CHEUNG HON KIN v. CHUBB LIFE INSURANCE COMPANY LTD (formerly known as NEW YORK LIFE INSURANCE WORLDWIDE LTD and ACE LIFE INSURANCE COMPANY LTD respectively)

HCA 2711/2016

[2024] HKCFI 1313

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2711 OF 2016

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Judgment

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A.  INTRODUCTION

1.  The Plaintiff (“Mr Cheung”) was, at the material time, an insurance agent, and appointed as an agent of the Defendant.  Mr Cheung claims against the Defendant for breach of contract in not promoting him; alternatively, for breach of an oral agreement to pay him certain benefits.

B.  THE FACTUAL BACKGROUND

2.  Unless otherwise indicated, the following facts are taken largely from the parties’ agreed statement of facts, chronology or dramatis personae, or are otherwise uncontroversial, and I find them as facts.

3.  The Defendant was formerly known as New York Life Insurance Worldwide Ltd. (“NY Life”). It changed its name to ACE Life Insurance Company Ltd. (“ACE”) with effect from 20 April 2011, and then to Chubb Life Insurance Company Limited with effect from 28 April 2016 (“Chubb Life”).

B1.  The contractual documents

4.  By an agreement dated 12th July 1996 entitled “Agent’s Agreement” (“the Agent’s Agreement”), the Defendant (then named NY Life) appointed Mr Cheung as its agent to solicit applications for the Defendant’s insurance policies.

5.  Clause 19 of the Agent’s Agreement provided that the Agent should comply with the rules, regulations and instructions of [the Defendant] and should meet the production, persistency, training and occupational requirements of [the Defendant].

6.  The Agent’s Agreement was supplemented by a number of Manager’s Agreements entered into between Mr Cheung and NY Life.  The latest of these agreements was entered into on 1 March 2004 (“the Manager’s Agreement”), pursuant to which Mr Cheung was promoted to the position of, and appointed as, Agency Director (“AD”).

7.  Clause 2 of the Manager’s Agreement set out Mr Cheung’s agreement to follow and be governed by the terms and conditions of both the Manager’s Agreement and the Agent’s Agreement and the rules and regulations of the Defendant as issued from time to time.

8.  The Defendant issued an Agency Operations Manual which was amended from time to time.  The manual formed part of the contractual rules governing the relationship between the Defendant and its agents.  References below to “the Contract” are to one or more of the Agent’s Agreement, Manager’s Agreement and prevailing Agency Operations Manual, as the context requires.

9.  The 2011 Agency Operations Manual (“the 2011 Manual”) was the applicable manual for 2011. The following are relevant for present purposes.

9.1  Section A, clause 5 provided that the Defendant had the right, at any time, to amend or delete part or whole of the contents of the manual.

9.2  Section A, clause 7 provided that in the event of any disputes concerning any of the terms in the manual, the Defendant’s decision would be final.

9.3  Section B, clause 1 set out the career titles and development path for the Defendant’s agents.  The relevant ones, in ascending order of seniority, are as follows.

(under clause 1.1 “Career Titles”)

BDE – Business Development Executive

…

…

…

(under clause 1.2 “Agency Management Career Path & Title”)^[1]

…

ASM – Assistant Sales Manager

SM – Sales Manager

…

AD – Agency Director

SAD – Senior Agency Director

EAD – Executive Agency Director

9.4  Section B, clause 2.2 explained that the term “Direct” was a descriptive term used to define the overriding relationship between a group of subordinates and the manager in a “Team” or “Agency”.  A “Direct Team” was a team of agents headed by a manager of grade SM or above.  A “Direct Agency Office” was an office headed by an SAD or EAD, consisting of a Direct Team and other teams such as AD Teams, SSM Teams and so on.

9.5  Section B, clause 2.2 also explained that the term “Downline” was a descriptive term used to refer to all subordinate members and teams under the hierarchy of a “Team” or an “Agency Office”.

9.6  Section D, clause 1 set out a glossary of various terms relating to the requirements for maintenance of an agent’s position and promotion, including:

GAFYP – Gross Annualized First Year Premium

GAFYC – Gross Annualized First Year Commission

EFYC – Earned First Year Commission (the earned first year commissions paid to an agent from corresponding first year premiums received, less those from premiums refunded).

9.7  Section D, clause 1.3 referred to “persistency” requirements and measurements.  Mr Cheung explained that persistency is a measure of how long insurance policies are maintained; lapsed policies adversely affect persistency.

9.8  Section D, clause 3 set out maintenance and promotion requirements for agents, by seniority.  For example, in order to maintain one’s position as an AD or an SAD, there were requirements as to the headcount of agents managed by the AD or SAD, requirements as to the GAFYC to be achieved, and requirements as to the persistency to be achieved.  Similarly, there were requirements for promotion to an AD or SAD.

9.9  Section D, clause 3.1.2 provided that all promotions were to be “subject to the recommendation from the respective Agency Office Heads and final approval from the Company” (“Clause 3.1.2”).

9.10  Section D, clause 3.1.10 provided that managers of ASM level and above, in service for more than 12 months, would be demoted at the Defendant’s discretion if they failed to meet the team maintenance requirements by the end of the production year. 

9.11  Section J, clause 1 provided the formulae for calculating the overriding commission to which agents (of the position of SM and above) were entitled.  This was a commission based on a percentage of the EFYC earned by the agent’s direct agents or downline agents.  In his evidence, Mr Cheung said that the overriding commission was paid on a monthly basis.

9.12  Section K, clause 1 set out the conditions for eligibility for the receipt of year end bonuses by ADs.  They had to achieve certain requirements in terms of their Team GAFYC and their Downline Persistency.  The formulae for calculation were also set out.

B2.  Mr Cheung’s position before the end of 2011

10.  By the end of 2011, Mr Cheung was in the position of AD, and was supervising various agents.  One of these was Mr Thomas Ho, who joined the Defendant as an agent in August 2003 and who had not been recruited by Mr Cheung.  Whilst Mr Thomas Ho also was in the position of AD, he was directly supervised by Mr Cheung, and he was regarded as an agent who was downline from Mr Cheung.

11.  By reason of the relative positions of Mr Cheung and Mr Thomas Ho, Mr Cheung was entitled to receive, pursuant to section J of the 2011 Manual:

11.1  overriding commissions on the EFYC earned by Mr Thomas Ho personally (since Mr Thomas Ho was downline from, and directly supervised by, Mr Cheung);

11.2  overriding commissions on the EFYC earned by agents supervised by Mr Thomas Ho (since Mr Thomas Ho was downline from Mr Cheung).

12.  For the purpose of assessing promotion and maintenance measurements pursuant to in section D, clause 3 of the 2011 Manual, Mr Thomas Ho was regarded as downline from Mr Cheung.

B3.  The Non-Promotion

13.  The requirements for promotion to the position of SAD as set out in Section D, clause 3 of the 2011 Manual were:

“1. Self plus another 30 headcounts inclusive of minimum 21 SA, &

2. Team GAFYC US$234,000 in the last 6 months of US$390,000 in the last 12 months; &

3. At least 6 months services as AD, &

4. Downline Team Persistency at least 80%.”

14.  By an email of 30th December 2011, Mr Andy Tam, who was Mr Cheung’s superior and the then Agency Office Head, informed Mr David Tam, the then Chief Agency Officer of the Defendant, that both Mr Cheung and Mr Thomas Ho had fulfilled the promotion requirements to be promoted to the position of SAD.  He asked Mr David Tam to check, approve and confirm the promotion.

