AGEAS INSURANCE CO (ASIA) LTD v. LAM HAU WAH INNEO

HCA 1840/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1840 OF 2009

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J U D G M E N T

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Introduction

1.  The nature of the present dispute is essentially over sums of money said to be advances/loans by the plaintiff insurance company (“Company”) and repayment of which are being claimed against the defendant (“D”), its former regional director and agency manager.

Background

2.  The Company was called New Zealand Life in its former self before the personalities in the present case came into the picture. In about 1993/1994, the Company was acquired by a Mr Andrew Yang (“Yang”) and other investors, and thereafter went through several changes of names, starting with Top Glory Insurance Company (Bermuda) Limited, and later Pacific Century Insurance Company Limited and Fortis Insurance Company (Asia) Limited, before its present name AGEAS Insurance Company (Asia) Limited.

3.  D was an insurance agent and agency manager of the Company for about 15 years from 21 February 1994 (“Commencement Date”) until his contracts were terminated with effect from 10 June 2009 (“Termination Date”).  Prior to joining the Company, D was working as a senior agency leader for another insurance company then called National Mutual which later became AXA Life Insurance Hong Kong Limited (“AXA”).  Yang was the Chief Executive Officer/ CEO of AXA before he left.

4.  According to D, a total of 7 senior agency leaders left AXA at about the same time to join the Company. Apart from D, the others were Oliver Mak (“Mak”), Raymond Chau (“Chau”), Belio Chan, Patrick Wong, Samuel Cheng and Samuel Lau (“Lau”).  Each of the 7 senior agency leaders became what D called a “Founding Agency Leader” of the Company (“FAL”).  There were also other agents who left AXA to join the Company, but according to D, they were “2^nd tier” agents under some of the FALs at AXA.

5.  D’s case was that in late 1993 to early 1994, he was enticed by Yang to join the Company as a FAL and that before D joined the Company, there was an agreement reached between Yang on behalf of the Company and all the 7 FALs (“1994 Agreement”).  I will go into the details of the alleged 1994 Agreement later in the judgment.

6.  During the course of D’s agency with the Company, D had borrowed various loans from the Company from time to time for his personal purposes, such as mortgage loan for a property, instalment loan for the purchase of a car, or a tax loan and had signed various documents for such purposes.  These were not disputed.  I will set out hereunder only those documents concerning D’s remuneration which were relevant to the present claim by the Company.

7.  There had been various contracts or agreements, or other documents signed by D with the Company, and there had also constant discussions, negotiations, and revisions as to the payment of his commissions, remuneration or compensation by the Company. Such documents could be broadly divided into the following categories:

(a) An agent’s contract – which governed the terms and conditions of an agent of the Company

(b) A manager’s contract – which governed the terms and conditions of  the agent’s appointment as a manager of other agents which he supervised (also known as  his “downlines” or “family” of agents)

(c) Financing arrangements/agreements/loan agreements of advance payments against the manager’s commissions, bonuses and allowances due under the agent’s contract and/or the manager’s contract (“Financing Documents”)

8.  D had signed one agent’s contract and no less than 5 manager’s contracts as follows:

On Commencement Date

21.02.94-	an agent’s contract for selling long term insurance business, by which D was appointed as one of the Company’s insurance agents, effective from Commencement Date[1] (“Agent’s Contract”)
21.02.94-	a unit manager’s contract, by which D was appointed a manager, effective from Commencement Date[2]

About 8 months later

01.11.94 -	a 2nd unit manager’s contract, effective from  Commencement Date[3]
01.11.94-	an agency general manager’s contract, effective from Commencement Date[4]

About a year after the Commencement Date

01.02.95-	a 3rd unit manager’s contract, effective from 1 February 1995
01.02.95 -	a 2nd agency general manager’s contract, effective 1 February 1995 (“AgencyManager’s Contract”)[5]

9.  It was not disputed that the Agent’s Contract was the only valid and effective agent’s contract signed by D with the Company until the Termination Date[6].  It was also not disputed that the Agency Manager’s Contract superseded all the earlier manager’s contracts and the Agency Manager’s Contract was the one which continued to have effect until it was terminated on the Termination Date.

10.  After D joined the Company, each month he would receive from the Company a statement setting out his remuneration for that month, including his commissions and various allowances, advances, loans and repayments etc (“Commission Statements”).

11.  From Commencement Date until 2003/2004, D had signed broadly 3 types of Financing Documents regarding his remuneration:

(i) A manager’s guarantee finance schedule (“MGFS”)

(ii) A manager’s financing agreement (“MFA”)

(iii) A loan agreement (“Loan Agreement”)

12.  The first Financing Document D signed was a MGFS on Commencement Date under which the Company agreed to pay D HK$362,500 per month for a maximum period of 12 months from the Commencement Date as advance payment against all earnings payable in  accordance with the Agent’s Contract and the 1^st unit manager’s contract (“1994 MGFS”)[7].

13.  A year later on 1 February 1995, D signed a MFA (“1995 MFA”)[8], under which the Company agreed to pay to a monthly amount of HK$362,500 for 11 months as advance remuneration against all his earned remuneration in accordance with the Agency Manager’s Contract.

14.  Thereafter, upon the 1995 MFA coming to an end, D signed a further MFA on 2 January 1996 with the Company (“1996 MFA”)[9] under which the Company agreed to pay to D a sum of HK$237,887.56 for the month of January 1996, and from February 1996 onward for 11 months a monthly sum of HK$176,101 as an advance payment against all his earnings under the Agents’ Contract and the Agency Manager’s Contract.  The last payment was the end of that year.

15.  The next Financing Document signed was on 1 June 1998 when D signed another MFA under which the Company agreed to pay to D a monthly sum of HK$150,000 as advance remuneration against all his earned remuneration (“1998 MFA”)[10].

16.  The 1996 MFA was expressed to be attached to and intended to form part of the manager’s contract signed on 2 January 1996[11], but no such manager’s contract was in fact signed on that day.  Similarly, the 1998 MFA was expressed to be attached to and form part of the manager’s contract” signed on 1 June 1998, but again no such manager’s contract was signed on that day.  As mentioned earlier, the only effective one was the Agency Manager’s Contract and there was no dispute over this.

17.  The Financing Period of the 1998 MFA was for a maximum period of 12 months from 1 June 1998, and the last payment should be May 1999.

18.  At about that time, the Company, then called Pacific Century, was in the course of preparing to launch an initial public offering, which was successful and in July 1999 the Company became a publicly listed company.

19.  According to D, in order to prepare for the listing, there was a new financing arrangement proposed by the Company to replace the then arrangement of a MFA with a loan agreement.

20.  As a result, on 26 April 1999 he and the Company signed an agreement for the Company to grant D a loan in the total sum of HK$1,692,000 (“1999 Loan”), to be advanced by the Company by 12 equal monthly instalments of HK$141,000 commencing from 30 April 1999, and the Company was authorised to deduct the repayment instalment from D’s commissions, compensation, and other benefits/entitlements payable by the Company to D (“1999 Loan Agreement”)[12].  The 12^th and last instalment should be on 31 March 2000, and the repayment of the 1999 Loan was stated to be on 30 April 2004.

21.  D then claimed that Yang engineered a variation of the 1994 Agreement in 2000 (“2000 Variation Agreement”).  

22.  Thereafter, the financing arrangement seemed to change again as the Company reverted to the 1994 arrangement of using a MGFS, and hence D signed a MGFS on 1 April 2001 (“2001 MGFS”)[13]. Under the 2001 MGFS, the Company was to pay D an advance payment of HK$418,676.86 per month for a maximum period of 9 months as from 1 April 2001 against D’s earned remuneration.  The 2001 MGFS was in the same form as the 1^st MGFS, and the last payment should be in December 2001.

23.  It was D’s case that the financing or advance payments under the MGFSs, the MFAs and the 1999 Loan Agreement were top-up payments under the terms of the alleged 1994 Agreement and not repayable by him.

24.  In the middle of 2001, it would appear from a memorandum from Yang to agency managers including D on 22 June 2001 that the business performance of the agents was not satisfactory[14].

