FWD LIFE INSURANCE CO (BERMUDA) LTD v. CHENG WING YIU DUMAS also known as CHENG WING YIU FREDDIE AND ANOTHER

HCMP 2365/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2365 of 2014

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J U D G M E N T

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Background

1.  In these proceedings, the plaintiff (“FWD”) sought to recover from the defendants (Mr Cheng and Mrs Cheng) certain mortgage loans, a medical insurance premium, four different types of bonus payments, certain personal loans, all totalling $18,434,660, and varying sums of interest.  FWD sought also to recover 16 sums, totalling $4,268,185, which it says had been guaranteed by the defendants.

2.  By the time the matter came on to trial agreement had been reached in respect of all of the amounts sought to be recovered by FWD, except two.  First, still in dispute were sums claimed under six of the guarantees, a total of $1,525,180.  Also still at issue at trial was the entitlement of Mr Cheng to a sum of $1,872,561.15 said to be owing by FWD to Mr Cheng under a Long Service Bonus plan (“LSB”).  Mr Cheng says that he is entitled to set that sum off against any amount he might owe FWD.

3.  The entitlement of Mr Cheng to the LSB turns upon the interpretation of his contract of employment, and the rules of the LSB Plan.  The entitlement of FWD to recover, in these proceedings, under the guarantees, turns upon the interpretation of a Legal Charge given by Mr Cheng and Mrs Cheng to FWD over their home at Scenic Garden, in Kotewall Road, Hong Kong, to secure a mortgage advance and other sums of money owing by Mr Cheng to FWD, and the terms of the guarantees themselves.

4.  I propose to deal first with the question of Mr Cheng’s entitlement to LSB, and then his liability under the guarantees.

The documents of employment

5.  Mr Cheng was employed by FWD as an insurance agent from 1 July 1984.  He was a Unit Manager from 1 July 1984, to 30 September 1986, a Divisional Sales Manager from 1 October 1986, to 8 January 2004, and Chief Regional Director from 9 January 2004, to the end of his employment.

6.  There is a dispute as to when and how Mr Cheng’s employment terminated with FWD.

7.  The operative document governing Mr Cheng’s employment at all relevant times was a Individual Agent’s Agreement dated 1 January 1989, (the IAA).  Under the IAA, FWD could, pursuant to clause 7, make advances to Mr Cheng:

“[FWD] may at its discretion make monetary advances, including (without limit to) advances against remuneration which may be expected under this Agreement, to or on behalf of [Mr Cheng] or to or on behalf of any person or company at the request of [Mr Cheng] and each such advance shall be deemed to be a debt due by [Mr Cheng] to [FWD]”

8.  Termination of the agreement was governed by clause 10 in the following terms:

“(i) Either party may terminate this Agreement by giving the other seven (7) days’ notice in writing.

(ii) This Agreement shall also terminate in the event of the retirement or death of the Agent or in the event of the Agent committing an act of bankruptcy.

(iii) For the purposes of Clause 10(ii) retirement shall be deemed to occur:-

(a) On the thirty-first day of December coincident with or next following the attainment of the Agent of the age of sixty (60) years or the attainment of such other age as may be agreed in writing between the Company and Agent, or

(b) On the date on which the Agent with the approval of the Company retires on account of ill-health.”

9.  The mortgage is an “all monies” mortgage, and contains the following relevant provisions:

“2.01 In consideration of [FWD] at the request of [Mr Cheng and Mrs Cheng] agreeing to grant or continue to grant to [Mr Cheng) the general credit facilities applied for [Mr Cheng and Mrs Cheng] hereby JOINTLY AND SEVERALLY COVENANT with [FWD] that, subject as hereinafter provided, [Mr Cheng] and [Mr Cheng and Mrs Cheng] or either of them will ON DEMAND by notice in writing of [FWD] made to [Mr Cheng and Mrs Cheng] and/or [Mr Cheng] as hereinafter provided PAY make good and discharge to [FWD]:-

(i) all sums of money which at the date of such demand may be outstanding and according to the books of [FWD], payable by [Mr Cheng] to [FWD] in respect of any account whatsoever between [Mr Cheng] and [FWD];

(ii) all sums of money for the time being owing to [FWD] in respect of:-

...

(d) all advances made or to be made by [FWD] to or on account of [Mr Cheng] or to others at the request of [Mr Cheng] in respect of credits opened at the request of [Mr Cheng] in favour of any person, firm or company in any place;

...

