KIDS WORLD LTD v. XL MACHINE LTD AND OTHERS

HCB9235/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDING NO.9235 OF 2002

--------------------

--------------------

----------------------

J U D G M E N T

-----------------------

Petition

1. This is a bankruptcy petition taken out by the creditor, Eagle Star Life Insurance Company Limited against the debtor, Mr Chu Wai Lun.

2. By a letter of appointment dated 5 June 1998, the petitioner appointed the debtor as its district manager ("the Appointment Letter"). The debtor's appointment was governed not only by the terms stipulated in the Appointment Letter but also an Agency Agreement of the same date ("the Agency Agreement").

3. On 31 October 2000, the creditor terminated the debtor's appointment. Pursuant to Clause 9.3 of the Agency Agreement, all sums due to the creditor became immediately payable by the debtor. On 3 January 2002, the creditor served a statutory demand on the debtor, alleging that he owed the creditor a total sum of $1,487,823.80 consisting of :

(a) Personal Finance : $543,583.62

(b) Personal Tax Loan : $53,330.96

(c) Personal Special Loan : $830,260.00

(d) Outstanding Amount of Subordinates' Finance : $60,649.22

In the rest of this judgment, I will refer to the four items above as Sums A, B, C and D respectively. The debtor did not meet the demand. Nor did he take out any application to set it aside.

4. On 10 May 2002, the creditor issued the present petition. As at the date of the petition, the total amount of the alleged indebtedness stood at $1,486,660.88, as the outstanding amount of Sum D has been slightly reduced to $59,486.30. The quantum of the other Sums remained unchanged.

Burden

5. It is trite that a bankruptcy petition fails if there is a bona fide dispute on substantial grounds regarding the petitioning creditor's debt. The burden, however, rests squarely on the debtor to raise such a dispute by adducing sufficient evidence. Making bare assertions, however serious they may sound, is not enough. I now apply these principles to see if the debtor has raised any bona fide dispute on substantial grounds in respect of each of the Sums.

Sums A & B

6. Sums A & B can be dealt with together conveniently.

7. According to the petitioner, Sum A arose thus. Pursuant to Schedule B of the said Agency Agreement, by a letter 15 September 2000, the petitioner agreed to grant a personal finance to the debtor in the sum of $30,000.00 per month from September 2000 to February 2001 subject to the validation by the end of November 2000 against his Branch Annualised First Year Commission of $540,000.00 for the period from September 2000 to November 2000. It is specified in the letter that no finance will be granted for the remaining three months if the debtor fails to achieve the validation requirement. According to Clause 7 of Schedule B of the Agency Agreement, all outstanding finance shall be immediately repaid by the debtor to the creditor upon termination, which took place on 30 October 2000. As at that date, the outstanding finance owed by the debtor was $543,583.62

8. The petitioner's case on Sum B is this. By a letter dated 2 March 2000, the petitioner agreed to grant a tax loan in the sum of $198,000.00 to the debtor, repayable by 12 monthly equal instalments in the sum of $16,500.00 per month by deduction from his monthly commission payment from April 2000. However, it is specified in the said letter that upon termination of the appointment, the outstanding balance of the tax loan shall be repaid forthwith. At the time of termination, the outstanding tax loan owed by the debtor was $53,330.96.

9. The debtor did not dispute liability on either Sum A or Sum B save and except that he alleged that he was entitled to a set off and counterclaim. He said in his affirmation filed on 18 November 2002 :

"8. ... In April or May 1998, I have two meetings with one Mr. Denny Chan and one Mr. Tommy Lim of the Petitioner. At that time I worked for another insurance company, where I was the head of 30 odd down-liners, and where my business was excellent.

9. In order to induce me to leave my former principal and to join the Petitioner, Mr. Chan and Mr. Lim offered a sum of 4 million dollars as a joining fee for me and my major down-liners. The exact distribution of this fee was to be set by me. Mr. Denny Chan further promised to me that I shall be entitled to 5% on my first year production as a special bonus. I now refer to a copy of a letter by the Petitioner dated 8th May 1998 exhibited hereto. I also seek to exhibit a copy of another letter dated 5th June 1998 by the Petitioner. Both copies are marked 'CWL-2'. ('CWL-2A and CWL-2B')

...

