CHUBB LIFE INSURANCE COMPANY LTD (formerly known as ACE LIFE INSURANCE COMPANY LTD) v. CHAN CHRISTY

DCCJ 4461/2019

[2023] HKDC 1113

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4461 OF 2019

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JUDGMENT

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INTRODUCTION

1.  This is another case where an insurance company seeks to claw back certain remunerations paid to its insurance agent after termination of their relationship, but before expiry of the time set for liberation from the agent’s repayment obligation.

2.  In the present action, the plaintiff and the defendant entered into an Agent’s Agreement on 8 September 2014 (“AA”), a Manager’s Agreement and a Remuneration Agreement both on 16 September 2014 (respectively defined as “MA” and “RA”).  It is common ground that MA and RA were made supplemental to the AA.  Under AA, MA and RA (collectively referred to as the “Agreements”), the defendant was engaged by the plaintiff as a Senior Agency Director.  Their contractual relationship came to an end on 15 July 2018, when on 15 June 2018 the plaintiff issued to the defendant a letter of termination, giving the latter 30 days’ prior notice of it.

3.  Termination of the Agreements triggered the claw back provisions therein, under which the plaintiff demanded from the defendant repayment of certain remunerations.  The defendant’s ignorance of these demands inevitably gave life to this action.

4.  The defendant was legally represented since the Acknowledgement of Service was filed, and up to 21 September 2021, when a Notice to Act in Person was filed.  Before that, her solicitors had filed the Defence and the witness statements that the defendant relies on in this case.  The documentary evidence that the defendant intends to adduce at Trial were also disclosed by way of Lists of Documents.  I notice that the defendant was absent from the Case Management Conference and Pre-Trial Review hearing on 14 January 2022 and 6 June 2023 respectively.  Her requests for adjournments of the same were respectively rejected by Master Maurice Lam (“Master Lam”) and Deputy District Judge C.K. Siu (“DDJ Siu”) whom presided over them.

5.  At the Trial, the plaintiff was represented by counsel Ms Sabrina Ho (“Ms Ho”) and Ms Tinny Chan (“Ms Chan”).  The defendant was again absent.  The Court has not received any request from her seeking for adjournment of the Trial.

6.  Pausing here, Mr Daniel Tang^[1] (“Mr Tang”) has made a witness statement for the defendant.  As the defendant was absent, Mr Tang was not called to give evidence at the Trial.  That being so, I would, in the discussion section of this Judgment, briefly referred to what Mr Tang had stated, and more importantly on what he had not stated, in his witness statement.

7.  Returning to the defendant’s absence from the Trial, a Notice of Hearing [For Pre-Trial Review] and a Notice of Trial, both dated 16 February 2022, were issued by the court to all parties concerned[2]  . Together with the defendant’s aforementioned request for the adjournment of the Pre-Trial Review, there is no reason to believe that she would have notice of the date of Pre-Trial Review but not the date of Trial[3]  .

8.  By the 3^rd Affirmation of Au Kin Chung filed herein on 3 August 2023, the Orders of DDJ Siu dated 6 June 2023, the updated trial bundle indices, the opening submissions, list and copy of authorities, and the other documents to be lodged in compliance with the directions of DDJ Siu, have all been served on the defendant.

9.  For the above reasons, and upon Ms Ho’s request, I ordered that the Trial should be proceeded with in the absence of the defendant, pursuant to O. 35, r. 1 of the Rules of the District Court, Cap. 336H.

THE UNDISPUTED FACTS

10.  By the pleadings filed in this action, it appears that the facts below are not disputed by the parties.

11.  As said, the Agreements were entered into between the plaintiff and the defendant, and eventually terminated on 15 July 2018.  The key clauses that the plaintiff relies on to establish its claims are set out below.

12.  First, the following clauses could be found in the AA:-

“16.1 Subject as provided in Clauses 16.2 and 16.3, [the AA] may be terminated by either Party giving to the other not less than thirty (30) days prior written notice. Such notice shall be given in accordance with Clause 22 and a copy of the same must also be given to the Manager.

......

17.1 Upon termination of [the AA] for any reason:

……

(xi) [the defendant] shall forthwith return to the [plaintiff] all moneys he/she held on behalf of the [plaintiff]. Any amount which [the defendant] owes to [the plaintiff] shall, unless otherwise agreed by [the plaintiff] in writing, become immediately due and payable to [the plaintiff] and recoverable by [the plaintiff] from [the defendant] as civil debt;

……

21.3 The [defendant] acknowledges that, in entering into [the AA], and the documents referred to in it, he/she does not rely on, and shall have no remedy in respect of, any representation, warranty, understanding (whether negligently or innocently made) of any person (whether a party to [the AA] or not) or other provision except expressly provided in [the AA], and all conditions, warranties or other terms implied by statute or common law are by [the AA] excluded to the fullest extent permitted by law, save that nothing in [the AA] shall be read or construed as excluding any liability or remedy as a result of fraud.

21.4 [The AA], the Schedules and the documents annexed or otherwise referred to herein contain the whole agreement between the Parties relating to the subject matter hereof and supersede all prior agreements, arrangements and understandings between the Parties relating to that subject matter. In the event of a conflict in interpretation in any of these documents with [the AA], [the AA] shall prevail.” (emphasis added)

13.  The RA contained the terms below:-

““Remuneration” means [the defendant’s] entitlement to the Sign-on Bonus (“SB”), Special Allowances (“SA”) and /or Manpower Growth Bonus (“MGB”), subject to the obligation by [the defendant] to repay any amounts received upon termination of the [AA] (as set out in Clause 4 and in the other Clauses).

……

3.1 Sign-on Bonus

[The defendant] will be entitled to a SB in the amount of HK$1,100,000 payable within one month of the Effective Date

……

3.2 Special Allowance

During the period commencing on the Effective Date until termination of the [AA] but subject to a maximum period of three years (the “Contract Term”), [the defendant] will be entitled to a monthly SA subject to [the defendant] satisfying the requirements set out in Clauses 3.2 and 3.4 below.

……

3.3 Manpower Growth Bonus

[The defendant] will be entitled to a MGB only if [the defendant] satisfy all the requirements set out in Clauses 3.3 and 3.4 below.

……

3.4 In addition to the requirements set out in Clauses 3.1, 3.2 and 3.3 above, [the defendant’s] entitlement to the Remuneration is also conditional upon:

(i) the [AA] being in force at the time of payment;

(ii) [the defendant’s] compliance with all provisions of the [AA];

(iii) [the defendant] attaining 83% personal persistency measured by LIMRA 19 persistency as defined in the Manual; and

(iv) [the defendant’s] Direct Team attainting 73% team persistency measured by LIMRA 19 persistency as defined in the Manual.

