FTLIFE INSURANCE CO LTD v. CHOY HOI YAN, JACQUELINE

HCA 1599/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1599 OF 2014

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JUDGMENT

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Introduction

1. This is a claim for the repayment of an alleged loan of HK$3 million.  The plaintiff is a life insurance company.  On or about 1 March 2012, the defendant, Jacqueline Choy (“Jacqueline”), whilst still a school girl of 18 years waiting to sit her 7^th Form examinations, signed three agreements on the plaintiff’s standard terms: the “Agent’s Contract”, the “Loan Agreement” and the “Side Agreement” (together “the three agreements”).

2. Pursuant to the Agent’s Contract, Jacqueline was appointed a self‑employed agent of the plaintiff to sell long term insurance for which she was to be paid remuneration calculated in accordance with an Agency Manual.  The contract was terminable forthwith by the plaintiff if, inter alia, Jacqueline was in breach of any term of the agreement or did not meet any production or other requirement in respect of her agency as set by the plaintiff from time to time.

3. The Loan Agreement provided that a HK$3 million loan was to be advanced to Jacqueline on terms that it would become repayable, less any performance bonus received, if, inter alia, Jacqueline breached any of the terms of the Loan Agreement, or the Agent’s Contract or the Side Agreement.  Shortly after 7 March 2012, Apollo Lau, an insurance regional director and self‑employed agent for the plaintiff, handed to Jacqueline’s mother, Madam Choy, a cheque dated 7 March 2012 for HK$3 million made payable to Jacqueline which Madam Choy paid into a bank account in the joint names of herself and Jacqueline.

4. Under the Side Agreement, the plaintiff agreed to pay Jacqueline a “performance bonus” up to a maximum level of HK$30 million if she brought in premium income of at least HK$7.5 million in the first year of her appointment.  This agreement was terminable by the plaintiff in its absolute discretion any time, including if Jacqueline failed to meet the production requirements set for her by the plaintiff.

5. Each of the three agreements contained a clause providing that it was the entire agreement between the parties.

6. By letter dated 14 April 2014, the plaintiff terminated all three agreements on the ground that Jacqueline had not met the plaintiff’s performance requirements and by letter dated 28 April 2014 demanded repayment by Jacqueline of the HK$3 million loan.  On about 14 August 2014, the plaintiff served Jacqueline with a writ and Statement of Claim claiming HK$3 million.

7. Jacqueline denies that she is liable to repay any of the HK$3 million.  She advances two main alternative defences.  First, she contends that at no time was it intended that any of the three agreements should be enforceable against her.  Second, further and in the alternative she maintains that it was agreed between her mother and the plaintiff that the HK$3 million advance was a non‑repayable “sign‑on fee” paid in recognition of the valuable contacts her mother was proposing to introduce to the plaintiff as potential purchasers of life insurance.

The applicable legal framework

8. It is trite law that for an agreement to be legally enforceable there must have been at the time it was entered into an intention, objectively established, to create legal relations.  It follows that if as a matter of objective reality, parties to documents in the form of contracts have no common intention to create thereby legal rights and obligations inter se, the rights and obligations set forth in the documents will be unenforceable.

9. In the past, even where there was no intention fraudulently to deceive third parties, documents that did not express the real nature of an intended transaction were called “shams”.  Thus in Bridge v Campbell Discount Co Ltd [1962] AC 600, Lord Devlin said in respect of a liquidated damages clause alleged to be a penalty:

“It is well settled that where a court of law finds that the words which the parties have used in a written agreement are not genuine and are not designed to express the real nature of the transaction but for some ulterior purpose to disguise it, the court will go behind the sham front and get at the reality”.

10. These days the prejorative adjective “sham” is avoided save where there was a dishonest intention to deceive third parties.  Nonetheless,where the evidence before the court points to a situation where documents apparently contractual in nature have been created to give the appearance of a binding agreement when this was not the intention of the parties, then, even if there was no fraudulent intention to deceive, it is the proper function of the court in my opinion to go behind the appearance of the documents and “get at the reality”.  In this connection it is to be noted that it has long been the law that the parol evidence rule does not apply where such evidence goes to prove that a written agreement was not intended to give rise to contractual relations, see Chitty on Contracts, 32^nd ed Vol I, para 13‒109 and the cases cited at footnote 506.

