SO SHEUNG HIN BEN v. CHUBB LIFE INSURANCE CO LTD (formerly known as ACE LIFE INSURANCE COMPANY LTD)

CACV 204 /2017

[2018] HKCA 209

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 204 OF 2017

(ON APPEAL FROM HCSD NO 54 OF 2016)

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J U D G M E N T

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Hon Yuen JA:

1.  I agree with the judgment of Kwan JA.

Hon Kwan JA:

2.  This appeal was brought by So Sheung Hin Ben (“So”) against the decision of Deputy High Court Judge Kent Yee on 28 August 2017.  By the decision, the judge dismissed So’s application to set aside the statutory demand dated 28 September 2016 served on him by Chubb Life Insurance Co Ltd (“Chubb”), formerly known as Ace Life Insurance Co Ltd.  The debt demanded was in the sum of $2,408,618.05, in respect of various sums recoverable from the insurance agent by the insurance company pursuant to a typical “claw-back” clause in the event its agreement with the agent is terminated within a specified period.

3.  Of the points taken by So to set aside the statutory demand, three were renewed on appeal and they are as follows:

(1)  the notices of termination served by Chubb to terminate the agent’s agreement with So were defective in law (“Notice Argument”);

(2)  Chubb exercised its power to terminate the agent’s agreement in bad faith with the dominant intention of triggering a claw-back clause, in breach of an implied term that the power to terminate by notice without cause would not be exercised with such dominant intention (“Bad Faith Argument”); and

(3)  the entire agreement clause in the agent’s agreement did not effectively exclude the implied term aforesaid (“Entire Agreement Clause Argument”).

4.  Under rule 48(5)(b) of the Bankruptcy Rules, Cap 6A, the court may grant the application to set aside the statutory demand if the debt is disputed on grounds which appears to the court to be substantial.  The debtor must show a bona fide dispute on substantial grounds, by sufficient precise evidence which is believable, and must establish that he actually has a defence of substance, not just a fair probability of one (Chan Ping Lam Waymond v Noble Art Ltd, CACV 270/2012, 30 September 2013, at §§8 to 10).

5.  The judge found against So on all three arguments.  He held that the notices of termination were valid and effective, that on the evidence before him there is no prima facie evidence to support So’s allegation that Chubb exercised its right to terminate with the dominant intention of triggering the claw-back clause, that the alleged implied term could not exist and hence it is not necessary to express any view on the Entire Agreement Clause Argument.

Background

6.  The relevant background matters may be stated as follows.

7.  So was appointed to the position of Agency Director of Chubb with an effective date of 18 September 2012 (“the Effective Date”).  He signed an Agent’s Agreement and a Remuneration Agreement.

8.  Under the Remuneration Agreement, he was entitled to be paid a Personal Performance Bonus (“PPB”) of $1 million, Special Allowances (“SA”) and Manpower Growth Bonus (“MGB”).

9.  Before the Agent’s Agreement was terminated, Chubb paid to So these payments: (1) PPB in the sum of $1 million for the 1^st to 4^th year after the Effective Date, prepaid in September 2012; (2) SA in the total sum of $2,769,288 paid monthly from the production months of October 2012 to October 2015; and (3) MGB in the total sum of $2,865,184.22 paid yearly in the production months of October 2013, October 2014 and October 2015.

10.  Clause 4 of the Remuneration Agreement contained a claw-back clause and clause 4.1 provided that in the event the Agent’s Agreement is terminated for any reason during the four-year period after the Effective Date, and where the termination is between three and four years of the said date, the agent is obliged to repay to Chubb immediately upon termination 100% of the PPB, 25% of the SA and 25% of the MGB.

11.  In reliance on clause 4.1, the debt of $2,408,618.05 demanded in the statutory demand was made up of 100% of the PPB, 25% of the SA and 25% of the MGB.

12.  Apart from the PPB, the SA and the MGB, from the production months of September 2012 to September 2016 Chubb paid other remuneration to So in the total amount of $8,682,100.49, which was not subject to the claw-back clause.  As stated above, he was paid a total of $6,634,472 in respect of the PPB, the SA and the MGB.  Hence, 43.3% of his income was derived from the PPB, the SA and the MGB.