……

4.1 In the event of the [AA] is terminated for any reason during the four year period after the Effective Date, all Remuneration or a percentage of the Remuneration paid to [the defendant] (as the case may be) shall be treated as a debt owed by [the defendant] to [the plaintiff] and must be repaid to [the plaintiff] immediately upon termination in accordance with the Repayment Table below:-

Repayment Table
Termination Date	Remuneration Scheme
	SB	SA	MGB
…
Between 3 and 4 years of the Effective Date	100%	25%	25%

……

4.2 [The defendant] will pay, on demand and on a full indemnity basis, all costs and expenses that [the plaintiff] incurs in connection with the recovery of repayment of any Remuneration.” (emphasis added)

14.  The defendant agrees that, during her tenure with the plaintiff, she was paid the sign-on bonus (“SB”) in the sum of HK$1,100,000, the Manpower Growth Bonus (“MGB”) in the sum of HK$2,707,325, and Monthly Special Allowance (“SA”) in the total sum of HK$2,268,977.26[4]  . In this Judgment, I shall refer to SB, MGB and SA collectively as the “Remuneration”.

THE PLAINTIFF’S CASE

15.  Relying on the undisputed facts set out in the above, and in accordance with the highlighted clauses of the AA and RA, the plaintiff says that it is entitled to the repayment of the full SB (HK$1,100,000), 25% of the SA (HK$2,268,977.26 x 25% = HK$567,244.32), and 25% of the MGB (HK$2,707,325 x 25% = HK$676,831.25).  The sum of HK$2,344,075.57 (HK$1,100,000 + HK$567,244.32 + HK$676,831.25) shall be reduced by HK$6,000, HK$10,124.73 and HK$4,023.70 (being the net commission for the production months of May, June and July 2018 respectively) pursuant to clause 12 of the AA.  After setting off the said net commission, the balance of the debt owed by the defendant to the plaintiff is HK$2,323,927.14 (the “Debt”).  The plaintiff therefore claims the Debt, together with interest and costs on indemnity basis, against the defendant.

THE DEFENDANT’S CASE

The oral promise and SB

16.  Unlike the plaintiff’s case, which is based on the written contractual terms, the defendant is basically seeking to steer away from them.

17.  She starts off with an alleged oral promise given by Mr Tang in November 2013, under which the SB would be paid to the defendant on a non-repayable basis (the “Oral Promise”).  She explains that this was offered by the plaintiff in aid of the repayment that she had to make to her former employer[5]  , and in return for her to join the plaintiff.  The same promises were given to her downline insurance agents, whom were also enticed to leave FWD and to join the plaintiff.  The defendant adds that this was done in accordance with the usual and moral industry practice.

18.  To substantiate her claim that there was the Oral Promise, the defendant relies on 2 offer letters from the plaintiff.  The first offer letter was issued by Mr Tang to her on 22 November 2013 (“1^st Offer Letter”), confirming that the SB would be paid immediately to the defendant upon signing a contract with the plaintiff.  Another offer letter was dated 17 June 2014 (“2^nd Offer Letter”), issued by Mr Allan Lam[6]  (“Mr Lam”).  In it, payment of SB to her if she signed on to be a Senior Agency Director of the plaintiff was reiterated.

19.  Between the 1^st and 2^nd Offer Letters, i.e., sometime in early 2014, Mr Tang had verbally repeated the Oral Promise to the defendant during a meeting.

20.  The defendant says, in reliance of the Oral Promise, she resigned from FWD on 6 August 2014.  She supplements that, in or around late August 2014, Mr Alex Wong[7]  (“Mr Wong”) reassured to her at a meeting that the Oral Promise given to her, and the similar promises given to her downline insurance agents, were valid and subsisting (the “Reassurance”).

21.  The defendant emphasises that, also in reliance of the Oral Promise, 1^st and 2^nd Offer Letters, and the Reassurance, she signed the Agreements and joined the plaintiff. And based on the same, the defendant rejects the plaintiff’s claim for the repayment of SB.

Implied terms

22.  Under this part of her Defence, the defendant narrates on how the plaintiff was in breach of the Agreements, and especially the terms that were implied into them.  These breaches, she claims, led to the Agreements being terminated.

23.  The defendant avers that the AA contained the following implied terms.  They were so implied into the AA as a matter of business efficacy and/or necessity:-

(1)  The plaintiff should not conduct its performance evaluations and administer its policy in relation to the measure of persistency rate in an irrational, perverse or arbitrary manner that was not bona fide (“Good Faith Performance Evaluation Term”).

(2)  The power to terminate the AA would be exercised in good faith and would not be exercised for arbitrary, capricious, perverse and/or irrational reasons (the “Good Faith Termination Term”).

(3)  The AA would not be terminated without valid reasons (the “Valid Reason Term”).

(4)  The AA would not be terminated with the dominant intention to trigger the repayment of the SB, SA and/or MGB by the defendant (the “Anti-recoupment Term”).

24.  After setting out these implied terms (hereinafter collectively referred to as the “Implied Terms”), the defendant then enumerates on the incidents which she alleges to have constituted breaches of them by the plaintiff.

25.  First, as one can see from clause 3.4 of the RA, the LIMRA-19 standard was adopted in assessing the persistency rate of the defendant and her downline agents.  This was allegedly changed unilaterally to LIMRA-25 by the plaintiff in around April 2016 without prior consultation with the defendant and her agents.  Neither was there any explanation from the plaintiff as to how LIMRA-25 operates and/or is calculated.  Such change did not affect the defendant’s personal performance, which had always been, and even after adopting LIMRA-25, well above the applicable benchmark.  The same could not be said about her downline agents, however.  The defendant contends that the change brought about drastic drop in the persistency rate amongst them.  This led to warning letters being issued to her downline agents.  When the defendant confronted the management about the use of LIMRA-25, and how it had affected the persistency rate of her downline agents, the responsible persons repeatedly assured her that the warning letters served merely as gestures, and that no issue would be taken by the plaintiff in terms of her and her agents’ work performances.

26.  Second, the plaintiff, through Mr Hans Choi[8]  (“Mr Choi”) and Ms Anna Tam[9]  (“Ms Tam”), had since June 2017 started pressing the defendant’s downline agents (via the defendant) to either extend their agent’s agreements with the plaintiff, or had their agreements terminated pre-maturely.  Up to April 2018, such exercise had caused 9 of her downline agents to resign or had their agreements terminated by the plaintiff.  Their departures led to drastic drop in the team’s persistency rate.  Despite the drop in the team’s persistency rate, Mr Michael Ho[10]  (“Mr Ho”) had during a meeting on 3 April 2018 assured the defendant that he was satisfied with her performance.  Mr Ho also urged her to focus on recruiting more new agents rather than worrying about the drop of her team’s persistency rate.

