RE YEUNG KIT WAI

[English Translation – 英譯本]

HCB 72/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT BANKRUPTCY PROCEEDINGS NO. 72 OF 2007

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JUDGMENT

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1. The Creditor herein is petitioning for a bankruptcy order against the Debtor herein on the ground that she has failed to perform an agreement for the repayment of debt.

Factual background

2. On 18 February 2004, the Creditor acquired from Eagle Star Life Assurance Company Limited (hereinafter “Eagle Star”) all rights, title, interests and benefits in the debts in respect of Eagle Star’s agency or brokerage contracts and other related contracts.

3. On 21 June 2001, the Debtor signed a Letter of Appointment issued by Eagle Star and dated 13 June 2001 and commenced employment as a business manager of Eagle Star on 26 June 2001. The terms and conditions of appointment of the Debtor were contained in the said Letter of Appointment and the Appendices thereto, which included a standard agency contract prepared by Eagle Star.

4. On 19 June 2002, Eagle Star terminated the appointment of the Debtor by giving her 15 days’ written notice.

5. During the period of appointment of the Debtor by Eagle Star and through referral and arrangement by the Debtor, one Mr Leung Kin Ming and his younger sister-in-law Ms Siu Lai Sheung took out 8 and 2 insurance policies respectively. The Debtor was paid commissions in relation thereto by Eagle Star.

6. After the Debtor left Eagle Star, the above 10 policies were taken over by Ms Li Wai Chu, the Debtor’s immediate supervisor, for follow-up. Subsequently, Mr Leung made oral and written complaints to Ms Li and Eagle Star respectively, stating that the Debtor had never explained to him the terms and conditions of the 10 policies and that he never knew that the policies were for a term of as long as 25 years. Mr Leung and Ms Siu ceased to pay the premiums on the 10 policies from 16 April 2003 onwards.

7. After discussions, Eagle Star agreed to cancel the 10 policies and Mr Leung agreed to take out 9 policies, each for a term of 15 years, in place of the 10 policies. The premiums paid on the 10 policies were transferred to the 9 new policies as premiums thereon.

8. On 17 June 2003 and also 25 August 2003, 29 October 2003 and 1 June 2004, Eagle Star through its solicitors Messrs. Y C Lee, Pang & Kwok wrote to the Debtor, demanding her to return the commissions that she had received for the 10 cancelled policies. The adjusted amount of commissions involved was $236,183.51.

9. As no response was received from the Debtor, the Creditor issued a statutory demand to the Debtor on 16 September 2004. The statutory demand was served personally on the Debtor on 18 November 2004.

10. Subsequently, the Debtor and the Creditor conducted settlement negotiations. In November 2004, the Debtor visited the Creditor’s office, where she had a meeting with Mr Chan Cho Kit, Senior Support Manager of the Creditor and Mr Law Tak Wing, Assistant Legal Manager of the Creditor. She was informed that the total amount payable by her to the Creditor including legal costs was $240,000. The Debtor suggested paying off this sum of money by instalments, and Mr Law told her that, once an agreement for repayment by instalments was entered into, she would have to make repayments punctually, failing which the Creditor would demand immediate repayment of the whole balance.

11. On 5 January 2005, the Debtor telephoned Mr Chan and told him that she intended to pay off the said sum of $240,000 by 36 instalments, with the first instalment to be paid on 1 April 2005.

12. In the end, Mr Chan on behalf of the Creditor entered into an agreement for repayment on the following terms:

(1)   The debtor was to repay the said sum of $240,000 to the Creditor by 36 instalments from 1 April 2005 to 1 March 2008;

(2)   Except for the final instalment, the amount payable in each instalment was $6,666;

(3)   The amount payable in the final instalment was $6,690;

(4)   The Debtor was to give 36 post-dated cheques to the Creditor on or before 31 January 2005;

(5)   The first instalment was to be paid on 1 April 2005; and

(6)   The final instalment was to be paid on 1 March 2008.

13. The above terms of the agreement for repayment were set out in a letter by the Creditor to the Debtor dated 5 January 2005.

14. Subsequently, upon request of the Debtor, the parties agreed to extend the time limit for submission by the Debtor of the post-dated cheques to 2 February 2005. The Debtor did mail 36 post-dated cheques to the Creditor afterwards. The first 4 cheques (dated 1 April, 1 May, 1 June and 1 July 2005 respectively) were honoured upon presentation, which means a total amount of $26,664 was duly repaid.

15. On 1 August 2005, the Debtor wrote to the Creditor, saying that she was taking up another job and requesting the Creditor not to present the cheques due on 1 August and 1 September 2005 and to return them to the Debtor. The Debtor provided 2 cheques dated 1 April and 1 May 2008 as substitutes. On 5 August 2005, Mr Chan on behalf of the Creditor replied in writing to the Debtor and, as requested by her, returned the cheques due on 1 August and 1 September 2005.