15.  By an email of 3rd January 2012, Mr David Tam accepted the recommendation regarding Mr Thomas Ho and confirmed that his promotion would take effect from 1st January 2012, but not the recommendation regarding Mr Cheung.  Mr David Tam expressed concerns that based on Mr Cheung’s working behaviour and direct agency’s performance, he was not properly prepared to be promoted to the senior position of SAD and to lead an agency office yet.  He said that he needed Mr Cheung to improve on a number of areas in the coming year, namely:

“a. Direct agency need to meet at least 50% of promotion requirements (GAFYC/manpower or SA agents)

b. Personal attendance

c. Proper business dressing and appearance

d. Demonstrate his capabilities to leading growth of agency”.

16.  Mr Cheung was therefore not promoted to the position of SAD on 1st January 2012 (“the Non-Promotion”).

B4.  The Special Offer

17.  In around January 2012, the Defendant considered providing a special offer to Mr Cheung to appoint him as “Appointed SAD”, with effect from 1st January 2012, with Mr Cheung being confirmed as SAD proper if he could fulfil a number of requirements within 2012, namely that his direct agency office met at least 50% of the promotion requirements as regards GAFYC and manpower stated in the 2011 Manual (“the Special Offer”). The Special Offer was communicated informally to Mr Cheung.

18.  Mr Cheung says that he rejected this offer after a brief consideration.  There are internal emails of the Defendant put into evidence at trial in which it was claimed that Mr Cheung was still considering the offer, or at least that the Defendant was still open to the arrangement, up to May 2012.^[2]

B5.  The Alleged Oral Agreement

19.  It is Mr Cheung’s pleaded case that he entered into an oral agreement with the Defendant at a meeting with Mr Alex Wong (the then Assistant Vice President of Agency Sales and Operations) and Mr Adrian Tsang (the then Head of Agency Administration of the Defendant) in a meeting between February and May 2012, which was later evidenced by various email exchanges and partly by conduct (“the Alleged Oral Agreement”).  The terms of the Alleged Oral Agreement included the following.  

19.1  Notwithstanding Mr Cheung’s non-promotion, the Defendant would nevertheless continue to pay him all the benefits he was entitled to, in the same manner as it did prior to 1st January 2012.

19.2  Such benefits would include, inter alia, the remuneration of overriding commissions [arising from the earnings] earned by Thomas Ho and his direct team, save for those of members joining his team after 1st January 2012, as well as contributions to Mr Cheung’s provident fund, loyalty bonuses, renewal bonuses and other fringe benefits, including but not limited to medical insurance provided by the Defendant.

19.3  The benefits would also include, inter alia, the inclusion of Mr Thomas Ho and his direct team as downline from Mr Cheung for the purpose of maintenance and promotion measurements with the Defendant.

20.  Mr Cheung’s pleaded case further claims that there were the following implied terms in the Alleged Oral Agreement.

20.1  There was no particular time limit to the operation of the Alleged Oral Agreement.

20.2  The Defendant could not terminate the Alleged Oral Agreement capriciously, irrationally or contrary to good faith, so as to deprive Mr Cheung of any contractual benefit under the Alleged Oral Agreement.

B6.  The amendments to the 2011 Manual

21.  On 31st May 2012, the Defendant circulated an internal memorandum to agents of the position of SM and above, indicating that from 1st January 2013, agents’ direct downline teams were required to achieve 50% of the maintenance or promotion GAFYC and other requirements to be considered successfully validated for position maintenance or promotion. (Subsequently, given the feedback from agents, the Defendant decided to limit the application of the rule to promotion only, and not position maintenance.)

22.  On 1st January 2013, the Defendant’s Agency Operations Manual was amended (“the 1st Amendment”) to, inter alia, include the above rule (as modified).  Clause 3.1.6 of the amended manual (“the 2013 Manual”) provided that:

“For promotion to SM & above position, the to-be-promoted manager’s direct downline excluding those of the same title and their downline is required to achieve 50% of the promotion GAFYC / APE requirement at the time of the promotion assessment.”

23.  This rule was commonly referred to as the “Half-Arm Rule” within the Defendant.

24.  On 16th January 2014, the Defendant circulated an email to agents with the latest edition of the Agency Operations Manual, indicating that the new manual (“the 2014 Manual”) would take effect on 1st July 2014. Clause 3.1.15 (“the 2nd Amendment”) provided as follows.

“Any manager (the “upline manager”) with reporting manager (the “downline manager”) who surpasses the upline manager, team production, manpower & persistency will be excluded from the upline manager’s performance measurement for position maintenance and promotion after 24 months from the promotion month of the downline manager unless the upline manager regains the same or higher position of the downline manager during this 24 months’ period.”

25.  On 1st July 2014, the 2014 Manual, containing the 2nd Amendment, took effect.

26.  The effect of the 1st Amendment and the 2nd Amendment (collectively “the Amendments”) was that:

26.1  for the purpose of promotion, Mr Cheung would be required to achieve 50% of the promotion GAFYC / APE requirement (as defined in the Agency Operations Manual) without taking into account the GAFYC / APE from Mr Thomas Ho and his downline agents;

26.2  since Mr Thomas Ho had surpassed Mr Cheung in title on 1st January 2012, the performance of Mr Thomas Ho (in terms of team production, manpower and persistency) would be excluded from Mr Cheung’s performance measurements for the purpose of position maintenance and promotion from 1st January 2014 (being 24 months after 1st January 2012).

27.  At the time when the 2nd Amendment was introduced, Mr Cheung was the only agent of the Defendant whose downline agent had surpassed him in title.

B7.  Mr Cheung’s demotions and termination

28.  Section D, clause 3.1.12 of the 2014 Manual provides that:

“For managers (ASM and above) who have been in service for more than 12 months, fail[ure] to meet the team maintenance requirements by end of the production year will result in demotion at the Company’s discretion.”

29.  Mr Cheung was demoted from AD to the position of Assistant Sales Manager (Unit Manager) (“ASM(UM)”) with effect from 1st January 2015.  The position of ASM(UM) is three levels down from the position of AD. 

30.  Mr Cheung was further demoted to the position of Business Development Executive (“BDE”) with effect from 1st October 2015.  He ceased to be entitled to any overriding commission as a result.

31.  On or about 18th February 2016, Mr Cheung received an email from Mr Andy Tam, forwarding an email from Ms Elaine Tang of the Agency Administration Department of the Defendant, stating that Mr Cheung’s position as agent would be terminated with effect from 20th March 2016.  A formal letter of 19th February 2016 giving 30 days’ notice of termination of the Agent’s Agreement with effect from 20th March 2016 was also issued by the Defendant to Mr Cheung.

C.  MR CHEUNG’S CLAIM; THE ISSUES

C1.  Claim of breach of Implied Term

32.  It is Mr Cheung’s case that the Non-Promotion was a breach of contract by the Defendant.  Mr Cheung says that there was an implied term in the Contract that whilst Clause 3.1.2 provided that all promotions were to be subject to the recommendation of the respective Agency Office Heads and final approval from the Defendant, the decision-making process of the Defendant had to be lawful and rational in the public law sense such that the decision-making process should (a) not be arbitrary, capricious, perverse, or irrational; (b) exclude extraneous considerations and take into account those considerations which are obviously relevant to the decision in question; and (c) be carried out rationally, in good faith and consistently with its contractual purpose (“the Implied Term”).^[3]

33.  Mr Cheung says that the Defendant was in breach of contract, including in particular the Implied Term, as:^[4]

33.1  Mr Cheung had fulfilled the requirements in clause 3.1.1 of the 2011 Manual;

33.2  a recommendation for promotion was made by Mr Cheung’s Agency Office Head, Mr Andy Tam;

33.3  the purported reasons cited by Mr David Tam for the Non-Promotion were denied by Mr Cheung, and Mr Cheung had protested to both Mr Andy Tam and Mr David Tam and put forward his claim to the Defendant; and

33.4  the purported reasons cited by Mr David Tam fall outside the scope of the promotion requirements set out in the 2011 Manual.

