MASS MUTURAL ASIA LTD. v. LAM KING MUI

DCCJ16002/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

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JUDGMENT

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(1) This matter relates to a claim by an insurance company against a former agent for return of payments made to the agent. The agent counter-claimed for payments owed and damages for the Plaintiff's early termination of the agency agreement.

PRELIMINARY APPLICATION

(2) Prior to commencement of the hearing, Counsel for the Plaintiff notified Court that Plaintiff had recently changed its name from CRC Protective Life Insurance Company Limited to Mass Mutual Asia Limited. Application was made to amend the Plaintiff's name. Counsel for the Defendant had no objection and the application was granted accordingly.

BACKGROUND

(3) In March 1995, the Defendant joined East Asia Aetna Insurance Co. Ltd. ("Aetna"). He was then promoted to unit manager in March 1996. In July 1997, Edmond Lau ("Mr. Lau"), Christina Cheng ("Ms. Cheng") and Irene Wong ("Ms. Wong") of the Plaintiff met with the Defendant. As a result of that meeting, the Defendant joined the Plaintiff as group 2 manager, bringing with him his sister as down-line agent.

(4) In addition to commissions and over-riding commissions from down-line agents, the Defendant was also entitled to Special Income and Special Bonus. Special Income was calculated as 50% of the Defendant's income in the year prior to joining the Plaintiff and is payable to the Defendant by 12 monthly payments. Special Bonus was calculated as 50% of the total Special Income entitled.

(5) The terms of the Defendant's entitlement to Special Income and Special Bonus were contained in several documents, including: an agency leader's agreement dated 8th August 1997 (the "Agreement"), a memorandum on special income, dated 8th September 1997 (the "Memo") and a letter also dated 8th September 1997 specifying the terms of the Defendant's special bonus (the "Letter").

(6) The parties agreed that after signing the Agreement, Defendant furnished additional proof of his prior income and amount of his Special Income and Special Bonus were adjusted upward. Accordingly, the Memo and Letter were both dated one month later then the Agreement.

(7) It was also agreed that the Defendant had achieved all sales requirements imposed by the Agreement, Memo and Letter for him to receive the Special Income and Special Bonus.

(8) On 21st September 1998, however, the Plaintiff terminated the Defendant's engagement as agent and sought repayment of all Special Income and Special Bonus paid.

(9) The Defendant refused to repay the sums claimed and counter-claimed against the Plaintiff for losses suffered as a result of the Plaintiff's wrongful termination of his engagement.

THE PLAINTIFF'S CASE

(10) On 8th August 1997, both the Defendant and his sister signed their standard term Agreement. At that time, the Defendant's sister also signed her Memo. The terms of the Memo were explained to the sister in front of the Defendant. The Defendant understood that pursuant to paragraph 3 of the Memo, the Special Income must be repaid by 18 monthly instalments, commencing from the anniversary of the commencement day.

(11) The Plaintiff was still waiting for the Defendant to provide proof of his prior income; therefore Defendant's Memo and Letter were not ready. After the Defendant provided the required proof of income, his Special Income and Special Bonus entitlements were calculated and handed to the Defendant. On 8th September 1997, the Defendant's Memo and Letter were prepared and signed.

(12) Although the Letter stipulated that the Special Bonus was to be paid to the Defendant on the first anniversary of his commencement day, the Plaintiff paid Defendant his Special Bonus by 6 equal monthly instalments starting from the first month of his engagement. The Defendant received a total of $193,434 as Special Bonus and $386,868 as Special Income from the Plaintiff.

(13) On or about the month of August 1998, the Defendant attempted to solicit Ms. Wong, his up-line manager and some of his down-line agents to leave the Plaintiff. The Defendant also failed to report for duties and attend morning agent briefings.

(14) By letter dated 21st September 1998, the Plaintiff terminated the Defendant's engagement. On 1st November 1998, the Defendant joined another insurance company in Hong Kong, CMG Asia Life Assurance Limited ("CMG").