(iv) the amount of all advances and all monies which may from time to time become due to [FWD] on all contracts and engagements, including the payment of all bills and drafts and promissory notes, the due and punctual payment of which may from time to time be guaranteed by [Mr Cheng] to [FWD] or may be inferred to be so guaranteed;

...

(xi) all sums of money as may from time to time become payable to [FWD] by any other person or persons, the due and punctual payment of which may from time to time be guaranteed by [Mr Cheng] to [FWD] or may be inferred to be so guaranteed;

...

23.01 In the event that [Mr Cheng] ceases to be employed by [FWD] or the Agency Agreement made between [Mr Cheng] and [FWD] is terminated for whatever reasons, [Mr Cheng and Mrs Cheng] and/or [Mr Cheng] shall forthwith repay to [FWD] all monies then due or outstanding under this Charge and the rate of interest thereon shall, as from the date of cessation of employment and/or termination of the Agency Agreement until the final repayment to be at the rate of 3% per annum above the interest rate applicable immediately before the date of such cessation/termination.”

10.  The LSB 2010 Plan, contains the following relevant provisions:

“Overview

This Long Service Bonus (‘LSB’) Scheme is provided to encourage agency growth and quality business for those agency heads having long term service with the company.

...

The scheme begins on January 1, 2001 and will last for 10 years. The accumulated balance of each individual account at the end of the fifth year of the scheme will be distributed to each agency head or his designated beneficiary in 10 equal and annual installments. All interest earned by the unpaid balance during the payment period will be paid together with the last [tenth] payment.

The bonus accumulated from the sixth to tenth year of the scheme will be distributed in the same way as the fifth‑year ending balance as mentioned above.

...

B. Other Provisions

...

2. If the agreements between the company and the agency heads terminate any reasons other than death or retirement, any accrued but unpaid LSB shall be forfeited.

3. If an agency head retires from the company after reaching the age of 65 and does not engage with any insurance and/or financial service company operating in Hong Kong, then the normal payment arrangement will apply.

4. If an agency head dies while his contract is effective or after he has retired (under clause 3), all accrued but unpaid LSB will be paid in a lump sum.”

11.  The case for Mr Cheng is that he had retired from FWD upon attaining the age of 60, and accordingly he was entitled to all accrued LSB.  Mr Nip accepts that in that event Mr Cheng would be entitled to set off the accrued LSB against any other liability he may have to FWD.

12.  The case for FWD is that Mr Cheng was not retired, but had resigned from FWD.  Resignation constitutes neither death or retirement, and accordingly, it is submitted, pursuant to clause B2 of the LSB rules, any accrued but unpaid LSB was forfeited.

The factual circumstances

13.  Mr Lam Wai Yin, Director of Finance for FWD, made three affidavits in support of the Originating Summons. Mr Cheng made two affidavits, and Mrs Cheng one, in opposition.  None of the witnesses were cross-examined, each party being content to put their case on the basis of the affidavits.

14.  Mr Cheng attained the age of 60 years on 17 November 2013.

15.  On 20 January 2014, Mr Cheng sent an e‑mail to FWD in the following terms:

“Dear Boss,

I am so sorry and sad to send this e‑mail as my resignation with FWD. It will be effected on 27 January 2014.

Thank you for your help and support.

Best wishes and take care.

Freddie Cheng.”

16.  FWD replied to the e‑mail on 27 January 2014 in the following terms:

“We refer to your e‑mail dated January 20, 2014 notifying the Company of your intention to terminate the Individual Agent’s Agreement entered between you and our Company dated July 1, 1984 (‘the Agreement’) with effect from January 27, 2014.

(The letter then referred to certain amounts which FWD asserted had been paid to Mr Cheng and were owing by him to FWD.)

Based on the aforesaid, your proposed termination will not be effective unless and until a total sum of $10,250,313.01 together with the interest (if any) are fully repaid and our Company gives the consent to such termination.”[1]

17.  There is no evidence that Mr Cheng responded in any way to that letter.  On 30 January 2014, FWD wrote to Mr Cheng making a formal demand repayment of a total sum of $20,673,412.50, and threatening legal proceedings, (see §47 below).  There was no reference in the letter to resignation, termination of the IAA or retirement.