27.  Notwithstanding Mr Ho’s vote of confidence, the defendant met with the same fate on 29 May 2018.  Although there was another recognition of her good performance by Mr Ho during a meeting on 6 June 2018, Mr Choi and Ms Tam had at the meeting on 29 May 2018 forced her to either: (1) extend the AA for 6 months, and the respective agent’s agreements of her downline agents, Ms Mandy Luk (“Ms Luk”) and Mr Steven Ieong (“Mr Ieong”) be extended for one year; (2) adopting the same arrangements as in (1), but with the amount of pay-back obligations of the defendant pursuant to the RA being reduced; or (3) extending only the agent’s agreements of Ms Luk and Mr Ieong without extending the AA of the defendant.  As none of these options were accepted by the defendant, Ms Luk and Mr Ieong, their services were ultimately terminated by the plaintiff on 15 July 2018.

28.  For the said reasons, the defendant asserts that the plaintiff was in breach of the Implied Terms.  She says that the AA was terminated notwithstanding her satisfactory performance, and Mr Ho’s repeated recognitions of the same.  She suggests that the termination stemmed from the unilateral change of persistency rate measurement standard from LIMRA-19 to LIMRA-25, and her refusal to accede to the request to extend the binding period her downline agents’ agreements and her own AA.  Finally, the defendant points out that termination of the AA came shortly before the expiry of the 4-year period stipulated in clause 4.1 of the RA.

THE PLAINTIFF’S REPLIES

The Oral Promise and SB

29.  Unsurprisingly, the plaintiff generally denies all facts pleaded by the defendant in connection with the Oral Promise.  It points to the lack of record showing any of its authorised representatives had made the Oral Promise to the defendant or similar promises to her downline agents.  Moreover, neither Mr Tang nor Mr Wong was authorised to give the Oral Promise, if it was indeed given. As to the 1^st and 2^nd Offer Letters, the plaintiff asserts that they were made subject to the AA.  In any event, the defendant’s alleged reliance on the Oral Promise, 1^st and 2^nd Offer Letters, and the Reassurance, is rebutted by clauses 21.3 and 21.4 of the AA.

Implied Terms

30.  The plaintiff denies the existence and applicability of the Implied Terms in the present case.  The effect of clauses 21.3 and 21.4 of the AA would exclude such terms to be implied into the same.

31.  In addition, the right to terminate the AA was expressly reserved for both parties under clause 16.1.  Exercising of such right, on the part of the plaintiff, would be founded on its commercial decision.  Such contractual right would not be subject to any of the Implied Terms as alleged.  Furthermore, the Implied Terms were in direct contradiction with the expressed terms of the AA.

32.  As to the change from LIMRA-19 to LIMRA-25, the plaintiff explains that the defendant, whose RA adopted the former, would not be affected by such change.  Her performance, and her downline agents whom had the same standard adopted in their remuneration agreements, would still be measured by LIMRA-19 notwithstanding the introduction of LIMRA-25 to all agents as an alternative in January 2018.

33.  According to the plaintiff, the defendant and her downline agency office consistently fell below the minimum standard of 75% team persistency calculated under the LIMRA-19 metric.  For example, between January and June 2018, her downline agency office’s scores were ranged from the lowest of 47% to the highest of 70%.  Their poor performances led to repeated warnings from the management; the lack of improvement after these warnings ultimately caused their services, including the defendant’s, to be terminated by the plaintiff.

KEY ISSUES

34.  From the parties’ pleaded cases, the issues that I have to resolve in this Judgment are as follows:-

(1)  Whether the plaintiff is entitled to claim the Debt and all relevant costs and payments against the defendant pursuant to clause 4 of the RA? (“1^st Issue”)

(2)  Whether the plaintiff had agreed to make the SB non-repayable by the defendant, by the Oral Promise, 1^st and 2^nd Offer Letters, and/or the Reassurance?  On the assumption that the defendant is up to proof on this, whether she would be estopped from relying on the same by clauses 21.3 and 21.4? (“2^nd Issue”)

(3)  Whether the AA contained the Implied Terms?  If it did, whether the plaintiff was in breach of any of the Implied Terms? (“3^rd Issue”)

35.  Regarding the 3^rd Issue, Ms Ho has in her opening submissions accepted that the AA contained Good Faith Performance Evaluation Term.

RELEVANT LEGAL PRINCIPLES

36.  Before discussing on the issues, I find it convenient to first set out some of the relevant legal principles.

37.  As one can see, the plaintiff is heavily relying on clauses 16.1, 21.3 and 21.4 of the AA, and clause 4 of the RA, to counter the defendant’s case.

38.  Clauses 21.3 and 21.4, are commonly known as a non-reliance clause and entire agreement clause respectively.  The former would preclude a claim on misrepresentation by reason of contractual estoppel[11]  , whereas the latter would preclude a claim on collateral warranty[12]  .

39.  Regarding the entire agreement clause, Cheung JA in Glory Gold Limited v Star Play Development Limited[13]  said:-

“16. The clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clauses and not elsewhere and that any promises or assurances made in the course of negotiation (which in the absence of such a clause may have effect as a collateral warranty) shall have no contractual force, save, insofar as they are reflected and given effect in that document. The clause is not merely to render evidence of the collateral warranty inadmissible in evidence but to deny what would, otherwise, constitute a collateral warranty of legal effect, see: Inntrepreneur v. East Crown [2000] Vol. 2 Lloyd’s Rep 611.

17. It is important to bear in mind that the purpose of the entire agreement clause like the present one is to ensure that the full contractual terms to which the parties agreed to bind themselves are to be found in the agreement itself and nowhere else such as in a side agreement or a collateral warranty. The term ‘collateral warranty’ means, in the context, a warranty in the nature of a contractual term. This clause does not preclude a claim in misrepresentation.” (emphasis added)

40.  Pausing here, the Oral Promise, 1^st and 2^nd Offer Letters, and the Reassurance, were not pleaded as misrepresentations from Mr Tang and Mr Wong in the Defence[14]  .

41.  As to contractual estoppel, it has been accepted by the Court of Appeal as part of the common law in Hong Kong[15]  . Mr Justice Riberiro PJ had, in the case of Ng Yuk Pei Kelly v Ng Lai Ling Winnie as the executor of the Estate of Dung Wai Man, Deceased, & Ors[16]  , also summarised the relevant principles derived from the leading English cases:-

“25. Thus, in the leading case of Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd, Moore-Bick LJ explained the doctrine’s operation by reference to what was agreed between the contractual parties:

“There is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not.  For example, it may be desirable to settle a disagreement as to an existing state of affairs in order to establish a clear basis for the contract itself and its subsequent performance.  Where parties express an agreement of that kind in a contractual document neither can subsequently deny the existence of the facts and matters upon which they have agreed, at least so far as concerns those aspects of their relationship to which the agreement was directed.  The contract itself gives rise to an estoppel: see Colchester Borough Council v Smith [1991] Ch 448, affirmed on appeal [1992] Ch 421.”