C2.  Claim of breach of Alleged Oral Agreement

34.  Mr Cheung says that he and the Defendant, through Mr Alex Wong and Mr Adrian Tsang acting on its behalf, entered into an oral agreement at a meeting during the period from February to May 2012, to the following effect (“the Alleged Oral Agreement”).^[5]

34.1  Notwithstanding the Non-Promotion, the Defendant would nevertheless continue to pay Mr Cheung the same benefits to which he was entitled prior to 1st January 2012.

34.2  Such benefits would include, inter alia, the overriding commissions attributable to the performance of Mr Thomas Ho and his direct team, save for agents joining his team after 1st January 2012; together with contributions to Mr Cheung’s provident fund, loyalty bonuses, renewal bonuses and other fringe benefits including but not limited to medical insurance.

34.3  The benefits would also include the performance of Mr Thomas Ho and his direct team for the purpose of maintenance and promotion measurements of Mr Cheung’s position with the Defendant.

35.  Mr Cheung says that the Alleged Oral Agreement contained two implied terms:

35.1  there was no particular time limit to the operation of the Alleged Oral Agreement;

35.2  the Defendant could not terminate the Alleged Oral Agreement capriciously, irrationally or contrary to good faith, so as to deprive Mr Cheung of any contractual benefits under the Alleged Oral Agreement.

36.  Mr Cheung further says that by virtue of the Alleged Oral Agreement:^[6]

36.1  Mr Cheung’s position was to remain intact and protected by the Alleged Oral Agreement as a separate collateral agreement, notwithstanding any purported exercise of the Defendant’s power under Section A, clause 5 of the 2011 Manual to amend the manual at any time;

36.2  the Alleged Oral Agreement was itself to be immune from, and unaffected by, any subsequent amendments to the Agency Operations Manuals.

37.  Mr Cheung says that the Defendant was in breach of the Alleged Oral Agreement, as, inter alia:^[7]

37.1  the Defendant made the 1st Amendment in the 2013 Manual, and the 2nd Amendment in the 2014 Manual, (which had the undisputed effect as described in paragraph 26 above);

37.2  the Defendant enforced the Amendments against Mr Cheung.  In particular, the performance of Mr Thomas Ho and his team was excluded from the promotion and maintenance measurements of Mr Cheung retrospectively from 1st January 2014 (despite the 2014 Manual only taking effect from 1st July 2014);

37.3  the Defendant wrongly demoted Mr Cheung to the position of ASM(UM) with effect from 1st January 2015, and further to the position of BDE with effect from 1st October 2015. 

38.  The agreed issues between the parties^[8] are:

38.1  whether the Non-Promotion was a breach of contract, in particular the Implied Term, by the Defendant;

38.2  whether the Alleged Oral Agreement was made;

38.3  if the Alleged Oral Agreement was made:

38.3.1  whether Mr Alex Wong and Mr Adrian Tsang had the authority to make it;

38.3.2  what the terms of the Alleged Oral Agreement were;

38.3.3  whether the Defendant was in breach of the Alleged Oral Agreement;

38.4  if there was a breach of contract, the relief to which Mr Cheung is entitled.

39.  As will be seen below, given the way in which the evidence developed at trial, the issues have been dealt with following a slightly different structure.

D.  WHETHER NON-PROMOTION A BREACH OF CONTRACT

40.  In considering whether the Non-Promotion was a breach of contract, I first need to determine the issue of the Implied Term constitutes part of the Contract.  It will be remembered that Clause 3.1.2 provided that all promotions were to be subject to the recommendation of the respective Agency Offers Heads and final approval from the Defendant.  However, Mr Cheung’s pleaded case is that this is qualified by the Implied Term, so that in deciding whether to give D approval, the Defendant was essentially not to act arbitrarily or capriciously, was to exclude extraneous considerations and to include relevant considerations, and to make decisions in good faith and consistently with its contractual purpose.

D1.  The applicable legal principles

41.  The requirements for implying a term into a contract were set out in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at [59] (Ribeiro PJ), citing BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 AJLR 20 at p.26.  The term must:

41.1  be reasonable and equitable;

41.2  be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

41.3  be so obvious that “it goes without saying”;

41.4  be capable of clear expression;

41.5  not contradict any express term of the contract.

42.  Lord Neuberger PSC commented on these requirements in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and anor [2016] AC 742 at [21] as follows.

42.1  The implication of a term was not critically dependent on proof of an actual intention of the parties when negotiating the contract.  The question was what notional reasonable people, in the position of the parties at the time at which they were contracting, would have agreed.

42.2  A term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them.  Those are necessary but not sufficient grounds for including a term.

42.3  It is questionable whether the first requirement of reasonableness and equitableness will add anything.  If a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable.

42.4  Although the five requirements are otherwise cumulative, business necessity and obviousness can be alternatives in the sense that only one of them needs to be satisfied, although in practice it would be a rare case where only one is satisfied.

42.5  If one approaches the issue by reference to the officious bystander, it is vital to formulate the question to be posed by him with the utmost care.

42.6  Necessity for business efficacy involves value judgment.  The test is not one of “absolute necessity”.  A more helpful way of putting the requirement may be that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.

43.  In Nazir Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2, Lord Hughes (with whom Lord Neuberger, Lord Clarke and Lord Carnwath agreed), after referring to Marks and Spencer plc, observed as follows.

“… It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated.  A term is to be implied only if it is necessary to make the contract work, and this it may be if (i) it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, “Oh, of course”) and/or (ii) it is necessary to give the contract business efficacy.  Usually the outcome of either approach will be the same.  The concept of necessity must not be watered down.  Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion.  And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement. "

44.  There are authorities to the effect that an apparently unqualified power or discretion given to a party to a contract should generally be construed as being subject to some implied restrictions regarding the exercise of that power or discretion: Tadjudin Sunny v Bank of America, unreported, CACV 12/2015, 20th May 2016, at [46] (Kwan and Barma JJA, Chow J).  At [55]:

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

45.  See also FWD Life Insurance Co (Bermuda) Ltd v Poon Cindy [2019] 3 HKLRD 455 at [35] to [36] (Lam VP, as he then was):

35. Thus, if the plaintiff were to exercise its power [of termination] … the principle of law discussed by the UK Supreme Court in British Telecommunications Plc v Telefónica O2 UK Ltd [2014] Bus LR 765 and Braganza v BP Shipping Ltd [2015] 1 WLR 1661 might be engaged.  In British Telecommunications Plc v Telefónica O2 UK Ltd, Lord Sumption set out the general rule as follows:

As a general rule, the scope of a contractual discretion will depend on the nature of the discretion and the construction of the language conferring it.  But it is well established that in the absence of very clear language to the contrary, a contractual discretion must be exercised in good faith and not arbitrarily or capriciously … This will normally mean that it must be exercised consistently with its contractual purpose …

36. In Braganza v BP Shipping Ltd, Baroness Hale explained the rationale behind this principle at [18]:

Contractual terms in which one party to the contract is given the power to exercise a discretion … are extremely common. It is not for the courts to rewrite the parties’ bargain for them, still less to substitute themselves for the contractually agreed decision-maker.  Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest.  That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract.  The courts have therefore sought to ensure that such contractual powers are not abused.  They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given.