25.  Thereafter, on 15 January 2002, Mr Peter So (“So”) joined the Company as its Chief Operating Officer/CCO and his main responsibility was overseeing the agency operations of the Company.  So was then charged with the responsibility to discuss with D and the other agency managers/regional directors in relation to a “new compensation design” for them (“New Compensation Design”).

26.  In the interim, after the end date of the 2001 MGFS, D was asked to sign various requisite forms for advances (“CAR Forms”).

27.  The working out of the New Compensation Design could be gleaned from various internal memoranda, which included a proposal to pay a “Special Bonus” to the 6 regional directors in 2002 and 2003[15]. The purpose of this “Special Bonus” could also be seen from the internal emails at this time, which was said to help the then 6 regional directors to “rebuild their agencies”[16]. Negotiations seemed to then drag on with the regional directors over the formula for the “Special Bonus”.

28.  So far as D was concerned, eventually on 15 October 2002, he received a letter from the Company signed by Yang headed “Revision of Remuneration” (“1^st 15.10.02 Letter”), which set out D’s “Revised Income” for the period from 1 April 2002 to 31 December 2003[17],   including references to payment of a “Special Bonus” with the formulae for calculations for the remaining 9 months of 2002 and for the 12 month period in 2003.  The 1^st 15.10.02 Letter further stated that with effect from 1 January 2004, D’s remuneration would be only the contractual income as set out in the Agent’s Contract and the Agency Manager’s Contract, and the other items of non-contractual income would no longer be payable, which seemed to indicate the Company’s then intention of getting rid of the non-contractual income by January 2004.

29.  On the same day, the Company sent another letter to D signed by Yang headed “Advance Remuneration” (“2^nd 15.10.02 Letter”)[18], which set out that if the “Revised Income” in the 1^st 15.10.02 Letter was lower that the “Guaranteed Income” received by D in March 2002, a loan in the amount of difference was to be granted by the Company to D as “Advance Remuneration”, subject to the conditions set out therein.  Further on the same day, the Company sent a third letter to D signed by Yang in relation to the waiver of interest of the 1999 Loan (“3^rd 15.10.02 Letter”)[19].

30.  Thereafter, on 1 January 2003, D was notified by Yang that there would be a change in the “agency hierarchy” within the Company and that D’s position would still be a regional director under the new hierarchy and his then remuneration package would remain unchanged until a new package, which would not be worse than his then existing one, became available[20].

31.  During 2002, Yang’s relationship with the Company had in fact been worsening.  He eventually resigned and left the Company on 9 June 2003 and he and the Company also ended up suing each other.   Anyway, at about this time So was bringing in further new arrangements with some of the FALS/regional directors including D which provided for the payment of a “Special Year-end Bonus”.

32.  The new arrangements seemed to be first reflected in a letter dated 9 May 2003 from the Company to D (“09.05.03 Letter”)[21], which was later superseded by a letter dated 12 August 2003 (“12.08.03 Letter”)[22], and finally superseded by a letter dated 15 September 2003 (“15.09.03 Letter”)[23].  The then outstanding balance of the “Special Finance” owing by D to the Company was mentioned in the 09.05.03 Letter which also stated that on a yearly basis a confirmation of D’s outstanding balance of the Special Finance would be provided by the Company to D.  In the 12.08.03 Letter, a statement of account of D’s then outstanding balances as at 31 July 2003 was attached (“31.07.03 Statement”).  Then again in the 15.09.03 Letter, D’s then outstanding account as of 31 August 2003 was attached (“31.08.03 Statement”).

33.  The 15.09.03 Letter stated, among other things, the granting of a “Special Year-end Bonus” to D, from 1 January 2003 up to such date as the Company was to determine at its absolute discretion, to be used by the Company to offset all or any part of D’s then outstanding balance in the total sum of HK$5,504,996.23 under 3 MFAs, namely the 1995 MFA, the 1996 MFA and the 1998 MFA, subject to the conditions set out therein.

34.  Thereafter, it appeared that there had been further discussions  in relation to the payment of a “Special Non-Contractual Bonus” as from 1 January 2004 and this was eventually agreed between D and the Company and was evidenced by a memorandum sent by So to D on 8 January 2004[24].  D signed and accepted the terms stated therein.  Pursuant to this, So on behalf of the Company sent a letter to D on 16 February 2004, setting out a summary of his 2004 remuneration package, as a Family Head of the Company, namely (i) his Contractual Benefits; (ii) his Non-Contractual Benefits, also called the Ex Family Head Benefits (“Ex Family Head Benefits”); and (iii) his Other Benefits, as a “Family Head” of the Company[25] (“New Package”). 

35.  This was followed by the Company declaring a Special Year-end Bonus for the year of 2003 of HK$382,370.38, which was subsequently paid to D on 15 March 2004, and which was used to offset all or part of the finance outstanding balance owing by D to the Company under the 1995 MFA[26].

36.  The 1999 Loan was due to be repaid on 30 April 2004, but by a letter dated 13 August 2004 (“ 1^st 13.08.04 Letter”)[27], the Company agreed to extend the time for repayment of the indebtedness of HK$1,692,000 under the 1999 Loan and to write off the indebtedness subject to the conditions stated therein.  D had signed on this letter confirming his indebtedness and agreeing to the terms and conditions set out.

37.  The Company had also sent another letter on 13 August 2004 stating that it had agreed to write off D’s then outstanding sum of HK$4,754,183.13 said to be under the 1995 MFA, subject to the conditions therein[28] (“2^nd 13.08.04 Letter”).  It is, however, not quite clear as to how this amount arose under the 1995 MFA since it seemed from the 31.08.03 Statement, the outstanding sum under the 1995 MFA should only be around HK$2.1m.  Nevertheless, D signed on this letter agreeing and confirmed the outstanding sum.

38.  On 20 December 2004, D applied for a special loan from the Company for HK$6,704,845.56 and on the same day, the Company and D concluded a loan agreement for this amount (“2004 Loan Agreement”)[29]. The validity of this agreement and this loan were not in dispute.

39.  After the New Package, on 30 May 2005 and 30 August 2006 respectively D had received letters from the Company setting out his entitlement to the Special Year-end Bonus and in each of the letters, a statement of D’s then outstanding account was attached[30]. Similarly, on 13 April 2007, the then CEO, Raymond Chan (“Chan”), issued a letter to D informing him that D was entitled to a Special Year-end Bonus which would be used to offset all or part of the finance outstanding balance owing by D under the 1995 MFA and the 1996 MFA (“13.04.07 Letter”).  In this letter, a statement of D’s account as of 10 April 2007 was attached (“10.04.07Statement”) indicating an outstanding amount of HK$3,160,323.50 from February 1996 onwards[31]. Then, on 9 May 2007, the Company sent a letter to D stating that at D’s request, it agreed to write off the outstanding sums under the 1996 MFA and 1998 MFA subject to the conditions therein[32] (“09.05.07 Letter”).  This seemed to be shortly before a change of management.

40.  In July 2007, Mr Charles Stuart Fraser (“Fraser”) took over from Chan to become the Company’s CEO.

41.  At about this time some of the FALs appeared to be not meeting their targets and their agent’s contracts were terminated by the Company and certain new arrangements were made with them.  Under such new arrangements, 2 of the FALs, namely Mak and Lau, respectively became an agency consultant.

42.  Then came the 2008 financial crisis and D appeared to be quite affected by this and according to Fraser, around November 2008, D had approached the Company’s Chief Commercial Officer/ CCO, Edwin Yung (“Yung”), to request for a loan of HK$100m from the Company because he was facing financial difficulty and needed funds in connection with his property investments.

43.  Fraser said he had a meeting with Yung and Johnny Fung (“Fung”), the then Chief Agency Officer of the Company, to discuss D’s loan request and they came up with a two-tranche loan structure for the HK$30m loan.  He then worked with Roger Paul Heady (“Heady”), the Company’s Chief Financial Officer, CFO, and the Company’s then legal counsel to draft the terms of the loan agreements, in order to give D the loan he needed while protecting the Company’s interests.

44.  The structure that the Company came up with was that the loan would be divided into two tranches:

(i) The 1^st tranche was a HK$10m loan to be backed by life insurance policies to be effected by D (“1^st 2008 Loan Agreement”)[33];

(ii) The 2^nd tranche was a HK$20m loan to be repaid by D’s Ex Family Head Benefits which he was projected to receive if he had remained with the Company for 3 more years (“2^nd 2008 Loan Agreement”)[34].