26. And in Springwell Navigation Corp v JP Morgan Chase Bank, [25]  another leading authority, Aikens LJ stated:

“... I will try and analyse the matter from principle. If A and B enter into a contract then, unless there is some principle of law or statute to the contrary, they are entitled to agree what they like. Unless Lowe v Lombank is authority to the contrary [which was held not to be the case], there is no legal principle that states that parties cannot agree to assume that a certain state of affairs is the case at the time the contract is concluded or has been so in the past, even if that is not the case, so that the contract is made upon the basis that the present or past facts are as stated and agreed by the parties.”

He added:

“Like Moore-Bick LJ in Peekay I see commercial utility in such clauses being enforceable, so that parties know precisely the basis on which they are entering into their contractual relationship.”

27. Finally, we should mention First Tower Trustees Ltd v CDS (Superstores International) Ltd, in which Lewison LJ stated:

“It is now firmly established at this level in the judicial hierarchy that parties can bind themselves by contract to accept a particular state of affairs even if they know that state of affairs to be untrue. This is a particular form of estoppel which has been given the label ‘contractual estoppel’. Unlike most forms of estoppel it requires no proof of reliance other than entry into the contract itself. Thus as a matter of contract parties can bind themselves at common law to a fictional state of affairs in which no representations have been made or, if made, have not been relied on.”” (emphasis added)

42.  Turning now to the parties’ rights to terminate a contract, I will start with the case of Shek Kin Pong & Ors v FTLife Insurance Company Limited[17]  . In that case, Her Ladyship M. Chan J had to deal with the insurance agents’ contention that, amongst others, the agents’ agreements contained implied terms to the effect that the termination under “…… Clause 10.1 should not be exercised by the Company in order to seek repayment of the Monthly Allowance and/or Bonus earned and received by each Plaintiff, and that the Company should not exercise its power to terminate unconscionably without reasonable cause and contrary to the legitimate expectations of each Plaintiff, or so as to deprive each Plaintiff of the contractual benefit earned and which results in the unreasonable forfeiture of such benefit.”[18]  

43.  The learned judge had, at §41 of her judgment, reiterated on the general principles concerning implied terms:-

“A term cannot be implied if it contradicts an express term of the agreement (Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381, and the summary set out in Yifung Developments Limited v Liu Chi Keung Ricky HCA 1341/2014, unreported, 25^th of April 2016). A term should not be implied into a detailed commercial contract merely because it appears fair (Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] 3 WLR 1843).” (emphasis added)

44.  Applying the said general principles, M. Chan J held:-

“55. The right of termination under Clause 10.1 is expressed to be exercisable at any time, without the need to give any reason. Clause 10.8 expressly provides that upon any notice of termination being given, the agent shall forthwith repay all indebtedness and other sums owed or payable. In particular, clause 3 of Section II (the Clawback Clause) expressly states that the Company has the right to clawback the Monthly Allowance and Bonus paid, whenever deemed appropriate. The Duty to Repay Clause under Section III of the Side Agreement expressly provides that the Monthly Allowance and Bonus received by the Plaintiffs shall be repayable forthwith if the Contract is terminated for any reason.

56.  The implied terms contended by the Plaintiffs, that the right of termination under Clause 10.1 should not be exercised in order to seek repayment of the Monthly Allowance and Bonus earned and received, and so as not to deprive the Plaintiffs of the benefits or result in their contractual benefits being forfeited, are all directly contradictory to the express provisions of Clause 10.8 of the Contract, the Clawback Clause in Section II and the Duty to Repay Clause in Section III of the Side Agreement.  For that reason, they should not be implied under the principles clearly stated in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381, and applied in Yifung Developments Limited v Liu Chi Keung Ricky HCA 1341/2014, unreported, 25^th of April 2016.

57.  In my view, arguments as to whether the Plaintiffs’ work to achieve the performance targets would be rendered futile, and whether it would be worthwhile for the Plaintiffs to do the work and incur the expenses to earn the Bonus or the Monthly Allowances, are commercial decisions which the Plaintiffs should have considered and weighed prior to entering into the Contracts and Side Agreements.  The time to consider the financial benefits, the quid pro quo and whether it was all worthwhile was before the Plaintiffs signed the Contracts and Side Agreements, when they were free to negotiate the terms of the bargain to be made with the Company, and not after the event, for raising arguments at trial.  The Contracts and Side Agreements were freely negotiated and entered into by the Plaintiffs, and the Court has no role to play in rewriting their agreements or in educating the parties on the pros and cons of the financial arrangements. 

58.  Clause 10.1 gave both parties the contractual right to terminate the Contract by 30 days’ notice, as opposed to and distinct from a discretionary power.  There is no reference in either the Contract or the Side Agreement to any duty of good faith on the parties, or to the parties’ duty to cooperate.  In GDH Ltd v Creditor Co Ltd [2008] 5 HKLRD 895, the Court stated that an overriding principle that in making and carrying out contracts, parties should act in good faith, or observe an obligation to act in the best interests of and in good faith to other parties, is not an obligation recognized by Hong Kong law.

59.  As the English Court held in TSG Building Services v South Anglia House Limited [2013] EWHC 1151, at para 51:

“Even if there was some implied term of good faith, it would not and could not circumscribe or restrict what the parties had expressly agreed in Clause 12.3, which was in effect that either of them for no, good or bad reason could terminate at any time before the term of 4 years was completed. That is the risk that each voluntarily undertook when it entered into the Contract.”

Put another way, any implied duty of good faith cannot override the express provisions of the contract.” (emphasis added)

45.  The said principles were adopted by Madam Justice Au-Yeung in the case of Cheung Li On v Sun Life Hong Kong Limited[19]  :-

“114. Firstly, the very nature of a power to terminate a contract without cause is that its exercise does not have to be justified: Reda v Flag Ltd [2002] UKPC 38, §42.

115. In Shek Kin Pong v FTLife Insurance Co Ltd [2019] HKCFI 1781, §§58-59, Mimmie Chan J held that a clause in an agency contract giving both parties a contractual right to terminate by notice was “as opposed to and distinct from a discretionary power”. The clause enabled either party to terminate by notice “for no, good or bad reason”. The duty to act in good faith in making and carrying out contracts is not an obligation recognized by Hong Kong law. An implied duty of good faith cannot override the express provisions of the contract.