D2.  Whether Implied Term

46.  The pleaded basis for the implication of the term is found in RRRASOC paragraph 17(3):

“The party who is charged with making decisions that affects the rights of both parties to the contract has a clear conflict of interest, which is height[en]ed if there is a significant imbalance of power. In these circumstances, the decision-making process is subject to scrutiny by the Court to ensure that such contractual powers are not abused.”

47.  It therefore appears that Mr Cheung is arguing for a Braganza-type term on the basis that there is a clear conflict of interest between him and the Defendant.  (Whilst Mr Cheung’s pleadings were settled by counsel, he acted in person at trial and did not in fact advance arguments in relation to the existence of the Implied Term.)

48.  However, it is not clear what the conflict of interest in the present case may be.  It has not been suggested that it would not be in the interest of the Defendant for its agents to be promoted – the agents might thereby obtain higher remuneration and greater privileges, but presumably they would also be bringing in more business for the Defendant.  It was suggested in Mr Cheung’s evidence that it was in Mr Andy Tam’s interest not to have Mr Cheung promoted, as Mr Andy Tam would then be entitled to receive the overriding commissions from Mr Thomas Ho’s production (instead of Mr Cheung receiving them), but Mr Cheung also acknowledged (as the email records showed) that Mr Andy Tam had in fact recommended Mr Cheung for promotion.  In any event, Mr Andy Tam is not the contracting counterparty with Mr Cheung, and furthermore, Mr Andy Tam’s interest cannot be equated with the Defendant’s.

49.  Counsel for the Defendant, Mr Abraham Chan SC (leading Mr Val Chow) submitted that in any event, Clause 3.1.2 conferred an absolute power on the Defendant (to decide on the question of promotion) rather than a contractual discretion in the first place which could be said to be subject to a Braganza-type implied term.^[9]

50.  However, the view as to whether a clause confers an “absolute” power or a “discretion” is one which should be arrived at through the process of construction, rather than act as the starting point for determining whether a term should be implied into a contract: Equitas Insurance Ltd v Municipal Mutual Insurance Ltd [2020] QB 418 at [113] (Males LJ).

51.  Mr Chan also submitted that in cases where there is a contractual power to terminate a contract, the courts have consistently treated this as an absolute contractual right, so that it is not subject to an implied term akin to the Implied Term in the present case.  In particular, it was said that the very nature of the power to terminate a service contract without cause is that its exercise does not have to be justified (citing Reda v Flag Ltd [2002] UKPC 38 at [42]) and that this has been consistently applied in Hong Kong in disputes between insurers and agents to the effect that the right to terminate is not generally subject to any implied restrictions.^[10]

52.  However, it seems to me that this is not because there is anything intrinsic in the nature of the power to terminate a service or agent’s contract, but because the terms of the termination clauses in all of the cases relied upon by the Defendant expressly provided for the power of termination to be unlimited.  In Reda, the employer was entitled to terminate the employee’s employment either for cause or without cause.  To take another example from the cases cited by the Defendant, in Shek Kin Pong v FTLife Insurance Company Ltd [2019] HKCFI 1781, the termination clause expressly provided for either the company or the agent to terminate the agreement at any time and without giving any reason for doing so.

53.  I therefore consider that the decisions as to termination of a service contract relied on by the Defendant do not support its construction of Clause 3.1.2 as conferring an absolute power on the Defendant.

54.  Even if Clause 3.1.2 confers a contractual discretion on the Defendant, however, I am not persuaded that the Implied Term is necessary or obvious.  As Mr Chan pointed out, it was open to either party to terminate the Contract on the giving of seven days’ notice, without specifying any ground (so that termination on irrational grounds would not be wrongful).  If the Defendant could choose to terminate an agent’s contract for irrational reasons, then it does not seem to me that business efficacy or obviousness dictates that decisions as to promotion could only be for rational reasons. Furthermore, the consequence of implying the Implied Term into the Contract would mean that the Defendant would in practice be obliged to explain its reasons for not promoting an agent.  However, Clause 3.1.2 does not suggest that there is any duty to give reasons for non-promotion, and there is no general duty in law (on an employer, at least) to give reasons for non-promotion: Wong Ho Ching v Director of Food and Environmental Hygiene [2003] 4 HKC 422 at 433B.

55.  I therefore am not persuaded that the Implied Term should be implied into the Contract.

D3.  Whether breach of Implied Term

56.  I go on to consider whether, if I am wrong in my conclusion that the Implied Term should not be implied into the Contract, there was any breach as alleged.

57.  One of Mr Cheung’s complaints as to breach was that he fulfilled the requirements in clause 3.1.1. of the 2011 Manual, and the reasons cited by Mr David Tam fell outside the promotion requirements set out in the 2011 Manual.  However, it is not arbitrary, capricious, perverse, irrational, irrelevant or a breach of good faith for the Defendant to have taken into account considerations other than those stated in the 2011 Manual, simply because they were not expressly stipulated in the manual.  As Mr Cheung accepted in cross-examination, when he himself sought to recruit agents, he would consider the qualitative features of the individual candidate, such as his suitability to be an agent and capability of doing the work well.

58.  Mr Cheung’s next pleaded complaint of breach of the Implied Term was that a recommendation for promotion was made by his Agency Head Mr Andy Tam^[11] (the suggestion being that it was therefore wrong for the Defendant not to accept the recommendation).  However, the claimed Implied Term as formulated did not exclude the requirement that all promotions were to be subject to the final approval of the Defendant.  The non-acceptance of the recommendation could not be a breach of the Implied Term.

59.  Mr Cheung’s remaining complaint of breach of the Implied Term was that the purported reasons cited by Mr David Tam were denied. Those reasons, as set out in Mr David Tam’s email of 6th January 2012 to Mr Andy Tam, were that:

59.1  Mr Cheung had an unacceptable attendance record;

59.2  Mr Cheung had failed to participate in past Manager Seminars;

59.3  there were complaints about Mr Cheung’s sales practices;

59.4  Mr Cheung dressed inappropriately; and

59.5  Mr Cheung’s direct team performance was extremely poor in terms of manpower, agents, and GAFYC.

D3.1  Performance

60.  There is no real dispute that factually, the performance of Mr Cheung and his direct team was poor in 2011.  Mr Cheung’s GAFYC was US$377.93 and that of his direct team, excluding Mr Thomas Ho, was US$36,947.36.  Mr Chan contrasts this with the requirements in the 2011 Manual that the minimum personal GAFYC required of an agent of the lowest rank of BDE in order for him to keep his job was US$10,800, and that the minimum team GAFYC required of an agency manager of the lowest rank of ASM was US$30,000.  Furthermore, Mr Cheung’s direct team only managed to recruit two agents, whereas Mr Thomas Ho’s team recruited twenty-four.

61.  Whilst Mr Cheung met the requirements in the 2011 requirements for promotion to the position of SAD as set out in the 2011 Manual, this was in large part due to the fact that the performance of Mr Thomas Ho and his direct team was counted towards Mr Cheung’s performance figures.  An internal email of the Defendant dated 7th February 2012 set out Mr Cheung’s production figures, and showed that Mr Thomas Ho’s team contributed 98% of the 2011 GAFYP, whereas Mr Cheung’s team contributed 2% (the figures in the previous year being 69% and 31% respectively).

62.  In the course of the Defendant’s opening submissions, Mr Cheung raised the point that it was unfair to make this comparison, as the production figures for Mr Thomas Ho had similarly taken into account the performance of Mr Ho’s downline team.