18.  On 12 February 2014, FWD wrote a further letter to Mr Cheng in the following terms:

“We refer to your resignation e‑mail dated January 20, 2014 and our letter dated January 27, 2014.

Notwithstanding the Long Service Personal Loan, Personal Loan, Special Initial Bonus and Performance Bonus have not yet been fully repaid by you, please be informed that our Company decided to give consent to your termination of the individual Agent’s Agreement entered between you and our Company dated July 1, 1984 with effect from February 12, 2014.”

19.  There is no evidence of any response to that letter by Mr Cheng.  There is no evidence as to how or why the date, 12 February 2014, was selected by FWD.

20.  On the 24 February 2014, solicitors for FWD wrote to Mr Cheng.  The letter contained the following paragraph:

“By your resignation e‑mail to our client dated 20^th January 2014 and our client’s letter to you dated 27^th of January 2014, your Individual Agent’s Agreement dated 1^st July 1984 has been terminated with effect on 12^th of February 2014 (‘termination date’). As from the termination date thereof, you are still indebted to our client, including but not limited to, the following amount:-

(the letter then set out details of loans totalling $10,201,491.69 claimed due to FWD.)”

21.  There is no evidence that Mr Cheng responded to that letter.  Thereafter the matter was in the hands of solicitors and the correspondence appears to have revolved around ascertaining the true amount due by Mr Cheng.

Termination at age 60 or subsequent resignation

22.  The AIAA deals with termination in clause 10, (see §8 above).  It is clear that as at 17 November 2013, when Mr Cheng attained the age of 60 years, the agreement had not been terminated by either party by notice in writing pursuant to clause 10(i).  The 31^st December 2013, was the “31^st December next following the attainment by Mr Cheng of the age of 60”.  On a plain reading of clause 10(iii), Mr Cheng was deemed to have retired on that date.  There is no evidence to suggest that any other age had been agreed between FWD and Mr Cheng in writing for the purposes of that clause.

23.  Mr Nip contented that a deeming provision was merely a rebuttable presumption.  He was not able to cite any authority for that proposition.  There are two relatively recent authorities which have considered the expression “deemed”.  In St Aubyn & Ors v AG [1952] AC 15, at 53 Lord Radcliffe said:

“ The word ‘deemed’ is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible.”

In Barclays Bank Ltd v Inland Revenue Commissioners [1961] AC 509 at 523, Viscount Simons said:

“ I bear in mind what Lord Radcliffe said in St Aubyn’s case about the word ‘deem’ but nevertheless regard its primary function is to bring in something which would otherwise be excluded.”

24.  There is nothing in these discussions which might indicate that a rebuttable presumption is raised by the use of the word “deemed”. The usual use of the expression in a contract or legislation is for the purpose of creating a fiction, that is, stating something to be that which it otherwise might not be, or stating the effect or meaning which some matter or thing has. This use of the expression is aptly described by Windeyer J in the High Court of Australia in Hunter Douglas Australia Pty Ltd v Perma Blinds (1969) 122 CLR 49 at 65–67 in the following way:

“`The words ‘deem’ and ‘deemed’ when used in a statute thus simply state the effect of meaning which a matter or thing has — the way in which it is to be adjudged. This need not import artificially or fiction. It may simply be the statement of an indisputable conclusion, as if example one were to say that on obtaining the age of 21 years a man is deemed to be of full age and no longer an infant .... There is no presumption, still less any rule, that wherever the words deemed appears on the statute demonstrates a fiction or some abnormality of terminology. Sometimes it does. Often it does not.”

25.  In the normal course of events, in the absence of the deeming provision, “31^st December next following the attainment of the age of 60” by an employee of FWD would have no particular significance.  But the effect of the deeming provision is to state that the arrival of that date, following the attainment of age 60, has the consequence of the termination of the IAA by the retirement of the agent.

26.  I accept Mr Lam’s submission that the first stage in assessing the position is to consider the terms of the IAA as at 31 December 2013.  By virtue of the deeming provision in clause 10(iii), on that date Mr Cheng had retired from his employment with FWD, and the IAA had terminated.

27.  The IAA specifically contemplates the variation of the age following which the arrival of 31 December would constitute retirement of the agent.  Any such agreement must be made in writing between FWD and the agent.  Where a variation of the age is agreed, termination of the IAA is postponed until 31 December following the agreed age.  There is no evidence at all of such an agreement between Mr Cheng and FWD.

