RE SUNG WAI YIP ALEXANDER

HCB 1012/2017
[2018] HKCFI 333

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO.1012 of 2017

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JUDGMENT

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Introduction

1.  This is a bankruptcy petition (“the Petition”) presented by Chubb Life Insurance Company Ltd (“Chubb”) against Mr Sung on the ground that Mr Sung is unable to pay his debt as demanded by a statutory demand (“the Statutory Demand”) served on him by way of substituted service on 8 December 2016.

2.  The Statutory Demand is for the sum of HK$511,722.67 representing the total amount of some portions of certain advancements that Chubb has made to Mr Sung upon his appointment as insurance agent. The position of Chubb is that Mr Sung is liable to repay such advancements owing to a “claw-back” mechanism set out in one of the agreements made between Chubb and Mr Sung for the purpose of the appointment.

3.  Mr Sung has made no application to set aside the Statutory Demand.

The alleged indebtedness

4.  I should first explain in more detail the alleged indebtedness of Mr Sung, which is evidenced by incontrovertible facts and non-controversial documents.

5.  Mr Sung and Chubb enter into the following written documents all dated 27 May 2013:

   (1)   the Agent’s Agreement;

   (2)   the Manager’s Agreement; and

   (3)   the Remuneration Agreement.

6.  By the Agent’s Agreement, Chubb appointed Mr Sung to be its non-exclusive agent for the promotion of its insurance policies. Clause 16.1 of the Agent’s Agreement provides that the Agreement may be terminated by either party giving to the other not less than seven days prior written notice to be given in accordance with Clause 22 and in the case of an agent, a copy of such notice must also be given to the manager.

7.  Clause 22 of the Agent’s Agreement provides that any notice required by the Agreement to be given may be given by hand or sent by post or fax.

8.  Clause 4 of the Remuneration Agreement contains a clawback provision. It provides that in the event of the Agent’s Agreement is terminated for any reason during the four year period after the effective date, all remuneration or a percentage of the remuneration paid to Mr Sung shall be treated as a debt owed by Mr Sung to Chubb and must be repaid to Chubb immediately upon termination.

9.  Pursuant to Clause 3 of the Remuneration Agreement, Mr Sung received a sign-on bonus (“SB”) in the sum of HK$235,000 in the production month of May 2013, a special allowance (“SA”) in the sum of HK$584,140 for the production month of June 2013 to December 2015 and Manpower Growth Bonus (“MGB”) in the sum ofHK$509,099.77 for the first and second financing years in the production months of June 2014 and June 2015.

10.  Chubb sent the requisite written notice to terminate the Agent’s Agreement on or about 22 July 2016 with effect on 1 August 2016. According to the clawback provision, Mr Sung is obliged to repay Chubb the entire sum of SB, and 25% of SA and MGB received amounting to HK$508,309.94 (“the Sum”).   

11.  Chubb further demands Mr Sung to pay a sum of HK$3,412.73 as negative commission in July 2016. The evidence of Chubb does not explain what this negative commission was and why it was due. Mr Sung does not specifically deal with this negative commission too. In any event, this amount is insignificant insofar as the Petition is concerned.

12.  Mr Sung has never repaid any part of the Sum to Chubb notwithstanding its written demand and the Statutory Demand.

The debtor’s purported defence

13.  Mr Leung, for Mr Sung, accepts that Mr Sung must show a bona fide dispute about the debt upon which the Petition is founded on substantial grounds supported by believable evidence though he maintains the evidential threshold is relatively low.

14.  In his written submissions, Mr Leung puts forth three grounds to oppose the Petition. First, Mr Sung alleges that the termination of the Agent’s Agreement was without good grounds and was wrongful, probably motivated by the refusal of Mr Sung to agree to a proposed amendment to the Remuneration Agreement.  

15.  On that basis, Mr Sung relies on the contractual principle that no one should be entitled to rely on his own breach of duty to avoid the contract or bring it to an end or to obtain a benefit under it.

16.  Second, Mr Leung submits that there should be an implied duty of good faith in the Agent’s Agreement in that Chubb should exercise its contractual rights or discretion in good faith, rationally and for a proper purpose, and not arbitrarily or capriciously or in a manner which is not bona fide. In this connection, Mr Leung heavily relies on Tadjudin Sunny v Bank of America, National Association, unreported, CACV 12/2015, 20.5.2016 in this regard.

17.  Mr Leung goes on to submit that Chubb was in breach of the implied duty of good faith in that it terminated the Agent’s Agreement with the dominant intention of triggering the clawback provision to punish Mr Sung for his refusal to accept the proposed amendment to the Remuneration Agreement.

