RE LAI KAR YEE

HCB 10035/2014

[2018] HKCFI 186

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 10035 OF 2014

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J U D G M E N T

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Introduction

1.  The Respondent (Ms Lai) used to be the agent of Prudential Assurance Company Limited (“the Company”).  Her contracts with the Company were terminated within 18 months as she allegedly failed to meet the sales target.  The Company issued a statutory demand for her to repay the sign-on fee of just over $5 million (“the statutory demand”) which Ms Lai failed to comply with.  Ms Lai applied to set aside the statutory demand (“the HCSD proceedings”) but was not successful.  Her appeal to the Court of Appeal (“the CACV proceedings”) was dismissed.

2.  Having taken over the undertakings of the Company pursuant to a scheme sanctioned by the court, the Petitioner (“Prudential HK”) issued the present petition for bankruptcy, based on the statutory demand.

3.  Ms Lai claims to have a bona fide dispute on substantial grounds. She claims that before entering into the contracts with the Company, the Company had made oral assurances on at least 10 occasions that she would be given 24 months in which to meet the sales targets and that she would not be terminated in that period.  She seeks to put before the court more background information than those already put in the HCSD proceedings and the CACV proceedings.

4.  Prudential HK contends that Ms Lai is now trying to raise the same issues to delay the making of the bankruptcy order.  Its position is that:

(a)   Ms Lai is precluded by res judicata from raising the same arguments that were raised in the 2 prior sets of proceedings;

(b)   She should not be allowed to adduce further background information as it could have been obtained with reasonable diligence for the 2 prior sets of proceedings; and

(c)   As a fallback position, all the grounds raised by Ms Lai are devoid of merit.

5.  These grounds of contention of Prudential HK form the issues in this case.

Legal principles

6.  The legal principles set out in Mr Chan’s submission are well settled and I adopt them.

7.  In order to successfully oppose the petition, a debtor has to show a bona fide dispute on substantial grounds, by sufficiently precise evidence which is believable, and must establish that she actually has a defence of substance, not just a fair probability of one: Re Chan Hon Kwong, HCB 6548/2016, Ng J, 27 April 2017 at §9.

8.  Where an issue has been properly ventilated at the stage of an application to set aside a statutory demand, and has been determined by the court at that hearing, res judicata operates to preclude a debtor from raising, at the hearing of the petition, the same argument which has been determined against her, in the absence of any change of circumstances: Re Chan Hon Kwong, at §10; Re Wiemer ex parte Hang Seng Bank Ltd [2013] 2 HKLRD 1214 at §13; Re Choy Wai Bor HCB 8565/2001, Kwan J (as she then was), 28 May 2002, at §30.

9.  Unless a material change of circumstances has occurred since the dismissal of the application to set aside the statutory demand, all that the petitioning creditor has to do at the hearing of the bankruptcy petition is to show that he has made a statutory demand and that the amount of the debt has neither been paid nor secured nor compounded for: Re Chan Hon Kwong, at §11.

10.  Res judicata would only cease to apply under special circumstances, for example where the further material which became available was relevant to the correct determination of a point involved in the earlier proceedings, but could not, by reasonable diligence, have been brought forward in those proceedings: Re Wiemer, at §16.

11.  The Re Wiemer test for admitting further evidence is essentially the same as the first and second limbs of the Ladd v Marshall test used for adducing additional evidence on appeal: see Hong Kong Civil Procedure 2018, §59/10/8.

The facts

12.  In paragraphs 13-23 below, I adopt the background facts set out in paragraph 2 of the Court of Appeal’s judgment dated 9 June 2017.

13.  Ms Lai was employed by the Company as an insurance agent from 1 May 2012 until she was dismissed on 1 November 2013.  According to the Company, she was dismissed for failing to meet production requirements in accordance with the agreements that governed her employment with the Company.

14.  The relevant agreements included a Service Agreement set out in a letter to Ms Lai 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.