28.  The purported resignation by Mr Cheng on 20 January 2014, and the letters from FWD of 27 January 2014, and 12 February 2014, cannot constitute such an agreement. 

29.  FWD’s letter of 27 January 2014 purported to assert that the termination would not be effective until sums were repaid and a consent to termination was given.  There was no repayment of the sums claimed and no consent by FWD to termination upon repayment.  No agreement can be found in that correspondence.

30.  The letter of 12 February 2014 purported to give consent to a termination from 12 February 2014, but a termination on that date had never been suggested by Mr Cheng, nor did he write agreeing to termination on that date.  Again, no agreement can be found in that correspondence.

31.  In any event, by its terms, the IAA had already terminated on 31 December 2013.  There was nothing from which Mr Cheng could resign, and his e‑mail of 20 January 2014, was, in the circumstances, simply meaningless.  There is nothing in the subsequent letters from FWD which could be said to have revived the IAA.

32.  The evidence is insufficient for FWD to have established on the balance of probabilities that Mr Cheng was still working for FWD prior to his purported resignation on 20 January 2014. Mr Lam Wai Yin said in his third affidavit:

“As as [Mr Cheng] was born on 17 November 1953, clauses 10(ii) and (iii) only deem [Mr Cheng] to have been retired and the IAA terminated on 31 December 2013.  However, the reality is that [Mr Cheng] only submitted his resignation e‑mail to [FWD] on 20 January 2014 and that it was later agreed that the IAA would be terminated with effect from 12 February 2014, (see [FWD’s letter of 12 February 2014] of my first Affirmation).  In the meantime, [Mr Cheng] was still acting as [FWD’s] agent under the IAA.  There are now produced and shown to me marked “exhibit LWY–53” copies of the Statements of Account of [Mr Cheng] from November 2013 to January 2014 showing that he was still working for the plaintiff and receiving earnings from it in late 2013 and early 2014.”  (sic)

33.  I do not place any weight on Mr Lam’s assertion in the affidavit that clauses 10(ii) and (iii) “only deem” Mr Cheng to have retired.  That is an assertion of an interpretation of the expression “deem”, a matter which is for the court to decide.  It should not have been included in the affidavit, which should be confined to a statement of fact.  Equally, it was not open to Mr Lam to assert that there was an agreement arising from the correspondence.  Again that is a matter for the court.  Mr Lam’s role is simply to set out the correspondence as a matter of fact.  In any event, for the reasons stated above, plainly, the correspondence does not give rise to an agreement.

34.  The statements of account were not explained in detail and are complex, with 15 subcategories of entitlement, from which there were various deductions, leading to a net amount payable.  In the month of November 2013, the net amount payable to Mr Cheng was $349,163.14.  For the month of December 2013, the net amount payable was $1,402,087.95.  Both of those sums were described in the accounts as being “payable by autopay”.  The account for the January 2014 shows a paltry $41,622.91 as being payable, this time not by autopay, but described as a sum “carried forward”.

35.  The entitlement of an agent to remuneration under the IAA is contained in clause 5, which provides first, that the remuneration will be calculated in accordance with a “Schedule of Commission”. The schedule was not attached to the exhibit.  Clause 5 then provided that:

“The Agent’s entitlement to such remuneration will be established by:-

(i) issuance by the Insurer of a policy document, subsequent acceptance of an application lodged by the Company endorsed with the name of the Agent; and

(ii) receipt by the Insurer of the required premiums; and

(iii) compliance by the Agent with the provisions of this Agreement in all respects.”

36.  It is abundantly plain from this provision that the Agent’s commission is paid in arrears.  It is only after FWD is satisfied that those conditions have been met that the agent will be paid.

37.  Having regard to the very substantial imbalance between the commissions paid in November and December 2013, and that held over in January 2014, and the fact that commissions were paid in arrears, the overwhelming inference is that, rather than continuing to work for FWD, and writing new insurance in January 2014, the statement of accounts for January merely records commissions payable to Mr Cheng, in arrears for business previously written prior to that month for which the necessary preconditions for payment of commission had been subsequently met.

38.  The inference is especially strong when regard is had to the fact there was no commission statement to the month of February 2014, demonstrating that it was unlikely that any new business was written during the month of January 2014.