13.  Clause 16 of the Agent’s Agreement provided for three modes of termination.  Clause 16.1 relevantly provided that the agreement may be terminated by either party “giving to the other not less than seven (7) days prior written notice such notice to be given in accordance with Clause 22”.  Clause 16.2 provided that the agreement shall terminate automatically without the need for either party to give notice in certain circumstances, such as the death of the agent. Clause 16.3 provided for immediate termination by Chubb by written notice to the agent in various circumstances, such as breach of the agreement, failure to meet production, persistency or other requirements set by Chubb.

14.  On 5 September 2016, So attended a meeting with the senior management of Chubb during which he was informed verbally about the decision of Chubb to terminate his Agent’s Agreement.  A letter dated 5 September 2016 was issued to him by Chubb captioned “Termination of Agent’s Agreement” (“the 1^st Notice”) and stated inter alia:

“We refer to the Agent’s Agreement entered into between you and the Company with effective date of 18 Sep 2012 and hereby give you 7 days notice terminating the Agent’s Agreement with effect from 12 September 2016.”

15.  The 1^st Notice was not served on So on 5 September 2016.  It was served on him by hand on 6 September and another copy was delivered to him by DHL on 7 September.  So took the point that as the 1^st Notice was received by him only on 6 September, although it purported to give him seven days’ notice, the specified date of termination was 12 September 2016, only six days after his actual receipt of the notice and was not in compliance with clause 16.1.  He also asserted in §16 of his 2^nd affirmation even if Chubb had intended to give seven days’ notice, there was confusion as he did not know if the hand-delivered copy was superseded by the DHL-delivered copy, and whether the agreement was supposed to be terminated on 12, 13 or 14 September 2016.

16.  On 7 September 2016, Chubb’s solicitors issued a letter to So’s solicitors enclosing a copy of the 1^st Notice and stating in the last paragraph that in the event the 1^st Notice was, for whatever reason, not treated as given to So on 6 September 2016, “this letter enclosing the Notice shall serve as a further notice of termination of the Agent’s Agreement provided in accordance with clause 16.1 of the Agent’s Agreement” (“the 2^nd Notice”).

17.  So challenged the validity of the 2^nd Notice as well, on the grounds that no specific date of termination was set out in that notice and it was not expressly stated it was to give seven days’ notice.

The Notice Argument

18.  The judge rightly observed that the date of 12 September 2016 in the 1^st Notice was not in itself a mistake, as that date was referable to the date of the 1^st Notice and apparently fixed in accordance with clause 16.1.  The problem only lies with the fact that the 1^st Notice was not served on 5 September but on the day immediately following.

19.  The judge referred to Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, where it was obvious from the notice to terminate a lease that an error had been made.  It was held by the majority of the House of Lords that the construction of such notices ought to be approached objectively, and the question was how a reasonable recipient would have understood them, bearing in mind their context.  The test for the validity of a notice to terminate a lease stated by Goulding J in Carradine Properties Ltd v Aslam [1976] 1 WLR 442 at 444 was approved: “Is the notice quite clear to a reasonable tenant reading it?  Is it plain that he cannot be misled by it?”

20.  The judge held that the 1^st Notice was valid and effective.  He took the view that the specified date of 12 September 2016 in the 1^st Notice was irrelevant.  It was the date of the actual receipt of the 1^st Notice that matters.  As the 1^st Notice expressly referred to the Agent’s Agreement and that it served to give seven days’ notice, So must have known that the 1^st Notice was a written notice issued pursuant to clause 16.1 and seven days’ notice was thereby given.  So could work out the exact date of termination given his knowledge of the date of his receipt of the notice and its purpose and function.  The judge held that So would not have been under any misapprehension that unless Chubb could terminate the Agent’s Agreement on 12 September 2016, it would not terminate on any subsequent date at all.  He rejected the assertion of confusion in So’s affirmation as unjustified[1].

21.  The judge dealt with the validity of the 2^nd Notice for completeness even though it did not arise, in light of his above conclusion.  He held that even if the 1^st Notice were ineffective, the 2^nd Notice would suffice to satisfy the requirements under clause 16.1 and be operative to terminate the Agent’s Agreement.  One should have regard to the context in which the latter notice was given, namely, to replace the 1^st Notice only if this was found to be invalid.  He held that it must be plain to a reasonable recipient of both notices that the 2^nd Notice was intended to serve the function of the 1^st Notice in case the 1^st Notice did not work and as such the 2^nd Notice should serve exactly the same function to give the requisite seven days’ notice.  Hence, So could ascertain for himself the effective date by reference to the date of his actual receipt of the 2^nd Notice[2].