16. In September 2005 or so, the Debtor telephoned Mr Chan, seeking a 3-month deferment of the date of paying each subsequent instalment. She also provided the Creditor with 3 post-dated cheques dated 1 June, 1 July and 1 August 2008 respectively as substitutes for the cheques due on 1 October, 1 November and 1 December 2005. As requested by the Debtor, the Creditor returned the latter 3 cheques to the Debtor on 4 October 2005.

17. Towards the end of 2005 or so, the Debtor telephoned Mr Chan again, saying that she was unable to repay the balance of $213,336 and requesting the Creditor not to present any of the remaining post-dated cheques.

18. On 3 August 2006, the Creditor through its solicitors issued another statutory demand to the Debtor, demanding repayment of the balance of $213,336. The statutory demand was served on the Debtor by means of publication in the newspapers on 6 November 2006.

19. Furthermore, none of the 6 post-dated cheques previously handed to the Creditor by the Debtor, dated 1 October, 1 November and 1 December 2006 and 1 January, 1 February and 1 March 2007 respectively, was honoured upon presentation. On 15 March 2007, the Creditor through its solicitors gave notice of dishonour to the Debtor.

20. To date, the Debtor has still not paid the said sum of $213,336 to the Creditor.

21. The bankruptcy petition in the present case was issued by the Creditor to the Debtor on 3 January 2007.

The Debtor’s grounds of defence

22. The Debtor opposes the bankruptcy petition. From her affirmation and evidence and submissions at the hearing, her grounds of defence can be summarized as follows:

(1)   She was forced to resign from Eagle Star. After she left Eagle Star, her clients were handled by others and Eagle Star did not pay her any commission. She has not done anything prejudicial to Eagle Star after she resigned. Therefore, the Creditor is not entitled to rely on the provisions of the standard agency contract and demand return of the commissions already paid to her.

(2)   The cancellation of the policies by Mr Leung and his taking out new policies had nothing to do with the Debtor. Nor did she know anything about the matter. She should therefore not be made liable.

(3)   Mr Leung’s allegation that the Debtor did not explain the terms of the policies before he took out the policies was untrue. She met Mr Leung together with her supervisor Ms Shirley Poon. Mr Leung was experienced in taking out policies, and it was upon his request for retirement protection that the Debtor arranged 25-year policies for him. He had told the Debtor that he cancelled the policies because he was pressurized by his wife to do so. The Debtor contends that the Creditor has been unfair to her by listening only to Mr Leung’s version of events.

(4)   As the Creditor left no room for negotiation, the Debtor had no alternative but to issue the 36 post-dated cheques. The money used for paying first 4 instalments was obtained from credit card loans. The Creditor’s claim against her has caused her physical, mental and economic harm.

The applicable legal principle

23. It is a well-established legal principle that a debtor who opposes a bankruptcy petition against him has to adduce solid evidence to show that there is a bona fide dispute of the debt on substantial grounds: see Re ICS Computer Distribution Ltd [1996] 3 HKC 440.

Evidence at the hearing

24. At the commencement of the hearing, the Debtor sought to call Mr Leung to give evidence on the real reason for cancelling the policies. Mr Leung had not filed any affirmation in these proceedings, he was not a witness for the Creditor, and the Debtor had not arranged for him to attend the hearing. The Debtor therefore applied for an adjournment of the hearing so as to enable her to contact Mr Leung and request him to attend the hearing to be cross-examined by the Debtor. The Creditor opposed the application.

25. Having heard submissions of both parties, I refused the Debtor’s request and application. First, the Debtor said that Mr Leung had all along been unwilling to meet her and talk about the cancellation of the policies. It was therefore by no means certain that she could locate Mr Leung. Even if he did give evidence, the Debtor would not know whether such evidence would assist her in resisting the bankruptcy petition. Second, given Mr Leung was not a witness for the Creditor, if the Debtor wished to have Mr Leung give evidence in the court, she should have made the necessary arrangements or inquired about the procedure and requirements of calling witnesses well in advance. In these proceedings, there had prior to the hearing been a few hearings for directions, but the Debtor had never made a request to call Mr Leung or made inquiries in that respect. It was simply too late for her to make the request abruptly at the substantive hearing. Third, Mr Leung’s real reason for cancelling the 10 policies would neither affect the Creditor’s bankruptcy petition nor advance the Debtor’s defence. This aspect will be dealt with below.

26. Upon request of the Debtor, the Creditor called Mr Chan Cho Kit to be cross-examined by the Debtor. The Debtor’s questions mainly focused on Mr Leung’s reasons for cancelling the policies and the integrity of Ms Lee who took over the Debtor’s clients. The Debtor herself also gave evidence.

Clause 6.7 of the standard agency contract

27. According to the Letter of Appointment signed by the Debtor on 21 June 2001, the terms on which the Debtor was appointed included those contained in the Letter of Appointment and the terms of the standard agency contract of Eagle Star. The provision in the Letter of Appointment in respect of commissions and bonuses (Item E) also stated that the Debtor’s right to receive commissions was subject to the terms of the standard agency contract.

