 of the Agreement.

6.  Ground 3

6.1  In view of my conclusions of Grounds 1 and 2, I only need to deal with Ground 3 briefly. In my view, given the observation set out at §5.14 above on the quality of the Creditor’s evidence, had it been necessary, I would also conclude that Ground 3 raises a bona fide dispute. Although Mr Lau has left the Creditor’s employ, there is no suggestion that Mr Lee had even contacted Mr Lau to confirm whether the Representation was made. Equally, whilst Ms Tu remains employed by the Creditor, she did not file any evidence and it was only at the hearing that Mr Tse offered to procure evidence from Ms Tu.

7.  Conclusion

7.1  For the above reasons, I dismiss the Petition. I also make a costs order nisi that the Creditor is to pay to the Debtor the costs of the Petition, including any costs reserved, to be taxed if not agreed.