39.  The inference is further strengthened by the fact that of the four elements of commission detailed in the January 2014 account, from which an inference of Mr Cheng working might be drawn, $20,510 relates to “Life Renewal Commission”, and $367 to “Non‑life Renewal Commission”. Only $193 relates to “Life First Year Commission”, $393 relates to “Non‑life First year Commission”.

40.  A “renewal” commission is plainly a commission on the policy written in a previous period, probably in the previous year, and the policy has been renewed in the month prior to the month of payment.  Such a commission, more likely than not arises from “work” undertaken by the agent prior to the month of January 2014.  The “first year” commissions, while clearly arising from new business are also more likely than not to have arisen prior to January 2014, when regard is had to the requirements of clause 5 of the IAA that must be established before the commission is due.

41.  The bare assertion by Mr Lam Wai Yin that Mr Cheng continued to work for the company in early 2014, is, in circumstances where FWD carries the burden of proof, insufficient to establish the assertion.  That is particularly so when there is no evidence at all of any commissions being payable to Mr Cheng for the month of February 2014.  If, is as asserted, Mr Cheng was still working in January 2014, one would have expected there to be a statement of account in respect of commissions earned since January, and paid in arrears during February 2014.  There was none.

42.  Having regard to these factors I am satisfied that by virtue of the operation of the terms of the IAA Mr Cheng, although he may have been unaware of the fact, had been retired by FWD on 31 December 2013, and did not work for FWD during January 2014.  His e‑mail of purported resignation was in fact an empty gesture.

The LSB Rules

43.  It is a necessary consequence of my finding that Mr Cheng had been retired by FWD by the operation of the terms of the IAA, that the provisions of clause B2 of the LSB plan do not operate to forfeit accrued but unpaid LSB.

44.  While clause B3 contains a requirement that if an agency head retires after reaching the age of 65 he should not engage with any other insurance company operating in Hong Kong for there to be in normal payment arrangements in respect of the LSB, there is no similar requirement for an agency head who retires after the age of 60, in accordance with the terms of the IAA.  There is nothing in clause B3 that requires the clause to be read to place such a requirement on an agent retiring in accordance with the IAA not to go to work with another insurance or financial service company in Hong Kong.  I accept that it may well have been the intention of those formulating the rules in respect of the LSB to create a situation where accrued LSB was forfeited by an agent who retired prior to the age of 65, but that is not the effect achieved.

45.  I conclude that there is nothing in the LSB Rules to deprive Mr Cheng of his accrued entitlement to LSB.  The LSB scheme to which he was a party had begun on 1 January 2001 and had terminated on 1 January 2011.  It is not suggested that Mr Cheng had not begun to receive the annual instalments of LSB that were payable by way of distribution at the end of the fifth year of the scheme.

46.  The requirement of the scheme was that the bonus accumulated from the 6^th to 10^th year of the scheme was to be distributed in the same way as the fifth year ending balance, that is in 10 equal and annual instalments.  Both instalments would have to commence at the conclusion of the sixth year.  There is no requirement in the distribution provision to delay those payments until the expiry of a further five years.

47.  I accordingly conclude that Mr Cheng is entitled to the accrued balance of LSB standing at the date of his retirement, 31 December 2013.

The guarantees

48.  By way of Mr Lam’s 1^st affidavit, FWD sought to recover 16 guaranteed sums totalling $4,268,185.  By the time the matter came to trial, FWD were pursuing only six guarantees against Mr Cheng, totalling a sum of $1,625,180.  One of those, in the sum of $100,000, was not disputed by Mr Cheng.  Mr Cheng disputed his liability, in these proceedings, in respect of the remaining five guarantees.  One of the guarantees was by Mr Cheng alone, in the other four he was a co-guarantor. Nothing turns on that fact.  Mr Lam acknowledges that FWD are entitled to call upon either guarantor.

