ANGELA YANG v. AXA WEALTH MANAGEMENT (HK) LTD AND OTHERS

HCA 2016/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2016 OF 2014

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J U D G M E N T

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INTRODUCTION

1.  In this action, commenced on 10 October 2014, Angela Yang (“Angela”) claims against:-

(1)   AXA Wealth Management (HK) Limited, formerly known as the Winterthur Life (Hong Kong) Limited (“the 1^st defendant”);

(2)   Swiss Privilege Limited, formerly known as Credit Suisse Privilege Limited (“the 2^nd defendant”); and

(3)   Chong John N K, formerly known as Johnathon[1] Chong, (“Johnathon”),

for fraudulent misrepresentations allegedly made by Johnathon as agent for or on behalf of the 1^st and 2^nd defendants in relation to her purchase of a number of insurance policies between 2003 and 2008 issued by the 1^st defendant. This is the trial of a preliminary issue as between Angela and the 1^st and 2^nd defendants on whether the former’s claims against the latter are time-barred.  The answer to this question depends on when it was that Angela discovered, or could with reasonable diligence have discovered, the alleged fraud and/or deliberate concealment of facts relevant to her right of action against them.

2.  The parties have agreed to proceed, for the purpose of the present trial of preliminary issue only, on the basis of the following assumptions:-

(1)   Johnathon made the representations referred to in the Schedule to the draft Re-Amended Statement of Claim attached to Angela’s summons dated 16 December 2015;

(2)   those representations were false and were made fraudulently; and

(3)   Johnathon made those representations as agent for or on behalf of the 1^st and 2^nd defendants.

3.  Johnathon has not participated in this trial.  The participating parties are agreed that the outcome of this trial is binding only as between Angela and the 1^st and 2^nd defendants.

BACKGROUND FACTS

4.  Angela was born in May 1965.  She was educated in Hong Kong until 1981/82 when she went to Canada to further her studies.  She was in Grade 13 at that time.  She later attended the University of Toronto studying arts and drawings for 4 years and then spent another 4 years at Ryerson University studying interior design.  In the early 1990s, she returned to Hong Kong.  She has since been working in her father’s interior design company.  She was divorced in 1999, and became the primary-carer of her daughter without any financial support from her former husband.

5.  According to Angela:-

(1)   Her means were limited.  She earned about HK$20,000 per month in 2003, which was increased to around HK$25,000 in 2007/08.  She had a property in Tin Hau, which was sold in September 2007 in circumstances which I shall further refer to later in this judgment.  She was the sole breadwinner of her family.

(2)   Her job at her father’s interior design company involved the handling of design matters and materials procurement, and required her to review documents such as contracts and construction drawings.

(3)   By 2003, she had some previous experience of investing in funds with banks in Hong Kong and purchasing vehicle and life insurance policies, but not investment-linked insurance products offered by insurance companies or other financial institutions.

(4)   She was suffering from:-

(a)   a moderate degree of dyslexia; and

(b)   a weak eyesight, with a diagnosis of “glaucoma” resulting in part of her optical nerve being permanently damaged,

both significantly hindering her reading abilities.  Owing to those conditions, she could not read small prints and had to rely heavily on verbal descriptions or explanations given by others.

(5)   She underwent two major eye operations in 2013 and 2014, with long resting periods as a result of continuing damage to, and deterioration of, the optical nerves.

(6)   She was a devoted Christian, and an unsophisticated person who easily reposed trust in others.

6.  The 1^st defendant at all material times carried on business as an insurance company in Hong Kong.

7.  The 2^nd defendant was a wholly owned subsidiary of the 1^st defendant.

8.  Johnathon was at all material times a licensed insurance agent employed by the 1^st defendant.

9.  According to Angela, in or about September 2003, she received an advertising flyer issued by the 2^nd defendant promoting an insurance-linked investment product with a guaranteed return of 5% per annum.  Induced by the flyer, she made a call to the 2^nd defendant which responded that they would send an agent to visit her.  Shortly afterwards, Johnathon visited Angela at her office.  On that occasion, Jonathan gave her a name-card which identified him as a “Senior Financial Consultant” of the 2^nd defendant.  Pausing here, I should mention that, according to Angela, in about late 2006, Johnathon told her that he had been promoted to the position of “Vice President” of the 2^nd defendant.  At the meeting in 2003, Johnathon told Angela (inter alia) the following:-

(1)   The 2^nd defendant was an internationally acclaimed investment bank which enjoyed prime ratings on stability and return on investments on behalf of its clients.

(2)   The investment-linked insurance products mentioned in the flyer had a guaranteed return of 5% per annum, and were suitable for customers such as Angela.

(3)   He held a senior position in the 2^nd defendant as Senior Financial Consultant and had a wealth of experience and knowledge.

(4)   He was bestowed with authority by the 2^nd defendant in advising customers on products to be purchased by them as well as overseeing and operating client’s accounts .

(5)   He was an expert in investment and financial-related matters by his academic and professional background.

10.  In response to questions posed by Johnathon, Angela told him (inter alia) the following:-

(1)   She was a working person earning about HK$20,000 per month (with 13 months of salary a year) and had limited means.

(2)   She had to support her daughter who was then a primary school student.

(3)   As she was a divorcee and the sole bread-winner of the family, she had to work hard. 