The facts

11. In the years 2010 – 2011, Madam Choy was carrying on a highly successful business advising and making arrangements for well‑off pregnant women from the PRC to come to Hong Kong to give birth.  She operated this business through three Hong Kong companies, Hong Kong Joyful Baby International Ltd, Hong Kong Joyful Baby Group Ltd and Joyful Baby Strategic Planning Co Ltd.  In the course of carrying on this business, it occurred to Madam Choy that the pregnant women she acted forand their families were potential purchasers of life insurance and she began to introduce them to life companies operating in Hong Kong.  In 2010, news of this potentially lucrative source of business reached Apollo Lau, the regional director of the plaintiff referred to in paragraph 3 above.  In the course of that year he met Madam Choy when he attended a business lunch she organised at the Jockey Club and later on he introduced her to the Hong Kong General Agents and Managers Association, although in the end nothing came of this introduction.

12. In the course of 2011, Apollo Lau had further meetings with Madam Choy when she was told that her proposal that she refer potential clients to Mr Lau who would then pass on a commission to her would not be legal.  Instead, she would have to be duly appointed as an agent for the plaintiff authorised to sell long term insurance.  However, Madam Choy was not prepared herself to sign an agency contract.  Her reasons for taking this position are not clear.  She denied in cross‑examination that the reason related to the admitted fact that she had been an undischarged bankrupt in the years 2005 – 2009.  According to her, the reason she did not want to sign an agency contract was that she had connections with people associated with prominent brands in the fashion industry from her years working in that industry and she did not want to impair those connections by it becoming known she was an insurance agent.  Whatever the reason, it is common ground that Madam Choy was adamantly opposed to signing an agency contract and the idea then emerged between her and Apollo Lauthat the problem could be solved if Jacqueline became an authorised agent of the plaintiff with the business Madam Choy brought to the plaintiff beingtreated as having been produced by Jacqueline.  In short, as Apollo Lau accepted in cross‑examination, it was agreed that Jacqueline would be appointed in substitution for her mother to achieve compliance with the plaintiff’s internal rules and the law of Hong Kong[1].  At the time this agreement was made, Apollo Lau knew that Jacqueline was still taking her secondary school examinations.

13. It was also agreed between Apollo Lau and Madam Choy that the commission earned on business introduced by Madam Choy would be split between them, 30% to Mr Lau and 70% to Madam Choy.

14. In July 2011, Jacqueline sat and passed Insurance IntermediariesQualifying Examination Papers I & III, respectively Principles & Practice ofInsurance and Long Term Insurance, this being a regulatory precondition to being appointed a long term insurance agent of the plaintiff.  Apollo Lau accepted in cross‑examination that these examinations did not pose any real risk to the implementation of the plan that Jacqueline should sign an Agent’s Contract.  In other words, the examinations were easy to pass.

15. Jacqueline was not present at any of the meetings that Apollo Lau had with Madam Choy prior to signing the Agent’s Contract.  Indeed, as Apollo Lau admitted in cross‑examination, there was little communication ofany sort between him and Jacqueline in the lead up to Jacqueline’s signing of the three agreements and afterwards.

16. In her oral evidence, Madam Choy testified that in the course of her meetings with Apollo Lau he expressly assured her that Jacqueline’s unavailability to carry out her role as agent and/or to attend training would not cause any problem; she would only be required to attend such training as was necessary to renew her agent’s licence when she was in Hong Kong.  He also assured Madam Choy that he would accommodate Jacqueline’s schedule and resolve any issues that would arise under the plaintiff’s rulesand requirements.  In cross‑examination, Apollo Lau denied he gave any of these assurances.  Jacqueline said in evidence that her mother was given the alleged assurances but she accepted in cross‑examination that she was not present when the assurances were given; she heard about them from her mother.  Whilst Apollo Lau may not have given the alleged assurancesexpressly, I am satisfied that it was understood between him and Madam Choy that the only requirements that would be imposed on Jacqueline would be the minimum necessary to comply with internal and regulatory requirements.  I say this because after Jacqueline had signed the Agent’s Contract, Apollo Lau imposed on Jacqueline for the next two years no more than these bare minimum requirements and it was only sometime after the hoped‑for businessfrom Madam Choy’s PRC contacts dried up in 2013/2014 following legislation that prohibited pregnant women not married to Hong Kong citizens from coming to Hong Kong to give birth that he drew attention to Jacqueline’s production requirements.