62.1  However, as Mr Cheung accepted, it was not part of his pleaded case that the Implied Term was breached by reason of any difference in treatment between him and Mr Thomas Ho. As Mr Chan pointed out, and as Mr Cheung accepted in cross-examination, Mr Cheung’s Non-Promotion was based on a consideration of the merits or otherwise of Mr Cheung’s position, rather than by comparing Mr Cheung’s position with that of other agents.

62.2  In any event, the Defendant further prepared a table to respond to Mr Cheung’s point, comparing Mr Cheung’s and Mr Thomas Ho’s respective performances in 2011.  Mr Cheung acknowledged that the table did properly compare the respective performances on an “apples to apples” basis.  The table showed that Mr Cheung’s performance was significantly worse than that of Mr Ho’s, no matter whether this was by reference to their respective personal GAFYP, the GAFYP of their respective direct or downline teams, personal GAFYC, or the GAFYC of their respective direct or downline teams.

63.  I do not consider that it could be said that it was arbitrary, capricious, perverse, irrational, irrelevant or a breach of good faith for the Defendant to have taken into account Mr Cheung’s poor performance in deciding on the Non-Promotion.

D3.2  Attendance record

64.  As regards attendance at the Defendant’s office, Mr Cheung did not have any serious disagreement with the Defendant’s records which showed that he attended the Defendant’s office on only 33% of the working days in 2011 (although he observed that there might be times at which his attendance was not recorded as others might open the door for him).  He frankly acknowledged that he did not go into the office a lot.

65.  Mr Cheung’s explanation for his low attendance was that he was meeting clients and recruiting agents outside the office.  However, as Mr Chan pointed out, this was not supported by the low number of agents in his team and the poor performance of Mr Cheung and his direct team, as addressed above.  Furthermore, Mr Cheung called no witnesses to support this explanation.  Mr Cheung also said that he was busy supervising downline agents outside the office, but he provided no evidence of this, such as text messages, or evidence from such agents.

66.  Thus it cannot be said that Mr David Tam was factually incorrect as regards Mr Cheung’s attendance record.

67.  Nor can it be said that taking poor attendance into account was arbitrary, capricious, perverse, irrational, irrelevant, or lacking in good faith, given that there is no reasonable explanation for such poor attendance.

D3.3  Participation in Manager Seminars

68.  Mr Cheung agreed in cross-examination that he hardly attended seminars.  The Defendant’s record is that from 2007 to 2011, he attended only one out of seven agency seminars.  Again, it cannot be said Mr David Tam was factually incorrect as regards Mr Cheung’s failure to participate in Manager Seminars.

69.  In cross-examination, Mr Cheung accepted that the Defendant would give slide presentations at these seminars relating to performance and management of agencies, which it considered important.  In the circumstances, it cannot be said that it was arbitrary, capricious, perverse, irrational, irrelevant, or lacking in good faith to take Mr Cheung’s failure to attend seminars into account in deciding whether to promote him.

D3.4  Customer complaints

70.  Mr Cheung accepted that it was relevant for the Defendant to take into account complaints about an agent’s sales practices in deciding on the question of promotion.

71.  In his witness statement, Mr Cheung acknowledged that some of his clients did file complaints to the Defendant’s customer service department about his sale practices; however, this was rare, and in any event he had the practice of recording in detail what transpired in every client meeting, including each piece of advice given and the response given by the client, so that he could show that the practices were proper.

72.  There were no materials before me relating to complaints made prior to the Defendant’s Non-Promotion, which is the relevant period.  Mr Cheung acknowledged that he had not produced any documents which supported his grievance that Mr David Tam’s reliance on the point about complaints was unjustified, even though he did have the relevant records at the time of the complaints which could have been, or in fact were (it is not clear which), used to show that his sales practices were proper.  The Defendant equally did not produce any documents shedding light on what the complaints referred to in Mr David Tam’s email might have been.  In the circumstances, given that it is Mr Cheung’s burden to establish a breach of the Implied Term, I cannot say that Mr Cheung establishes that Mr David Tam’s email was wrong on this point, although equally this does not amount to any finding of malpractice on Mr Cheung’s part.^[12]

D3.5  Mode of dress

73.  Mr Cheung said that it was the norm in the industry that agents of his rank could wear smart casual clothes to work.  He said that he encouraged his downline managers to do so to be comfortable.

74.  The Defendant’s agents represent the Defendant in its dealings with third parties, who would notice (amongst other things) the appearance of agents.  It could not be said that it was arbitrary, capricious, perverse, irrational, irrelevant, or lacking in good faith for the Defendant to take Mr Cheung’s presentability into account when deciding whether he was suitable for what was (at the time) the second-highest agency position within the Defendant.

D3.6  No breach of Implied Term

75.  Therefore, even if the Implied Term is part of the Contract, I do not consider that the Defendant was in breach of it.

E.  WHETHER ALLEGED ORAL AGREEMENT MADE

76.  Mr Cheung’s pleaded case is that he entered into the Alleged Oral Agreement with Mr Alex Wong and Mr Adrian Tsang at a meeting between February and May 2012.  To recap, the agreement was to the effect that:

76.1  notwithstanding Mr Cheung’s non-promotion, the Defendant would nevertheless continue to pay him all the benefits he was entitled to, in the same manner as it did prior to 1st January 2012;

76.2  such benefits would include, inter alia, the remuneration of overriding commissions [arising from the earnings] earned by Thomas Ho and his direct team, save for those of members joining his team after 1st January 2012, as well as contributions to Mr Cheung’s provident fund, loyalty bonuses, renewal bonuses and other fringe benefits, including but not limited to medical insurance provided by the Defendant;

76.3  the benefits would also include, inter alia, the inclusion of Mr Thomas Ho and his direct team as downline from Mr Cheung for the purpose of maintenance and promotion measurements with the Defendant.

77.  Mr Cheung says that the Alleged Oral Agreement explains why he continued to receive overriding commission and other benefits based on the performance of Mr Thomas Ho and his team despite the Non-Promotion.

78.  The Defendant says that the reason why Mr Cheung continued to receive overriding commission and other benefits was to encourage him to rebuild his team, and enable him to achieve promotion to the position of SAD (as the performance figures of Mr Thomas Ho’s team would count towards position maintenance, production and promotion figures of Mr Cheung), but that this arrangement would be time limited to 31st December 2014.  If Mr Cheung did not achieve promotion by that time, the figures for Mr Thomas Ho’s team would no longer count towards Mr Cheung’s figures.  This arrangement has been described as the “Special Allowance” in these proceedings.

79.  As Mr Chan has pointed out, the key differences between Mr Cheung’s Alleged Oral Agreement and the Defendant’s “Special Allowance” are that:

79.1  the Alleged Oral Agreement was said to be of infinite duration, whereas the Special Allowance was to last until the end of 2014 only;

79.2  the Alleged Oral Agreement was to be immune from, and unaffected by, any subsequent amendments to the Agency Operations Manuals.

80.  The legal basis relied on for arriving at such a result for the Alleged Oral Agreement are two alleged implied terms of the agreement,^[13] namely, that:

80.1  there was no particular time limit to the operation of the Alleged Oral Agreement; and

80.2  the Defendant could not terminate the Alleged Oral Agreement capriciously, irrationally or contrary to good faith, so as to deprive Mr Cheung of any contractual benefits under the Alleged Oral Agreement.

81.  Whether the Alleged Oral Agreement was made is a question of fact, and much turns on the credibility of Mr Cheung’s evidence.  In assessing the evidence, I have had regard to the principles summarised in Hui Cheung Fai v Daiwa Development Ltd, unreported, HCA 1734/2009, 8 April 2014 at [77] to [83], per Deputy High Court Judge Eugene Fung SC.  In particular:

81.1  contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

81.2  in deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

81.3  regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence;

81.4  care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character;

81.5  witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.