(4)   She had no prior training, and had limited knowledge or experience relating to investment-linked insurance products offered by insurance companies or other financial institutions.

(5)   She was particularly bad at figures and had great difficulty in understanding how investment-linked insurance products worked.

(6)   Her previous investment experience was limited to subscribing to fixed deposits or low-risk investment products recommended by her former bank manager.  However, her former bank manager had recently been changed and her new manager had repeatedly lobbied her to subscribe to complicated investment products all of which had been refused by her.

(7)   She could not risk losing her limited assets.

(8)   She was looking for “guaranteed principal and return” products offered by international banks to beat inflation.

(9)   She would therefore opt for short-term, low-risk, conservative and stable investments similar to fixed deposits with banks.

(10)   All investments to be made by her must bear the following criteria:-

(a)   guaranteed return of 100% of the principal;

(b)   guaranteed net return of 5% per annum;

(c)   short-term investment for less than 3 years; and

(d)   flexibility in the sense that the funds as invested could be partially encashed and further contribution could be stopped at liberty without any surcharge or penalty.

11.  Johnathon told Angela that he understood her requirements, needs and financial objectives which were reasonable and achievable.  He said that Angela had found the right person and the right company as the products offered by his company could meet her needs and financial objectives.  Johnathon also verbally gave the following assurances to Angela that all investment products that he would be recommending to her would meet and fulfil the following criteria:-

(1)   there would be a guaranteed return of 100% of the principal;

(2)   the products would generate a return of not less than 5% per annum;

(3)   the period of investment would be short, ie, not exceeding 3 years; and

(4)   the terms would be flexible in that all funds as invested could be partially encashed and further contribution could be stopped at liberty without any surcharge or penalty.

12.  Angela said that she reposed trust and confidence in Johnathon as a result of (i) continuous dealings with the 1^st and 2^nd defendants and Johnathon in respect of various insurance policies (more particularly described below), (ii) Johnathon’s representation that he was experienced and knowledgeable in financial products, (iii) the 2^nd defendant was at the material times a well-known international financial institution, (iv) Johnathon’s representation that he had power and authority from the 2^nd defendant to handle the investment products, and (v) her ignorance in insurance-linked investment products, and her disabilities and difficulties in reading and understanding documents.

13.  It is not in dispute that, during the period from 2003 to 2008, Angela purchased a number of investment-linked insurance policies from the 1^st defendant, including the following 8 policies.

Policy No 38025796 (“A2”)

14.  The Credit Suisse Privilege Application Form signed by Angela for this policy was dated 23 September 2003.  In the application form, it was stated (inter alia) that the total premium was US$51,150.90.

15.  In a document called Illustrative Surrender Values for this policy signed by Angela dated 23 September 2003, two scenarios, one based on a net rate of return of 9% per annum and the other 5% per annum, were given.

(1)   The illustrated surrender value for Policy Year 1, assuming a net rate of return of 9% per annum, was lower than the amount of the premium paid.

(2)   Similarly, the illustrated surrender values for Policy Year 1 and Policy Year 2 respectively, assuming a net rate of return of 5% per annum, were lower than the amount of the premium paid.

16.  In the Policy Schedule for this policy, it was stated (inter alia) as follows:-

(1)   The proposal date was 23 September 2003.

(2)   The policy issue date was 25 September 2003.

(3)   The total single premium for the policy was US$51,150.90.

(4)   There would be an “encashment charge”, on a sliding scale from 7.5% (Year 1), 6% (Year 2), etc, to 0% (Year 6 onwards).

17.  On 1 June 2006, Angela signed a Loan and Surrender Application Form to surrender the whole policy. The surrender was confirmed by the 1^st defendant by a letter to Angela dated 23 June 2006.  Attached to that letter was a Confirmation Notice for Encashment/Surrender stating that an “encashment charge” of US$2,816.33 had been deduced from the proceeds of encashment.

Policy No 38026689 (“A7”)

18.  In the Policy Schedule for this policy, it was stated (inter alia) as follows:-

(1)   The proposal date was 8 November 2003.

(2)   The policy issue date was 18 November 2003.

(3)   The policy had 5 modules.

(4)   The total single premium for the policy was US$301,714.45.

(5)   There would be an “encashment charge”, on a sliding scale from 7.5% (for Year 1), 6% (for Year 2), etc, to 0% (for Year 6 onwards).

19.  On 18 January 2006, Angela signed a Loan and Surrender Application Form to partially surrender this policy.  The surrender was confirmed by a letter from the 1^st defendant to Angela dated 26 January 2006.  Attached to that letter was a Confirmation Notice for Encashment/Surrender stating that an “encashment charge” of US$42,729.81 had been deduced from the proceeds of encashment.

20.  On 1 June 2006, Angela signed another Loan and Surrender Application Form to surrender the whole policy.  The surrender was confirmed by two letters from the 1^st defendant to Angela dated 10 June 2006 and 23 June 2006 respectively.  Attached to those letters were two Confirmation Notices for Encashment/Surrender stating that “encashment charges” of US$11,664.36 and US$2,076.86 respectively had been deduced from the proceeds of encashment.

Policy No 38026415G (“B1a”)

21.  The Credit Suisse Privilege Application Form signed by Angela for this policy was dated 23 October 2003.  In the application form, it was stated (inter alia) that the “premium term” was 15 years, and the “periodic premium” was US$1,000.