(15) Pursuant to terms of the Agreement, the Memo and the Letter, the Plaintiff demanded immediate return of the Special Income and Special Bonus.

THE DEFENDANT'S CASE

(16) After commencement with the Plaintiff, Defendant provided further evidence of his prior year's income. On or about 8th September 1997, after signing the Memo and Letter, Mr. Lau and the Defendant agreed orally to further amend the terms of his remunerations. Defendant's Special Income and Special Bonus were increased. The Special Income and Special Bonus were agreed to be non-repayable and the Special Bonus were to be paid by 6 monthly instalments, beginning from the first month of engagement. The terms of this agreement were contained in a two-page note given to the Defendant from the Plaintiff's Trace Lai.

(17) The Defendant had successfully fulfilled all requirements for his entitlement to the Special Income and Special Bonus. The same had been paid to the Defendant in accordance with the oral agreement.

(18) The Defendant did not try to solicit his up-line manager or down-line agents to leave the Plaintiff; he had faithfully fulfilled all of his duties while engaged with the Plaintiff. On 22nd September 1998, the Plaintiff wrongfully terminated the Agreement and the Defendant was thus released from fulfilling any of his obligations, including the repayment of the Special Income received. The Defendant was also under no obligations to return the Special Bonus.

(19) The Defendant counter-claimed for all override commissions, Direct Team Building Bonus, Agency Building Allowance, Career Bonus Override and all other earnings and fringe benefits under his appointment as Plaintiff's agent.

THE ISSUES:

(20) I agree with Counsel for the Plaintiff that there are three main issues to this matter:

(1) Whether Plaintiff's termination of the Defendant was lawful?

(2) If (1) above is yes, then whether Plaintiff is entitled to return of the Special Income paid to the Defendant? And

(3) Whether Plaintiff is entitled to the return of the Special Bonus?

WHETHER PLAINTIFF'S TERMINATION OF THE DEFENDANT WAS LAWFUL

(21) Plaintiff alleged three separate conducts of the Defendant as reasons for termination:

(a) The defendant's attempt to solicit his up-line manager and down-line agents to leave the Plaintiff.

(b) The Defendant had for a period, immediately prior to his termination, failed to attend morning meetings and properly supervise the activities of his down-line agents.

(c) The Defendant's joining CMG was considered by the Plaintiff to be prejudicial to its interest.

(22) After careful consideration of the evidence and testimonies of the witnesses, I found that the Defendant had attempted to solicit his up-line manager and down-line agents to leave the Plaintiff and join him at CMG. My finding was based on the following:

(23) A representative of CMG was subpoenaed to give evidence. Mr. Chau Kam Tim, CMG's manager for agency personnel service, submitted the Defendant's application form with CMG as evidence (exhibit "P1"). P1 had a colour photograph of the Defendant and his business card from the Plaintiff attached. P1 contained hand written particulars of the Defendant, including: name, address, telephone number, where he went to school, what languages he spoke, hobbies, interests, who had introduced him to CMG, previous employments back to 1989 and his Hong Kong identification card number. P1 also contained two separate signatures of the Defendant and in both places the signatures were dated 6th September 1998.

(24) The Defendant stated that he had never set eyes on P1. The signatures were forged and he never provided any personal information to CMG. I found the Defendant's testimony totally unbelievable. No one but the Defendant could have provided the kinds of information contained in P1 and no one will have the incentive to do so.

(25) Mr. Chau Kam Tim was a witness totally independent of the parties. There was no reason for either him or CMG to fabricate any evidence. It was an agreed fact that Defendant did worked for CMG after his engagement was terminated by the Plaintiff and before the Defendant joined CMG, it is expected that he will be required to complete an application form similar to P1.

(26) One of the Defendant's agreements with CMG provided that the Defendant was to be entitled to a guaranteed income of $66,500.00 per month for the first 12 months of his engagement. A condition for receiving the guaranteed income was that he must recruit a minimum number of down-line agents within 6 months. This condition provided the Defendant with a strong motive to solicit his up-line manager and down-line agents to join CMG. If Defendant were successful in his solicitation, he would have been that much closer in fulfilling this condition.