22.  Mr John Hui, who appeared with Mr Kevin Lau on appeal, submitted that the judge should have come to the view that the arguments advanced on behalf of So cannot be dismissed summarily as untenable.  He attacked the judge’s conclusion that So was left in no doubt by the 1^st Notice that the last day of the agency relationship was 13 September 2016, and contended that a reasonable person in So’s position could not be certain that the specified date of termination of 12 September 2016 was a mistake.  Even if So might suspect there was a slip on Chubb’s part, he might think Chubb had positively intended 12 September to be the termination date, not knowing or understanding its right to terminate under clause 16.1.  And So could not be sure that the date specified was one day short, without being familiar with the legal rules concerning the computation of time in the giving of notices, in that time runs from the day after receipt of the notice.  This would be asking too much of how a reasonable recipient would have understood the 1^st Notice.

23.  Mr Hui further submitted that the judge had failed to consider the notices cumulatively in that So had received the 1^st Notice twice, on 6 and 7 September 2016, and that he would not have known if the 2^nd Notice was to take effect and if so when.  When the cumulative effect is taken into consideration, this would create uncertainty and ambiguity in the recipient’s mind.  The principle in Mannai Investment would only apply where the recipient is left in no doubt as to the intention of the sender and the judge should not have applied the principle here.

24.  Mr Hui argued that the judge should have applied the reasoning in Goal Upward Ltd v Osman Mohammed Ltd [2016] 5 HKLRD 158, in which Mannai Investment was distinguished.  In that case, unlike Mannai Investment, there was no milestone date of termination stipulated in the subject agreement and termination might take effect on any date provided it was not less than seven days from the date of notice.  At §29 of Goal Upward Ltd, Deputy High Court Judge Cooney, SC rejected the submission that a reasonable recipient would appreciate that the sender wished to give seven clear days’ notice, and concluded that the notice, when considered objectively, was neither clear nor unambiguous.  Mr Hui submitted that as the 2^nd Notice only claimed to give notice as per clause 16.1 without stating a specific date of termination or notice period, and as that clause allowed for notice periods of not less than seven days, the judge should have applied the same reasoning.

25.  I do not think the points made by Mr Hui are valid arguments.

26.  As stated by Lord Steyn in Mannai Investment at 771B to D, in construing a unilateral contractual notice, the law generally favours a commercially sensible construction, which is more likely to give effect to the intention of the parties, and one would expect such a notice to be interpreted in accordance with business common sense.  There is no express stipulation as to the contents of the notice to be given under clause 16.1.  The purpose of such a notice is to inform the recipient that the sender intends to terminate the Agent’s Agreement on an ascertainable date.  The 1^st Notice referred to the Agent’s Agreement and stated clearly that “7 days notice terminating the Agent’s Agreement” was thereby given.  A reasonable recipient, with knowledge of the Agent’s Agreement and its provisions, must have realised that Chubb was exercising its right to terminate on notice without cause, by giving the minimum period of notice required under clause 16.1, namely seven days counting from the date the notice was given.

27.  The reference to 12 September 2016 as the termination date turned out to be wrong in the actual circumstances.  It must have been apparent to So that although the 1^st Notice was dated 5 September 2016, prior written notice was in fact only given on 6 September, when the notice was first delivered to him by hand.  A reasonable recipient would have understood the 1^st Notice to mean that Chubb wished to terminate on the date on which it could lawfully do so with seven days’ notice. It would not require familiarity with the legal rules to ascertain the exact date of termination from the notice.  It was stated that seven days’ notice was given, and to arrive at 12 September as the date termination was to take effect, the counting of the seven‑day period must start from 6 September, the day after 5 September when the notice was intended to be given.  Since the notice was actually given on 6 September at the earliest, the counting of the seven‑day period would start from 7 September instead and 13 September 2016 would be the effective date of termination.  This in fact accorded with So’s understanding of how the notice period worked, as he had complained in §14(d) of his 2^nd affirmation that to terminate by 12 September was less than seven days in that the notice period should be seven days from the date of delivery of the notice.

28.  It is fanciful to suggest that Chubb had positively intended 12 September to be the termination date, not knowing or understanding its right to terminate under clause 16.1.  There could be no confusion or ambiguity arising from the 1^st Notice or from the fact that it was served twice.  The court is concerned not with the subjective understanding of So or his assertions but with a reasonable recipient who approached this with business common sense and with knowledge of the contextual background.  The judge is correct to apply the approach in Mannai Investment to the present situation, even though there is no milestone date of termination stipulated in the Agent’s Agreement.  Unlike the position in Goal Upward Ltd, it was clearly stated in the 1^st Notice that seven days’ notice was given.