12. As stated in paragraph 8 herein above, the Petitioner induced me to enter into the Agency Agreement with it by offering to pay me 5% of my first year production as special bonus, i.e. HK$479,187.10 (HK$9,583,742.70 X 5%). However, the Petitioner estopped from its promise and refused/failed to pay me the special bonus for HK$479,187.10 as special bonus to me. The said sum of HK$479,187.10 shall set off parts of sum A and sum B.

13. There is a trade custom, and so an implied term in the agency agreement, that the down-liners I brought (or was going to bring) to the Petitioner from my previous connexion and those I recruit afterwards are something like my own resource and are not to be tampered (so to speak) with by my Principal (i.e. the Petitioner) - that is, the Petitioner cannot seduce them to leave my supervision and join another Manager within the hierarchy of the Petitioner. This is apparent when one looks at 'CWL-1' to see what benefits these down-liners would bring to me.

14. In breach of this implied terms, the Petitioner did seduce some of my down-liners to be transferred out of my supervision to join another team, the particulars are in the following :-

a. In or about June 1998, Judy Hui who was my down-line team Manager in my previous Principal, was supposed to work as my down-liner within the Petitioner. Miss Hui's subordinates were also supposed to be my down-liners. Subsequently, the said Tommy Lim authorized by the Petitioner tampered with Judy Hui and her subordinates. As a result, they were supervised by another manager of the Petitioner;

b. In or about middle of 2000, one of the agency leader, Mr. Christ Lee on instructions of the Petitioner seduced and solicited my down-liners to be transferred to the team of and under the supervision of Tommy Lim;

c. In or about middle of 2000, Alsa Lam, Patrick Ku and some of my down-liners were similarly seduced by Tommy Lim. Due to some of my down-liners felt troublesome to leave and as a result I suffer a loss of earning, the particulars of which are set out in paragraph 16 herein below. This is based on an average agent's commission achievement during the past few years, multiplied by the number of down-liners transferred or left.

15. The Petition also unreasonably impeded me from recruiting some down-liners. In or about November 1999, I recruited a senior branch manager, Kenneth Chow to be my down-liner. However, the Petitioner unreasonably refused such recruitment. As a result, I suffered substantial losses and damages since the intended appointees, Kenneth Chow together with his down-liner team, would otherwise generate overriding and commission income to me.

16. As a result of matters as stated in paragraphs 14 and 15, I suffered the following losses and damages :-

a.	losses of commission and override income on Judy Hui's team	HK$282,150
b.	losses on FYC produced on 2002, AFYP 5,116,091.31	HK$1,800,000
c.	losses on part of 2nd and 3rd renewal commission produced on 1999, AFYP 11,333,882	HK$283,347
d.	losses on part of 3rd and 4th renewal commission	HK$150,716
e.	losses on non-life insurance business commission	HK$500,000
f.	damages of my reputation to be assessed
g.	loss of commission generated by my down-liners in future to be assessed

17. Further, the Petitioner wrongfully terminated my agency agreement on 31st October 2000. As a result, I lost the opportunity to earn commissions which would otherwise accrue. In 1998-1999 (January), I caused to have procured business at $6,028,654.90. For 1999 (January-December) it was $11,333,882.00 and for 2000 (January-November) it was $5,116,091.30.

18. I say the termination was wrongful because clause 9-1 of the agency agreement between me and the Petitioner was used as a ground to terminate but I had not committed any matters stated in clause 9-1. Moreover, the Agency Agreement say that I have to bear my own costs and sundry expense to develop my business. So I submit that the reasonable notice period should be 6 months - as the position I held with the Petitioner is very hard to be appointed in another institution. If the termination date had been postponed for 6 months, I would have got more commission and bonus at about $1,000,000 or more."