(27) The testimonies of Li Wing Yee, Michelle ("Ms. Li"), one of the Defendant's former down-line agents, clearly supported the Plaintiff's allegation. At the time of trial, Ms. Li was no longer employed by the Plaintiff, she was an independent witness. I have carefully considered the Defendant's allegation that Ms. Li held a grudge against the Defendant due to disagreement on certain funds kept by Ms. Li. The sums involved were small, a few thousand at most. I had carefully observed Ms. Li's demeanor when she testified and I did not believable she will go through the trouble to testify and commit perjury for this minor disagreement. In any event, Ms. Wong supported Ms. Li's testimony. I have carefully considered the fact that Ms. Wong was still employed by the Plaintiff and her testimony must be discounted accordingly.

(28) Finally, P1 was not detrimental to the Defendant's allegation except for the date of the signature. The Defendant's testimony was that he did not approach CMG until after his termination in 22nd September 1998; this was in direct conflict with P1. The natural conclusion of P1 was that by 6th September 1998, the Defendant had already intended to leave the Plaintiff. This conclusion then provided the motivation for the Defendant to attempt to solicit his up-line manager and down-line agents to leave the Plaintiff and join him at CMG. When Ms. Li and Ms. Wong's testimonies were added, the irresistible conclusion was that the Defendant did attempt to solicit Ms. Li and Ms. Wong, amongst other agents, to leave the Plaintiff and join him at CMG.

(29) The Defendant's act of soliciting away the Plaintiff's agents and managers were clearly prejudicial to the interest of the Plaintiff and inconsistent to the Defendant's obligations to the Plaintiff under paragraph 1.9 of the Agreement.

(30) Having found that there was sufficient reason for the Plaintiff to terminate the Defendant's engagement for attempting to solicit away its agents, there is no reason for my to consider reasons (b) and (c), however, for completeness I will briefly state my findings in reasons (b) and (c).

(31) After hearing all relevant evidence, I found that the Plaintiff had no specific rule or regulation regarding the frequency of meetings with or procedures governing the supervision of down-line agents. The lack of clear rules and regulations meant the Plaintiff could not demonstrate, with any degree of precession, how Defendant had failed in his duties.

(32) I also found that the reasons for terminating the Defendant's engagement were clearly and unequivocally stated in the termination letter dated 21st September 1998. That is in accordance with reasons (a) and (b) stated above. Thus, at the time of the termination, Plaintiff had no knowledge of the Defendant's plan to join CMG. In any event, at the time of termination, the Defendant had not yet joined CMG. All defendant did was to complete an application form and discussed terms with CMG. These actions, without more, were insufficient to justify a finding that the Defendant had done an act prejudicial to the interest of the Plaintiff.

(33) This is markedly different from the facts in Super Keen Investments Limited v. Global Time Investments limited and Grand Million Development Limited (3rd party) CVCA 285/1998 and 346/1998. In Super Keen, it was held that irrespective of the fact that the defendant had no knowledge of it, the ground for rescission had already occurred at the time, therefore the defendant in that case had the right to rescind the agreement, although he had rescinded it for the wrong reason. Here, reason (c) for rescission (the act of joining CMG) had not yet occurred. The Plaintiff could not rely on an event not yet occurred to terminate the Defendant's engagement on 21st September 1998.

(34) Accordingly, I found that the Plaintiff had sufficient reason to terminate the Defendant's engagement under reason (a) but not under reasons (b) or (c).

WHETHER THE PLAINTIFF IS ENTITLED TO THE RETURN OF THE SPECIAL INCOME

(35) Defendant was entitled to receive the Special Income was not disputed. Whether the Plaintiff is entitled to the return of the money paid depended on the terms of the agreement. The Plaintiff's case was that these agreements were all in writing and included the Agreement, the Memo and the Letter. The Defendant alleged that after signing of the Memo on 8th September 1997, Mr. Lau had agreed to further amend the terms. The amended terms were contained in the notes given to the Defendant by Trace Lai.