45.  D signed both Loan Agreements on 15 December 2008. He did not dispute that the loan in the 1^st 2008 Loan Agreement was repayable, but it was his case that the HK$20m paid to him in fact represented the settlement sum in full and final settlement for his Ex Family Head Benefits and was thus not a genuine loan.

46.  Under the 2^nd 2008 Loan Agreement, the Company agreed to lend HK$20m to D as a lump sum with interest at 6% per annum, and repayable monthly, over a 3 year period from 15 December 2008 until 11 December 2011, in accordance with a schedule attached to the loan agreement.  Further, under the 2^nd 2008 Loan Agreement, D had agreed to the Company withholding and applying all Ex Family Head Benefits payable to D for a 3 year period from 1 January 2009 to set off the repayment instalments.

47.  On the same day D executed the 2^nd 2008 Loan Agreement, he further executed a deed in favour of the Company relinquishing all his Ex Family Head Benefits from 1 January 2012 onwards (“Deed of Relinquishment”)[35].

48.  Not long afterwards, D became involved in the PCCW privatization matter.  PCCW had presented a petition on 11 February 2009 to seek sanction of a scheme of arrangement pursuant to s 166 of the Companies Ordinance for the purpose of its privatization.  Apparently D had bought 500,000 shares, being 500 board lots of 1,000 shares each in PCCW on 5 January 2009 and had distributed them to the Company’s agents as a bonus, and 494 persons who had received board lots of shares voted in favour of the privatization.  At First Instance, Kwan J, as she then was, declined to infer that D had implemented a plan of splitting up the 500,000 shares to assist in the privatization, and she sanctioned the scheme sought by PCCW on 6 April 2009[36].  The case had generated a lot of media interest and publicity.

49.  The Securities and Futures Commission appealed[37], and on 22 April 2009, the Court of Appeal allowed SFC’s appeal. The Reason for Judgment was handed down on 11 May 2009 and D’s involvement was referred to.  On the same day, the Company terminated D’s Agent’s Contract and his Agency Manager’s Contract giving him one month’s notice, with effect on the Termination Date, namely 10 June 2009.

50.  Thereafter, the Company issued letters to D to claim repayment of outstanding loans and later issued the writ against D in these proceedings on 26 August 2009, claiming a total of HK$34,923,392.75 being the outstanding amounts under 6 documents, namely the 1996 MFA, 1998 MFA, 1999 Loan Agreement, 2004 Loan Agreement, the 1^st 2008 Loan Agreement and the 2^nd 2008 Loan Agreement.

51.  The Company applied for summary judgment against D on 11 December 2009[38].  At the hearing of the summary judgment before Master Kwang, D admitted liability under 2004 Loan Agreement and the 1^st 2008 Loan Agreement, but claimed that the other agreements were not genuine loans.

52.  The Company obtained summary judgment on all the alleged loans on 11 December 2009 (“Summary Judgment”).

53.  D appealed and, on 30 March 2010, Fok J, as he then was, affirmed the Summary Judgment[39], and on the same day, the Company issued and executed a writ of fieri facias against D’s properties.  D then appealed against the decision of Fok J.

54.  Pending his appeal to the Court of Appeal being heard, by various payments and finally on 3 May 2010, D paid the Company the sum of HK$32,459,547.42 pursuant to the Summary Judgment, on a without prejudice basis.

55.  D was subsequently given unconditional leave by the Court of Appeal to defend on 28 October 2010[40].  On 21 December 2010, after a further dispute, and pursuant to another order and judgment by the Court of Appeal of 10 December 2010[41], the Company eventually returned to D the sum of HK$25,952,087.04, being the amount already received from D less the amount owing under the undisputed loans.

56.  D’s defence and counterclaim was filed on 10 February 2011.  D denied there was any liability to repay under the 1996 and the 1998 MFAs, the 1999 Loan Agreement, and the 2^nd 2008 Loan Agreement. D had counterclaimed, among other things, for a sum of HK$4,939,927.40 as unpaid Contractual Benefits being commission due from the Company under the Agent’s Contract.  D further counterclaimed a sum of HK $26,301,273.70 as a buyout following the Company’s termination of D’s services, which D alleged that he would become entitled to receive from the Company representing due compensation for the family of agents trained and recruited by D and left behind as a persistent income-generating asset or business for the benefit of the Company and D claimed damages or quantum meruit of the said sum.

57.  So far as the amount of HK$4,939,927.40 was concerned,  this was no longer an issue, as it had been clarified during Counsel’s closing submissions hearing that this had been taken into account when the Company refunded to D the sums paid by him under the Summary Judgment.

The Factual Witnesses

58.  The Company called 6 witnesses to give evidence on its behalf:

(i) Madam Kelly Chan Siu Chau (“Kelly”), a former senior manager of the Company who was employed by the Company from about September 1994 until 2012 appeared under a subpoena

(ii) Mr Paul Ng Wing Keung (“Ng”), who joined the Company as a regional director and agency leader in July 2000 until the present

(iii) So, who, as mentioned earlier, joined the Company on 15 January 2002 as Chief Operating Officer and is now the  Chief Representative of the Shanghai Representative Office of the Company

(iv) Fraser, who joined the Company as CEO in July 2007

(v) Yung, who joined the Company as CCO on 1 November 2007

(vi) Heady, who joined the Company as the CFO on 1 November 2007

59.  D called 4 witnesses, apart from giving evidence himself:

(i) Chan, who was the Managing Director/CEO of the Company from 2003 until 2007

(ii) Fung, who was the Chief Agency Officer of the Company from about 2005 to 2009 and who appeared under a subpoena

(iii)   Mak, who was one of the 7 FALs

(iv)   Lau, who was one of the 7 FALs

60.  I have had the chance of observing the demeanor of each witness, and will deal with their evidence later in this judgment.   The Company’s 6 witnesses joined the Company after the FALs and they would not have any personal knowledge of the alleged 1994 Agreement or the discussions which D said he had with Yang.  Notwithstanding this, I do not find those witnesses unreliable.

61.  So far as D is concerned, he was already an experienced insurance agency leader/manager when he joined the Company, and as Fok J, as he then was, had said of D, he must have been aware of the significance of written contractual arrangements and I find it incredible that he was not able to produce any note or record or any documents in support of his case.  Mak and Lau were also experienced agents when they joined the Company and their evidence must be viewed in the same light.  As for Chan and Fung, their evidence was not really challenged.  I find them both reliable witnesses.

62.  For the avoidance of doubt, insofar as the matters set out in this judgment differ from the evidence of a witness, this is because I have preferred the evidence of another witness, or because I consider that the documents produced confirm my finding of fact.

List of Issues

63.  As D had admitted liability under the 2004 Loan Agreement and under the 1^st 2008 Agreement, by the time of the trial, the only disputed amounts in the Statement of Claim were the following:

(i) HK$1,692,000 under the 1999 Loan Agreement;

(ii) HK$3,160,324 in respect of the 1996 MFA and the 1998 MFA;

(iii) HK$17,507,793.87 under the 2^nd 2008 Loan Agreement

64.  The main specific issues set out in the Company’s List of Issues were:

(1) Was the 1999 Loan a genuine loan?

(2) Did the 1^st 13.08.04 Letter represent a genuine acknowledgment of Indebtedness (as defined in the 1^st 13.08.04 Letter) by D?

(3) Were the 1996 and 1998 MFAs genuine loans?

(4) Did the 09.05.07 Letter represent a genuine acknowledgment of Indebtedness (as defined in the 09.05.07 Letter) by D?

(5) Was the 2^nd 2008 Loan Agreement a genuine loan?

65.  No list of issues had been filed on D’s side.  Mr Smith SC submitted on behalf of D that the key question for the court to determine was whether the 1994 Agreement existed or not.

66.  I will start with the issue of the alleged 1994 Agreement.

Did the 1994 Agreement exist?

D’s case

67.  D joined AXA as an insurance agent in about September 1982. Yang had joined that company earlier the same year in about January.

68.  D said by 1993, there were approximately 300 agents working under his charge at AXA and they were generating a substantial amount of overriding commissions for him (“Overriding Commissions”).