17. In late 2011/early 2012 there were two meetings.  The first was at the Jockey Club which was attended by Apollo Lau, Mr Ralph Lau (the plaintiff’s Chief Agency Officer), Mr Edwin Yung (the plaintiff’s Chief Commercial Officer) and Madam Choy.  The second meeting was at the Chariot Club and was attended by Apollo Lau, Mr Ralph Lau and Madam Choy.  One of the main reasons for these meetings was to allow the plaintiff’s senior management (Messrs Ralph Lau and EdwinYung) to form a judgment as to the chances of Madam Choy referring to the plaintiff a substantial number of wealthy potential life insurance customers to justify going ahead with the proposed appointment of Jacqueline as an authorised agent.  Another reason was to discuss the size of the payment to be made to Madam Choy.  Madam Choy pitched for HK$10 million but it was eventually agreed that she should receive HK$3 million and that Jacqueline would sign an Agent’s Contract. As Apollo Lau described it in evidence, in negotiating and making this agreement, Madam Choy acted throughout as Jacqueline’s manager.

18. Madam Choy said in her witness statement that it was agreed that the HK$3 million would be paid as “signing money” as a “sweetener” to Jacqueline and herself and it was explained to her that the payment would have to be structured as a loan so as to provide for a mechanism to secure payment of commission and performance bonuses anticipated to be earnedby Jacqueline under the proposed contracts Jacqueline was to sign.  In her oral evidence, Madam Choy said that she was assured at one or both of theabove‑mentioned meetings that the plaintiff would not enforce the HK$3 million loan.  This was denied by Apollo Lau.  In his witness statements he said that no one ever indicated that the HK$3 million was a gift; instead everyone understood that the HK$3 million “finance” would be subject to the fulfillment of the relevant production requirements.  For the reasons I give below, I do not accept this part of Madam Choy’s evidence.  On the contrary, I find that she well understood that the HK$3 million was to be an advance against receipt of performance bonus entitlements and that if Jacqueline’s appointment as an agent of the plaintiff was terminated, that part of the loan not covered by a performance bonus entitlement would be repayable.

19. On about 8 February 2012, Jacqueline signed an application form for an Agent’s Contract. The form was countersigned by Apollo Lau inhis capacities of Direct Manager and Regional Manager.  Jacqueline testifiedthat she signed the form at the plaintiff’s office under the supervision of one ofApollo Lau’s two secretaries, Sarena Au‑Yang, and that Apollo Lau was not present. Madam Choy also testified that Jacqueline was summoned by Sarena to come to the office to sign the form.  In my judgment, Jacqueline did indeed sign the application form at the plaintiff’s office under the supervision of Sarena who presented the document to Jacqueline at the signatory page and told her briefly what the document was.  Jacqueline knew she was signing an application to become an agent of the plaintiff but I accept her evidence that she did not read what she was signing.

20. By a letter in standard form dated 21 February 2012, the plaintiff made Jacqueline a conditional offer of appointment as a Unit Manager subject to her signing the three agreements.  The letter was signed on behalf of the plaintiff by Mr Edwin Yung in his capacity as Chief Commercial Officer.  A Unit Manager is expected to build his or her own team of agents.  In a revealing passage in cross‑examination, Apollo Lau said that Madam Choy only wanted Jacqueline to be appointed as a Unit Manager so that she (Madam Choy) could obtain an additional 5% override commission; throughout, Madam Choy talked to him about Jacqueline becoming an agent because of money.  Apollo Lau also agreed in evidence that he expected Madam Choy to be in charge of the whole process by which Jacqueline was to sign an Agent’s Contract in place of her mother doing so.

21. The three agreements that Jacqueline subsequently signed are dated 1 March 2012.  In addition, she signed an acknowledgement also dated 1 March 2012 that she was liable to pay HK$30 million “Indebtedness” to the plaintiff (the figure being an obvious “typo”), coupled with an authorisation that any entitlement she had in an Agents’ Deferred Incentive Scheme could be used towards paying off this debt.

22. Apollo Lau testified that he gave the three agreements to Madam Choy for signature by Jacqueline and received them back from Madam Choy duly signed by Jacqueline.  He said he adopted this course because Madam Choy was a business woman and he was worried about Jacqueline’s command of English.  Madam Choy denied that the agreements were given to her for signature by Jacqueline and Jacqueline had no recollection that this was the case but I accept this part of Apollo Lau’s evidence which was not challenged in cross‑examination. In his second witness statement, he said that when he gave the agreements to Madam Choy:

“I did not impose any deadline for the signing of the documents and [Jacqueline] / Madam Choy could take as much time as they wanted to review and consider the contents of those documents and even [seek] legal advice if necessary.”