(36) I will look at the terms of the Agreement and the Memo first. Relevant clauses of the Memo are as follows:

"3. The aggregate amount of the Special Income paid to the Manager shall be repayable by the Manager to the Company. The repayment shall be by 18 (the 'Repayment Period') equal monthly instalments (the 'Monthly Instalment') starting from the month following the period referred to in paragraph 1.

4. In addition to the above the Manager shall subject to the Agreement being and remaining valid and in force and renewed for a further period, be entitled to a monthly bonus (the 'Monthly Bonus') equal to the Monthly Instalment payable in arrears during the Repayment Period.

5. The Manager shall be liable to immediately repay the Company the aggregate amount of the Special Income the Manager has received in the period referred to in paragraph 1, less the total Monthly Instalments period repaid, if any, if the Manager: -

(i) shall terminate the Agreement for whatsoever reason within the period as referred to in paragraph 1; or

(ii) shall join or serve another person within the insurance industry in Hong Kong after the period as referred to in paragraph 1."

(37) The "period in paragraph 1" was the 12 month period when the Defendant was entitled to Special Income. Thus, the plain meaning of these clauses were: although Special Income was repayable by 18 monthly instalments (the repayment period started from the 13th month), if the Defendant continued to be engaged by the Plaintiff, he will be entitled to a further payment (called a Monthly Bonus) in the same amount as the monthly repayment amount. In essence there will be a net set-off and so long as the Defendant continued to be engaged by the Plaintiff, he will not be out of pocket due to repayment of the Special Income.

(38) This of course meant that when the Defendant was no longer engaged by the Plaintiff, he is not entitled to payments of the Monthly Bonus, but the Special Income will still be repayable by 18 monthly instalments.

(39) As to immediate repayment, it was agreed that after termination, the Defendant joined CMG, another insurance company in Hong Kong, According to Clause 5 (ii), the Plaintiff was entitled for the immediate return of all Special Income paid.

(40) The Defendant alleged that after signing the Memo and the Letter, Mr. Lau and he agreed to amend his terms of remuneration further. One of the amendments was that the Special Income was earned after 12 months and was non-repayable. The new terms were contained in a two-page note given to the Defendant from Trace Lai and these notes did not mention any repayment terms. The Defendant further pointed to the fact that his Special Bonus entitlement was paid to him by 6 monthly installments in the first 6 months of his engagement, as further proof of amendment to his remuneration terms.

(41) The Plaintiff's Counsel relied on the parol evidence rule to exclude all extrinsic evidence. The learned author of Chitty on Contract, 28th edition, stated in page 625:

" ...It follows that the scope of the parol evidence rule is much narrower than at first sight appears. It has no application until it is first determined that the terms of the parties' agreement are wholly contained in the written document. The rule only applies where the parties to an agreement reduced it to writing, and agreed or intend that the writing shall be their agreement. Whether the parties did so agree or intend is a matter to be decided by the court upon consideration of all the evidence relevant to this issue. It is therefore always open for a party to adduce extrinsic evidence to prove that the document is not a complete record of the contract...."

(42) To decide this issue upon the parol evidence rule, it is necessary to look at the total circumstances leading to the agreement, as well as the terms of the agreement itself. I am not sure we need to go that route.

(43) The terms of the written agreements, specifically the Memo clearly stated that the Special Income are repayable, let us look at the Defendant's evidence to the alleged oral agreement with Mr. Lau. First, there was the two-page note given to the Defendant by Trace Lai. The contain of this note was a step by step calculation of the Defendant's Special Income and Special Bonus entitlements. Nothing therein could be construed to have modified the terms of the Memo.