22.  In a document called Illustrative Surrender Values for this policy signed by Angela dated 23 October 2003, two scenarios, one based on a net rate of return of 9% per annum and the other 5% per annum, were given.  The illustrated surrender value for Policy Year 1 was US$0 under either scenario.  It was also stated in that document that the regular annual premium was US$12,000 and the premium term was 15 years.

23.  In the Policy Schedule for this policy sent to Angela on or about 27 October 2003, it was stated (inter alia) as follows:-

(1)   The proposal date was 23 October 2003.

(2)   The policy issue date was 27 October 2003.

(3)   The premium for the policy was US$1,000 payable monthly.

(4)   Both the “investment period” and “guaranteed deposit period” were 15 years.

(5)   There would be no “encashment charge”.

Policy No 38026415 (“B1b”)

24.  This policy, it would appear, was an add-on to Policy B1a.  The Credit Suisse Privilege Application Form signed by Angela for this policy was dated 22 December 2003.  In the application form, it was stated (inter alia) that the periodic premium was US$250 for “living insurance” and US$52.20 for “accidental death & disability”.

25.  In a document called Illustrative Surrender Values in relation to the “living insurance benefit” aspect of this policy signed by Angela dated 22 December 2003, two scenarios, one based on a net rate of return of 9% per annum and the other 5% per annum, were given.  The illustrated surrender values for Policy Year 1 and Policy Year 2 were US$0 under either scenario.  It was also stated in that document that the annual premium was US$3001 and the premium term was 26 years.

26.  In the Policy Schedule for this policy, it was stated (inter alia) as follows:-

(1)   In relation to “living insurance benefit” –

(a)   the sum insured was US$250,000;

(b)   the risk commencement date was 1 April 2004;

(c)   the risk cessation date was 1 October 2029;

(d)   the annualized premium was US$3,000 (equivalent to US$250 per month);

(e)   the establishment period was 24 months; and

(f)    the first premium due date was 1 January 2004 and the final premium due date was 1 September 2029.

(2)   In relation to “accidental death and disability benefit” –

(a)   the sum insured was US$500,000;

(b)   the risk commencement date was 1 January 2004;

(c)   the risk cessation date was 1 October 2029;

(d)   the annualized premium was US$626.40 (equivalent to US$52.20 per month); and

(e)   the first premium due date was 1 January 2004 and the final premium due date was 1 September 2029.

Policy No 38036806 (“B2”)

27.  The Credit Suisse Privilege Application Form signed by Angela for this policy was dated 26 December 2005.  In the application form, it was stated (inter alia) that the “premium term” was 20 years, and the “periodic premium” was US$12,050 x 12 = US$144,600.

28.  In a document called Illustrative Surrender Values for this policy signed by Angela dated 26 December 2005, two scenarios, one based on a net rate of return of 9% per annum and the other 5% per annum, were given.  The illustrated surrender value for Policy Year 1 was US$0 under either scenario.  It was also stated in that document that the regular annual premium was US$144,600 and the premium term was 20 years.

29.  In the Policy Schedule for this policy sent to Angela on or about 29 December 2005, it was stated (inter alia) as follows:-

(1)   The proposal date was 26 December 2005.

(2)   The policy issue date was 29 December 2005.

(3)   The premium for the policy was US$144,600 payable annually.

(4)   The “investment period” was 20 years.

(5)   The “encashment charge period” was 20 years.

(6)   The “encashment charge” was 100% for Year 1.  From Year 2 onwards, the “encashment charge” was to be calculated pursuant to a specified formula.

(7)   The first premium due date was 1 December 2005 and the final premium due date was 1 December 2024.

Policy No 38039193 (“B3”)

30.  The Swiss Privilege Application Form signed by Angela for this policy was dated 7 August 2006.  In the application form, it was stated (inter alia) that the total premium was US$327,700.

31.  In a document called Illustrative Surrender Values for this policy signed by Angela dated 7 August 2006, two scenarios, one based on a net rate of return of 9% per annum and the other 5% per annum, were given.  The illustrated surrender value for Policy Year 1 was lower than the amount of the premium paid under either scenario.

32.  In the Policy Schedule for this policy sent to Angela on or about 29 August 2006, it was stated (inter alia) as follows:-

(1)   The proposal date was 2 August 2006.

(2)   The policy issue date was 29 August 2006.

(3)   The total single premium for the policy was US$327,700.

(4)   There would be an “encashment charge”, on a sliding scale from 5% (for Year 1), 4% (for Year 2), etc, to 0% (for Year 6 onwards).

33.  On 21 January 2008, Angela signed a Loan and Surrender Application Form to partially surrender the policy.  The surrender was confirmed by a letter from the 1^st defendant to Angela dated 26 January 2008.  Attached to that letter was a Confirmation Notice for Encashment/Surrender stating that an “encashment charge” of US$1,845.43 had been deduced from the proceeds of encashment.

Policy No 38040667 (“B4”)

34.  The Swiss Privilege Application Form signed by Angela on behalf of J C N Me Ltd, a company owned or controlled by her, for this policy was dated 23 December 2006.  In the application form, it was stated (inter alia) that the “premium term” was 20 years, and the “periodic premium” was US$89,743.60.

35.  In a document called Illustrative Surrender Values for this policy signed by Angela dated 23 December 2006, two scenarios, one based on a net rate of return of 9% per annum and the other 5% per annum, were given.  The illustrated surrender value for Policy Year 1 was US$0 under either scenario.  It was also stated in that document that the regular annual premium was US$89,743.50 and the premium term was 20 years.