69.  According to D, Yang decided to leave AXA in 1993.  As it would be rather risky for Yang to set up a new insurance business on his own, before he left, he tried to secure the support and commitment of agency leaders at AXA.

70.  Quite a few of the AXA agency leaders approached by Yang had hesitation or reservation in joining him since the Company was essentially a new company acquired by Yang.  D said that as Chau and he had the largest number of agents working under them at the time at AXA, they were appointed by the other FALs to negotiate and to work out the deal with Yang.

71.  Eventually, according to D, the terms of the 1994 Agreement were reached, which contained partly oral terms and partly written terms reflected in documents which each FAL later signed with the Company.  The terms of the 1994 Agreement as set out by D in his 1^st witness statement consisted of[42]:

(i) The 7 FALs would each receive Overriding Commissions and other income or benefits from the Company according to the same formula/percentage and other terms that they used at AXA, calculated according to the income generated by the pool or “family” of agents trained, recruited and supervised by each FAL (ie his family of agents) (“Contractual Benefits”);

(ii) The Company would guarantee that the 7 FALs collectively would not suffer financially for departing AXA and joining the Company.  Therefore, each year if the collective Overriding Commissions paid by the Company to the 7 FALs was less than the collective income earned by the 7 FALs during their last year at AXA, the Company would arrange payments which would at a minimum make up that shortfall.  This was subsequently referred to by the parties under various different names, including “Revised Income” or “R.I.”, “Special Non-Contractual Benefits”, “Non-Contractual Benefits”, “NCBs”, “NC elements” and “Ex-Family Head Benefits” ( “Top Up Payments”);

(iii) In accordance with industry practice and/or the practice at AXA, each of the FALs would be responsible for their own team of agents as if building their own business, with the majority of administrative expenses and training expenses to be borne individually by each of the 7 FALs;

(iv) In accordance with industry practice and/or the practice at AXA, in addition to the commission income from the Contractual Benefits and the Top Up Payments, the 7 FALs would also be duly compensated on retirement or on termination of the 1994 Agreement for the creation of such family of agents as a persistent income-generating asset or business for the benefit of the Company.  Effectively, the family of agents created by each FAL was regarded as an “asset” that the Company was required to “buy-out” on the retirement or termination of each FAL (“Buy Out Entitlement”);

(v) On top of and notwithstanding the Contractual Benefits and the Top Up Payments, the Company would also supplement the income of the 7 FALs in any year with one-off bonuses such as rental bonuses, growth bonuses, loyalty bonuses, or bonus stock options, so as to give the FALs extra incentives to work hard and promote and generate business and revenue for the Company, as much as for the FALs (“Discretionary Bonuses”).

72.  To summarise, D’s case was under the alleged 1994 Agreement, he would be responsible for building up his team/family of agents and also be responsible for the majority of such related administrative and training expenses, and apart from the Contractual Benefits and Discretionary Bonuses, he would be entitled to:-

(i) Guaranteed Top Up Payments for the income of the 7 FALs to match the level of their last year’s income at AXA, and these  were later referred to as Ex Family Head Benefits; and

(ii) Buy Out Entitlement upon termination of his contract with the Company

73.  It was further D’s case that after the FALs joined the Company, the collective Overriding Commissions for the 1995-2000 Financial Years were less than the collective income of the 7 FALs during their last year at AXA, as the Company was essentially a new company.  Thus, during those years, pursuant to the 1994 Agreement, D said he and Chau representing the 7 FALs on one hand had held various discussions with Yang, and such discussions often took place about 2 to 3 months before the expiration of the preceding year expired, it was agreed that the 7 FALs would receive Top Up Payments in the form of purported loans (“Purported Loans”) which were in fact non-repayable, the amount of which was decided in discussions from year to year[43].

74.  In particular, D’s case was that it was made clear and agreed between Yang on the one hand and the 7 FALs on the other hand during the material time that[44]:

(i) The Purported Loans were made on the express understanding that they were not repayable as they were meant to be the Top Up Payments and to compensate for the shortfall in Overriding Commissions of the 7 FALs;

(ii) The Purported Loans would, in point of form only, appear to be loans described in the relevant documentation;

(iii) The reason the payments were described as loans was for the Company’s own accounting purposes, in particular in view of the fact that the Company was intending to be publicly listed, which made it even more necessary, as explained by Yang to the 7 FALs that such payments must be given every appearance of being loans.

The Company’s Case

75.  The Company denied what D had alleged, that the FALs would be responsible for their own team of agents “as if building their own business” or “their own assets”, as each agent within the team/family of each FAL was required to sign a contract with the Company, and not with the agency managers, and that these agents under the managers were not agents/employees of the managers.  However, there seemed to be no real dispute by the Company, and as said by its CCO, Yung, each of the agency managers/leaders would be responsible for his/her own team of agents with certain overhead costs.

76.  Yung had explained that the Company would remunerate selected agents (typically agency leaders) by way of making upfront loan/advances, and such agents would then repay their upfront loans/advances using their earnings, and that this arrangement would enable agents to pay for the overhead costs they had to incur before they would be able to generate business, and earn their commissions.  Yung had further explained that these upfront loans/advances were not made for the purpose of remunerating or rewarding the past performance of an agent, and they were forward-looking, and represented a forecast of that agent’s future earnings[45].

77.  Yung had also said that once paid out, the upfront loan/advance would be subsequently repaid and amortized using the earnings the agent actually made, and agents would not be out of pocket for as long as they were able to at least generate enough earnings to cover the payments, but this would not detract from the fact that the agents had a contractual obligation to repay those upfront loans/advances.

78.  It was the Company’s case that there was no 1994 Agreement as alleged by D, and in particular, no guarantee of Top Up Payments and no Buy Out Entitlement.

79.  It was further the Company’s case that whilst some vague assurances could well have been given by Yang to the FALs that they would not be financially worse off if they joined the Company, the evidence did not support a finding that there was such a 1994 Agreement on the terms alleged by D for the following reasons:

(a) It was inconsistent with the Agent’s Contract and the    Agency Manager’s Contract;

(b) It was inconsistent with the wording of the 1996 MFA, the 1998 MFA, and the 1999 Loan Agreement;

(c) It was inconsistent with the three 2003 Letters, namely the 09.06.03 Letter, the 12.08.03 Letter and the 15.09.03 Letter ;

(d) It was inconsistent with the 1^st 13.08.04 Letter and the 09.05.07 Letter ;

(e) None of the FALs could come up with any documentary evidence to support what they were saying about the 1994 Agreement; no documentary supporting evidence, whether contemporaneous or otherwise, had been adduced by D; and in circumstances where the written contracts speak for themselves, the burden would be upon D to establish that they did not reflect the reality;

(f) It was extraordinary (and unbelievable) that some 17 years after the event D would be able to recall an agreement containing the level of detail pleaded in his defence and counterclaim[46], and whilst it was possible to negotiate the Agent’s Contract and the Agency Manager’s Contract in considerable detail, and reduce the same to writing, it was remarkable that this was not done in the case of the alleged 1994 Agreement ;

(g) The inherent probability (dictated by commonsense as well as commercial sense) was that such assurances as could have been given by Yang were implicitly understood to be predicated on the FALs remaining as agents of the Company.

Analysis of the evidence

80.  According to D, Mak and Lau, the persons who were directly involved in the initial negotiations of the 1994 Agreement would be Yang on one side, and D and Chau on the other side on behalf of all the FALs.

81.  D’s Senior Counsel, Mr Smith, submitted that this court should draw an adverse inference against the Company for not calling Yang to give evidence in relation to the 1994 Agreement.  The Company had explained that Yang and the Company did not part on amicable terms, and that Yang was sued by the Company for a multitude of breaches of fiduciary duty.  I accept the Company’s explanation and that it was understandable under those circumstances the Company did not wish to call or subpoena Yang as a witness.  I decline to draw any adverse inference against the Company for not calling Yang.

82.  Apart from Yang, Chau was also not called by either party. D had tried to approach Chau to be a witness but it seemed that Chau was not willing to get involved[47].

83.  Yang and/or Chau should have been able to assist and to shed light on the alleged 1994 Agreement, and it was unfortunate that neither of them was called nor subpoenaed to give evidence.