(44) In paragraph 17 of his affirmation dated 30th October 1999, the Defendant described the terms of his oral agreement with Mr. Lau as:

"(a)The amount of the Special Income would increase from HK$334,273.92 to HK$386,868.00 (i.e. 50% of HK$773,736.00) with effect from 20 August 1997 and accordingly the amount of the Advanced Monthly Payment would increase from HK$27,856.oo to HK$32,239.00 (i.e. HK$386,868.00 ( 12).

(b) The amount of the Special Bonus would increase from HK$167,136.00 to HK$193,434.00 (i.e. 50% of HK386,868.00).

(c) The Special Bonus would be paid in advance by 6 monthly equal payments during my first half year appointment with the Plaintiff and accordingly the adjusted amount of the Advanced Bonus Payment would be HK$32,239.00 per month (i.e. HK$193,434.00 ( 6).

(d) All other terms of the said Agreement and the Agreed Terms of Remuneration would remain unchanged." (Emphasis added).

(45) Thus the Defendant had admitted that except changing the amount of the Special Income and Special Bonus and payment method of the Special Bonus, his oral agreement with Mr. Lau did not amend any other parts of the Memo. Clauses 3 and 5 of the Memo remain unchanged by the alleged oral agreement.

(46) Accordingly, even if I held that the parol evidence did not apply and, after thorough consideration of the circumstance of the facts, found that there was an oral agreement between the Defendant and Mr. Lau, the terms of that agreement still did not relieve the Defendant from his obligation to repay the Special Income to the Plaintiff. The Plaintiff is thus entitled to the return of the Special Income.

WHETHER PLAINTIFF IS ENTITLED TO THE RETURN OF THE SPECIAL BONUS

(47) Entitlement to Special Bonus was stated in clause 2 of the Memo as follows:

" In addition to the above the Manager shall, subject to the Agreement being renewed for a further period, be entitled to a Special Bonus at the end the anniversary of the Commencement Date referred to in the Agreement, which shall be calculated on the following basis: -...." (Sic.)

(48) More specifically, clause 5 of the Memo, which dealt with repayment mentioned Special Income specifically and ignored Special Bonus completely. The Letter also did not contain any repayment requirement. On the face of the Memo and the Letter, Special Bonus was not repayable once earned by the Defendant. The commencement day of the Agreement was defined as 20th August 1997, the anniversary day was 20th August 1998. The Defendant was not terminated until 21st September 1998, thus at the time of his termination, the Special Bonus had been earned by the Defendant.

(49) Irrespective of the aforesaid, Counsel for the Plaintiff argued that I should read into clause 2 of the Memo (and the corresponding clause in the Letter) an implied term that entitlements to the Special Income and Special Bonus were subject to the Defendant being appointed for a term of not less then 30 months.

(50) Nature of implied terms are stated in page 644 of Chitty on Contract as:

"...In many cases, however, one or other of the parties will seek to imply a term from the wording of a particular contract and the facts and circumstances surrounding it. The court will be prepared to imply a term if there arises from the language of the contract itself, and the circumstances under which it is entered into, an inference that the parties must have intended the stipulation in question. An implication of this nature may be made in two situations: first, where it is necessary to give business efficacy to the contract, and secondly, where the term implied represents the obvious, but unexpressed, intention of the parties...."

(51) The general principal of the business efficacy test, was stated by Bowen L.J. in The Moorcock, (1889) 14 P.D. 64, 68 as:

"Now, an implied warranty, or, as it is called, a convenant in law, as distinguished from an express contract or express warranty, really is in all cases found upon the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either said; and I believe if one were to take all the cases, and there are many, of implied warranties or convenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have."

(52) The learned author of Chitty on Contract, at page 645, described the obvious inference test as:

"A term which has not been expressed may be implied if it was so obviously a stipulation in the agreement that the parties must have intended it to form part of their contract. Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, thy would testily suppress him with a common, 'oh, of course." A term will not, however, thus be implied unless the court is satisfied that both parties would, as reasonable men, have agreed to it had it been suggested to them...."