15.  Ms Lai 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 Ms Lai’s employment with the Company was terminated, by either party, and for whatever reason, before the end of 24 months from the effective date (ie 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.

16.  So far as production requirements were concerned, the relevant requirement, on which the Company relied to justify the termination of Ms Lai’s employment, was in clause 13.2(i) of the Agency Agreement, which provided that:

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

17.  The Service Agreement and Agency Agreement also contained other production requirements, but these were not material for present purposes.

18.  On 1 February 2013, the Company wrote to Ms Lai 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.  Ms Lai was informed that her performance would be closely monitored, and that the Company reserved its right to take further action, including termination of her employment, if the stated targets were not met.

19.  Ms Lai did not meet the targets that had been set, as on 7 March 2013, the Company issued a termination letter to her, terminating her employment with effect from 1 April 2013. 

20.  In response to this letter, Ms Lai had a meeting with officers of the Company, after which she sent an email dated 18 March 2013 to a Mr Benny To of the Company, 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 Company, 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. 

21.  As a result, on 25 March 2013, the Company withdrew its termination of Ms Lai’s employment with it by a letter in which Ms Lai was reminded of the need to meet the sales targets to which she was subject under the Service and Agency Agreements.  Ms Lai counter-signed this letter to acknowledge its contents.

22.  Ms Lai 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 Company issued a further termination letter to Ms Lai, terminating her employment with effect from 2 November 2013.

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

24.  The defences before Deputy Judge Lok (as he then was) in the HCSD proceedings and the CACV proceedings could be conveniently summarized as follows:

(1)   The Company was aware that Ms Lai’s mode of conducting business is to bring in jumbo (high-value) policies that are few in number.

(2)   The Company’s representatives orally assured her on many occasions that it would not seek repayment of the sign-on fee as long as Ms Lai reached her sales target within 24 months.

(3)   Such oral assurances were important to her as she had a bad experience at her previous agency, where her agency was terminated in breach of oral assurances she had been given.

(4)   Ms Lai believed the real reason for her termination was her unwillingness to participate in illegal insurance promotion activities in the Mainland and money laundering activities that her team leader and team leader's husband were involved in.

(5)   The sign-on fee was not actually a loan to her.  The Notification of Remuneration filed by the Company with the Inland Revenue Department described the sign-on fee as Ms Lai’s commission income.

25.  Deputy Judge Lok dismissed the application to set aside the statutory demand on the grounds that it was inherently incredible and not capable of belief.  In summary, he held that:

(1)   Ms Lai’s case was contrary to the express terms of the written agreements.

(2)   Despite her previous bad experiences, her case was that she still only relied on oral representations from the Company, and did not seek for such assurances to be recorded in writing.

(3)   The judge doubted the commercial sense of the Company’s agreement to wait 24 months before it could terminate the agency relationship even if Ms Lai was not producing business at a satisfactory level.

(4)   In response to the first termination letter in March 2013, Ms Lai did not mention any oral assurances, and instead agreed to meet sales targets in the future.

(5)   He dismissed the allegations of serious wrongdoing by her team leader as lacking particularity and substance.

(6)   At §38 of Deputy Judge Lok’s Decision, he rejected the arguments about the IRD Notification as merely raising a cloud of objections.  The description of the payment in the IRD notification was neither here nor there.

26.  Ms Lai attempted to adduce new evidence before the Court of Appeal but was rejected as it did not meet the first test in Ladd v Marshall, ie that the evidence could with reasonable diligence have been available in the HCSD proceedings.

27.  The Court of Appeal also rejected Ms Lai’s argument that Deputy Judge Lok had conducted a mini-trial on affidavits.  The Court of Appeal held that it was clear that the learned judge’s focus was on whether Ms Lai’s case was believable, not whether it should be believed. 

28.  The Court of Appeal also stated that Ms Lai’s case had to be considered with a critical eye, testing it against the other background facts and circumstances.  The Court of Appeal said that there were many fundamental problems with Ms Lai’s case, and that the judge was right to find that Ms Lai had not established a bona fide disputed debt, and dismissed the appeal.  See §§12-16 of the Court of Appeal’s Judgment.