82.  I have also had regard to the summary of relevant principles made by HH Judge Simon Barker QC in Northampton Borough Council v Cardoza and others [2019] BCC 582:

“36. As to the considerations applicable to evaluating evidence, a useful starting point is Goff J’s (as he then was) observation as to resolving conflicts of evidence in Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 Lloyd’s Rep 1 at p.57:

‘… Where there is a conflict of evidence … reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth’.

37. Factors relevant to the evaluation of a witness’s evidence were identified by Lewison J (as he then was) in Painter v Hutchinson [2007] EWHC 758 (Ch) at [3] when addressing the unsatisfactory nature of the defendant’s approach to giving evidence. These included: evasive and argumentative answers, tangential speeches avoiding the question, blaming legal advisers for pleading, disclosure and evidence shortcomings, self-contradiction, internal inconsistency, shifting case, new evidence, and selective disclosure. This was not intended to be an exhaustive list, but it is important and very helpful.

38. A useful recent reminder or guidance on the approach to the evidence of factual witnesses, and expanding on the guidance given by Goff J in The Ocean Frost, was given by Leggatt J (as he then was) in Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm). After noting that human memory is fallible and that the process of litigation and preparing for trial tends to interfere further with the reliability of human memory, particularly where a lawyer has had a hand in drafting a witness’s evidence and the witness’s memory has been refreshed by reading documents, Leggatt J concluded that the best approach for a judge to adopt at the trial of a commercial case is to base factual findings on documentary evidence and known or probable facts and the inferences to be drawn therefrom. Witness evidence, written and oral, is not without purpose; but, its principal uses are to subject the documentary record to scrutiny and to evaluate the witness’s motivations, personality and working practices.

In similar vein, in the recent case of Freemont (Denbigh) Ltd v Knight Frank LLP [2014] EWHC 3347 (Ch) reference was made to an article written by Bingham J (as he then was) entitled “The Judge as Juror: The Judicial Determination of Factual Issues” published in [1985] 38 Current Legal Problems 1-27. Bingham J considered the approach to deciding upon the reliability of a witness’s evidence and regarded the following to be helpful indicators of where the truth lies: the consistency of the witness’s evidence with what is agreed, or clearly shown by other evidence, to have occurred; the internal consistency of a witness’s evidence; and, the consistency of a witness’s evidence with what (s) he has said or deposed on other occasions. Bingham J considered that the credit of a witness in matters not germane to the litigation was of less assistance, and that the demeanour of a witness was on the whole not a reliable pointer to a witness’s honesty.”

83.  The observations of DHCJ Jin Pao SC in Leung Chin Sing, Rabo v Ko Chun Hay, Kelvin in [2021] HKCFI 2242 at [42] are also relevant:

It is rare in modern commercial litigation to encounter a claim based on an agreement which is not only said to have been purely by word of mouth but of which there is no contemporaneous documentary record of any kind.  The prevalence of e-mails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic imprint: Blue v Ashley [2017] EWHC 1928 (Comm) at [65] per Leggatt J (as he then was); Music Holdings Property HK Ltd v Ooi Lean Choo [2020] HKCFI 1312 at [58] per Ng J. Because the value of a written record is understood by anyone with business experience, its absence may, depending on the circumstances, tend to suggest that no contract was concluded: Blue v Ashley at [49]; Wing Hing (1956) Co Ltd v Nissin Foods Co Ltd [2021] HKCFI 638 at [56] per DHCJ Abraham Chan SC.

84.  Having considered all the evidence placed before the court, I have concluded that no Alleged Oral Agreement was made as claimed.  I have had particular regard to the following.

E1.  Shifting and self-contradictory case as to Alleged Oral Agreement

85.  Mr Cheung has not been able to give specific details about the making of the Alleged Oral Agreement, such as the details of the occasion on which it was made, and what was said and by whom such as to constitute an agreement on the terms claimed.

86.  In fact, Mr Cheung’s case as to when the Alleged Oral Agreement was made has shifted over time. In his original Statement of Claim of October 2016, Mr Cheung gave a date of “around March or April 2012”. It was then changed to February 2012 in Mr Cheung’s witness statement of November 2017, late January 2012 in Mr Cheung’s Supplemental Witness Statement of May 2019, and finally “the period between February and May 2012” in the Re-Amended Statement of Claim of October 2019. When cross-examined about this, Mr Cheung’s explanation was that he talked to different people, including Mr Alex Wong and Mr Adrian Tsang, about the Alleged Oral Agreement.

87.  Mr Alex Wong and Mr Adrian Tsang were identified in the pleadings as the representatives of the Defendant who entered into the Alleged Oral Agreement with Mr Cheung.  However, in his oral evidence, Mr Cheung said that he met Mr Alex Wong and Mr Adrian Tsang and he “mentioned” the arrangement to them, but he went on to say that they did not wait for authorisation and proceeded to implement it – which would mean Mr Alex Wong and Mr Adrian Tsang neither had the authorisation to enter into the Alleged Oral Agreement, nor actually entered into the agreement with Mr Cheung.  It also means that there had not yet been any authorised agreement by the time Mr Cheung spoke to Mr Alex Wong and Mr Adrian Tsang.

88.  There were other versions as to who was supposed to have entered into the Alleged Oral Agreement on the Defendant’s behalf.  The pre-action letter of 17th March 2016 from the Plaintiff’s former solicitors, WK To & Co, had claimed that Mr Andy Tam entered into the agreement – which is different from the pleaded case of October 2016, only a few months later. When cross-examined about the letter, Mr Cheung said that he stood by it, and said that the agreement had been made with Mr Andy Tam, and that by the time he spoke to Mr Alex Wong and Mr Adrian Tsang, the agreement had already been made and in fact already executed as he was receiving commission pursuant thereto.  This version of events is inconsistent with the evidence he gave earlier, namely, that there had not yet been any authorised agreement by the time that he spoke to Mr Alex Wong and Mr Adrian Tsang.

89.  One of the pleaded terms of the Alleged Oral Agreement is that the Defendant would continue to pay Mr Cheung all the benefits to which he was entitled prior to the Non-Promotion, including the inclusion of Mr Thomas Ho as Mr Cheung’s downline for maintenance and promotion measurements with the Defendant.  However, in his Supplemental Witness Statement, when explaining why his team had performed poorly in 2012, Mr Cheung said, contradictorily, that the performance of Mr Thomas Ho could not be taken into account any more, and it was unfair and unreasonable to expect Mr Cheung’s team to contribute a significant amount of production after Mr Thomas Ho’s team had been spun off.  The contradiction was pointed out in Mr Alex Wong’s Supplemental Witness Statement of July 2019, so that Mr Cheung would have been aware of it well before trial, but no explanation was given.  Mr Cheung was cross-examined about the contradiction, and he accepted that there was a contradiction.  It was not explained.

E2.  Lack of authority of alleged Defendant’s representative

90.  None of the candidates who were identified as having made the Alleged Oral Agreement had the authority to do so.  Mr Cheung acknowledged in cross-examination that neither Mr Andy Tam, Mr Alex Wong nor Mr Adrian Tsang had the authority to represent the Defendant in dealing with Mr Cheung.  This piece of evidence arose out of cross-examination of an email written by Mr Cheung to Mr David Tam of 7th February 2012, where Mr Cheung was dissatisfied with Mr David Tam’s explanation regarding the Non-Promotion, and asserted that he could not represent the Defendant in relation to the Non-Promotion.  In cross-examination, Mr Cheung accepted that Mr David Tam was not in a position to make binding arrangements for the Defendant.  It followed, as Mr Cheung accepted, that Mr Alex Wong and Mr Adrian Tsang, or Mr Andy Tam, all of whom were more junior, would likewise not have such authority.  Mr Cheung has not explained how the Defendant could have entered into a binding agreement with him when, to his knowledge, the persons alleged to have made the agreement had no authority from the Defendant to do so.