(53) Accordingly in both testes, i.e. the business efficacy and officious bystander tests, the goal is to find the intention of the parties at the time of contract. In this case, the intention of the parties was clear, the Special Income was made repayable by clause 3 of the Memo. If the parties had intended that the Special Bonus was also repayable, all they needed was to include Special Bonus in the same clause. The absence of Special Bonus in clause 3 actually demonstrated that it was never intended to be repayable.

(54) The Plaintiff's treatment of Special Bonus in the Defendant's monthly account statements also pointed toward no intention of repayment. In the Defendant's monthly "Summary of Commission Statement", the Special Bonus paid to the Defendant was shown in the "Due to (from) company item" account. These amounts were accumulated, after each Special Bonus payment from August 1997 to January 1998, up to the sum of $193,434.00. From then on, this sum remained unchanged, as there were no further Special Bonus payments, until the month of August 1997, where a sum equal to $193,434.00 was credited to the Defendant's account and the "Due to (from) company item" account then showed a zero balance.

(55) These entrances in the Defendant's monthly statements, clearly demonstrated that from August 1997 to July 1998, the Plaintiff treated the Special Bonus paid to the Defendant as an advance to him, subject to repayment. On August 1998, this advance was treated as earned and the balance was written-off. Under the circumstances it is impossible for me to find that the true intention of the parties was to require the Defendant to continue to work for the Plaintiff for a 30-month period, before the Special Bonus became non-repayable.

(56) In any event, the Agreement, Memo and Letter were all documents of the Plaintiff. If the Plaintiff had intended to include a requirement of 30-month service, it would have been easy for the Plaintiff to do so. Failure to include such a term must be construed against and not in favour of the Plaintiff.

(57) Accordingly, I found that the Plaintiff is not entitled to the return of the Special Bonus.

THE COUNTER-CLAIM

(58) As I have already found that the Plaintiff was justified in terminating the Defendant's engagement, most of the Defendant's counter-claim would be dismissed, however, there was one item claimed by the Defendant, which must be addressed specifically.

(59) The Defendant stated that he was entitled to the August 1998 Monthly Bonus under clause 4 of the Memo, which the Plaintiff had failed to pay him. It is necessary to restate Clause 4 of the Memo here:

"In addition to the above the manager shall subject to the Agreement being and remaining valid and in force and renewed for a further period, be entitled to a monthly bonus ..." (Emphasis added).

(60) It was common ground that the Agreement had no expiry date. It was intended to continue until terminated by either party. Then what could the words "and renewed for a further period" possibly meant? After careful consideration of the facts surrounding this matter and the varies documents submitted, the only logical conclusion was that this phase meant that the Defendant would be eligible for a Monthly Bonus if he will continue to be engaged by the Plaintiff, after the Monthly Bonus period.

(61) Since the Monthly Bonus claimed by the Defendant was for the period between 21st August and 20th September 1998 and the Defendant's engagement was terminated on 21st September 1998, his engagement was not "renewed for a further period" and he was not eligible for the September 1998 Monthly Bonus.

COSTS

(62) In view of the fact that Plaintiff was unsuccessful in one-third of its claim against the Defendant and the Defendant was unsuccessful in his counter-claim, I am of the view that the costs in the counter-claim should roughly set-off the costs in the Plaintiff's unsuccessful claim for Special Bonus. Therefore the Plaintiff should recover against the Defendant, two-third of its costs in this matter. There should also be certificate for counsel. I will make this costs order nisi and parties may present argument if they wish within 14 days of today.

JUDGMENT

(1) Judgment is for the Plaintiff on its claim for Special Income, in the sum of $386,868.00;

(2) Plaintiff's claim for Special Bonus is dismissed;

(3) Defendant's counter-claims are dismissed;

(4) Interest for the Plaintiff on the sum of $386,868.00, at the judgment rate from 9th August 1999 until payment.

(5) Two-third of the Plaintiff's costs in this action, including any costs order reserved, shall be born by the Defendant, with certificate for counsel, to be taxed on a party/party basis if not agreed. This cost order is nisi and will become absolute unless application is received from either party within 14 days from today.