In so testifying he was not stating he said anything to Madam Choy about taking legal advice.  That this is so was effectively confirmed in an answer toa question from the court during the first day of his evidence when he said:

“I believed that she [Madam Choy] would find an appropriate person, perhaps a lawyer, to explain the contents of the documents to [Jacqueline].”

He also accepted that when he received the signed documents back from Madam Choy he did not ask if legal advice had been sought.  However, when it was put to him in further cross‑examination the following day thathe had never explained to Jacqueline the provisions of the three agreements, Apollo Lau said that he told Madam Choy he would not explain the agreements to Jacqueline and he requested Madam Choy to go to a lawyer for perusal of the documents.

23. I do not accept this evidence from Apollo Lau that he requested Madam Choy to obtain legal advice on the agreements.  Madam Choy denied that this was so and I am entirely satisfied that if Apollo Lau had made this request he would have said so in his witness statements and would not have told me that he merely “believed” that Madam Choy might find an appropriate person, perhaps a lawyer, to explain the documents.

24. I accept Jacqueline’s evidence that she signed the three agreements and other related documents because her mother asked her to in order to assist in implementing her mother’s plan to earn commission by introducing potential clients to the plaintiff.  In answer to the suggestion in cross‑examination that she would not blindly follow what her mother suggested and she was capable of looking out for her own interest, Jacqueline testified that if what her mother wanted her to do was feasible and was not harmful to others, she would do it; her concern was whether she could help her mother; her mother had a plan and she had to follow it.  I have no hesitation in accepting this evidence.

25. I further accept Jacqueline’s evidence that she was not taught in English and her knowledge of English was distinctly limited; her mother did not explain the three agreements and nor did she (Jacqueline) read through these documents or the authorization letter before she signed them.  She thought signing them was a formality and she was unaware that the HK$3 million was potentially repayable.

26. As already recorded, the plaintiff issued a cheque dated 7 March 2012 payable to Jacqueline in the sum of HK$3 million which was handed by Apollo Lau not to Jacqueline but to her mother who paid it into a bank account in the joint names of herself and Jacqueline.  Indeed, most of the commission earned on business introduced by Madam Choy was paid by a cheque being deposited into this joint bank account which Madam Choy controlled and from which she took the lion’s share of the money that came into it.  On the occasions when commission was not paid into the joint account, a cheque was given to Madam Choy in Jacqueline’s name and a receipt therefor was given by one of Madam Choy’s employees.

27. Following the issue of the cheque for HK$3 million, Jacqueline signed an undated document acknowledging receipt of the cheque that described the payment as “the Loan paid by Ageas Insurance Company (Asia) Limited (‘the Company’) according to a Loan Agreement dated 1 March 2012, made between the Company and myself.”  I accept Jacqueline’s evidence that she did not read this document before signing it.

28. Apollo Lau accepted Madam Choy’s proposal that during the first year of Jacqueline’s agency, the commission earned on business introduced by Madam Choy would be split 20:80 and not 30:70 as had been previously agreed.  However, when Apollo Lau sought to re‑established the 30:70 split in the second year of the agency, Madam Choy refused to go along with this and thereafter there were other disagreements and Madam Choy started to communicate with Apollo Lau less and less.

29. Following the execution of the three agreements, apart from signing a few policies and undergoing a minimum amount of training, Jacqueline did virtually nothing as an agent of the plaintiff.  She remained a high school student until about May 2012 and in the summer of that year she went to the US to have a look at Stony Brook University in south eastern New York State where she enrolled as a full‑time undergraduate in January 2013.  Apollo Lau testified that whilst he knew in 2011 that Jacqueline was planning to join a study tour abroad after she had signed the three agreements, he did not know that she was studying full‑time in the US until September 2013.  Madam Choy’s evidence was that she told Apollo Lau in 2011 that Jacqueline intended to study in the US after passing her Form 7 exams.  It is unnecessary to decide this conflict of evidence.  What is clear is that whilst clients were being introduced to the plaintiff by Madam Choy in 2012, Apollo Lau was indifferent whetherJacqueline was doing anything as an agent of the plaintiff save for the odd bit of training and signing a few policies, and this indifference continued after Jacqueline had left for the US during which period Jacqueline was unavailable to sign policies issued to insureds introduced by Madam Choy.