E3.  Lack of contemporaneous documents evidencing the Alleged Oral Agreement

91.  The Defendant points to the absence of any documentary evidence of the Alleged Oral Agreement, citing Leung Chin Sing, Rabo.

92.  In cross-examination, Mr Cheung acknowledged that he was not happy after his Non-Promotion.  He also did not trust Mr Andy Tam and Mr David Tam.  However, he acknowledged that nothing was done to confirm the Alleged Oral Agreement in writing after it was made, despite such mistrust.

93.  It is not the case that Mr Cheung thought that written evidence was not important.  On the contrary, his evidence was that he expected there to be something in “black and white”, and that he did follow up with the Defendant about this, but there was just no reply.  He also says that when he asked Mr Adrian Tsang why he had received so little money for his year-end bonus for 2012, he expected that Mr Adrian Tsang would put something in black and white.  Mr Cheung said that Mr Adrian Tsang’s email of 1st March 2013 was such written evidence of the existence of the Alleged Oral Agreement.  He says that although it was an internal email of the Defendant, it was nevertheless forwarded to him.

94.  The relevant part of that email reads:

“…In 2012, Thomas was promoted to SAD but specially allowed to be accountable for Kin’s [Mr Cheung’s] Team GAFYC for determining Kin’s YEB Basic Rate only as it was specified that for position maintenance/promotion, Kin can continue to include Thomas’ agency GAFYC. EFYC and Active Ratio, however, can no longer include Thomas’ agency. This is a special arrangement not described in the Agency Operation Manual as it is a non-standard hierarchy where a SAD reports to an AD. If we were to strictly follow the standard hierarchy in the manual, Kin would not be able to include Thomas’ agency GAFYC to determine his YEB Basic Rate due to Thomas surpassing him…”

95.  Mr Cheung pointed to the words “special arrangement” and “continue” as evidence of the Alleged Oral Agreement.  Mr Cheung considered that the words “special arrangement” differentiated it from what the Defendant has described in these proceedings as the “Special Allowance”; “arrangement” was an indication of an agreement, “continue” was an indication that the agreement was not time-limited.  At best, this email is equivocal.  It is equally consistent with the Defendant’s case of a Special Allowance.

96.  If one looks at other contemporaneous communications between the parties, they do not support the existence of the Alleged Oral Agreement.

96.1  Mr Adrian Tsang sent an email to Mr Cheung on 9th May 2013 to confirm the rules regarding his future promotion and position maintenance.  It mentioned that Mr Cheung’s promotion would be subject to the application of the Half-Arm Rule (the effect of which would have meant that Mr Cheung would not be able to continue to rely solely on Mr Thomas Ho’s production for promotion).  It is Mr Cheung’s pleaded position that this was a breach of the Alleged Oral Agreement,^[14] but at the time, Mr Cheung’s reply of 21st May 2013 did not suggest that this was the case.  He raised a number of other queries instead.

96.2  It was clear from Mr Cheung’s evidence that he was not one to hesitate if he disagreed with the treatment he was receiving.  He also considered that the amendments made to the Defendant’s Agency Operations Manual were intended to target him and to undermine bypass the Alleged Oral Agreement.  On 6th March 2015, Mr Cheung wrote an email to Mr Jeffrey Woo (the then Chief Agency Officer of the Defendant), complaining about the amendments, his Non-Promotion, his demotion, the reduction in his benefits, and what he perceived to be the Defendant’s efforts to force him to resign, but not the breach of the Alleged Oral Agreement.  When cross-examined about this, Mr Cheung said that his letter did complain about the change in hierarchy when Mr Thomas Ho was promoted, and he considered that Mr Alex Wong should have told Mr Jeffrey Woo about the Alleged Oral Agreement.  He then accepted that his complaints centered on the Agency Operations Manual and the change in hierarchy rather than the Alleged Oral Agreement.

96.3  The Alleged Oral Agreement was raised only in the letter written by Mr Cheung’s (then) solicitors of 17th March 2016, over three years after the Defendant supposedly started to breach it by introducing the 1st Amendment to the Agency Operations Manual in January 2013.

97.  The Defendant’s contemporaneous internal records also do not support the existence of the Alleged Oral Agreement.  For example, an email of 2nd August 2013 from Mr Adrian Tsang to colleagues including Mr Andy Tam, Mr Alex Wong referred fact that in order to encourage Mr Cheung to rebuild his agency, he had been specially approved to include Mr Thomas Ho’s agency production, subject to the Half-Arm Rule, for the purpose of assessing qualification for promotion.  The email went on to say:

“This special approval will expire on December 31, 2014… In the event that Kin Cheung does not promote as SAD under the above conditions & timeframe, Kin Cheung will no longer include [Mr Thomas Ho’s agency’s] production of his future position maintenance / promotion and production measurement for YEB, as applicable.”

98.  This email, written before Mr Cheung commenced proceedings, is consistent with the Defendant’s case that a Special Allowance was given to Mr Cheung for a limited period to allow him the opportunity to earn his promotion, but not Mr Cheung’s case that he had an open-ended, condition-free, general and continuing entitlement to enjoy the fruits of Mr Thomas Ho’s team’s work.

99.  There are also the Defendant’s internal emails regarding the “Special Offer” made to the Defendant in around January 2012 (pursuant to which Mr Cheung would have been given the opportunity to be appointed as “Appointed SAD” if met certain performance requirements within 2012).  As earlier mentioned, whilst Mr Cheung says that he rejected the offer after briefly considering it, the Defendant’s internal emails show that they were working on the terms of the offer up to May 2012, and indeed that there had been communications with Mr Cheung about the Special Offer.  There is no reason for me to disbelieve these contemporaneous emails, and I find that the Defendant was indeed working on the terms of the offer up to May 2012, and that in at least up to March 2012, Mr Cheung had been considering taking up the Special Offer.  To offer to make the Alleged Oral Agreement – at least between January and March 2012 – would have been to undermine the making of the Special Offer, since an open-ended entitlement to benefits not dependent on Mr Cheung’s own performance would hardly have incentivised him to work hard to achieve the requirements of appointment as “Appointed SAD”.

100.  Whilst Mr Cheung’s pleaded case is that the agreement was entered into in return for his ceasing to complain about his Non-Promotion, and/or agreeing to forbear to sue the Defendant, and to appease the morale of other agents, the contemporaneous emails regarding the Special Offer show that the Defendant’s concern was not about Mr Cheung suing the Defendant, or the morale of other agents, but about how to motivate Mr Cheung to improve his performance.

E4.  Alleged Oral Agreement inherently improbable

101.  It is inherently improbable that the Defendant would have entered into the Alleged Oral Agreement.  The effect of the Alleged Oral Agreement would have been to disincentivise Mr Cheung from improving his performance, which would have been contrary to the Defendant’s interests.  It is also inherently improbable that such an agreement would have been entered into on a purely oral basis; the Defendant would surely have wished to document the arrangement so that it was clearly understood by all parties.

E5.  Evidence of Mr Adrian Tsang

102.  Mr Adrian Tsang was the Head of Agency Administration of the Defendant from June 2011 to March 2016, and he then subsequently took up other posts within the Defendant.  He originally made a statement on behalf of the Defendant in November 2017.  By the time of the trial, he was no longer employed by the Defendant, and the Defendant had originally informed the court that it was not able to get in touch with him, and would only rely on his witness statement as hearsay evidence.  Mr Cheung, however, was able to serve a subpoena on Mr Adrian Tsang, so that Mr Tsang did, after all, attend the trial to give evidence.