18.  Lastly, Mr Leung submits that it is an arguable issue as to whether Mr Sung was in fact an employee of Chubb rather than its agent.

19.  At the hearing, Mr Leung, rightly in my view, is happy to rely on the alleged breach of the implied duty of good faith only and makes no submission on the other two grounds.

20.  I therefore focus on the alleged breach of the implied duty of good faith and I shall start by taking a closer look at the Tadjudin Sunny case.

21.  At §55 of the Tadjudin Sunny case, the implied term of good faith was explained in the following terms,

“In all, a power or discretion given to a party to a contract which on its face is unqualified is generally to be read as being subject to an implied requirement that it can only be exercised in good faith, rationally and for a proper purpose, and not arbitrarily or capriciously or in a manner which is not bona fide. Such restrictions are implied in order to give effect to the reasonable expectations of the parties to a contract.”

22.  In that case, the defendant bank accepted that its employment contract with the plaintiff contained two implied terms in that it should not implement or administer its performance evaluations and performance incentive program in respect of the plaintiff in an irrational, perverse or arbitrary manner or in a manner that was not bona fide.

23.  In the present case, Mr Leung’s formulation of the implied term of good faith is that the power to terminate the Agent’s Agreement should not be exercised with the dominant intention of triggering the clawback clause.  I have grave difficulties with this formulation.

24.  In the first place, both Mr Sung and Chubb were entitled to, without giving reason, terminate the Agent’s Agreement within the 4-year period. The clawback provision takes effect when the Agent’s Agreement is terminated by either party for any reason during the 4-year period. Mr Sung himself could have terminated the Agent’s Agreement within the 4-year period without any reason and the consequences would include the operation of the clawback provision. On his part, he could hardly have any intention let alone the dominant one to trigger the clawback provision if he opted to exercise his right to terminate the Agent’s Agreement without any reason within the 4-year period.

25.  Thus, the alleged implied term of good faith has little application to Mr Sung. It cannot be necessary to give effect to the reasonable expectations of the parties or for business efficacy and should not be implied into the Agent’s Agreement on that basis.

26.  On the other hand, in its consideration as to whether to terminate the Agent’s Agreement, Chubb must be entitled to take into account all the contractual consequences flowing from such a termination. It was essentially a commercial decision. The ability to recover from Mr Sung certain percentages of such advances due to the clawback provision must be one of the considerations. Even if Chubb decided to terminate the Agent’s Agreement despite the alleged excellent work performance of Mr Sung with the dominant intention to trigger the clawback provision, in my view, this alone does not necessarily mean that it exercised its right in an irrational, perverse or arbitrary manner or in a manner that was not bona fide.

27.  For completeness, I have studied the evidence of Mr Sung. He avers that two months after Chubb changed its business name to its present one in late April 2016, Chubb suddenly terminated the employment of over 40 staff members including him.

28.  He then recalled that Chubb asked a number of staff members including him to sign an amendment to the Remuneration Agreement before terminating the Agent’s Agreement. He refused to sign the same.

29.  He believes that the termination was due to his refusal to sign the same.

30.  The evidence of Ms Chan filed on behalf of Chubb is that according to her understanding, there was no correlation between the amendment to the Remuneration Agreement and the termination of the Agent’s Agreement at all. She did not elaborate any further about her understanding.

31.  Anyway, it is incumbent on Mr Sung to support his allegation by credible evidence. On his evidence, I am unable to accept that Chubb decided to terminate the Agent’s Agreement with the dominant intention to trigger the clawback provision as a punishment for his rejection of the amendment to the Remuneration Agreement however aggrieved Mr Sung feels about the termination. It is purely a surmise on his part.

32.  For the reasons given, I find no merits in this ground based on the alleged implied term of good faith.

33.  It follows that I cannot accept the first ground that Chubb was in any breach of the Agent’s Agreement when exercising its contractual right to terminate the same with the requisite written prior notice.

34.  Mr Leung also accepts that the present dispute does not really turn on whether Mr Sung was an employee or an independent contractor. In any event, I accept Chubb’s position that the Agent’s Agreement makes it clear that Mr Sung was not its employee.

Conclusion and order

35.  None of the grounds of opposition is made out. The fact remains that Mr Sung has failed to comply with the Statutory Demand and has never indicated that he is able to pay Chubb the Sum. I make the usual bankruptcy order against Mr Sung with costs accordingly.

36.  Lastly I thank both Ms Liao, for Chubb, and Mr Leung for their succinct submissions.