30. The HK$3 million loan could have been called in at the end of Jacqueline’s first year as an agent because she had not by then produced anything like HK$7.5 million of premium.  Also, for much of the time in 2013 she did not meet the performance requirement that she produce one piece of new business every two months.  However, not once was any complaint addressed to Jacqueline about her performance and her Agent’s Contract was only terminated in April 2014.  Moreover, it was Madam Choy and not Jacqueline whom Apollo Lau approached at Christmas time in 2012 at a meeting at the Holiday Inn to discuss ways of bringing in more business.

31. Jacqueline was in the U.S. at university when the letter dated 14 April 2014 terminating her Agent’s Contract was received at her Hong Kong address.  She learned that her agency contract had been terminated when her mother told her of it in a telephone call and agreed to her mother’srequest that she leave it to her to handle matters.  Madam Choy proceeded toinstruct solicitors, Oldham, Li & Nie (“OLN”), who sent a long and detailedletter to the plaintiff dated 27 May 2014 on behalf of Jacqueline and her mother (“the OLN letter”).  The bulk of this letter was taken up with a complaint by Madam Choy against Apollo Lau concerning matters irrelevant to this trial.  The 3^rd and 4^th paragraphs on page 5 of the letter read:

“Our clients believe that Ms J Choy has been made a scapegoat and/or has been sacrificed in order that both our clients’ complaints will now fall on deaf ears.”

“Further, our clients have no interest to keep the HKD $3 millionfrom your company. However, since your reason for termination of the appointment of Ms J Choy was wrongful in our clients’ views, our clients believe that no interest should be charged on the loan as stated in your letter dated 28 April 2014 until this matter is fully resolved.”

32. The whole of the letter, including these two paragraphs, was written on the instructions of Madam Choy.  When Jacqueline was pressed in cross‑examination that OLN must have sought her confirmation of the paragraphs quoted above, Jacqueline replied that she could not remember if this were so and at the time she did not think the HK$3 million payment was a loan.  If Jacqueline did indeed give confirmatory instructions for these paragraphs (which I rather doubt) I have no doubt that she did so because this was what her mother wanted rather than because this was her independently determined choice of action.

Did the parties to the Loan Agreement intend thereby to create legal relations?

33. This question is to be answered adopting an objective approach and I have no hesitation in answering it in the negative.  In my judgment, it is clear from the facts found above that the three agreements were mere window dressing to give the appearance of satisfying the plaintiff’s regulatory and internal requirements and the parties had no intention to create legal relations.  The plaintiff wanted access to Madam Choy’s contacts in the belief that they were a rich source of potential business and Madam Choy wanted to receive commission and bonus payments on the premiums her contacts agreed to pay.  Jacqueline was just a piece on the chess board to be moved into a position by her mother, with the connivance of the plaintiff,that would allow these mutual ambitions to be realized without Madam Choy having to enter into an Agent’s Contract. The plaintiff knew perfectly well that Madam Choy, not Jacqueline, would be the true recipient of the HK$3 million payment and the commission and bonus payments paid in respect of business Madam Choy introduced.  Accordingly, the plaintiff fully understood that Jacqueline would never be in a position to repay the HK$3 million unless her mother provided the necessary funds. Further, consistently with the understanding that existed between the plaintiff and Madam Choy that Jacqueline would be an agent in name only, no steps were taken by either of these parties to ensure that Jacqueline understood the agreements she signed and the most token requirements were imposed on Jacqueline sufficient only to give the appearance of regulatory compliance.

34. It follows that the plaintiff and Jacqueline did not intend to create legal relations by concluding the Loan Agreement with the consequence that that agreement is unenforceable against Jacqueline.

Jacqueline’s alternative defence that it was agreed between her mother and the plaintiff that the HK$3 million payment was a non‑repayable sign‑on fee

35. Given the conclusion expressed in paragraph 34 above, it is not strictly necessary to deal with Jacqueline’s alternative defence but the matter having been the subject of much evidence and legal argument I think it appropriate that I should set out my findings in respect to it.