28. Clause 6.7 of the standard agency contract of Eagle Star provides as follows:

In the event of the Company for any reason cancelling the whole or any portion of a policy and returning the premium or any part thereof, or returning any premium or premiums paid in advance of their due dates, the Agent will repay to the Company any commissions or bonuses received by him in respect of such policy.

29. The above Clause 6.7 was part of the contract between the Debtor and Eagle Star (and, subsequently, the Creditor). Under this Clause, in the event of a client cancelling his policy and the company returning the premium, the Debtor was under a duty to repay to the company any commission she had received in respect of that policy. This Clause continued to bind the Debtor after she left Eagle Star.

30. In the present case, the 10 policies taken out by Mr Leung and Ms Siu had indeed been cancelled in accordance with their wishes, and the premiums paid on those policies had been returned and applied to the new policies. The Debtor was therefore obliged under Clause 6.7 to repay to the Creditor the premiums that she had received in respect of those 10 policies.

31. Furthermore, Clause 6.7 provided that the Debtor was under a duty to repay the commission where the company cancelled a policy for whatever reason. It follows that, no matter whether the Mr Leung’s complaint against the Debtor was genuine and whether he was pressurized by his wife to cancel the policies, Clause 6.7 applied so that the Debtor had to repay the commissions she had received. Therefore, Mr Leung’s the real reason for cancelling the policies has no bearing on the question of whether the Debtor had to repay the commissions to the Creditor. Nor will such reason assist the Debtor in resisting the bankruptcy petition. By the same token, the contention that the Debtor did not know about the cancellation of the policies until after it occurred will not constitute a ground of defence to the petition.

32. Similarly, the Debtor’s claim that she was forced to leave Eagle Star is wholly irrelevant to the issue of whether she was under a duty to repay to the Creditor the commissions she had received.

33. The Debtor also harbours doubts about the integrity of Ms Lee who contacted Mr Leung and followed up his policies after the Debtor left Eagle Star. This, however, does not affect the rights and obligations of the Creditor and the Debtor under Clause 6.7 of the standard agency contract. On the facts, it is clear that the 10 policies had been cancelled upon request of the insured and the relevant premiums had, in accordance with the wishes of the insured, been applied to other uses. Pursuant to Clause 6.7, the Debtor was under a duty to repay the commissions she had previously received.

The agreement for repayment

34. Apart from Clause 6.7 of the standard agency contract, the Debtor also entered into an agreement for repayment with the Creditor in January 2005. In agreeing to the Debtor repaying the commissions and legal fees totalling $240,000 by 36 instalments, the Creditor also waived its right to demand one-off repayment of the $240,000. This was in effect a forbearance to take further legal proceedings against the Debtor for recovery of the commissions. This oral agreement for repayment was obviously beneficial to the Debtor and was a valid contract supported by good consideration and binding on both parties.

35. Furthermore, both parties had performed some of the terms of the agreement. The Debtor had repaid part of the amount due by 4 instalments, whereas the Creditor had not acted upon the statutory demand of 16 September 2004 by taking further bankruptcy proceedings against the Debtor.

36. Therefore, apart from Clause 6.7 of the standard agency contract, the Debtor was also under a duty pursuant to the said agreement to repay the balance of $213,336. Furthermore, having entered into the agreement for repayment and then performed part of the agreement, it is now too late for the Debtor to dispute her liability to repay the money.

37. Although the Debtor alleges that she was given no alternative but to enter into the agreement for repayment with the Creditor, nothing in her affirmation or oral evidence points to the existence of circumstances which constituted duress at law and hence exonerated her from the obligations under the agreement for repayment. The Debtor says that, at the meeting with the Creditor’s representative, he told her that the Creditor would take legal proceedings and issue a bankruptcy petition against the Debtor if she failed to repay the money. This, however, did not by itself amount to duress because it was the Creditor’s right to take legal action against the Debtor for recovery of the amount due. Similarly, if the Debtor wished to dispute her liability to repay the commissions, she had the right to defend the legal proceedings taken by the Creditor.

38. Nor does the claim that the Debtor is unable to repay the sum due to the Creditor constitute a valid defence. If anything, the claim serves to prove that the Debtor is insolvent, which in turn justifies the making of a bankruptcy order against her.

Conclusions

39. On the above analysis and for the above reasons, none of the arguments put forward by the Debtor constitutes a defence to the debt which forms the basis of the bankruptcy petition. The Debtor fails to show that she has a bona fide dispute of the debt on substantial grounds.

40. In my judgment, the evidence adduced by the Creditor clearly shows that the Debtor has failed to satisfy the debt specified in the Creditor’s statutory demand of 3 August 2006 and that the Debtor is unable to satisfy the debt. I therefore make the usual bankruptcy order against the Debtor.

41. As regards costs, the general rule is that costs should follow the event. I therefore order the Debtor to pay costs of the Creditor and the Official Receiver in the bankruptcy petition, such costs to be taxed if not agreed.