116. Secondly, applying Reda v Flag and Shek Kin Pong v FTLife, the Implied Term would be contrary to the Termination Clause ……

117. The Termination Clause could function perfectly well without the Implied Term.  The Implied Term was not obvious, necessary or reasonable to give effect to the reasonable expectations of both parties.

…….

119. Fourthly, the implied duty of good faith may apply to a power to terminate that may prevent a proper exercise of contractual discretion eg to confer a bonus: Tadjudin Sunny, footnote to §4 where that implied duty was not in dispute in that appeal.

120. The present case did not involve exercise of contractual discretion but a right to terminate.” (the emphasis in bold were added)

46.  The same principles were revisited by His Honour Judge Harold Leong in a recent case of FTLife Insurance Company Ltd v Ho Suk Yue[20]  , where the learned judge rejected the agent’s argument that the termination clause should be subject to the implied term that there has to be a reason for termination, and such reason must not be solely or dominantly for clawing back part of the bonuses paid to the agent or any other bad faith or non bona fide considerations[21]  . In addition, the learned judge also echoed on what Au-Yeung J said in §119 of the Cheung Li On case:-

“26. On the other hand, Mr. Koo, counsel for the defendant, referred the court to the case of Tadjudin Sunny v Bank of America, National Association CACV 12/2015 (“the Tadjudin case”) and argued that, in some specific circumstances, for instance where a party to a contract is given an unequal contractual power or discretion, and there is a significant imbalance of power between the parties, the unqualified contractual power or discretion should generally be construed as being subject to some implied restrictions regarding the exercise of that power or discretion. Thus, the Court of Appeal in that case applied a legal principle that a “contractual discretion” must only be exercise in good faith, rationally and for a proper purpose.

27. However, the circumstances of the Tadjudin case were very different from the current case.

28. In the Tadjudin case, there was a provision in the contract that the employee was eligible to be considered for a bonus under the bank’s performance incentive program. The performance incentive program was for the purpose for competing for business and talent, and for the highest performers to receive the greatest rewards. Whilst the eligibility to be considered under the program was contractual, the bonus to be paid under the program was not (see paragraphs 7-11 of the judgment of that case). As such, the Court of Appeal upheld that there is an implied term that the bank “shall not exercise its right to terminate by giving one month’s notice … in order to avoid her being eligible for the performance incentive program”.

29. In other words, the implied term was to prevent the bank from evading an existing obligation to properly exercise a discretion to award bonus. It is against this narrow set of circumstances particular to that case that the judgment has to be understood.

30. As observed by Au-Yeung J in Cheung Li On v Sun Life Hong Kong Limited [2021] HKCFI 3784, under paragraph 119: -

“…the implied duty of good faith may apply to a power to terminate that may prevent a proper exercise of contractual discretion e.g. to confer a bonus…”” (emphasis added)

47.  The narrow and specific application of the implied term discussed in the Tadjudin case was also considered by Mr Justice A. Chan in an employment case of Lam Siu Wai v Equal Opportunities Commission[22]  , where His Lordship said:-

“30. Secondly, in Tadjudin, the CA upheld an implied term in a contract of employment whereby the Bank “shall not exercise its right to terminate the Plaintiff’s employment by giving one month’s notice or by paying one month’s salary in lieu of notice in order to avoid her being eligible for performance incentive programme”. In doing so, Johnson v Unisys was distinguished. However, the CA emphasised that the issue before it was “narrow and specific”, based on the particular facts and circumstances of the case (§77(3)).

31. I do not believe that Tadjudincan assist Lam in this appeal. Fundamentally, it was not an authority for the proposition that the right to terminate without cause was qualified by an implied duty to exercise such right in good faith. At the highest, it may be said that the door for further development in the common law in this regard was left ajar by the CA (see §§78-80).

32. Speaking for myself, to imply a duty of good faith in the termination of employment without cause would have far reaching effect on the law of employment. Reason(s) for termination may well have to be given for the exercise of such right, they may be subject to scrutiny by the Labour Tribunal and litigation complexity and costs may increase significantly, not to mention to the delay which may be caused. Such an exercise should be one for the legislature.” (emphasis added)

48.  Having set out the legal principles in the above, I shall now move on to the discussion section.

DISCUSSIONS

The 1^st Issue

49.  Subject to my findings on the 2^nd and 3^rd Issues, the plaintiff is prima facie entitled to claim the Debt against the defendant.  As I have pointed out at the start of this Judgment, the plaintiff’s claims are founded on the Agreements and the undisputed facts.  There is no contention from the defendant that the termination was not properly done in accordance with clause 16.1 of the AA; neither is there any dispute that clause 4 of the RA allowed the plaintiff to claw back the SB, and a portion of the SA and MGB.  What remains for the Court to consider is thus the questions of whether the defendant is successful on the 2^nd and 3^rd Issues.

The 2^nd Issue

50.  I will start the discussions under this head on the assumption that the defendant succeeded in proving the Oral Promises, 1^st and 2^nd Offer Letters, and the Reassurance, were all made, and made with the authority of the plaintiff.  Under these circumstances, clauses 21.3 and 21.4 of the AA would kick in.

51.  There is no denial from the defendant that the parties were bound by clause 21.3.  Adopting the legal principles set out in §41 above, by the effect of this clause, she is precluded from saying that the Agreements were the products of her reliance on the representations in the Oral Promise, 1^st and 2^nd Offer Letters, and the Reassurance.  Alternatively, if what the defendant were saying is that the Oral Promise, 1^st and 2^nd Offer Letters, and the Reassurance constituted a collateral warranty so that the SB is not repayable by her, such proposition is also bound to fail considering clause 21.4 and the relevant legal principles set out in §39 of this Judgment.  These are, in my view, both the preliminary and ultimate hurdles that the defendant must overcome, and she has failed to do so.  The only answer she could come up with is that no one from the plaintiff had explained the terms of the Agreements to her before she signed them[23]  . This argument, to me, is not at all persuasive, for the observations I have set out in §58 below.  Simply, I do not think the defendant needed any assistance from the plaintiff in this regard.

52.  These reasons are sufficient for me to rule against the defendant on the 2^nd Issue.  But just in case I am wrong about it, the following observations I have on the defendant’s case would fortify my ruling against her on this issue.

53.  First, the defendant’s case under the 2^nd Issue is very much premised on what Mr Tang and Mr Wong verbally said to her under the Oral Promise and the Reassurance respectively.  No documentary evidence is adduced by her which could muster any support to her case.  And with her absence from the Trial, the Court is also denied her and Mr Tang’s oral evidence.  Simply put, there is nothing before me that could substantiate the defendant’s case under the 2^nd Issue.