36.  In the Policy Schedule for this policy sent to Angela on or about 28 December 2006, it was stated (inter alia) as follows:-

(1)   The proposal date was 23 December 2006.

(2)   The policy issue date was 28 December 2006.

(3)   The premium for the policy was US$89,743.60 payable annually.

(4)   The “investment period” was 20 years.

(5)   The “encashment charge period” was 20 years.

(6)   The “encashment charge” was 100% for Year 1.  From Year 2 onwards, the “encashment charge” was to be calculated pursuant to a specified formula.

(7)   The first premium due date was 1 December 2006 and the final premium due date was 1 December 2025.

Policy No 38044743 (“B5”)

37.  The Swiss Privilege Application Form signed by Angela for this policy was dated 8 January 2008.  In the application form, it was stated (inter alia) that the “premium term” was 20 years, and the “periodic premium” was US$76,920.

38.  In a document called Illustrative Surrender Values for this policy signed by Angela dated 8 January 2008, two scenarios, one based on a net rate of return of 9% per annum and the other 5% per annum, were given.  The illustrated surrender value for Policy Year 1 was US$0 under either scenario.  It was also stated in that document that the regular annual premium was US$76,920 and the premium term was 20 years.

39.  In an Addendum to Application Form signed by Angela dated 8 January 2008, she stated: “I don’t want to undergo financial need analysis.”

40.  In another Addendum to Application Form signed by Angela dated 14 January 2008, she stated: “I only accept the annual premium around HK$600,000.  Kindly decrease my annual premium from US$76,920 to US$76,726.35.”

41.  In the Policy Schedule for this policy sent to Angela on or about 15 January 2008, it was stated (inter alia) as follows:-

(1)   The proposal date was 8 January 2008.

(2)   The policy issue date was 15 January 2008.

(3)   The premium for the policy was US$76,726.35 payable annually.

(4)   The “investment period” was 20 years.

(5)   The “encashment charge period” was 20 years.

(6)   The “encashment charge” was 100% for Year 1.  From Year 2 onwards, the “encashment charge” was to be calculated pursuant to a specified formula.

(7)   The first premium due date was 1 January 2008 and the final premium due date was 1 January 2027.

42.  It would also appear, from the materials before the court, that:-

(1)   At the time when the Policy Schedule of a policy was sent to Angela, it would be accompanied by a letter from the 2^nd defendant informing her that if she required further information or had any questions regarding her plan, she could contact her consultant or call the company’s Customer Care Hotline on a specified telephone number.

(2)   At the time of the issue of the policy, there would be another letter to Angela from the 2^nd defendant informing her of the issue of the policy and the risk commencement date.  She would also be informed of the date of expiry of a specified “Cooling-off period”, and reminded that if she had any queries, she could contact her consultant or call the Customer Care Hotline.

(3)   At the time of delivery of the policy, Angela would be asked to sign a “Confirmation of Policy Delivery”.

(4)   Subsequent to the issue of the policy, an “Account Summary” would be sent to Angela from time to time stating, (inter alia), the account value and the encashment value of the policy on the date of the summary.

(5)   The “premium term” was stated in the Account Summaries: for Policy B1a it was 15 years, for Policy B2 it was 20 years, for Policy B4 it was 20 years, and for Policy B5 it was 20 years.

(6)   The Application Form, Policy Schedule and Account Summaries would set out the names of the funds in which Angela would invest or had invested using the premium paid by her.  In addition, the Account Summaries would provide information relating to the number of units held by Angela in each fund, as well as the unit bid price of that fund.

43.  It is Angela’s case that she was induced to purchase the above policies by fraudulent misrepresentations made by Johnathon.  Particulars of the misrepresentations made by Johnathon and their falsity are set out in the Schedule to the draft Re-Amended Statement of Claim, which I do not propose to set out in this judgment.  As pleaded in paragraph 16 of the draft Re-Amended Statement of Claim, the misrepresentations could be summarised as follows:-

(1)   there would be a guaranteed return of all principal or premium paid by Angela;

(2)   the term of the policy would only last for 3 years, save for Policies B1a/B1b which was said to be for a term of 5 years;

(3)   the policies could be partially encashed at any time by Angela;

(4)   for funds withdrawn from existing policies to buy new policies, no charges or fees would be levied against Angela;

(5)   for Policy B2, Policy B4 and Policy B5, the premium payable after the 13^th month would be reduced to US$300 per month instead of the large annual premium of about US$144,600 for Policy B2, HK$700,000 for Policy B4, and HK$600,000 for Policy B5;

(6)   Angela would only need to review or check the accuracy of her name stated on page one of the policy documents and the premium payable for the first year, and need not bother about the rest of the terms of the policy because they were just standard terms and Johnathon had the authority to tailor and make special terms to suit her needs which would “override” the printed terms of the policy;

(7)   the reference to “20 years” in the policy documents was only to the maximum period that the policy account could be maintained because the 1^st and 2^nd defendants need to pay high costs to upkeep the investment products (with a guarantee of repayment of principal and annual return of 5%) and thus there had to be a maximum period for which those products could be maintained otherwise the 1^st and 2^nd defendants would suffer serious loss; and

(8)   in case of any inconsistency between Johnathon’s representations and the written or printed terms of the policy, his representations would prevail over those terms.