Demand before payment under the guarantee

49.  Three of the guarantees were in the following terms:

“By this arrangement, any outstanding amount of this advance is unconditionally and irrevocably guaranteed by you and you are required to repay such outstanding amount in one lump sum upon your receipt of the first written demand by [FWD].” (my emphasis)

50.  The other two guarantees were in the following terms:

“By this arrangement, any outstanding amount of the above‑mentioned advance(s) (without [FWD] being required to institute legal proceedings beforehand) is unconditionally and irrevocably, jointly and severally guaranteed by you, and you are required to repay such outstanding amount in one lump sum upon your receipt of the first written demand by [FWD], whether at the relevant time (s)he shall be our agent or not.” (my emphasis)

51.  On 30 January 2014, FWD wrote to Mr Cheng referring to the IAA, and reminding him that there were outstanding loans which had not been fully repaid.  A formal demand was made in respect of those loans in the sum of $20,673,412.50 plus daily interest until payment.  Legal proceedings were threatened.  The letter contained the following paragraph:

“Apart from the above‑mentioned outstanding debts, there are some due on other financial arrangement(s) that you have with our Company (e.g. MDB advancement and guarantees). We reserve the right to demand your repayment of other debts which are not mentioned in this demand letter.” (sic)

Plainly, by its terms, that letter could not have constituted a written demand under either formulation of the guarantee. Whilst FWD’s rights were reserved, no demands were made that time.

52.  On 24 February 2014, solicitors for FWD made a formal demand upon Mr Cheng pursuant to the mortgage.  The letter was completely silent in respect of the guarantees.  Mr Nip acknowledges that no written demand was made to Mr Cheng prior to the commencement of these proceedings.

53.  The usual rule is that if a guarantor promises to pay “on demand” the creditor cannot sue him until after a demand has been made on them: The Law of Guarantees, Andrews & Millet, 7^th Edn §7–005.  Consequently, Mr Lam said, in the absence of evidence of demands, claims on the guarantees were premature.

54.  Mr Nip said first that Mr Cheng was a primary obligor under the guarantee, and consequently no written demand was required.  Second, he contended that no demand was required, because the sums guaranteed were due under the mortgage.  Consequently, he said, FWD did not need to rely upon the terms of the guarantees.

Mr Cheng a primary obligor

55.  Although it is not completely clear, the fact of a guarantor  being a principal debtor, or primary obligor, is generally considered to overrule an express provision in a guarantee to the effect that payment must be made “on demand”: see The Law of Guarantees, supra, §7–006.  Consequently, if the guarantor is also a principal debtor, no prior demand would be required for liability to arise under the guarantee.

56.  For that reason, Mr Nip sought to argue that Mr Cheng had a primary obligation under the contracts of guarantee. He based his argument on the use of the words “unconditionally and irrevocably”.

57.  The usual way in which a guarantor that takes on the liability of a principal debtor is by way of a principal debtor clause being included in the contract of guarantee by which the guarantor is declared to have the rights and obligations of a principal debtor.  There is no such clause present in any of the guarantees signed by Mr Cheng.

58.  Mr Nip was unable to point to any authority in which the words “unconditionally and irrevocably” have been held to constitute a guarantor as a principal debtor.  There is nothing in those words that gives rise to an inference that the guarantor is a principal debtor.  The words merely set out an absence of limitation upon the circumstances in which the guarantor may be called upon, (that is, unconditionally), and a limitation on the ability of the guarantor to bring the contract of guarantee to an end, (that is, irrevocably).

59.  For the foregoing reasons I am satisfied that Mr Cheng is not a principal debtor or obligor in respect of the sums guaranteed, and if he is to be sued on the guarantees there must be a prior demand.

Reliance upon the mortgage

60.  In order to found liability for the guaranteed sums under the mortgage Mr Nip relied, in the alternative, upon clauses 2.01(i), (ii)(d), (iv), and (xi) mortgage (see §9 above).

The requirement for a demand

61.  I am satisfied that FWD cannot rely upon clause 2.01(i).  The plain requirement of the guarantee is that there be a demand before liability under the guarantee arises.  They are having been no demand, FWD cannot contend that a contingent liability under a guarantee is:

“a sum of money which ... is outstanding and according to the books of [FWD], payable by Mr Cheng.”

It could not be until a demand had been made, and liability had arisen on the guarantee that it would be open to FWD to record in its books the amount owing by Mr Cheng.  Undoubtedly the amount would be recorded in FWD’s books as owing by the principal debtor, the agent whose liability was guaranteed by Mr Cheng, but the sum would not yet be payable by Mr Cheng, and so could not be recorded as a debt in FWD’s books.

A loan at the request of the guarantor

62.  It is not open to FWD to rely upon clause 2.01(ii)(d) of the mortgage.  That clause requires the advances to be made at the request of Mr Cheng.  There is no evidence at all to suggest that Mr Cheng had requested that the advances being made.  Each of the guarantees, instead of including the common provision in a guarantee indicating that the advance had been made at the request of the guarantor, begins with the following phrase:

“To support your recruitment of [name]...the Company agreed to offer [name] the industry recruiting package...”