54.  Second, I do not find the 1^st and 2^nd Offer Letters to be of any assistance to the defendant, notwithstanding her reliance of the same to argue that SB was not repayable.  Although they did not expressly state that the SB that the defendant received was repayable, neither do they contain any words saying that the same was not repayable.  However, near the end of both the 1^st and 2^nd Offer Letters, it is specifically provided that “The terms and conditions regarding validation and payments methods will be provided in the [RA] upon confirmation of your appointment.”  Hence, the terms relating to SB are to be provided in the RA; and clause 4.1 of the RA expressly stated that the full SB received by the defendant should be repaid if the AA were terminated within the 4-year period.

55.  In addition, it is the defendant’s narratives that the Oral Promise was made after she raised concern with Mr Tang about the repayments of bonuses that she and her downline agents would have to make to FWD.  Mr Tang, after giving the Oral Promise, created the 1^st Offer Letter, with the promise that the SB would be paid to the defendant.  Curiously, the crucial part which made the SB non-repayable is missing from it.  And equally perplexing is that the defendant seemed to be content with such omission not only in the 1^st Offer Letter, but also in the 2^nd Offer Letter.

56.  Third, I am amazed with the want of contemporaneous documents that could prove the existence of the Oral Promise and Reassurance.  The defendant started her career in the insurance industry in 2002, and was in steady incline in terms of her positions within the insurance companies that she had worked in; from Senior Unit Manager to Senior Branch Manager, and to Senior Agency Director at FWD and later on with the plaintiff.  By 2013, when negotiations leading to the Agreements started, she had accrued 11 years of working experiences in the insurance industry.  Against such background, it is hard to believe that not a single piece of contemporaneous document had been created by the defendant, which could evidence the existence of the Oral Promise and Reassurance.  Reducing these verbal assurances or promises into writing could reasonably be expected from a person of her calibre, as a measure to protect herself and tying the plaintiff down to its side of the bargain.

57.  My view in the preceding paragraph agrees with the comments of Deputy High Court Judge Jin Pao SC in the case of Leung Chin Sing, Rabo v Ko Chun Hay, Kelvin[24]  , that were also shared by HH Judge Harold Leung in the Ho Suk Yue case:-

“46. Indeed, as DHCJ Jin Pao SC observed in Leung Chin Sing, Rabo v Ko Chun Hay, Kelvin [2021] HKCFI 2242: -

“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 embodies in writing, leave some form of electronic imprint…”

47.  In this case, according to the defendant, Tam had twice made a similar oral representation to her, the second time before the defendant as well as other insurance agents in a contract signing meeting.  Yet the defendant has produced no email, text message and any other form of electronic communication between the defendant and Tam (or others) that even mention such oral representations either before or after the signing of the Agreements.”

58.  Fourth, if there were the Oral Promise and Reassurance, the defendant should not have signed the RA containing clause 4 without the corresponding amendments.  Again, a person with her background, experiences, and training, should know the importance of a written contract and how the terms of the same would bind the parties to it.  It would be part of her daily job to explain this to her clients, and to her downline agents when supervising or training them.  It is unimaginable that she would have allowed clause 4 to remain in the RA which contradicted with the Oral Promise and Reassurance.

59.  Fifth, as per her own narratives, the plaintiff was enticing her and her downline agents away from FWD at the material times.  She should be in a position to demand that the 1^st and 2^nd Offer Letters to contain promises that the SB would be non-repayable, and that clause 4 of the RA should be amended in a way consistent with the Oral Promise and Reassurance; apparently, she never did.

60.  Sixth, until the filing of the Defence, the defendant has apparently not rejected the plaintiff’s demand for repayment of SB based on the Oral Promise and Reassurance, is also telling.  She had ample opportunities to do so, after the demand letters were issued to her and her solicitors on 16 July 2018 and 9 August 2018 respectively[25]  .

61.  Finally, I have not lost sight of the witness statement of Mr Tang filed for the defendant.  Apart from the confirmation that the SB was paid by the plaintiff in aid of the defendant’s repayment of bonuses to FWD, and as a compensation for her policy renewal commission, it is remarkable that he mentioned nothing of the SB being non-repayable.

62.  Based on the above, I find that the defendant is not up to proof on her allegation that the SB is non-repayable, either by the Oral Promise, 1^st and 2^nd Offer Letters, or the Reassurance.  Even assuming that she was up to proof on this allegation, I find that she is estopped from relying on it by clauses 21.3 and 21.4 of the AA.

3^rd Issue

63.  Before dealing with this issue, I share Ms Ho’s query as to how the Implied Terms could help the defendant in resisting the claw back of SB, SA and MGB.  If one read them carefully, the Good Faith Performance Evaluation Term applies to how the plaintiff should evaluate her performance in good faith.  The remaining Good Faith Termination Term, Valid Reason Term, and Anti-Recoupment Term, are formulated with the effect of preventing wrongful termination of the defendant’s service by the plaintiff.  There seems to be no connection between these Implied Terms and clause 4 of the RA.  It is also not clearly pleaded in the Defence as to how a breach of the Implied Terms would immune the defendant from the contractual obligation to repay the SB, and a portion of the SA and MGB she had received.  Nor is it pleaded that breach of the Implied Terms had caused loss and damage to her, and she is therefore entitled to set-off such loss and damage against the Debt so claimed by the plaintiff.  I shall add that the defendant does not have any counterclaim against the plaintiff based on the breach of the Implied Terms.  Hence, even taking the defendant’s case to the highest, it is a mystery how she would rely on the Implied Terms to defeat the plaintiff’s claims.  That being so, I will, in the sections below, continue with my discussions on the 3^rd Issue.

64.  As one can see from the cases discussed in §§42-47 above, especially the Shek Kin Pong case and the Ho Suk Yue case, in the context of insurance agent agreements, implied terms with effects resembling those pleaded under the Good Faith Termination Term, Valid Reason Term, and Anti-Recoupment Term, were rejected by the courts.  I see no reason to conclude differently from those cases.

65.  First, the Good Faith Termination Term, Valid Reason Term, and Anti-Recoupment Term are in direct contradiction of the express terms as contained in clause 16.1.  Hence, they cannot be implied into the AA when either party intends to exercise such contractual right to terminate it.

66.  Second, clause 16.1 could function perfectly well without the Good Faith Termination Term, Valid Reason Term, and Anti-Recoupment Term.  They were not obvious, necessary, or reasonable to give effect to the reasonable expectations of both parties.

67.  Third, the contractual right to terminate the AA under clause 16.1, i.e., by 30 day’s prior written notice, does not entail any reason to be given.  The exercise of such right does not have to be justified.

68.  Fourth, even if there was the implied term of good faith (by way of the Good Faith Termination Term, Valid Reason Term, and Anti-Recoupment Term), which is not an obligation recognised by Hong Kong law, it could not circumscribe or restrict what the parties had expressly agreed in clause 16.1, which was in effect that either the plaintiff or the defendant for no (good or bad) reason could terminate the AA.