44.  In November 2007, Angela received a demand notice to pay the sum of HK$669,973.35 as premium for Year 2 of Policy B4.  This demand was, on its face, inconsistent with the alleged representation made by Johnathon that the premium payable after the 13^th month under this policy would be reduced to US$300 per month (see paragraph 43(5) above).  Angela said that she immediately contacted Johnathon and asked why the premium had not been reduced to US$300 per month.  Angela also told Johnathon that she did not have sufficient savings to settle this premium payment. Johnathon responded by saying that he would follow up this matter with his company and she need not worry too much about it.  However, in or about the beginning of 2008, Angela received another demand notice from the 1^st defendant stating that she had “defaulted” in making payment of the premium for Policy B4.  Angela contacted Johnathon again to seek an explanation for the latest demand.  This time, Johnathon apologized to Angela and said that he had been very busy and had forgotten to reduce the amount of the premium payable by Angela.  With a view to convincing Angela to pay the premium as demanded, Johnathon represented to Angela that:-

(1)   since the demand notice had been officially issued, it was no longer possible for him to “reduce” the amount of the premium;

(2)   the necessary funds could be withdrawn from other policies without any charge; and

(3)   he would reduce the amount of the premium payable under this policy to US$300 per month as from the 25^th month (ie Year 3 onwards).

45.  Angela said that, induced by such representations, she agreed to surrender or encash some of her existing policies to pay the 2^nd year premium under Policy B4 as demanded.  She also said that, at that time, it did not appear to her that Johnathon was fraudulent and she thought that he had only committed an innocent mistake.  As a matter of fact, in order to settle the 2^nd year premium under Policy B4, Angela had to “withdraw” about HK$300,000 from her credit card, and surrender/encash Policies B1a and B3 for about HK$400,000.

46.  Also, Angela said that in order to meet the premium payments under various policies, she had to sell her property at Bo Ming Court, Tin Hau Temple Road, Hong Kong, in September 2007, and later used the sale proceeds (which came to about HK$2,000,000) to:-

(1)   repay the overdraft on her credit card for payment of the 2^nd year premium under Policy B4 (about HK$300,000 as aforesaid),

(2)   pay the premium under Policy B5 (about HK$600,000 in January 2008); and

(3)   pay the premium under another Policy B6 (about HK$900,000 in May 2008).

47.  According to Angela, she only became suspicious of the words and conduct of Johnathon in or shortly before the end of October 2008 (for reasons which it is not necessary to go into in this judgment).  It is her case that until the end of October 2008, there was no reasonable circumstance which would lead her to come to the firm belief that she had been deceived by Johnathon on the terms and effect of the subject policies (see paragraph 32 of the draft Re-Amended Statement of Claim).

48.  On 1 November 2008, Angela sent two emails, both dated 31 October 2008, to the 1^st defendant and Ms Wendy Chan (manager of the 2^nd defendant).

(1)   In the first email, she asked them to investigate the status of her “active policies”, including, Policies B1a/B1b, B2, B3, B4 and B5.

(2)   In the second email, she lodged an official complaint against Johnathon, alleging (inter alia) that he had misled her into acquiring the aforesaid active policies, asked her to sign blank forms from time to time, delayed in reducing the amount of premium payable under her policies, and acquired new policies under her name without her consent.

49.  In response, in or about November 2008, the 1^st defendant provided her with a preliminary overall account summary of various policies purchased by her.

50.  On 10 October 2014, Angela commenced the present action against the 1^st defendant, the 2^nd defendant and Johnathon for fraudulent misrepresentations.

APPLICABLE PRINCIPLES

51.  The subject policies in this case were issued between 25 September 2003 and 15 January 2008.  As earlier mentioned, Angela’s case is that she was induced to purchase those policies by fraudulent representations made by Johnathon for or on behalf of the 1^st and 2^nd defendants.  The various causes of action relied upon by Angela would therefore have accrued, at the latest, by 15 January 2008.  Subject to the possible application of Section 26(1) of the Limitation Ordinance, Cap 347 (“the Ordinance”), those causes of action would all be time-barred after the expiration of 6 years from 15 January 2008 under Section 4(1) of the Ordinance.  Since this action was only commenced on 10 October 2014, Angela’s claims against the 1^st and 2^nd defendants would be timed-barred unless they could be saved by Section 26(1) of the Ordinance, which states, so far as material, as follows:-

“…where in the case of any action for which a period of limitation is prescribed by this Ordinance, either –

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant …

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”

52.  The question in the present case is when it was that Angela had discovered the alleged fraud or concealment or could with reasonable diligence have discovered the fraud or concealment.  The leading authority in Hong Kong on the proper approach to the construction of Section 26(1) is to be found in the judgment of Lord Hoffman NPJ (with whom the other members of the Court of Final Appeal agreed) in Peconic Industrial Development Ltd v Lau Kwok Fai (2009) HKCFAR 139:-

“29 The purpose of the Act is not, after all, to allow people to escape liability for fraud. It may incidentally have that result, but that is not the policy which underlies it. Its purpose is to avoid the investigation of whether the defendant was fraudulent after a lapse of time which could prejudice his ability to rebut the charge. The fact that this sometimes allows people who were undoubtedly fraudulent to escape liability is the price which the legislature was willing to pay for having a general and clear-cut rule. But it begs the question to approach the construction of s.26 on the assumption that the defendant has committed the fraud. The question of what the plaintiff could with reasonable diligence have discovered must be answered dispassionately and without regard to what may be perceived as the merits…