36. In paragraph 18 above I stated my finding that it was not agreed between Madam Choy and the plaintiff that the HK$3 million payment was a non‑repayable sign‑on fee; rather, as she well understood, the HK$3 million was an advance against receipt of performance bonus entitlements so that if Jacqueline’s appointment as an agent of the plaintiff were terminated, that part of the loan not covered by a performance bonus entitlement would be repayable.

37. In addition to testifying as summarised in paragraph 18 above, Madam Choy gave evidence as follows in cross‑examination.  After she received copies of the three agreements signed by Jacqueline following receipt of the cheque for HK$3 million, she noticed that Jacqueline had signed the Loan Agreement whose terms were inconsistent with the assurance she had received from the plaintiff that the HK$3 million loan would not be enforced.  She therefore insisted on a further meeting with Apollo Lau and Ralph Lau that was held in April 2012 in the Chariot Clubwhere she demanded to know why what had been agreed to be a sign‑on feehad become a loan.  In reply, Apollo Lau said that due to the mechanisms of the plaintiff that were the usual practice in the insurance industry, they couldnot give her the HK$3 million outright.  Upon hearing this, Madam Choy threatened to return the HK$3 million cheque and cancel the agreement that she would introduce her contacts to the plaintiff and she told Ralph Lauthat she needed his word as the plaintiff’s CEO whether the HK$ 3 million was a loan or not.  In reply Ralph Lau said that the plaintiff could not depart from their standard form loan agreement but he had previously said that the HK$3 million was a signing fee and not a loan and he would take responsibility for what he had said previously.

38. I reject entirely this additional evidence given by Madam Choy.  There is not a hint of it in her witness statement and none of it was put to Apollo Lau in cross‑examination.  Further, there is no email or other document confirming the alleged assurance given by Ralph Lau which one would have expected an experienced businesswoman like Madam Choy to send or create.

39. I reject the other evidence Madam Choy gave as to the HK$3 million payment being a non‑returnable sign‑on fee for the following reasons.

40. First, as recorded in paragraph 31 above, she effectively admitted through the 4^th paragraph on page 5 of her solicitors’ letter dated 27 May 2014 that the HK$3 million was repayable.  In cross‑examination, Madam Choy tried to explain this paragraph away on the basis that she did not know how to select what should go in the letter; she was in the US at the time and was under great pressure; and she wanted to induce the plaintiff to engage in settlement negotiations.  In my judgment, this attempt to brush the OLN letter under the carpet is fanciful and I reject it.  Madam Choy is an experienced and tough businesswoman.  Before becoming bankrupt in 2005 she worked for a long time in a garment business she owned with her husband and she made a great success of her Joyful Baby business.  She also negotiated hard with Apollo Lau over the terms on which she would bring her contacts to the plaintiff as potential purchasers of life insurance.  Further, as she was obliged to concede, the OLN letter was written on her instructions and under legal advice.  With these considerations in mind, if she had had any case for asserting that the HK$3 million payment was not a loan advanced under the Loan Agreement but a non‑returnable sign‑on fee she would, I am quite sure, have instructed her solicitors to set this out in the letter.

41. Second, as I have already held, Madam Choy was given the Loan Agreement for signature by Jacqueline after the meetings at the Jockey Club and the Chariot Club and prior to Jacqueline signing the application form on 8 February 2012 and she would certainly have understood from that document that the HK$3 million payment was a loan; yet there is no credible evidence of any protest to Apollo Lau or instruction to Jacqueline not to sign the agreement pending confirmation that the payment was not refundable.

42. For the sake of completeness, I should deal with the reliance by Jacqueline’s counsel, Mr Martin Kok, on the manner in which the HK$3 million payment was recorded in the plaintiff’s books in support of his submission that the payment was non‑refundable.  Mr Kok pointed to: (i) the payment advice generated for the HK$3 million payment which described it as “upfront payment”; and (ii) the Commission Account Statement issued to Jacqueline for the period 1 – 31 March 2012 which recorded the HK$3 million payment under the pro forma heading “Finance Payment & Repayment” with the addition of the word “upfront”, not under the heading“Loan Payment & Repayment”.  Mr Kok also drew attention to the wording at the foot of the statement which described the issue of the cheque for HK$3 million as an “upfront payment”.

43. Mr Kok further relied on the fact that the plaintiff had described the payment as commission income earned by Jacqueline in a notification to the Hong Kong Inland Revenue Department (“HKIRD”).

