RE LEE WAI KWOK

HCB 5994/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5994 OF 2014

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J U D G M E N T

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Introduction

1.  There is before this court a bankruptcy petition dated 7 August 2014 (“Petition”) presented by Prudential Hong Kong Limited (“Prudential”) against Mr Lee Wai Kwok (“Debtor”).  The Petition is based on the Debtor’s non-compliance with a statutory demand dated 2 April 2014 (“statutory demand”) for the sum of over HK$2 million. There was no prior application by the Debtor to set aside the statutory demand.

2.  As indicated in Prudential’s skeleton submissions, for the present purpose, it will only rely on the Debtor’s non payment of items (a) and (b) in the statutory demand i.e. Sign-on Fee and Monthly Finance. They add up to over HK$1.83 million (“Debt”). The Debtor does not dispute having received these two sums.

Background

3.  Prudential is an insurance company carrying on its business in Hong Kong. The Debtor is an insurance agent of considerable experience.

4.  In March 2012, the Debtor joined Prudential as its Senior Regional Manager effective from 1 March 2012 (“Effective Date”) and had signed a number of documents setting out the terms of his appointment. They are

(1) a Service Agreement[1] for Senior Regional Manager signed on or about 5 March 2012.

(2) an Agency Agreement and a Supplementary Agreement for Managers signed on or about 8 March 2012. Both agreements are expressed to be effective from the Effective Date.

(3) an Addendum[2] to the Service Agreement signed on or about 26 March 2012 which provided for a new Clause 4A.2 regarding “Clawback of Sign‑on Fee” to replace the existing one and added a new Clause 4A.3 regarding “Catch up of Sign-on Fee”.

5.  According to Clause 2 of the Service Agreement, the Debtor also agreed to be bound by inter alia Prudential's Agency Terms and Conditions ("AT&C").

6.  Clause 4A.1 of the Service Agreement provided that Prudential would advance to the Debtor a lump sum Sign-on Fee of HK$1,548,000 within 30 days from the date it activated his agent code. On 30 March 2012, Prudential duly paid the Sign-on Fee to the Debtor.

7.  Upon receipt of the Sign-on Fee, the Debtor signed an acknowledgement form expressly indicating his agreement "to be bound by all the terms of the Service Agreement" and his understanding that "the Sign‑on Fee is subject to terms of repayment under the Service Agreement and the Company shall have the right to take whatever steps as may be necessary to recover the Sign-on Fee from [him] if [the Debtor triggers] any causes of repayment thereunder".

8.  In this regard, Clause 4A.2 of the Service Agreement, as provided for in the Addendum,stated that:

“After its release, the Sign-on Fee will be subject to clawback rules as follows:

(a) if your appointment hereunder is terminated (whether by you or the Company) before the end of your 24th month of appointment (counting from the Effective Date) for whatever reasons, you shall have to repay the full amount of the Sign-on Fee to the Company forthwith upon our demand…”

9.  Clause 4B of the Service Agreement also provided that Prudential would advance a Monthly Financing to the Debtor. Under this provision, Prudential had advanced a monthly sum of HK$64,500 to the Debtor from the Effective Date for three months. Owing to the Debtor’s failure to meet certain production target, Prudential reduced the amount of Monthly Financing to HK$32,250 in June, July and August 2012 and suspended it altogether as from September 2012. As a result, the total Monthly Financing advanced by Prudential to the Debtor is HK$290,250 ie HK$64,500 x 3 months + HK$32,250 x 3 months[3].

10.  Clause 6 of the Service Agreement provided that the Sign‑on Fee, Monthly Financing etc. paid to the Debtor are in the nature of credit advance. According to Table G thereunder, the Sign‑on Fee, Monthly Financing and other credit advance would be repayable in full if the Service Agreement, the Agency Agreement and/or the Supplementary Agreement is/are terminated by either party for whatever reasons within 24 months. If the Debtor’s appointment was terminated after 24 months, but within 25 to 36 months, he would still have to repay 60% of the Sign‑on Fee, Monthly Financing and other credit advance.

11.  Without going into the minute details, Prudential claims the Debtor’s performance has been unsatisfactory for quite a long time ever since his appointment. As recorded in an email to the Debtor dated 16 September 2013, there was a meeting between Prudential’s management and the Debtor held on 13 September 2013 in which it was said:

“…We have already explained to you that your performance for the past 18 months was not satisfactory and could not able to meet your contracts’ requirements. In view of this, we have the right to terminate your contract. However, we agreed to extend your contract until the end of Nov 2013 with the support of your leader, Anna. You are also be reminded that Company will closely monitor your production and performance progress. If your performance is still found not satisfactory and does not meet with any of the contract requirements during this period. The Company will take appropriate action without further notice.”