84.  As stated by DJHC Au (as he then was) in Lee Fu Wing v Yan Po Ting Paul [2009] 5 HKLRD 513[48], in assessing the credibility of a party’s case on a particular issue, the court should take into consideration the following:

“(a) Whether the party’s case is inherently plausible or implausible;

(b) Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable;

(c) Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility.

(d) The demeanour of the witnesses.”

85.  Mr Bleach SC submitted on behalf of the Company that the parties’ respective submissions and evidence should be considered against the relevant factual matrix, the commerciality of the situation, the contemporaneous documentary evidence and inherent plausibility.

86.  The Company relied mainly on their records and documents, and also documents/contracts signed by D and the other FALs and the various memoranda/letters.  The Company’s case was, in particular, whatever might have been said by Yang was resolved initially by the 15.09.03 Letter and then subsequently by the 1^st 13.08.04 Letter and the 09.05.07 Letter.

87.  As mentioned earlier, the Company’s 6 witnesses all joined after the 7 FALs, with Kelly being the earliest who joined in about September 1994.  Ng joined in July 2000 and So joined in January 2002.  The other 3 witnesses only joined in mid or latter part of 2007.  None of these witnesses were therefore around when the alleged negotiations of the 1994 Agreement took place, and they were really not in a position to give evidence as to what happened at the time when the 7 FALS joined the Company in 1994.

88.  Kelly joined the Company about 7 months after D and the other 6 FALS joined.  She was in the Distribution Services and Support Department and had been responsible for the payroll, finances and compensations of the agents, and was responsible for the handling of D’s statements and accounts.  Kelly left the Company in July 2012 to concentrate on her studies for a master degree.  She attended the trial under a subpoena, although she had previously given a witness statement.

89.  Kelly had stated in her witness statement that the remuneration packages for senior insurance agents and agency leaders such as D contained various components, including up-front loans which would be subsequently repaid by the agent by way of the commission.

90.  Kelly admitted that her evidence was based on her having looked at the Company’s documents referred to by her and the figures and what she could see from those documents.  She confirmed that she did not take part in any of the discussions and decisions between Yang and D, or any other persons in 1994, nor did she take part in any social activities with those persons.  She thus would not have personal or direct knowledge of what oral arrangements or agreements which might have taken place between Yang and D.

91.  Although from my observation, Kelly is not an unreliable witness, I do not find her evidence of much help in deciding whether the alleged 1994 Agreement existed.  However, while she was explaining the various items on D’s 31.08.03 Statement[49], her evidence in relation to a short term promotional business campaign launched by the Company in 1996 called Bali Campaign would indicate that the Company was applying a bonus payable to D out of that campaign as repayment of his then outstanding amount to the Company.  This was also reflected in D’s Commission Statement for February 1996.  D had claimed that this bonus was in fact cut in half as the campaign was not successful, and while in the Commission Statement it was stated that he was paid the total amount, in fact he only received half of the bonus, the other half, HK$276,787.50, being applied towards set-off of the outstanding amount under 1995 MFA[50].  Although D had claimed that all this was fictional, he must have been aware at that time the Company had regarded those advance payments under the MFAs as outstanding indebtedness from him.

92.  What Kelly did confirm was that whether up to the date of the 31.08.05 Statement and thereafter, she did not receive any instructions from anyone in the Company to take any action against D to recover any outstanding amounts.

93.  The next of the Company’s witnesses who joined the Company in earlier years was Ng, an agency leader in the Company.  Although Ng met D in 1994 when they were both agency leaders at AXA, he was not one of the 7 FALs who left AXA in 1994 at the same time as D, and he only joined the Company in 2000 as a regional director.  Again, I do not find his evidence would help in deciding whether the alleged 1994 Agreement existed between D and the Company, and his evidence was mainly in relation to the 2^nd 2008 Agreement.

94.  Then So came into the picture.  So said he joined the Company on January 2002, and it was his evidence that at the time when he joined, there was already a dispute between the Company and certain agents including D who were alleging that promises had been made to them by Yang who was then about to depart as CEO of the Company, to the effect that various Purported Loans made to them by the Company between 1995 to 1999 were not repayable.

95.  When So gave evidence, he had referred to the above dispute several times describing it as a “historical problem”.  So also said that he had understood from Mr Francis Yuen (“Yuen”), the then Chairman of the Board of the Company that the Purported Loans were in fact all repayable by the FALs.  Yuen had not been called by the Company to give evidence.

96.  So said his position and the Company’s position was clear, that the Purported Loans were fully repayable loans, and that there was no evidence of any agreement by the Company to waive repayment from D and/or other FALs.  It was So’s evidence that notwithstanding their position, the new management team of the Company was at that time keen to maintain a good working relationship with the agents, and he was therefore assigned the task of reaching an amicable solution with the agents regarding the various Purported Loans and that in doing so, the Company was prepared to consider “different mechanisms” to enable the agents to repay their outstanding amounts.

97.  What is clear from So’s above evidence is that the issue of whether the Purported Loans were repayable and what Yang had said/promised the FALs was not a matter only raised by D after Termination Date or only during the present proceedings.  The disputes between D and/or other FALS on one hand and the Company on the other in relation to what So had described as “major” issues went at least as far back as 2002, before Yang left the Company.

98.  I accept there was no evidence produced by So or by any other of the Company’s witnesses, such as internal emails or memoranda, to indicate whether So or indeed any one from the management side had asked Yang at that time to clarify this historical problem.  So had explained that when he joined, there were obvious arguments or disputes between Yang and the Board, and as a newcomer to the Company, So just took on his responsibility and did what he was told to do.  He was further told by his boss Yuen that anything sensitive he should refer to Yuen.

99.  Mr Smith had attacked So as being an unreliable and/or incredible witness, and that his evidence revealed a slippery and evasive character.  In particular, Mr Smith said it was incredible that although So had the chance to work with Yang for about 1 ½ years before Yang left the Company, So did not clarify with Yang as to whether the Purported Loans were repayable, and that So did not keep a note or a record of his conversation with Yuen.

100.  What was criticized of So could equally be said against D, since D had not produced any record or memorandum, or a note of any of his discussions with Yang and/or So regarding the alleged 1994 Agreement or whether the Purported Loans were repayable.

101.  So had been described as the “company doctor” and would probably be diplomatic and tried to keep everyone in the Company happy and to smooth things out.  Having observed him in the witness stand, I find his evidence was clear.  I do not find him evasive, nor do I find him an unreliable witness.

102.  D’s case was that the agreement he had with Yang was in 1994 before he signed the written contracts with the Company, and that it was an oral agreement.

103.  D had called Mak and Lau, 2 of the 7 FALs who left AXA to join the Company at the same time as D to give evidence on his behalf.

104.  Mak had said that in late 1993 when the 7 FALs were invited by Yang to join the Company, they were offered not only shares in the Company but in addition, a guarantee that “financially they would not be worse off than before”.  Mak had further said that it was agreed by Yang before the FALs agreed to join the Company that their income, especially in terms of Overriding Commissions would be by and large maintained and if and when there was any shortfall, the Company would top it up[51].  That was why the loans appeared, namely they were the top-up difference, and there was a consensus among all of them that they did not need to repay such loans.  Mak had also said in his witness statement that it was never suggested or indicated by Yang or his successors, nor was it ever anticipated, still less agreed to by the FALs that the Company could take away their team/family of agents from them without first offering them a reasonable price or compensation, and that this was what Yang and the Company had promised the FALs.

105.  Lau’s evidence was that D and Chau were entrusted by the FALs to negotiate a deal with Yang and the agreement was that the Company would guarantee that financially, they would not be worse off for joining the Company, and to maintain their income level, the Company would give them guaranteed income and also top up payments.

106.  Lau had also said that when the FALs were with AXA, there were two divisions, (a) the “traditional” division and (b) the “finance contract/career representative” division, and that D, Mak, and him were in the (b) division, and that they were given “commission advance”, leaving adjustments to be made at the end of each year of service, and further, as most family heads or senior agency leaders were adverse to buy-outs,  they had complained about the practice, and thus for agents in the (b) division, no buy-out was ever called upon by the company.  It was further Lau’s evidence that in about mid 2008, he and Mak both felt that the Company was trying to get rid of them and it was better for them to call for a complete buy-out with the Company, and eventually they reached agreement with the Company on a complete buy-out.