30 What does ‘the plaintiff ... could with reasonable diligence have discovered [the fraud]’ mean? The word ‘reasonable’ denotes an objective standard. But that is not the end of the matter. It is the plaintiff who is supposed to have shown reasonable diligence. This leaves open to argument the extent to which the personal characteristics of the plaintiff are to be taken into account in deciding what diligence he could reasonably have been expected to have shown. It does not follow that because an objective standard is applied, he must be assumed to have been someone else. The extent to which the characteristics of the actual plaintiff are ignored depends upon the reason for invoking an objective standard …

31 There can be no doubt, I think, that for the purposes of the inquiry into what the plaintiff could have done, he must be assumed to have suffered the loss which he actually suffered. In this case, one assumes the plaintiff to be a bank which has lost some HK$400 million. When it discovered (or could reasonably have discovered) that it had suffered the loss, it must be assumed to have displayed some curiosity about why this should have happened. The question is then what steps it could reasonably have taken to try to obtain a remedy. In some cases it may be necessary to decide whether the plaintiff must be assumed to have had only the resources and other opportunities for investigation which he actually had or whether this too must be determined according to some objective standard. In Paragon Finance plc v. DB Thakerar & Co. [1999] 1 All ER 400, 418, Millett LJ said (apparently at the suggestion of May LJ) that the test was –

‘How a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency.’

32 For my part, I would prefer to leave this question open, because in the present case it does not arise. There is no dispute that the bank had access to adequate resources and expertise to make any investigations which reasonable diligence would have suggested. The bank must be assumed not merely to have employed its own expertise, but to have engaged whatever specialist services reasonable diligence would have suggested, in the same way that a victim of personal injury is expected to seek medical advice. And in the same way that the plaintiff in a personal injury case is assumed to have told the adviser his symptoms, so the bank instructing advisers is expected to have told them what it knew about the facts of the case.

33  What is important is that the burden was upon the bank to show that it could not with reasonable diligence have discovered the fraud: see Millett LJ in Paragon at p.418.  For example, if the bank’s case is that it took whatever steps could reasonably have been taken but that they proved fruitless, it is for the bank to satisfy the court that it actually did so.”

53.  In Chow How Yee Margaret v Wex Pharmaceuticals Inc, HCA 537/2013 (18 September 2013), concerning an application to strike out a statement of claim on the ground that the claim was time-barred, G Lam J referred to the following exposition of the meaning of “reasonable diligence” by Webster J in Peco Arts Inc v Hazlitt Gallery Ltd [1983] 1 WLR 1315 –

“I conclude, first of all, that it is impossible to devise a meaning or construction to be put on those words which can be generally applied in all contexts because, as it seems to me, the precise meaning to be given to them must vary with the particular context in which they are to be applied. In the context to which I have to apply them, in my judgment, I conclude that reasonable diligence means not the doing of everything possible, not necessarily the using of any means at the plaintiff’s disposal, not even necessarily the doing of anything at all, but that it means the doing of that which an ordinarily prudent buyer and possessor of a valuable work of art would do having regard to all the circumstances, including the circumstances of the purchase”.

The learned judge went on to state the following at paragraph 39 of his judgment:-

“Mr Carolan relies on what Millett LJ said in Paragon Finance plc v D B Thakerar & Co (a firm) [1999] 1 All ER 400 at 418, namely, that the plaintiffs ‘must establish they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take’. I do not think this conflicts with the approach of Webster J in Peco Arts Inc. In fact in Paragon Finance plc Millett LJ went on to agree with the test suggested by May LJ in that case, namely, ‘how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency’.”

54.  In summary, for the purpose of deciding whether a claimant could with reasonable diligence have discovered the relevant fraud or concealment:-

(1)   the court applies an “objective” standard;

(2)   in applying such objective standard, the court takes into account the personal characteristics of the claimant when considering what diligence he could reasonably be expected to have shown;

(3)   the court also takes into account the loss which the claimant actually suffered;

(4)   the focus of the inquiry is what a reasonable person possessing the personal characteristic of the claimant would do and have discovered having regard to all the relevant circumstances;

(5)   this question is to be answered dispassionately; and

(6)   the burden, ultimately, is on the claimant to show that he could not with reasonable diligence have discovered the fraud or concealment before the relevant time limit.

ANGELA COULD WITH REASONABLE DILIGENCE HAVE DISCOVERED THE FRAUD OR CONCEALMENT MORE THAN 6 YEARS PRIOR TO COMMENCEMENT OF ACTION

55.  The critical question in the present case is whether Angela could with reasonable diligence have discovered the alleged fraud or concealment before 10 October 2008, being 6 years prior to the commencement of this action.  It is Angela’s case that:-

(1)   the 6-year limitation period for bringing the present action should only start to run from 20 January 2011 (being the date of the 2^nd defendant’s letter to Angela answering in details various questions raised in her earlier letter dated 31 December 2010);

(2)   alternatively, time shall only start to run against her, at the earliest, from 31 October 2008 when reasonable suspicion first arose on her part about the defendants’ misfeasance (see paragraphs 22 and 23 of Mr Yeung’s opening submissions on behalf of Angela).