29.  As for the validity of the 2^nd Notice, I agree entirely with the judge’s views and reasoning and have nothing to add.

30.  I have dealt with the Notice Argument at some length as I think it is untenable and should be put to rest.  I do not propose to address the submissions on the other two arguments in similar detail, as they involve difficult questions of law and substantial disputes of fact and it would not be appropriate to express my views at this stage other than to give a succinct explanation why I think they are bona fide disputes on substantial grounds.  They are matters of some importance to the insurance industry, given the common use of claw-back provisions in agent’s agreements and the not infrequent occasions they have been invoked.  It is inappropriate to resolve such disputes summarily, whether in bankruptcy proceedings or in a writ action. They should be resolved in a trial after conflicting evidence has been tested in cross-examination and upon mature reflection with the benefit of full arguments on the questions of law.

The Bad Faith Argument

31.  Two broad points are raised in the Bad Faith Argument. First, quite apart from the Entire Agreement Clause Argument, whether there should be an implied term (referred to in the decision as the “anti-recoupment term”) in the Agent’s Agreement that the power to terminate on notice without cause will not be exercised with the dominant intention of triggering the claw-back clause in clause 4.  Second, whether there is prima facie evidence that Chubb exercised its right to terminate with the dominant intention of triggering the claw-back provision.

32.  The judge dealt with the second point first and stated that he was driven to the conclusion on the available evidence there is no such prima facie evidence.  He summarized So’s evidence in his 2^nd affirmation in one short paragraph[3] and went on to say in the next that although the court is unable to resolve substantial disputes on affidavit for the purpose of this application, “it is clear … that Chubb was unhappy with the work performance of So in late July 2016 and its concern seemed genuine and supported by empirical evidence in the form of his persistency rate drop.”[4]  He concluded that “whether or not So had good explanations and had a real prospect of improving his persistency rate”, this does not begin to show that the dominant intention to terminate was to trigger the claw-back clause[5].  He did not think the dismissal was prompted by the dominant intention as alleged, though it may be true that “dismissing an underperforming agent within 4 years of his service is a commercial decision of Chubb and no doubt the Claw-Back Clause should be taken into account in the decision making progress.”[6]

33.  It is pertinent to note that because of the conclusion he reached about the evidence, the judge proceeded to “only briefly dispose of” the legal arguments in respect of the anti-recoupment term and the Entire Agreement Clause Argument[7].

34.  The judge has clearly fallen into error in his conclusion on the evidence.  Mr Derek J Y Chan, who appeared for Chubb on appeal and below, had little to say on the factual aspects in his written submission and chose to focus on the arguments of law instead.  There is no indication in the decision how the judge had evaluated the evidence in reply of So in coming to his conclusion that Chubb’s concern with the work performance of So in late July 2016 “seemed genuine” or that So was an “underperforming agent”.

35.  Mr Hui has summarized for this court the salient aspects in So’s 2^nd affirmation. Pertinently, So gave evidence that the persistency rate mentioned in Chubb’s letter of 29 July 2016 was measured by a metric known as “25‑month policy inforce actual” or “25 month actual” (“25M PIA”), which did not feature in any of the contractual documents prior to an email from Chubb dated 28 July 2016, and was apparently different from the metric for measuring the persistency rate stated in the Agent’s Agreement known as “LIMRA 19”.  So deposed that he had never been told of how 25M PIA is calculated and how it differs from LIMRA 19, and Chubb’s computer systems provided results on LIMRA 19 only but not on 25M PIA.  He asserted that his persistency rate as measured by LIMRA 19 was exemplary, and this was borne out by Chubb’s persistency report in June 2016.  In contrast, he scored a rather poor result measured by 25M PIA as stated in the June report.  This metric had not appeared in the previous persistency reports and no evidence was adduced how it was arrived at.  There is clearly a conflict between So’s evidence and the “empirical evidence” to which the judge had regard.