69.  Fifth, the implied duty of good faith under the Tadjudin Sunny case has no application to the present case; this is not a case where the plaintiff was trying to evade an obligation to properly exercise a discretion to award bonus to the defendant.

70.  In the same way, the Good Faith Termination Term, Valid Reason Term, and Anti-Recoupment Term cannot be implied into the AA and RA in terms of the claw back provisions under clause 17(xi) of the former and clause 4 of the latter.  Clause 4.1 of the RA expressly stated that it would apply “In the event of the [AA] is terminated for any reason……”.

71.  For the above reasons, I find that the Good Faith Termination Term, Valid Reason Term, and Anti-Recoupment Term should not be implied into the AA and RA.  The termination of the AA, and the consequential clawing back of the SB, SA and MGB, were not subject to the same.

72.  Assuming that I am wrong on the above, I shall now consider whether the plaintiff was in breach of any of the Implied Terms.  The defendant’s case on how they were breached by the plaintiff has already been summarised in §§24-28 of this Judgment.

73.  At the Trial, Ms Chow Sau Chun[26]  (“Ms Chow”) gave evidence for the plaintiff.  The evidence given in her witness statements, which were adopted by her at the Trial, tally with the plaintiff’s pleaded replies.  Ms Chow was also tasked to answer the defendant’s allegations contained in her two witness statements.  These parts of Ms Chow’s evidence are now redundant, since the defendant has not given any evidence at Trial due to her absence from it.

74.  Admittedly, Ms Chow was not the person whom handled the execution, performance, or termination of Agreements.  Her evidence was largely based on the documents that she retrieved from the plaintiff’s files.  Indeed, documentary evidence was the main weapon used by the plaintiff to refute the defendant’s allegations.

75.  From the defendant’s pleaded case, the origin of all breaches came from the unilateral change from LIMRA-19 to LIMRA-25 as the standard of measure on the persistency rate of her and her downline agents. But the documents that I have read shown otherwise.

76.  First, the alleged change came from the issuance of the 2016 Agency Operation Manual version 2.0 (“2016 AOM”).  Although LIMRA-25 was introduced under section H20 of the 2016 AOM, LIMRA-19 remained therein under section H19. I am unable to find in 2016 AOM where it is stated that LIMRA-19 would no longer be applicable, or that it would be replaced by LIMRA-25, and the latter would be adopted for all agents.  The emails dated 30 June 2016[27]  and 9 September 2016 issued by the plaintiff attaching the 2016 AOM do not contain words to that effect as well.  I tried seeking help from the witness statements of the defendant as to when, where and how she acquired such knowledge, but to no avail.

77.  Second, section D8 of 2016 AOM referred to the maintenance quota.  Under the maintenance quota, persistency rate was adopted to determine the performance of agents.  An agent whom failed to meet the minimum standard adopted for his or her position, could result in the demotion or reposition from the current position, or the termination of his or her agent’s agreement.  I noticed that LIMRA-19 was adopted to measure the persistency rate of all agents for this purpose.  Section D9 of 2016 AOM, which provides agents the required persistency rate for promotion consideration, also adopted LIMRA-19.  These sections revealed that, notwithstanding the introduction of LIMRA-25, the performances of the agents, including the defendant as a Senior Agency Director, were judged by the standard under LIMRA-19.

78.  Third, the communication internal to the plaintiff[28]  , and communications between the plaintiff and the defendant since 1 April 2016[29]  , revealed that LIMRA-19 was still adopted to measure the performances of the defendant and her downline agents[30]  .

79.  Fourth, the Month-end Monthly Production Reports covering the period from December 2017 to July 2018 showed that the defendant and her downline agents continued to have their performances assessed by reference to LIMRA-19[31]  .

80.  Fifth, the warning letters issued by the plaintiff to the defendant’s downline agents adopted LIMRA-19 as the standard in measuring their performances.

81.  Pausing here, the defendant, in her witness statement, repeatedly referred to the words of “and/or 13-25 Month Actual” or “and/or 20-25 Month Actual” added after the words “LIMRA-19” in the warning letters.  She said she had no knowledge as to what those phrases meant[32]  . Although there was no allegation from the defendant that these words carried the effect of LIMRA-25, but if that was an argument that the defendant wished to advance, I would reject it. I do not see there is any reason for the plaintiff to use these words to represent LIMRA-25 when direct reference to it should suffice.  In addition, if LIMRA-25 was used to assess the agents’ performances, references to LIMRA-19 in these letters were most confusing and redundant.

82.  At the Trial, Ms Chow had also given explanation as to the meaning of “13-25 Month Actual” and “20-25 Month Actual”.  Using the table titled “Agent Persistency Measure Summary – By Office (As of Dec 2017)”[33]  , it is shown that apart from the persistency rate using the standard in LIMRA-19, the plaintiff would also consider the actual number of insurance policies brought in by an agent that were renewed after 12 months.  This, Ms Chow explained, is distinct from the formula in calculating the persistency rate that would then be measured against the standards in LIMRA-19 and LIMRA-25.  She further emphasised that consideration by the plaintiff of the “13-25 Month Actual” and “20-25 Month Actual” has no bearing on the maintenance quota and promotion requirement under 2016 AOM, and the payment of SA and MGB under the RA.

83.  Despite that the defendant had received the “Agent Persistency Measure Summary – By Office (As of Dec 2017)” and the same summaries for different months before and after December 2017, I have not seen any documents showing that she had inquired into the meanings of “13-25 Month Actual” and “20-25 Month Actual” with the senders. I doubted that she did not know what they meant as alleged.

84.  Apart from the above, the defendant relied on a text message from Ms Tam on 19 July 2017[34]  to support the allegation that LIMRA-25 was being used after 1 April 2016[35]  .  For the better understanding of it, I shall reproduce the message in its entirety below:-

“Hi Christy:

Rhonda questioned me about how Chan Wai Tong will improve his business quality if he stay with us in the long term. Can I promise her that his Limra 25 months persistency will be improving and increasing not less than 51% as we captured on Jun 2017? or any other way that we can give assurance to management that his persistency will not getting worse?” (emphasis added)

85.  I do not agree that the above message could support the defendant’s allegation.  LIMRA-25 was mentioned as part of Ms Tam’s suggested way to persuade the management that the agent’s performance could improve over a longer period.  I could not read it as an illustration, as asserted by the defendant, that LIMRA-25 was or would be adopted by the plaintiff in assessing the agent’s performance.

86.  In any event, I do not see how a single text message from Ms Tam could negate all the documentary evidence which I have referred to in §§76 to 80 above.