103.  Mr Adrian Tsang confirmed to the court that by and large, his witness statement accorded with his recollection of events (although he was not asked to adopt the statement as his evidence as such).  The Defendant has relied on the fact that Mr Cheung barely challenged Mr Adrian Tsang on his statement.  I bear in mind that Mr Cheung acted in person, so that one would not have expected him to cross-examine Mr Adrian Tsang as to every last detail in his statement.  At the same time, I bear in mind that Mr Cheung was the one who applied to subpoena Mr Adrian Tsang as he wished to cross-examine him on his statement, and that it was explained to him that insofar as he did not agree with the matters in the statement, then he ought to cross-examine Mr Adrian Tsang on the same.

104.  In Mr Adrian Tsang’s witness statement, he said that he did not enter into any oral collateral agreement with Mr Cheung in March or April 2012 (this being the then-pleaded time at which the Alleged Oral Agreement was said to been made).  Notably, Mr Adrian Tsang was not cross-examined about this.

105.  As Mr Chan pointed out, in his earlier cross-examination of Mr Cheung, Mr Cheung had indicated his mistrust of Mr David Tam, Mr Andy Tam and Mr Thomas Ho, but he had said that his mistrust did not extend to Mr Adrian Tsang, as he was just back office support.

106.  This leaves, as unchallenged evidence, Mr Tsang’s evidence that he did not enter into the Alleged Oral Agreement.

E6.  Payment of overriding commission

107.  Mr Cheung relied on the continued payment of overriding commission to him until his demotion to the rank of BDE (on 1st October 2015) as evidence of the existence of the Alleged Oral Agreement.  Why else, he says, would he have received such payments?

108.  Ms Chow Sau Chun, the Vice President, Distribution Service Support of the Defendant responsible for the management of agents, including their promotion and compensation, addressed this point in her evidence.  She explained that under Section J, clause 1.1 of the 2011 Manual, an agency manager would earn overriding commission in respect of business written by agents downline from him, and that the rate of such commission would be fixed as at the date when the downline agents joined the Defendant, by reason of the Defendant’s Entry-Point System.  Therefore, since Mr Cheung was originally upline from Mr Thomas Ho, Mr Cheung continued to be entitled to the overriding commission from business written by Mr Thomas Ho and his team, even after Mr Thomas Ho had been promoted above Mr Cheung.

109.  To my mind, the wording of clause 1.1.1 is not entirely clear.  It fixes the overriding commission rate for an agency manager based on his rank at the time of recruitment of the downline agent.  It does not seem to provide for the situation where the downline agent subsequently leaves the hierarchy, surpassing the agency manager upline from him.  Indeed, Ms Chow agreed as much, when cross-examined about this by Mr Cheung.  Her answer was that clause 1.1.1 did not specifically deal with this situation, so the Defendant continued to pay the overriding commissions until Mr Cheung was no longer eligible to receive them, namely, when he no longer held any agency management position.

110.  However, this case is not about the proper interpretation of clause 1.1.1.  I am satisfied on the evidence that the reason why Mr Cheung continued to receive payment of overriding commission was that the Defendant’s management understood clause 1.1.1 to mean that Mr Cheung should continue to receive such payments as long as he retained an agency management position.  This is also why the payments ceased when Mr Cheung was demoted to the position of BDE, which was not an agency management position.  The evidence that I refer to is:

110.1   the explanation which Ms Chow gave at trial, explaining the way in which the Defendant implemented clause 1.1.1;

110.2   the unchallenged evidence in Mr Adrian Tsang’s witness statement that clause 1.1.1 enabled Mr Cheung to earn overriding commissions on the business written by Mr Ho and his team until Mr Cheung lost his agency management position;

110.3   email exchanges between Mr Adrian Tsang and Mr David Tam of 24th May 2013 and 7th June 2013, in which the fact that the Defendant’s Entry-Point System meant that Mr Cheung would “perpetually” continued to receive overriding commissions from Mr Ho’s team was discussed.

111.  The fact that Mr Cheung continued to receive overriding commissions despite his Non-Promotion therefore does not take his case regarding the Alleged Oral Agreement any further.

E7.  Changes in the Defendant’s computer system

112.  In his opening submissions, Mr Cheung also claimed that the Defendant’s computer system had been changed to accommodate the Alleged Oral Agreement.  Mr Cheung referred to various emails exchanged amongst the back office IT staff.  However, as Mr Adrian Tsang explained, the request to the IT staff was to change Mr Cheung’s title, which had been mistakenly input as SAD, back to AD.  When Mr Cheung came to give evidence, he fairly accepted that the emails in fact, could not show whether his version or the Defendant’s version of events was correct.

E8.  Other witnesses’ evidence

113.  Apart from Mr Cheung, Mr Adrian Tsang and Ms Chow, the other witness who gave evidence was Mr Thomas Ho.  Mr Cheung sought to establish that he had helped Mr Thomas Ho developed his agency, and also asked him about work practices at the Defendant, such as the time at which people would report to work.  Having considered that evidence, it does not seem that it takes Mr Cheung’s case any further.

E9.  Duration of Alleged Oral Agreement 

114.  I have already earlier referred to the fact that the material differences between the Alleged Oral Agreement and the Defendant’s “Special Allowance” are that the former was to be (1) of infinite duration (whereas the Special Allowance was to last until the end of 2014), and (2) immune from subsequent amendments to the Agency Operations Manuals. These two special features were not, however, said to have been expressly agreed;^[15] Mr Cheung’s case is that they came from implied terms of the Alleged Oral Agreement, namely, that:

114.1   there was no particular time limit to the operation of the Alleged Oral Agreement; and

114.2   the Defendant could not terminate the Alleged Oral Agreement capriciously, irrationally or contrary to good faith, so as to deprive Mr Cheung of any contractual benefits under the Alleged Oral Agreement.

115.  There could not have been any implied term that there would be no particular time limit to the operation of the Alleged Oral Agreement.

115.1   It would not have been necessary for the operation of the Alleged Oral Agreement.

115.2   It is far from being a term that “goes without saying”.

115.3   It would have been contrary to express terms of the Contract, as the Agency Operations Manuals had provided that they could be changed at any time, and that an agent could be demoted (in accordance with the terms of the manuals) or terminated (without cause).

116.  Nor could there have been any implied term that the Defendant could not terminate the Alleged Oral Agreement capriciously, irrationally or contrary to good faith, for reasons similar to those forming the basis of my rejection of the Implied Term.

117.  Therefore, whether Mr Cheung continued to receive overriding commissions and other benefits stemming from the performance of Mr Thomas Ho’s team because of the Alleged Oral Agreement (as Mr Cheung says), or because of the “Special Allowance” (as the Defendant says), is ultimately of little consequence.  Even if the Alleged Oral Agreement had been made, without the addition of the implied terms to this agreement, there is no basis for Mr Cheung to have been able to insist upon its continuation.

F.  BREACH OF THE ALLEGED ORAL AGREEMENT 

118.  In the light of my findings above, the issue of whether there was a breach of the Alleged Oral Agreement does not arise for consideration.

G.  DISPOSITION

119.  I dismiss the action.

120.  I further order on a nisi basis that Mr Cheung pays to the Defendant the costs of and occasioned by the action, to be taxed if not agreed; as Mr Cheung was formerly legally aided, his own costs in respect of the period to which the legal aid certificate relates are to be taxed in accordance with the legal aid regulations.