36.  Furthermore, as Chubb’s computer systems did not calculate persistency rate in real time and on So’s evidence there was a one‑month time lag, he asserted there was no way he could have improved his persistency rate within a month (as required by Chubb’s email of 28 July 2016) when Chubb exercised the power to terminate by serving notice on 6 September.  There is no challenge to this aspect of So’s evidence.  Although the judge did mention So’s complaint Chubb had never given him a realistic opportunity to improve his persistency rate[8], the judge gave no reason why this should not be a material factor in considering if the dominant intention to terminate was to trigger the claw-back provision, in marked contrast to the approach in Re Shing Pui Keung, Ex-parte Chubb Life Insurance Co Ltd, HCB 686/2017, 20 December 2017, which was decided after the decision here.

37.  Re Shing Pui Keung concerned a down-line agent of So, who was terminated within four years of his appointment and Chubb sought to recover part of the remuneration paid under the claw-back provision in clause 4.1 of the Remuneration Agreement. Shing opposed the bankruptcy petition claiming that Chubb had repudiated the agreements by breaching implied terms to the effect that Chubb should not conduct its performance evaluations and administer its policy in relation to the measure of the persistency rate in an irrational, perverse or arbitrary manner that was not bona fide.  The complaint was that the persistency rate was suddenly changed from LIMRA 19 to LIMRA 25 without consultation or explanation and Chubb’s computer system could only generate persistency reports based on LIMRA 19, and without such reports Shing was unable to manage and improve on the persistency rate under the new standard.  G Lam J held in §15 that Shing’s allegations could not be brushed aside summarily, noting that Chubb’s affidavits were silent on the bases for the new measures introduced and did not seek to justify them.  He took the view that Shing’s claims of breach of implied terms cannot be dismissed as incredible or untenable and on this and other grounds dismissed the petition.

38.  Chubb was aware of the evidence of So filed in February 2017 and the hearing before the judge was in June 2017.  There was opportunity for Chubb to file evidence in response but it did not seek leave to adduce further evidence.  So’s evidence, which is prima facie of substance and largely unchallenged, cannot simply be brushed aside.  The judge’s view that the decision to terminate So as an “underperforming agent” within four years of his service was a “commercial decision” would appear to be based on Mr Chan’s submission only[9]. He was in error in holding that there is no prima facie evidence Chubb exercised its right to terminate with the dominant intention of triggering the claw-back provision.

39.  I come back to the first broad point, whether the anti-recoupment term should be implied in the Agent’s Agreement.  As mentioned earlier, the judge disposed of this briefly.  He distinguished the decision of the Court of Appeal in Tadjudin Sunny v Bank of America National Association, CACV 12/2015, 20 May 2016 on the facts and the formulation of the implied terms there.  Although he rejected Mr Chan’s argument there should be no implied term as to how the Agent’s Agreement could be terminated to invoke the claw-back provision as it was expressly provided in the claw-back clause it would operate in the event the Agent’s Agreement is terminated “for any reason” during the specified period[10], he did not think the anti-recoupment term should be implied for two reasons.  First, it sounds absurd that So could ever have any dominant intention to trigger the Claw-Back Clause thereby obliging himself to repay his remunerations to Chubb[11], in other words the term sought to be implied must apply reciprocally to both parties.  Second, even if Chubb had an obvious desire to recover the remunerations pursuant to the claw-back provision, it does not necessarily follow that it had exercised its right in an irrational, perverse or arbitrary manner that was not bona fide[12].  This would seem to go to causation, that Chubb’s basis for terminating So was causally unconnected to terminating him in bad faith and for the dominant purpose of triggering the claw-back clause.

40.  Mr Chan did not defend the reciprocity requirement.  Mr Hui cited Tadjudin and Shing Pui Keung as examples in support of his contention that this should not pose a hurdle to an implied term in respect of a power that is necessarily one-sided.  Suffice it to say this is reasonably arguable.  Indeed, for the purpose of the bankruptcy proceedings in Shing, it was accepted by Chubb that the implied terms contended for should be implied into the contract[13].

41.  As for the causation requirement, this is tied up with the judge’s evaluation of the existing evidence.  For the reasons mentioned earlier, I do not think there is proper evidential basis for the judge to come to the view that Chubb’s decision to terminate So was a “commercial decision” and there is no prima facie evidence that it was prompted by the dominant intention of triggering the claw-back clause.  In any event, for present purpose, it would suffice for So to demonstrate it is reasonably arguable that the alleged dominant intention may be inferred.  In light of the evidence in So’s 2^nd affirmation, which is largely unchallenged at present, I am inclined to think it reasonably arguable that such an inference may be drawn.