44. These accounting entries and the notification to the HKIRD were explained by the witness Mr Kwok Man To, the manager of the plaintiff’s Distribution Services and Support Department, whose evidence I unhesitatingly accept.  On the basis of this evidence I find that all new agents appointed by the plaintiff are given a finance package and it is the plaintiff’s invariable practice to record this in the commission statement under the heading “Finance Payment & Repayment”, whether the sum paid is repayable or not.  Also, the entries made under the heading “Loan Payment & Repayment” are entries that usually relate to mortgage or car loans; and loans made under the standard Loan Agreement are routinely booked as “upfront payment” on the payment advice.

45. By letter dated 18 July 2016, the plaintiff informed HKIRD that its earlier notification that the HK$3 million payment was commissionincome was incorrect because it was a loan.  Mr Kok suggested to Mr Kwokin cross‑examination that this letter had been written solely for the purposes of the proceedings brought against Jacqueline.  In reply, Mr Kwok stated that the plaintiff had been advised by PricewaterhouseCoopers in May 2015 that advance payments in the form of loans should not be treated as commission income and it was by reason of this advice that the corrective notification dated 18 July 2016 was sent to HKIRD.  I readily accept this evidence.

46. I therefore conclude that the accounting entries and the first notification to HKIRD relied on by Mr Kok do not assist the case that the HK$3 million payment was a non‑returnable payment made in recognition of the valuable business Madam Choy was going to bring to the plaintiff and rather than a loan.

47. Thus, if it had been necessary to determine whether Jacqueline’s alternative defence had been established, I would have held that it had not been for the reasons given in paragraphs 36 – 46 above.

Undue influence

48. At the end of Apollo Lau’s evidence I expressed the view that it appeared to me that Jacqeline had a distinctly arguable but unpleaded defence based on the doctrine of undue influence and I went on to say that I would allow Mr Kok to apply for leave to amend Jacqueline’s defence to plead this defence.  Why this defence had not been pleaded at the outset was a mystery.

49. I expressed this view in light of the following: (i) the presumption of undue influence that arises as between parent and child; (ii) the major interest that Madam Choy had in Jacqueline signing the threeagreements; (iii) the risks those agreements, especially the Loan Agreement, posed for Jacqueline; (iv) the fact that, as was foreseeable, the lion’s share of the HK$3 million had gone to Madam Choy and not to Jacqueline; and (v) the failure of the plaintiff to enquire whether Jacqueline had received independent legal advice as to the obligations to which she would be subjectunder the agreements.  The authority on undue influence I had in mind was the decision of the Court of Final Appeal in Li Sau Ying v Bank of China (Hong Kong) Limited [2005] 1 HKLRD 106 where the approach taken by the House of Lords in Royal Bank of Scotland Plc v Etridge (No 2) [2001] UKHL 44 was applied.

50. The following morning, Mr Kok applied for leave to amend Jacqueline’s Defence to plead that the Loan agreement was voidable and should be set aside on the grounds of undue influence.  Ms Ho for the plaintiff strongly resisted this application and argued, inter alia, that if leave were to be granted there should be an adjournment of 21 days to allow the plaintiff to approach Edwin Yung, who had left the plaintiff’s employment, with a view to calling him to give evidence as to Jacqueline’s independence of mind.

51. Although I was of the view that 21 days would not be needed to proof Edwin Yung, I was persuaded that I should refuse Mr Kok’s application because fairness to the plaintiff required an adjournment of certainly 7, possibly 9, days and such a disruption to the timetable of the trial was not justified, given the lateness of the application.

Concluding remarks

52. For the reasons given above, the plaintiff’s claim fails and is dismissed.  In the absence of an agreement as to the appropriate order as to the costs of the action, the parties should serve written submissions on the issue of costs, the defendant’s submissions to be served within 4 days of the date hereof, reply submissions to be served 4 days thereafter and closing submissions to be served 3 days after that.

53. Given my findings of fact set out above, I feel bound to record my disquiet that the plaintiff company’s senior management should have concluded that it was appropriate not only to seek to comply with the requirements of the Insurance Companies Ordinance by having Jacquelinesign the three agreements but also to bring these proceedings against Jacqueline when it was plainly foreseeable that much the greater part of the money advanced would come under the control and disposition of Madam Choy whose interest in Jacqueline signing the agreements manifestly dwarfed any interest Jacqueline may have had, if any.