107.  Both Mak and Lam admitted that any negotiations with Yang were conducted on Lau’s behalf by D and Chau.  They were not present and they were therefore not directly involved.  I found their evidence on the guarantee for Top Up Payments rather vague.  During the trial what Mak had said was that if after they joined the Company and the income they could get was less than they earned from the old company, the Company agreed to top up the difference and all those loans were the top up difference[52].  It was not clear when he referred to “less than they earned” at the old company, over what period of earnings he was referring to.

108.  Similarly, what Lau had said was that the guarantee from the Company was that they would not earn less than before and that it required time for the new team to be built up and that it was promised to them that the sum of money did not need to be repaid and was a subsidy to them[53]. Neither Mak nor Lau had really given the kind of details as set out by D in his witness statement in relation to the guaranteed Top Up Payments in the alleged 1994 Agreement being calculated with reference to the collective income of the FALs during their last year at AXA.

109.  As for the Buy Out Entitlement, all Mak said was that he did not think Yang would take away their agents without offering them a buy out.  According to Lau, neither he nor Mak, nor D had any buy out at AXA, and further that it was he and Mak who called for a complete buy out with the Company in 2008.

110.  I accept that there was no evidence from the Company’s side to contradict D’s evidence that he was already an agency leader at AXA with about 300 agents under him and I accept that as not every agent under D would leave with him, he would suffer a drop in income in joining the Company.  It is therefore inherently plausible that Yang would have given promises to D, and/or other FALs, that financially D, and/or the FALs, would not be worse off for joining the Company.  Yang was leaving AXA to set up the Company and no doubt, and indeed it would be natural of him to wish to entice as many agency leaders to join him as possible.

111.  I am therefore prepared to accept that before the Commencement Date, there had been verbal promises made by Yang to D that financially D, and/or the other FALs, would not be worse off for joining the Company.  Whether such promises mounted to the alleged 1994 Agreement between the Company and D consisting of those details alleged by D would in my view be another matter.

112.  The main issues in relation to the alleged 1994 Agreement were over the alleged terms of the guarantee of the Top Up Payments and the Buy Out Entitlement.

113.  What D had said, in so far as the guarantee of the Top Up Payments was concerned, was for the 5 financial years 1995-2000, the collective Overriding Commissions paid by the Company each year to the 7 FALs was less than the collective income of the 7 FALs during their last year at AXA[54].

114.  As to what was the amount of the collective income of the 7 FALs during their last year at AXA, D had said in his answer to the Company’s request for further and better particulars that he recalled that such should be in the order of some HK$14 to $15m[55].  It was not clear whether this was before or after tax, or net of expenses.  There was also no supporting evidence produced by D, and further it was only based on his recollection some 17 years later.  There was also no sufficient evidence as to the amount of the collective Overriding Commissions of the 7 FALs for each of those 5 years. 

115.  In the defence and counterclaim, D had also referred to him and Chau on behalf of all the FALs on one part and Yang on the other part had agreed to the 1994 Agreement being varied by the 2000 Variation Agreement under which a “performance-based bonus” would be added to the calculation of the Top Up Payments[56].  Then, according to D, from the financial year ending March 2001 to the financial year ending March 2003, the 7 FALs’ collective “performance-based bonus” was insufficient to cover their collective shortfall compared to their last year at AXA income and it was only from the financial year ending in March 2003 onwards that the Top Up Payments had exceeded their last year at AXA. When asked the income of each FAL during his/her last year at AXA in the Company’s request for further and better particulars, D’s answer was that he was told by So[57].

116.  I do not understand how or why So would have the information as to what each of the 7 FALs was earning or were collectively earning during their last year at AXA.  Anyway, there was no evidence that So did have such information.

117.  During the 5 financial years from 1 April 1994 unto 31 March 2000, it would appear from the tax returns the Company submitted in respect of D, the total commissions/remuneration received by him was HK$ 23,220,898, averaging about HK$4.6m a year, but since D did not produce his tax returns during his last year with AXA, his income for 1993 was unknown.  It seems even assuming the other FALs earned 50% less than D, the total collective income of the FALs would average about HK$18.4m a year for those 5 years , which would be more than what D recollected to be their last year’s income at AXA.

118.  Anyway, whether my calculations were correct or not, I find it not at all clear how the Top Up Payments were to be calculated under the alleged 1994 Agreement.  I find this alleged term to be vague and not really inherently plausible, as it would not seem to make commercial sense for the Company to agree to guarantee Top Up Payments linked to a 1993 collective income figure for an indefinite period of time without any conditions, and without any proper record of what that 1993 income of all or each of FALs was.  Otherwise, this would mean an agent could receive Top Up Payments indefinitely even if he under-performed for whatever reasons.

119.  As mentioned earlier, D had alleged that there was the 2000 Variation Agreement to the effect that a “performance-based bonus” would be added to the calculation of the Top Up Payments to the 7 FALs and that this “performance-based bonus” and the formula by which it was calculated was recorded in “written memoranda” from time to time.

120.  The alleged 2000 Variation Agreement was not in writing, and again, according to D, this was an oral agreement.  It is not clear which memoranda D was referring to in support of the alleged oral 2000 Variation Agreement.  Those performance-based bonuses mentioned by D as being part of the 2000 Variation Agreement appeared to be those set out in the 1^st 15.10.02 Letter signed by Yang on behalf of the Company in relation to the New Compensation Design.  There was no reference in this letter by Yang or any indication that the New Compensation Design was in relation to any variation of any 1994 Agreement.

121.  Further, Mak or Lau did not seem to have mentioned anything about a variation of the 1994 Agreement in 2000.

122.  As for the Buy Out Entitlement, D had subpoenaed Fung, the Company’s former Chief Agency Officer to give evidence on his behalf.  Although Fung had referred to there being an industry practice of a buy out , such would be in cases when an agency manager retired or his contract terminated on amicable terms, and there would be none when the contract was terminated for cause.  Neither D, nor Lau, nor Mak had received this entitlement in their division at AXA.  D had said that was why he did raise it with Yang as part of the 1994 Agreement. However, Fung’s evidence also indicated that in practice any buy out would be something which would need to be negotiated and calculations would be complicated.  This would also seem to be supported by what Lau had said, that the buy out could be based on 2 or 3 past year’s income and also what the former CEO Chan had said.  Also, there would be an element of “lock in” required as demonstrated when Mak and Lau became consultants.

123.  I accept Mr Bleach’s submission that it was inherently implausible for Yang to agree to a Buy Out Entitlement for D or any other FALs in 1994 with no conditions and no “lock in” period.  I further accept Mr Bleach’s submissions that it would seem odd that Yang would be contemplating a termination and/or discussing the Buy Out Entitlement with D and/or other FALs in 1994 when he was enticing or persuading them to join.

124.  D had agreed during cross-examination that the problem with oral contracts was one party could say one thing, and the other party denying it, but D said in reality in daily life many things would be agreed orally and that if he trusted a person, then oral agreement would be alright.

125.  D had explained that he and Yang had taken a rather informal or flexible attitude regarding the need to record the agreed terms and the reasons included (i) the trust he and the FALs had in Yang (ii) he and the FLAs agreed to join and support Yang not only because they trusted Yang, but also they would like to develop a career or business under the leadership of Yang, who was their “spiritual leader or boss”.

126.  D started working as an insurance agent in 1980, and by 1994, he had been working for 14 years as an insurance agent and was a senior agency leader.  He had also started a property trading and investment business in 1989 or 1990.

127.  D had said in his industry, when an agent joined an insurance company, the contract the agent signed would be a standard contract and that most people did not have the time to read it before the contract was signed.  When asked about the Agency Manager’s Contract he signed in 1995, D answered that frankly speaking he did not read it.

128.  I do not find this credible.  According to D, the negotiations with Yang regarding the alleged 1994 Agreement went on for some time. He thus had had plenty of time to ask Yang to reduce into writing whatever was discussed and agreed orally between them, if indeed there had been the 1994 Agreement with all the details and terms as set out by him. The ball was at that time in his court, since D’s evidence was that Yang was the one who was persuading or enticing him and the other FALs to leave AXA.