56.  On the other hand, Mr Kwok on behalf of the 1^st and 2^nd defendants submits that Angela could with reasonable diligence have discovered the alleged fraud or concealment well before October 2008.

57.  For reasons which I shall explain below, I accept Mr Kwok’s submission.

58.  First, even a cursory reading of the documents signed by Angela and/or those issued by the 1^st and 2^nd defendants in relation to the aforesaid policies would reveal the falsity of many representations allegedly made by Johnathon.  In particular:-

(1)   There was nothing in those documents to suggest that there was any guaranteed return of the premium paid by Angela, or any guarantee of return of 5% per annum.  On the contrary, it was clearly and expressly stated in the various “Illustrative Surrender Values” for Policies B1a, B1b, B2, B3, B4 and B5 that “The assumed rates used below are for illustrative purposes.  They are neither guaranteed nor based on past performance.  The actual rate of return may be different.”  Similar statements could be found in the “Illustrative Surrender Values” for Policy A2.  It was also clear from the Account Summaries sent to Angela from time to time that the account values of the policies were calculated or fixed by reference to the values of the underlying funds.

(2)   It was clear on the face of the Credit Suisse Privilege/Swiss Privilege Application Forms and Policy Schedules for Policies B1a, B2, B4 and B5 that their terms were much longer than 3 years.

(3)   The references to “20 years” in the Credit Suisse Privilege/Swiss Privilege Application Forms and Policy Schedules for Policies B2, B4 and B5 were clearly references to the “investment period” or the period that the premium was payable, and not the maximum period that the policies or policy accounts could be maintained.  On the other hand, the “Illustrative Surrender Values” for Policies B2, B4 and B5 all suggested that the relevant policies or policy accounts could be maintained well beyond the period of 20 years.

59.  Second, in so far as it is suggested that Johnathon told Angela that his oral statements would override the written or printed terms of the formal policy documents, such representation (if made by Johnathon) would itself be highly extraordinary and suspicious, being in mind the nature of the transactions entered into by Angela, namely, insurance policies involving substantial sums of money issued by an insurance company of apparent good repute or standing.  In my view, a reasonable person in Angela’s circumstances would not accept such representation at face value but, on the contrary, would be alerted by the unusual nature of the statement and make direct inquiries with the 1^st and 2^nd defendants to verify whether the written terms of her policies could be overridden by Johnathon’s oral statements.  Such inquiries would, I believe, in the ordinary course of events lead to Johnathon’s misrepresentations being exposed shortly afterwards.

60.  Third, although, according to Angela, the periodic premium in respect of Policy B2 was reduced to US$300 per month from January 2007 onwards, it is clear that so far as Policy B4 was concerned, there was no reduction of the premium as from the 13^th month onwards, contrary to the alleged representation made by Johnathon referred to in paragraph 43(5) above.  Angela said that she had difficulty in paying the 2^nd year premium under Policy B4 and had to withdraw money from her credit card to cover part of the premium payment (to the extent of HK$300,000).  She would thereby incur substantial liabilities to pay interest to the credit card company.  She later even had to use part of the proceeds of sale of her property to repay the credit card overdraft.  In my view, no reasonable person in Angela’s position would accept the lame excuse by Johnathon that he was too busy and had forgotten to reduce the amount of the annual premium payable under that policy.  It is even more surprising that she would purchase new policies from the 1^st and 2^nd defendants, namely, Policy B5 in January 2008 (after Angela had received the the first demand notice for Policy B4 in November 2007), and Policy B6 in 2008.  I believe that a reasonable person in Angela’s position would have made inquiries directly with the 1^st and 2^nd defendants in early 2008 on the question of reduction of premium and she would probably have discovered Johnathon’s fraud shortly afterwards.

61.  Fourth, according to Angela, upon the suggestion or advice of Johnathon, she withdrew or partially surrender Policies A2, A7, B1a and B3 in order to pay the premium payable under new policies, namely, Policies B2, B3, B4 and B5 (see paragraph 20 of the draft Re-Amended Statement of Claim).  As a matter of fact, Angela had to pay encashment charges when she partially or wholly surrendered Polices A2, A7 and B3 in January 2006, June 2006 and January 2008 respectively.   Angela said that she was not aware of those encashment charges at the material times (see paragraph 21 of the draft Re-Amended Statement of Claim).  However, the deduction of the said encashment charges from the encashment values were clearly set out in the various Confirmation Notices for Encashment/Surrender.  Applying an objective standard, I consider that Angela could with reasonable diligence have discovered well before October 2008 that Johnathon’s representation referred to in paragraph 43(4) above (namely, “for funds withdrawn from existing policies to buy new policies, no charges or fees would be levied against Angela”) was false.