42.  Mr Chan sought to support the judge’s holding that the anti-recoupment term should not be implied in the agreement on a number of grounds, most of which was not dealt with in the decision or dealt with fully in the decision.  It is incumbent on him to put in a respondent’s notice if he seeks to support the decision on additional or other grounds. Mr Chan invoked the general power of the Court of Appeal in Order 59 rule 10(4), saying it is conducive “to ensure the determination on the merits of the real question in controversy between the parties” by allowing him to argue matters in the absence of a respondent’s notice.  Other than that, he put forward no reason why the court should entertain his submissions without giving a respondent’s notice.

43.  There are good reasons for requiring a respondent’s notice to be given in such circumstances.  This serves to give early notice to the other party and the court of the additional arguments that may be raised by the respondent.  It prevents surprise, facilitates the proper preparation of the appeal, and helps the parties to give a realistic estimate of the length of the appeal.  This requirement should not be by‑passed readily, merely because it would “ensure the determination on the merits of the real question in controversy between the parties”.

44.  In this instance, but for the fact that I have already considered Mr Chan’s arguments and do not think they would provide an answer to the requirement that the debtor is required to demonstrate at this stage no more than a reasonably arguable case on the contested points of law, I would not be minded to allow Mr Chan to raise arguments in the absence of a respondent’s notice without any costs consequence.

45.  In gist, Mr Chan sought to distinguish Tadjudin and Shing Pui Keung on various grounds: that unlike Tadjudin the present case is not concerned with an employment relationship so the implied obligation of mutual trust and confidence between an employer and employee would not arise; that Tadjudin was not concerned with a claw-back provision, and unlike Tadjudin the anti-recoupment term “directly contradicts” the express contractual framework; that there was clear and unambiguous right to terminate the agency without cause on notice, unlike Tadjudin; that the discretionary bonus each year in Tadjudin was two to three times the basic annual salary, where the total PPB, SA and MGB payments ($6.6 million) were only a fraction of So’s total remuneration not subject to the claw-back clause ($8.68 million); that the terms sought to be implied in Shing Pui Keung were different from the anti-recoupment term here.

46.  Further, he criticized the Court of Appeal decision in Tadjudin for not addressing the general principle referred to in the Privy Council decision of Reda v Flag [2002] IRLR 747 at §45 (“that an express and unrestricted power cannot in the ordinary way be circumscribed by an implied qualification”), even though a differently constituted appeal court in an earlier strike out decision in Tadjudin ([2010] 3 HKLRD 417) had mentioned Reda v Flag[14].

47.  Mr Chan reiterated his argument, which was accepted by the judge, that even if Chubb terminated So with an obvious desire to recover partially the remuneration, it does not follow that this power was exercised in an irrational, perverse or arbitrary manner that was not bona fide.  What is more, he contended that even if Chubb terminated So with the dominant intention of triggering the claw-back clause, such exercise of contractual right “would neither be beyond the reasonable expectation of the parties nor constitute an instance of arbitrariness, capriciousness or bad faith.”

48.  In support of his argument, he pointed to the claw-back provision which provided that it could be invoked where the Agent’s Agreement was terminated “for any reason” during the specified period, and would cover the situation of termination on notice without cause, even if the agent was able to meet persistency requirements.  By the contractual framework, there was clear and unambiguous right to terminate on notice without cause “for any reason”.  There was no reasonable expectation that the Agent’s Agreement would not be terminated on notice without cause just because it was close to the completion of a four‑year term.  And the contentions of So based on the changes to the persistency rate are irrelevant, as he could simply be terminated on notice without cause.  To the contrary, So knew full well he should perform “not only at the minimum persistency standard” but to a level “sufficient to persuade Chubb to keep [him] on beyond the 4 year term even at the expense of relinquishing the sums which would otherwise be recoverable by Chubb.”

49.  In my view, Mr Chan’s arguments are plainly not such that one can safely conclude at this stage (and bearing in mind we do not have the input of the judge on most of them) that they are obviously correct and any arguments to the contrary are clearly untenable.  This is plainly not the platform to rehearse such legal arguments.  Each of the factors he advanced to distinguish Tadjudin and Shing Pui Keung must be properly considered to arrive at a view if they are truly relevant and material, for the court to gauge the impact of such factors on the determination of the point of law. Nor is this the proper occasion to discuss whether his criticism of the Court of Appeal decision in Tadjudin is justified at all.  Moreover, some of his arguments cannot be considered in vacuo without regard to the factual basis and this is not the kind of situation that even if all the factual disputes are presumed in favour of the opposite party, it would have made no difference to the legal conclusion.