12.  In another email dated 16 October 2013 to the Debtor, Winnie Law, Senior Manager, Agency Compensation, of Prudential said:

“During the meeting, you have agreed to submit a cheque to repay the negative balance of your commission account if you have no business in Sep and this is also one of the requirement for us to consider to extend your contract to Nov. You have sufficient time to submit the cheque to us before your business trip on 9 Oct 2013. However, you have broken your promise. We are not going to extend your contract to Nov if I cannot receive your repayment on or before 21 Oct 2013. Please arrange somebody to submit the cheque to me by hand if you are still not in Hong Kong.”

13.  Lastly, by an email dated 14 January 2014 from Winnie Law to the Debtor, Prudential recapped the situation and gave notice to terminate the Debtor’s appointment. It reads:

“According to my email to you dated 16 Sep 2013, we had clearly stated Company’s position that we have the right to terminate your contract if you fail to meet your contracts’ requirement. Your contact had already been specially extended to Nov 2013 after our meeting on 13 Sept 2013. We had already provided you sufficient time to catch up your business. By the end of Nov, you were found to be failed to achieve a satisfactory level of personal persistency (85%) and group persistency (80%) which were 54% and 71.27%. In view of this, we try our best to arrange meetings twice with you to discuss your performance and your contract issues but you could not make up…We had clearly deliver the message to you that Company had the right to terminate your contract due to you failed to achieve the contract requirements at that time. You should fully understand your situation but we still [give] you chances to catch up business.

In the past months, Company had already given you times and chances to catch up your business but you had no improvement and also still failed to achieve our contract requirements. In view of this, we regret to inform you that we decide to terminate your contract with one-month notice with effective from today.” (emphasis added)

14.  This survey of the contemporaneous correspondence clearly shows Prudential decided to terminate the Debtor’s appointment by reason of his alleged under performance. This was not challenged by the Debtor in the correspondence. The correspondence also shows Prudential did terminate the Debtor’s appointment by giving him one-month’s notice in the said email dated 14 January 2014. Prudential also sent a letter dated 15 January 2014 to the Debtor informing him that his appointment would be terminated with effect from 15 February 2014. In another email dated 21 January 2014, Prudential reminded the Debtor that the Agency Agreement, the Supplementary Agreement and the Service Agreement would be terminated with effect from 15 February 2014. Still, there was no challenge by the Debtor of his alleged under performance.

15.  Since the date of termination was within 24 months from the Effective Date, the termination triggered Prudential’s claw-back of the Sign‑on Fee and the Monthly Financing in full pursuant to Clauses 4A and 6 of the Service Agreement.

Discussion

16.  It is a well-established legal principle that in order to successfully oppose a Petition, a debtor has to show a bona fide dispute to the debt on substantial grounds, by sufficiently precise evidence which is believable, and must establish that he actually has a defence of substance, not just a fair probability of one: Hong Kong Bankruptcy Law Handbook 4^th Ed. at p 47 para. 6A.10; Re ICS Computer Distribution Ltd. [1996] 1 HKLR 181; Re Tam Mei Kam unrep.; HCB 3777 of 2011; 25 April 2012; Barma J (as he then was); Re Yuen Mun Wa (debtor) [2012] 5 HKLRD 108.

17.  In the present case, the Debtor opposes the Petition on the ground that there are bona fide disputes to the Debt on substantial grounds.

18.  To start with, the Debtor disputes Prudential was entitled to terminate and has effectively terminated his appointment within 24 months from the Effective Date.

in or about January 2012, Ms Lisa Ng (“Ms Ng”), Director of Agency Development of Prudential, tried to persuade the Debtor to leave his then employer viz Integrity Financial Advice Network Company Limited (“Integrity”) to join Prudential.  As an incentive, apart from offering him the Sign‑on Fee and Monthly Financing in addition to regular commission, Ms Ng promised the Debtor that he would have a 24-month period to develop his clientele and that his appointment would not be terminated during that period (“Promise”). The same promise was also made to the Debtor’s down‑line agents who followed the Debtor to join Prudential.

20.  It should be immediately apparent that the Promise is akin to saying Prudential would not enforce the very elaborate terms in the written agreements that the Debtor signed in March 2012 providing for performance targets of the Debtor, right of termination by notice or upon cause shown and the repayment of various credit advances by the Debtor upon termination. Be that as it may, the Debtor relies on the Promise as constituting a collateral contract between Prudential and him which overrides the written agreements. The Debtor also submits he has relied on the Promise to his detriment by leaving Integrity and Prudential was therefore estopped from acting inconsistently with it.

21.  As expected, the Promise was denied by Prudential who has filed extensive evidence in support of that denial.

22.  In my judgment, the Debtor has failed to raise a bona fide dispute to the Debt on substantial grounds.

23.  First and foremost, the alleged Promise is nothing but a bare assertion. It is not supported by any contemporaneous documents/ correspondence. The first time anything vaguely similar to the alleged Promise was raised by the Debtor in a statement he made on 3 October 2014, almost two months after the presentation of the Petition. The first time the Debtor specifically mentioned the alleged Promise was in his affirmation dated 5 January 2015.