62.  Fifth, during the Welcome Call in relation to Policy B2 which took place on 16 March 2006 (involving Angela, Johnathon and a customer officer called Terry), Angela was clearly told that the policy was for a term of 20 years and she had to pay the premium of US$144,600 per year, and that if she decided to surrender or terminate the policy prior to the expiry of the 20-year term, she had to pay an encashment charge.  Similarly, during the Welcome Calls in relation to Policy B5 which took place on 20 March (involving Angela and a customer officer called Wendy) and on 7 April 2008 ((involving Angela, Johnathon and Wendy), Angela was also informed that the policy was for a term of 20 years and she had to pay the premium of US$76,726.35 per year.   What Angela was told during those Welcome Calls was clearly inconsistent with the Johnathon’s alleged misrepresentation referred to in paragraph 43(2) and (5) above.  Angela said in evidence that prior to those Welcome Calls, she had been told by Johnathon that they were practice calls for the purpose of “staff training” only and thus she need not take them seriously.  I have considerable reservation on this part of Angela’s evidence because Johnathon’s alleged explanation for those calls seem to me to be so obviously incredible that it was unlikely to have been said in the first place.  However, even if one were to proceed on the assumption that Johnathon did tell Angela that those calls were practice calls only, in view of the apparent incredibility of such explanation, I consider that a reasonable person in the position of Angela would have been alerted by the unusual nature of the explanation and make direct inquiries with the 1^st and 2^nd defendants to verify such explanation which, I believe, in the ordinary course of events would lead to Johnathon’s misrepresentations being exposed shortly afterwards.

63.  In relation to the above matters:-

(1)   I have taken into account Angela’s evidence that she was asked to sign blanks forms presented by Johnathon, which presumably included the various Credit Suisse Privilege/Swiss Privilege Application Forms.  However, it is not disputed that those application forms (and other policy documents mentioned above) were sent to Angela’s address and/or received by her.  Thus, even if some of the forms signed by Angela were originally in blank, they would have been filled in by the time that they were sent to Angela’s address and/or received by her, and she plainly had reasonable opportunities to read the completed forms.

(2)   I bear in mind Angela’s medical conditions, including her weak eyesight and her moderate degree of dyslexia (with consequent learning difficulties).  This having been said, Angela was an educated person (with a university degree), had a reasonable command of English (having studied and lived in Canada for some 9 years), and was used to handling contract documents in her day-to-day work.  While I accept that it might not be reasonable to expect Angela to read and understand all the detailed terms of the policy documents, I do not believe that she would have any difficulty in reading and understanding the basic general terms of the policies as set out in the Credit Suisse Privilege/Swiss Privilege Application Forms and Policy Schedules, or the basic information set out in the Illustrative Surrender Values and Account Summaries.  I also consider that a reasonable person with her knowledge, abilities, personal characteristics and means would read the basic general terms and information relating to the policies as set out in those documents.

(3)   I have considered Angela’s evidence that she did open or read the documents and letters sent to her address.  However, the test of what Angela could with reasonable diligence have discovered is an “objective” one.  I consider that a reasonable person in her circumstances would not have left the documents and letters sent by the 1^st and 2^nd defendants unopened or unread, but would have read and understood the basic general terms and information relating to the policies.

(4)   I have taken into account the trust and confidence that Angela allegedly reposed in Johnathon.  I do not, however, consider that such trust and confidence would blind a reasonable person having the personal characteristics of Angela to the obvious unreliability and/or incredibility of Johnathon’s alleged misrepresentations.

(5)   I have considered Angela’s allegation that the 1^st and 2^nd defendants were guilty of delaying tactics, evasive responses and/or deliberate concealment of material facts in handling her enquiries and complaints from October 2008 onwards.  I do not consider this complaint to be made out on the facts of the present case.  I do not accept that the 1^st and 2^nd defendants did anything which could be regarded as deliberately concealing from her any fact relevant to her right of action against them.  On the contrary, as mentioned above, shortly after Angela sent two emails to the 1^st and 2^nd defendants on 1 November 2008 asking them to investigate the status of her policies and complaining about the conduct of Johnathon, in or about November 2008 the 1^st defendant provided her with a preliminary overall account summary of various policies purchased by her.

(6)   I have also considered the fact that the subject policies, and other policies purchased by Angela, would appear to be well beyond her limited means.  This fact supports her allegation that she was induced by Johnathon’s misrepresentations to purchase those policies.  It is, however, a different matter whether she could with reasonable diligence have discovered the falsity of the misrepresentations and concealment of relevant facts prior to 10 October 2008 which, as stated above, involves an objective assessment albeit that her personal characteristics ought to be taken into account in that assessment.

64.  In all, I find that Angela’s claims against the 1^st and 2^nd defendants are time-barred.  I have reached this conclusion with some regret.  I have also some considerable misgivings about the business ethics of the 1^st and/or 2^nd defendants.  Irrespective of whether Johnathon did in fact make the alleged misrepresentations to induce Angela to purchase the large number of policies, on any objective view of the matters, those policies were plainly beyond Angela’s reasonable needs or means, and that must have been obvious to the 1^st and/or 2^nd defendants.  In the absence of any explanation, one could only conclude that the 1^st and 2^nd defendants were driven purely by a profit-making motive to sell so many policies to Angela within a period of some 5 years regardless of her proper interest.  This is not a matter which the court can take any further, but may properly be investigated by the Insurance Authority.

disposition

65.  I refuse Angela’s application to re‑amend the Statement of Claim in so far as the 1^st and 2^nd defendants are concerned, and dismiss her action against them. I also make an order nisi that Angela shall pay the 1^st and 2^nd defendants’ costs of this action, including the costs of (i) the 1^st and 2^nd defendants’ summons dated 8 April 2015, and (ii) her summons dated 16 December 2015, as well as all costs previously reserved, to be taxed if not agreed.

66.  Lastly, it remains for me to thank counsel for their assistance rendered to the court.