87.  For these reasons, I find that the plaintiff had been using LIMRA-19 at the material times to assess the performance of the defendant and her downline agents.

88.  As to the defendant’s narratives on how the warning letters were issued to her downline agents on as gestures on the part of the plaintiff, they are again contradicted by the documents before me.  Between January and September 2017, 27 warning letters were issued to 11 downline agents of the defendant, including Mr Ieong and Ms Luk, before they had resigned or had their services (save for one whose service was terminated in 2017) terminated in 2018.  I find it astounding that the defendant would accept these actions allegedly as mere gestures from the higher management, assuming they were said to be so.  If that was what she thought, the fact that one of the agents was terminated on 20 July 2017[36]  should serve as a wake-up call to the defendant that the plaintiff was taking the agents’ poor performances seriously.

89.  In fact, from the internal communications between the higher management, and the communications with the defendant, there were serious discussions on the unsatisfactory performances of the defendant’s downline agents[37]  . The text message from Ms Tam reproduced in §84 above is another example of these discussions.  The defendant had even prepared a business plan for 2018, which included, amongst others, suggestions as to how to salvage the unsatisfactory persistency rate of her team[38]  .

90.  Amid the poor persistency rate of the team, the plaintiff’s suggested extensions of the agent’s agreements, including the defendant’s AA, assuming there were indeed such suggestions, cannot be seen as unreasonable.  The lack of improvement and the agents’ refusal for extension provided justification for the plaintiff to terminate their agreements.

91.  And as the Senior Agency Director, the defendant was given the duty not only to promote and increase the plaintiff’s business, but also to instruct, assist and supervise her downline agents[39]  . When those working under her had sub-par performances, the buck stops here.  Moreover, as per section D8.2 of 2016 AOM, for an agent holding the title of Senior Agency Director, the minimum standard which she would need to meet to maintain her position was for her downline agency office to attain 75% persistency measured by LIMRA-19.  This was not satisfied[40]  . Termination of her Agreements, if it was for these reasons, is rational and without bad faith.

92.  For the above reasons, I find that the Good Faith Termination Term, Valid Reason Term, and Anti-Recoupment Term should not be implied into the AA and RA.  Assuming that they should be, together with the Good Faith Performance Evaluation Term, I find that there was no breach of them by the plaintiff.  The plaintiff had not conducted its performance evaluations and administer its policy in relation to the measure of persistency rate in an irrational, perverse or arbitrary manner by unilaterally changing the standard from LIMRA-19 to LIMRA-25.  The termination of the AA and her agents’ agreements were exercised by the plaintiff in good faith and not for arbitrary, capricious, perverse and/or irrational reasons.  Neither was the AA terminated without valid reasons.  Finally, there is no evidence to show that the AA was terminated with the dominant intention to trigger the repayment of the SB, SA and/or MGB.

Adverse inference to be drawn

93.  I add this section to the discussions for completeness’ sake.  I think it is appropriate to briefly deal with this matter, as Mr Choi and Mr Wong, whom had their witness statements filed for the plaintiff, did not appear to give evidence at trial.

94.  In the case of Li Sau Keung v Maxcredit Engineering Ltd & Anor^[41], Le Pichon JA approved and adopted the following passage in O’Donnell v Reichard^[42] in accepting that adverse inference could be drawn against the defendants in that case for not adducing the evidence of the 2^nd defendant’s employee to rebut the plaintiff’s case:-

“It is sufficient to say that in our opinion for the purpose of the present case the law may be stated to be that where a person without explanation fails to call as a witness a person who he might reasonably be expected to call, if that person’s evidence would be favourable to him, then although the jury may not treat as evidence what they may as a matter of speculation think that that person would have said if he had been called as a witness, nevertheless it is open to the jury to infer that that person’s evidence would not have helped that party’s case; if the jury draw that inference then they may properly take it into account against the party for two purposes, namely:

(a) in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party, and which relates to a matter with respect to which the person not called as a witness could have spoken; …” (emphasis added)

95.  In Ip Man Shan Henry v Ching Hing Construction Co Ltd (No 2)^[43], DHCJ Lam (as Lam PJ then was), summarised on the relevant principles applicable to civil proceedings:-

“150. …

(a) if a prima facie case is made out, and if there is evidence available to the party against whom the case is established which could displace the prima facie case, and he omits to call such evidence, an inference could be drawn;

(b) however, the inference could be rebutted by a plausible explanation by the party who elected not to call the evidence;

(c) if an inference is to be drawn, it would be an inference that such available evidence, even if adduced, would not displace the prima facie case;

(d) it is also open to a tribunal of fact, upon the drawing of such an inference, to take it into account in respect of a matter with respect to which the person not called as a witness could have spoken,

(i)   in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party;

(ii)  in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given.” (emphasis added)

96.  As one can see from the above, there is the prerequisite that a prima facie case should be made out before such inference could be drawn.

97.  With the discussions and findings I have made on the defendant’s case, the prerequisite for drawing any adverse inference against the plaintiff’s case has apparently not been satisfied.  The defendant has failed to show a prima facie case.  Moreover, as explained by Ms Chow in her third supplemental witness statement, Mr Choi and Mr Wong had ceased their employments with the plaintiff in January 2023 and July 2021 respectively.  Upon being informed of the date of Trial, both Mr Choi and Mr Wong refused to attend the same.  Mr Choi said that he and his family had booked an oversea trip, and he would not be in Hong Kong from 19 June 2023 to 15 September 2023.  Mr Wong expressed his unwillingness to attend the Trial and give evidence.  Their absences are therefore supported by plausible explanations. In the circumstances, I will not draw any adverse inference against the plaintiff’s case.

CONCLUSION

98.  Based on the above, the plaintiff is successful in its claim against the defendant.  I therefore order the defendant to pay the Debt to the plaintiff together with interest.  Pre-judgment interest shall accrue on the Debt at the rate of 1% above the prime lending rate[44]  from the date repayment fell due pursuant to the Clause 4.1 of the RA, i.e., 15 July 2018, until the date of judgment, and at judgment rate thereafter until full payment.

99.  Costs of this action should follow the event.  I see from §14 of the Statement of Claim that the plaintiff is seeking costs against the defendant on indemnity basis, pursuant to clause 3.21 of the AA.  Although it is not so relied on in the Statement of Claim, I notice that clause 4.2 of the RA also have the same effect.  I would thus make an order nisi that the defendant shall pay the plaintiff’s costs of this action on indemnity basis, including all costs previously reserved, and such costs to be taxed if not agreed, with certificate for counsel to Ms Ho.  Such order will become absolute in the absence of any application to vary the same within 14 days from the date of handing down of this Judgment.

100.  I thank Ms Ho and Ms Chan for their assistance.