24.  As revealed in the contemporaneous correspondence between September 2013 and January 2014, some but not all of which has been referred to above, when Prudential discussed with the Debtor his under performance and warned him about Prudential’s intention to terminate his appointment, the Debtor has not referred to or even hinited at the existence of the alleged Promise in protest. Instead, he kept asking for time, pleaded for leniency and agreed to repay the deficit in his commission account. 

25.  Second, there is nothing in the Debtor’s affidavit evidence to show that Ms Ng[4] was duly authorized by Prudential to make any promise that his appointment would not be terminated within 24 months or the express terms in the Agreements would not be enforced by Prudential. There is no evidence of actual authority or materials sufficient to give rise to implied authority. As for implication of terms, the law is authoritatively laid down by the Court of Final Appeal in Kensland Realty Ltd v Whale View Investment Ltd  (2001) 4 HKCFAR 381, 391J-392B and need not be repeated here.

26.  Concerning apparent authority, it is also trite law that an agent cannot cloak himself with apparent authority to do anything on behalf of his principal. Only his principal can. In this regard, all that the Debtor can point to is a press release dated 14 June 2011 by Prudential that Ms Ng “is responsible for driving sales growth through the agency distribution channel which comprises more than 5,000 full time financial consultants. She reports directly to Mr. John Johnson, Chief Agency Officer of Prudential Hong Kong.”

27.  In my view, that press release is hardly sufficient to cloak Ms  Ng with apparent authority to make the alleged Promise on behalf of Prudential.

28.  Third, the undisputed fact is that the Debtor’s appointment has been terminated by Prudential by giving him one month’s (or slightly shorter than one month’s) notice to take effect from 15 February 2014. The termination can be effected pursuant to inter alia Clause 13.1 (by one month’s notice) or Clause 13.2 (with or without period of notice for causes e.g. failing to introduce proposals leading to the issue of 2 policies in any period of 45 days or failing to meet production/performance targets) of the Agency Agreement. Under Clause 15.2 of the Agency Agreement, notices can be by post, e‑mail, fax etc. It is also undisputed that the Debtor has indeed left Prudential’s appointment.

29.  Even assuming for the sake of argument that Prudential has acted in breach of the Promise as a collateral contract, there is no basis to suggest that the Debtor’s appointment was still in existence by the time of the statutory demand or the Petition.

30.  In this regard, this court is satisfied that the Service Agreement, the Addendum, the Agency Agreement, the Supplementary Agreement and the AT&C formed a package of agreements on the basis of which the Debtor was appointed by Prudential. This is borne out by Clause 1 of the Service Agreement which provided the appointment of the Debtor was conditional upon him signing the Service Agreement, the  Agency Agreement and the Supplementary Agreement, and that the effective date of his appointment was to be the same as the effective date of the Agency Agreement. Further, Clause 10 of the Service Agreement and Clause 18.1 of the Agency Agreement required the Service Agreement, the Addendum, the Agency Agreement, the Supplementary Agreement and the AT&C to be construed together. This supports the proposition that the Debtor’s appointment by Prudential was subject to all the terms of these agreements as a package.

31.  In these circumstances, the alternative, and highly technical, argument raised by the Debtor in paragraphs 39 to 46 of his written submissions that somehow Prudential’s notice only terminated the Agency Agreement but not the Service Agreement has no substance.  It seems to this court wholly unarguable that once the Debtor’s appointment was terminated, some of the agreements he had signed lapsed, but others remained intact and effective.

32.  Putting it at the highest, at most the Debtor may have a claim in damages against Prudential for breach of a collateral contract for terminating his appointment two to three weeks earlier than the promised 24 months. The Debtor has not sought to quantify his loss resulting from this early termination. Even assuming the Debtor has a claim against Prudential, he is not able to show his claim is sufficiently large to completely set off Prudential’s claim for Sign-on Fee and Monthly Financing amounting to over HK$1.83 million. At this juncture, I should point out that if the Debtor’s appointment was terminated after 24 months, but within 25 to 36 months, he would still have to repay to Prudential 60% of the Sign-on Fee and Monthly Financing ie about HK$1.1 million.

33.  Although it is strictly not necessary to do so in light of the conclusions above, this court has also considered section D3 of the Debtor’s written submissions regarding his alleged dispute on Prudential’s right to terminate on the under performance basis. In my view, none of the points have any merits.

34.  For the above reasons, this court is not satisfied that the Debtor has raised a bona fide dispute to the Debt on substantial grounds.

35.  Lastly, for completeness, while the Debtor claims he has the means to pay the Debt provided that liability is established, this is, in my view, just another bare assertion by him unsupported by the evidence.

Disposition and Costs Order Nisi

36.  In these circumstances, this court is satisfied that Prudential is entitled to a bankruptcy order against the Debtor.

37.  There will be a usual bankruptcy order against Mr Lee Wai Kwok and an order nisi that the costs of the Petition, including all costs previously reserved, if any, be to the Petitioning Creditor.