50.  For all the above reasons, I hold that the judge was also in error on the first broad point, namely, that no substantial dispute was raised in respect of So’s contention that the anti-recoupment term should be implied in the Agent’s Agreement.

The Entire Agreement Clause Argument

51.  This concerned clauses 21.4 and 21.3 of the Agent’s Agreement.  Mr Chan said he relied more on clause 21.3, as was his stance before the judge, in support of his contention that the anti-recoupment term must be excluded.

52.  As mentioned earlier, in light of his conclusion that the anti-recoupment term could not exist, the judge said it is not advisable to express any view on the effectiveness of clause 21.3 and he did not deal with it at all[15].

53.  As in respect of the Bad Faith Argument, no respondent’s notice was served by Chubb to seek to support the decision on additional or other grounds.  I shall not repeat what I have said about the necessity of giving a respondent’s notice.

54.  Mr Chan pointed out clause 21.3 specifically excluded “terms implied by … common law … to the fullest extent permitted by law save that nothing in this Agreement shall be read or construed as excluding any liability or remedy as a result of fraud.”

55.  As noted by the judge[16], Mr Hui argued that as a matter of construction, “fraud” in the proviso should include bad faith.  Mr Chan submitted that it should not be so construed and contended that the purpose of the proviso is merely to limit the scope of the earlier part in clause 21.3 (that the Agent acknowledges in entering into this Agreement he does not do so on the basis of and does not rely on any representation except as expressly provided in this Agreement) so that clause 21.3 would not be struck down as unreasonable under section 4 of the Misrepresentation Ordinance, Cap 284.

56.  I consider there is a substantial dispute on the construction of the proviso relating to the meaning of “fraud” in this context. It can hardly be said it is clear that Mr Chan’s construction must prevail.

57.  The other argument advanced by the parties relates to the words “to the fullest extent permitted by law” in the earlier part of the clause.  Mr Hui advanced two reasons why these words should provide protection to So.  First, he invoked the general principle that an entire agreement clause is inapt to exclude those terms which are necessary to make the contract work.  Second, public policy limits the possible exclusions of liability and one cannot exclude liability for one’s own fraud in inducing the making of a contract (HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] 2 Lloyd’s Rep 61 at §16) or one’s duty to perform contractual obligations honestly (Bhasin v Hrynew [2014] SCC 71 at §§75 to 78).

58.  Mr Chan countered with the submission that the provisions construed by the courts in some of the authorities cited by Mr Hui are “more circumscribed” than clause 21.3, in that this clause excluded terms implied by common law specifically.  Further, the statements in §16 of HIH Casualty & General Insurance are not concerned with good faith in the performance of a contract, and the decision of the Supreme Court of Canada in Bhasin v Hrynew is contrary to the settled position in English contract law that there is no legal principle of good faith of general application (Chitty on Contracts, vol 1 (32^nd ed) at §§1-039 to 1-041).

59.  There is clearly a substantial dispute on the meaning and effect of the words “to the fullest extent permitted by law”.  This is not the occasion to resolve the differences in decided cases on the permissible use and construction of an entire agreement clause.

Conclusion

60.  For the above reasons, I would allow the appeal of So.  I would set aside the statutory demand and the order of the judge that Chubb be authorised to present a bankruptcy petition based on the statutory demand.  The costs order nisi made by the judge should also be set aside.

61.  I would make these costs orders nisi.  These orders will become absolute unless an application to vary is made within 14 days of the handing down of the judgment.

62.  In respect of the costs below, as the judge should have granted the application to set aside the statutory demand, I see no reason why Chubb should not pay So’s costs of the application, notwithstanding So did not succeed on all of the grounds he relied on to set aside the statutory demand.

63.  For the costs on appeal, I think it appropriate to deprive So as the successful party of some of his costs, as he was apprised of the judge’s reasoning for rejecting the grounds relied on to set aside the statutory demand.  The Notice Argument is untenable and should not have been pursued again on appeal.  I would order Chubb to pay So two‑thirds of the costs on appeal, with a certificate for two counsel.

Hon McWalters JA:

64.  I agree with the judgment of Kwan JA.