29.  I now deal with each of the contentions of Prudential HK.

Res judicata

30.  Paragraph 50 of Ms Lai’s affirmation in opposition to the bankruptcy petition contain the same grounds raised by Ms Lai before Deputy Judge Lok and the Court of Appeal.  She is not permitted to re‑argue the same in the bankruptcy court on the principle of res judicata.

Further background information not to be allowed

31.  Ms Lai explained that after reading Deputy Judge Lok’s decision, she knew that a full explanation of certain issues were crucial to her application and she ought to have put forth such explanation: paragraph 53 of Ms Lai’s affidavit.

32.  Paragraphs 52 onwards of Ms Lai’s affidavit purported to show “further background information” in relation to her relationship with the Company that she had not provided in her previous affidavits.  Such information included (i) why she signed the Service Agreement, the Agency Agreement and did not seemingly ask for the numerous oral assurances to be reduced into writing; and (ii) why she did not insist on the terms of the Service Agreement and Agency Agreement to be altered in accordance with the oral assurances in her 2 emails in March 2013 after she received her first termination letter.

33.  Ms Lai further referred in her affidavit opposition to a case of Re Leung Cherng Jiunn, HCB 244/2014, 21 May 2015, Madam Recorder Linda Chan SC, wherein it was held that the debtor had shown substantial grounds to dispute the bankruptcy petition.

34.  It could immediately be seen that the matters in paragraphs 32-33 were historical and within the personal knowledge of Ms Lai.  In fact, it was the new evidence which the Court of Appeal refused to give her leave to adduce: §§2, 5, 9 and 10 of the Court of Appeal’s judgment.  Ms Lai could not be permitted to put in such matters as evidence before the bankruptcy court: Re Wiemer. 

35.  As for the case of Re Leung Cherng Jiunn, the evidence filed in that case does not form part of the evidence in the present petition proceedings.  How Madam Recorder Linda Chan SC exercised her independent judicial discretion in that case does not bind this court.  Further, the authority itself was placed before the Court of Appeal for its consideration but the Court of Appeal still dismissed Ms Lai’s appeal. 

Lack of merits

36.  Even if I should permit Ms Lai to adduce the further background information, I am of the view that it does not assist her.

37.  The information showed that Ms Lai was careful in reading the contracts before signing.  She had made proposed amendments twice to the draft Service Agreement and amendments had also been made by the Company (although just on figures).

38.  She had requested for the oral assurances to be made in writing but was told that it could not be done.  She was told effectively to “take it or leave it.”

39.  After receiving the first termination letter, she had written to the Company stating that the contract shall continue “on the written terms”.  Therefore, despite any prior oral assurances, it was the written terms that should govern the contractual relationship after the 1^st termination was withdrawn.

40.  Ms Lai claims that she was terminated because of her discovery of suspected unlawful conduct of her senior.  With respect, there was no requirement in the written contracts to give reasons for her termination.  The Company might have many reasons for terminating her but it only relied on the reason of not meeting sales target and that was a valid reason.

Conclusion

41.  Ms Lai is precluded by res judicata from arguing in the bankruptcy court the same matters decided in the HCSD and CACV proceedings. The further background information cannot meet the test in Wiemer and cannot be adduced in evidence in the bankruptcy proceedings.  Even if it can be adduced, the grounds raised through such information have no merits.

42.  In the premises, it is appropriate to issue a bankruptcy order.

43.  Costs of the Prudential HK should be borne out of the assets of Ms Lai. However, I disallow 40 minutes of the hearing on 14 December 2017 and costs of this second hearing because such costs have arisen as a result of Prudential HK not being ready in terms of evidence. 

44.  On a nisi basis, costs of the Official Receiver be in the sum of $5,300 to be deducted from the deposit.

45.  I thank Mr Chan Pat Lun for his assistance.