10. The debtor's allegation in paragraph 9 of his affirmation on the oral promise about the 5% special bonus is wholly unsupported or corroborated by any evidence. More importantly, such allegation is inadmissible under Clause 12.4 of the Agency Agreement. Clause 12.4 provided that "[this] Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof as at the date hereof and supersedes any prior agreement or understanding". Mr Lin, counsel for the petitioner, submitted that Clause 12.4 rendered inadmissible extrinsic evidence to prove the alleged oral promise: Wing Siu Co. Ltd v. Goldquest International Ltd [2002] HKCU 1707. I agree. In fact, Mr Li, counsel for the debtor, in his very brief submissions had been unable to argue to the contrary.

11. The debtor's purported counterclaim is premised on the alleged implied term by trade custom. It is trite law that there must be no inconsistency between the trade usage and the terms of the contract. To be binding, trade usage must be notorious, certain and reasonable and not contrary to the law: see Chitty on Contracts (28th edn), Vol.1, para.13-018 at p.652. The debtor had not adduced any evidence to demonstrate that there was such a trade custom as alleged. There is nothing in his affirmation except bare allegations, which I am unable to accept. That being the case, I do not propose to deal with the factual disputes whether the creditor had seduced the debtor's team members as alleged. Further, there is simply no evidence before me to substantiate the alleged loss and damage suffered by the debtor as alleged. Even Mr Li conceded that much of the purported counterclaim was vague. The debtor's complaint in paragraph 18 of his affirmation that his appointment has been wrongfully terminated, even if accepted, is of little assistance to him. For contrary to his assertion, the notice period under the Agency Agreement was 15 days. There is nothing in the evidence to suggest that he had or might have suffered any loss and damage arising out of any wrongful termination by the petitioner by not giving the requisite 15 days' notice.

12. Accordingly, I rule that there is no bona fide dispute on substantial grounds on either Sum A or Sum B.

Sum C

13. I now come to Sum C. According to the petitioner, it was a personal loan. The loan was documented by a loan agreement dated 5 June 1998 (signed by the debtor). Further, by a letter of 30 April 1999 (which the debtor also signed), the debtor agreed to postpone the review referred to in the loan agreement and until review was conducted, the loan should be fully repaid to the petitioner in full upon termination of the appointment.

14. As alleged in paragraph 9 of his affirmation, the debtor contended that despite the clear wording used in the loan agreement, the advance was in fact a " joining fee" promised by the petitioner to him for his joining the company. He also complained that the petitioner had not conducted the review as promised. He referred to the letter of confirmation issued by the petitioner to him dated 8 May 1998 (Exh CWL-2A). But that letter did not support his contention at all. In fact it was quite clear under Clause 3 thereof that the payment was to be regarded as finance to the individual payee. In any event, the letter (which pre-dated the Agency Agreement) would not be admissible under Clause 12.4 of the Agency Agreement. Further, the allegation of joining fee is directly contradicted by the undisputed documentary evidence adduced by the petitioner. In his affirmation, the debtor made reference to the parol evidence rule but did not elaborate on what basis the allegation of "joining fee" would be admissible. Mr Li did not make any submission on this point at all. Lastly, the aforesaid letter of 30 April 1999 is fatal to the debtor's case on "joining fee". To overcome this, the debtor alleged that he signed the letter under duress. However, he has failed to give any particulars or adduce any evidence in support. His allegation of duress is rejected.

15. In my view, the debtor has raised nothing but bare assertions. There cannot be any bona fide dispute on substantial grounds regarding Sum C.

Sum D

16. In respect of Sum D, the debtor first takes the point that the petitioner has not adduced any evidence to show that it is still owing. By the 2nd affirmation of She Shu Leung, Bobby filed on 19 September 2003 with leave, the petitioner now confirms that the Sum is still outstanding. The only matter that the debtor then seeks to raise is the purported counterclaim, which, I have already ruled, is not maintainable for present purposes. There is clearly no bona fide dispute on Sum D. The debtor is no doubt liable.

Conclusion

17. For the above reasons, I hold that the debtor has failed to establish any bona fide dispute on substantial grounds on any of the petitioner's debts. I will therefore make a bankruptcy order against him with costs, including all reserved costs, to be taxed if not agreed.