129.  Further, as set out earlier, D had signed one Agent’s Contract, and no less than 4 manager’s contracts within the 12 months he joined the Company before the final Agency Manager’s Contract.

130.  The Agent’s Contract and various manager’s contracts set out clearly the terms of his appointment and remuneration as an agent and agency manager with the Company.  Apart from the Contractual Benefits, there were no such terms in relation to the guarantee for the Top Up Payments or the Buy Out Entitlement in the Agency Contract or in the Agency Manager’s Contract, or in any of the earlier manager’s contracts he signed.  I cannot believe that D would simply sign documents or contracts without reading them as he seemed to claim.  If they were indeed standard contracts, he would have signed similar contracts before, and he should know full well that there would not be any provisions with regards to the any guarantee for Top Up Payments or the Buy Out Entitlement therein.  The Company was a new one, and he had a good relationship with Yang, and yet, there seemed to be no evidence that D had even tried to raise with Yang the matter of including such provisions in those contracts he had signed.

131.  In fact, there had been various revisions in the calculations of remuneration in the schedules attached to the various manager’s contracts before the final the Agency Manager’s Contract.  The schedules contained detailed calculations.  The provisions, terms and conditions in Agent’s Contract and the various manager’s contracts were in considerable detail.  There was no evidence as to why those contracts could not have been revised to include the alleged terms of the guarantee for Top Up Payments and the Buy Out Entitlement.

132.  From my observation of D, he is a clever and shrewd man and no doubt hard working.  I accept what he said, he was the only one of the 7 FALs who managed to steadily expand his family of agents.  By the time of the Termination Date, he was a very successful insurance agent having built up, according to him, about 998 agents under him.  Even though there was no admission by the Company on this, Fraser’s evidence was he believed that was about the quantum. Although D gave his evidence in Cantonese, he clearly understood and read English since he did not require interpretation for any of his affirmations and witness statements, and he was also reading the live notes coming on the screen on the witness stand.  His 4^th affirmation in the Summary Judgment proceedings was a detailed one, and his 1^st witness statement was also lengthy and detailed and there was a further supplemental statement, and then at the trial, leave was given for him to submit top up evidence.  In my view, all these documents indicate D is of a meticulous character.

133.  The terms of the Agent’s Contract and the Agency Manager’s Contract both contained “entire agreement clauses”, under which any prior agreement or understanding would be superseded.  Whether the Company was entitled to rely on these clauses or no, as D himself had said these were standard contracts, he should be aware of those clauses. In fact, D had himself admitted during cross examination that even if he did not bother to read a contract, but if he signed it, he would be bound by it[58].

134.  Mr Smith had submitted that the pattern of “financing” paid to D after the Commencement Date in 1994 until 2003 was fully consistent with the guaranteed Top Up Payments under the 1994 Agreement and in particular he referred to the 1994 MGFS and the 2001 MGFS.

135.  I find that the above Financing Documents signed by D concerning advance payments were equally consistent with the Company’s case and that they were only indicative of the practice of the Company to pay to D a sum calculated in accordance with certain formulae/projections, by monthly instalments, as an advance payment against his earned remuneration, as explained by Yung.  Further, in my view, whether those excess advances were repayable would depend on the terms of each of those documents.

136.  I find that such practice had nothing to do with any alleged 1994 Agreement.  It further seems from Lau’s evidence that even at AXA, there was the practice that AXA would give the agents “commission advance” and adjustments to be made at the end of each year[59].

137.  Having considered the evidence, although I accept that there were verbal promises from Yang that D and the other FALs would not be financially worse off in joining the Company, I find that such verbal promises made by Yang were vague, and that there was no sufficient evidence that such verbal promises resulted in any concrete agreement between the Company and D containing those detailed terms set out by him, in particular in relation to any guaranteed Top Up Payments or the Buy Out Entitlement.

Whether the Purported Loans were repayable

Generally

138.  As mentioned earlier, generally speaking, there were at least 3 main types of Financing Documents which D had signed from the Commencement Date until the introduction of the New Package, namely the MGFSs, the MFAs, and the 1999 Loan Agreement.  The 1999 Loan Agreement seemed to be the only one of its kind signed.  Further, prior to the New Package, there were “gap” periods not covered by those 3 main types of Financing Documents during which D seemed to have signed the CAR Forms or similar forms.

139.  The MGFSs, the MFAs and the 1999 Loan Agreement contained quite different terms, and in my view, each type should be considered separately.

140.  The first of such Financing Document signed by D and the Company was the 1994 MGFS.  The 1994 MGFS referred to advance payments to D as “Guarantee Finance” and payable within a “Guarantee Period” of 12 months.  During the “Guarantee Period”, all D’s earned remuneration were to be withheld and set off against the Guarantee Finance, and within 30 days of the end of the Guarantee Period, the Company was to pay to D the amount by which his total earned remuneration was to exceed the total Guarantee Finance paid during the Guarantee Period.

141.  Clause 4 of the 1994 MGFS provided that D could cancel the arrangements at any time during the Guarantee Period, and Clause 5 stated that upon termination of the manager’s contract for any reason, the arrangements in the 1994 MGFS was to be terminated automatically.

142.  There was no provision in the 1994 MGFS in relation to any refund/repayment of any excess of the Guarantee Finance paid by the Company upon cancellation by D or upon any termination for any reason. In fact, Cause 5 of the 1994 MGFS seemed to indicate what the Company contemplated at that time was that there would be an under-payment by the Company rather than an over-payment.

143.  The “Guaranteed Period” was for a maximum period of 12 months from the Commencement Date, ie 21 February 1994. The Guaranteed Finance was HK$362,500 per month.

144.  On D’s Commission Statement for February 1994 there was an item “162:Finance Guaranteed” of HK$358,881.74 and two other items marked respectively “135” and “137”, totaling HK$362,500.  Then for the month of March 1994 onwards until March 1995, every month, as indicated on the Commission Statements, there would be a payment with the code “162:Glory Finance” (“Code 162”).

145.  There were at least 3 documents issued by the Company to assist agents in filing their tax returns (IR56M) in early years, a memorandum dated 6 May 1996[60] (“Tax Memorandum”) and “Rules & Regulations” for the years 31 March 1997[61] (“Tax Rules & Regulations”).  It was clearly stated on the Tax Memorandum that under Code 162, any excess of the advance over the commissions withheld was non-repayable to the Company.  Further, in the Tax Rules and Regulations, as advised by the Company’s then accountants Coopers & Lybrand, the advance under Code 162, being “Guarantee Finance”, should be reported as income for the period by the agent.

146.  In fact, for the financial year from 1 April 1994 to 31 March 1995, the Company had filed an “Employer’s Return” for D and reporting him to the Inland Revenue Department as an “employee” and thus treating D as an employee rather than only as an agent. It would appear that the “Guarantee Finance” was reported therein to be D’s taxable income as an employee.  Anyway, it is clear from the Company’s own documents that any “Guarantee Finance” paid to D under Code 162 during the “Guarantee Period” of the 1994 MGFS were not repayable by D.

147.  For the following year, the parties signed the 1995 MFA.  This was quite a different document from the 1994 MGFS.  Although the amount of the advance payment, referred to as “Advance Remuneration” in the 1995 MFA was exactly the same as the “Guarantee Finance” in the 1994 MGFS, there were new provisions in the 1995 MFA.  In particular there was a new Clause 6 and a new Clause 7.

148.  Clause 6 provided for the repayment by D in the event that the total “Advance Remuneration” paid at the end of the Financing Period was to exceed D’s total earned remuneration. There were also provisions for payment of interest in the event that D was not able to repay.  The new Clause 7 further stated that a statement as to the balance owing by D signed by one of the Company’s Officers, in the absence of error in computation, was to be final and conclusive and binding on D.

149.  As from April 1995 until the end of that year, as reflected on D’s Commission Statements, the “Advance Remuneration” in the 1995 MFA was paid to D under codes “163:Rollover Finance” (“Code 163”)  and “165:Pacific Finance” (“Code 165”).

150.  It was stated in the Tax Memorandum payments under Code 163 and Code 165 should not be reported as income and that the advances under Code 163 and Code 165 were due for repayment but if the Company decided not to take recovery action, those amounts would be reported as income.  In particular, the Tax Rules & Regulations clearly stated that advances under Codes 161, 163 and 165 were not income as they were repayable to the Company, subject to an exception that if the Company decided not to take recovery action, the non-recovery amounts should be reported as income in the IR 56M, and the non-recovery amount should be included in the return for the year of assessment during which the Company had made such decision.