63.  It is clear from this phrase that an advance to a newly recruited agent is available without any request from the guarantor. The clear inference is that the “industry recruiting package” is a package made available by FWD to make it easier for the recruitment of agents.  There is no suggestion in the evidence that the package is available only upon a request by a manager such as Mr Cheng.

A guarantee of a “Development Bonus” or a “Performance Bonus”

64.  However, I am satisfied that is open to FWD to rely upon clause 2.01(iv).  For liability under that clause to arise, Mr Cheng must have guaranteed a “contract” or “engagement” or the payment of a “bill” or “draft” or “promissory note”.  The only possible categories which might arise in this case are a “contract” or “engagement”.

65.  Two of the guarantees referred to an “industry recruiting package” under which a “Performance Bonus”, guaranteed by Mr Cheng, was payable “at [the] 18^th contractual month”, but was advanced, apparently on recruitment.  The other three guarantees referred to a “Development Bonus (‘DG’) package” with a “Performance Bonus (‘PB’) of HK$45,000 at the 18^th contractual month”, with a sum of $30,000 in respect of the performance bonus being advanced.

66.  The clear inference to be drawn from the terms of the guarantees is that there existed between FWD and the agents who were in receipt of the bonuses guaranteed by Mr Cheng, a contract or engagement.  A benefit of that contract or engagement was variously described as the “industry recruiting package”, the “Development Bonus package” or “the Performance Bonus”. By the terms of the guarantee, Mr Cheng has guaranteed the repayment of that element of the contract or engagement existing between FWD and the agents.  Such a contract or engagement clearly falls within clause 2.01(iv).

67.  It is plain from the terms of clause 2.01(iv) that liability on the part of Mr Cheng under that clause arose upon his giving the guarantee in respect of the advance made, irrespective of whether any demand was made under the guarantee.  All that was required for liability to arise under the clause is that monies were due and that those monies had been guaranteed by Mr Cheng.  The liability under the mortgage clause arises from the fact of the guarantee, which brings the liability into the mortgage as distinct from a guarantee.  Unlike a usual guarantee, which is usually a standalone document, these guarantees trigger an additional liability under the mortgage.

All monies due under a guarantee

68.  Further, I find that it is clear that the monies guaranteed fall plainly within the scope of clause 2.01(xi).  Again, Mr Cheng’s liability under this clause arises from the mere existence of the debt by other persons, and the fact of his guarantee of that debt, giving rise to liability under the mortgage, rather than under the guarantee itself.

69.  The liability on the guarantees having arisen under clauses 2.01(iv) and (xi) of the mortgage and not under the guarantees, I am satisfied that no prior demand is required.  Mr Lam did not contend that a demand was required under the mortgage before action could be taken on the mortgage.

70.  For these reasons I am satisfied that Mr Cheng is liable under the mortgage in the sum of $1,525,180 on the five guarantees.  Counsel assured me that matters of interest are matters of arithmetic which would be able to be calculated and that I need not deal with interest.

Delivery of possession

71.  FWD seeks delivery of possession of the property, no doubt in order to arrange a sale so that they can recover the amount outstanding.  Mr Lamb recognises that he cannot oppose such an order, but asks for time to allow Mr Cheng to make arrangements to repay the outstanding amount in order that he may keep his home.  That is a reasonable request.

72.  There will be an order that the defendants must deliver vacant possession of the property to FWD.  That order will lie in court and may not be acted upon by FWD until Friday 19 August 2016.

Costs

73.  Mr To seeks costs on an indemnity basis. There is a contractual provision to that effect, and Mr Lam accepts that the usual rule is that such a provision is to be given its full effect, but the rule is not absolute.

74.  But Mr Lam pointed out that the original demands made by FWD far exceeded the amount that was ultimately agreed and ordered to be paid.  There is a clear history in the documentation of a series of requests by Mr Cheng’s solicitors for appropriate documentation to justify the claims.  That documentation was undoubtedly a long time coming, and had it been properly provided at the start, and claim limited to the amounts properly due, time and effort would have been saved.

75.  I am satisfied that justice will be served if there is an order nisi that Mr Cheng must pay 80% of FWD’s costs on an indemnity basis.