151.  The 1996 MFA and the 1998 MFA contained similar provisions as in the 1995 MFS in relation to D having to account for any excess advance payments by the Company and the repayment thereof. From January 1996 until December 1996, the advance payments provided in the 1996 MFA were paid under Code 165.  Likewise, the advance payments provided in the 1998 MFA as from June 1998 to March 1999 were also paid under Code 165.  On the face of these documents, and at the time of signing of the 1996 MFA and the 1998 MFA, any excess of the advance payments under these two MFAs would clearly be accountable and repayable by D.

152.  Then the 1999 Loan Agreement came into the picture, a sum of HK$1,692,000 was to be advanced to D by 12 monthly instalments of HK$141,000 by the Company as from 30 April 1999 until 31 March 2000, and interest was stated to be payable at the end of each calendar month.  The 1999 Loan was to be repaid with accrued interest on 30 April 2004.

153.  The monthly instalment seemed to have been paid to D under “Code 616: Loan-Special: New Loan” from May 1999 onwards until March 2000.  There was no evidence that the Company had reported the monthly instalments of the 1999 Loan to the Inland Revenue Department as being remuneration paid to D.   In my view, again on the face of the document, the 1999 Loan was clearly repayable by D.

154.  After the 1999 Loan Agreement, the parties signed the 2001 MGFS, which contained similar provisions as the 1994 MGFS with no repayment provisions, the advance payments said to be for 9 months from 1 April 2001 were again paid by the Company under Code 162 until January 2002.  Again Clause 5 thereof seemed to indicate that the Company had contemplated under-payment rather than any over-payment.  On the same basis as the 1994 MGFS, I am of the view that the excess advance payments under the 2001 MGFS, if any, should not be repayable by D.

155.  After December 2001, according to D, from April 2002 to January 2003, D was then asked to sign the CAR Forms, which were Purported Loans where repayment terms were not specified. It appears that the Company did not claim any repayments of any sums paid under the CAR Forms from D.

156.  The New Compensation Design with the revised remuneration for D was brought in by the 1^st 15.10.02 Letter which took retrospective effect as from 1 April 2002.  According to D, upon implementation of the New Compensation Design, there were adjustments and payments.  I accept that any sums paid to D under Code 162 for January to March 2002 should not be repayable by him. 

157.  I accept that for whatever reasons, the Company had adopted different types of Financing Documents for the advances but this in my view not be sufficient to support D’s case that the outstanding amounts under the 1996 and 1998 MFAs and the 1999 Loan Agreement were not repayable.

158.  It was D’s case that the advances under the MFAs and the 1999 Loan Agreement were not genuine loans and that the Company had a well-established practice of dressing up transactions as loans for accounting purposes when they were not in fact loans. Mr Smith had referred to two examples, the first one being the buyout for Mak and Lau which was structured as a “cash loan” for accounting purposes and by doing so and setting it off against artificially attributed income, the Company could keep the loan as an asset on its books over three years and gradually amortize it to the benefit of the Company’s profit and loss accounts.  The second example was the HK$5m special payment made to Ng and D in November 2008 as a result of a recruitment scheme, and Ng’s evidence was that the payment was a bonus or reward which was packaged as a loan.  Again, Mr Smith submitted that the sole purpose of structuring the transaction as a loan was for accounting purpose.

159.  Both the buy out for Mak and Lau, and also the special payment of HK$5m were subject to conditions, and whether the Company had structured these transactions as loans for accounting purposes was in my view irrelevant, since the recipients had agreed to those payment conditions.

160.  Mr Smith had also submitted that as the repayments dates of the MFAs were all “on demand” and thus this would support D’s case that they were not genuine loans.

161.  I accept that the advances under the MFAs were different nature from any loans D requested from the Company for his personal purposes, but this did not mean that there was no genuine indebtedness created under the MFAs, or the 1999 Loan Agreement, as agreed and acknowledged by D under the 1^st and the 2^nd 13.08.04 Letters and the 09.05.07 Letter.  The Company only agreed to write off those indebtedness subject to the conditions therein, which again were agreed to by D.  Thus, in the present circumstances, the indebtedness under those Financing Documents were clearly repayable by D.

Waiver and/or Estoppel

162.  There was in fact no specific pleading of waiver in the defence and counterclaim.  D had only pleaded that as he had relied on assurances made on behalf of the Company and  the Company was estopped from :

(i)     denying that the true nature of the payments under each of the MFAs and/or the 1999 Loan Agreement were part of the Top Up Payments;

(ii)    asserting that the payments under the MFAs and/or the 1999 Loan Agreement were loans notwithstanding that they were so described in the said documents;

(iii)   relying on any clauses in the said documents purporting to provide that the contents of the said documents contained the entire agreement between the parties.

163.  The assurances D relied on and as pleaded[62], were as follows:

(1) In 1996, the Company had agreed to pay Top Up Payments to D in the amount of HK$1,897,092.50 and at the Company’s request, the payment was made, in point of form only, as an apparent loan and D was requested by Yang to sign the 1996 MFA, and Yang had orally assured D that the money paid was not repayable;

(2) In 1998, the Company had agreed to pay Top Up Payments  to D in the amount of HK$1,500,000 and at the Company’s request, the payment was made, in point of form only, as an apparent loan and D was requested by Yang to sign the 1998 MFA, and Yang had orally assured D that the money paid was not repayable;

(3) In order to induce D to sign 1999 Loan Agreement, Yang had orally assured him that the money to be paid to him in purported pursuance to the 1999 Loan Agreement was not repayable;

(4) The 1^st 13.08.04 Letter was signed by D on the express assurances by So, that (a) it was necessary for the Company’s  accounting purposes that D should acknowledge in writing the purported debt of HK$1,692,000, and that the Company should appear to extend time for repaying this purported debt; and (c) that P would not claim repayment of any part of the said amount, being the Ex Family Head Beneifts;

(5) The 09.05.07 Letter was signed by D on the express assurances by So that (a) it was necessary for the Company’s  accounting purposes that D should acknowledge in writing the extent to which the purported indebtedness under the two purported MFAs remained outstanding; and that the Company should appear to extend time for repaying this purported debt; and (c) that the Company would not claim repayment of any part of the said amount, being the Ex Family Head Benefits;

Yang’s Alleged Assurances

164.  I accept that Kelly had said she was never instructed by the management level of the Company to take any action against D to enforce repayment of any payments under the relevant Financing Documents. Further the repayments dates of the MFAs were “on demand”. Under the Tax Memorandum and the Tax Rules & Regulations in 1996 and 1997, it was clearly contemplated by the Company that it could decide not to take recovery action on any finances/advances/loans, but the amounts should then be reported as the agent’s income in the IR56M Form.  This in my view would be a decision which the Company could at its discretion make.  There was no evidence that the Company had already made such a decision not to take recovery action and to report any of D’s outstanding amounts under the MFAs and/or the 1999 Loan Agreement to the Inland Revenue as D’s income.  In fact, as set out in the two 2004 Letters and the 09.05.07 Letter, the Company clearly had not yet written off D’s indebtedness under those Financing Documents.

165.  Mak had said that he also signed similar documents and that Yang had confirmed to him that any outstanding amounts would not be repayable, and Lau’s evidence was similar.  Even though I accept that Yang had made verbal promises before the FALs joined the Company that they were not be financially worse off, there had been no documentary evidence produced by D, Mak, or Lau to show that Yang had assured them or had agreed with them that those payments under the MFAs or the 1999 Loan Agreement were not repayable.  There were no contemporaneous records or notes of any discussions or negotiations between D and/or Chau and/or other FALs on one part and Yang on the other.

166.  Further, in the 2^nd 15.10.02 Letter, it was stated therein that the Company would grant a loan to D as advance remuneration for the difference if the revised income set out in the 1^st 15.10.02 was to be lower than the income received by D in March 2002.  The advance remuneration was clearly stated to be repayable.  Although the 1^st and 2^nd 15.10.02 Letters were in relation to the New Compensation Design, but it was consistent with the Company’s position that any excess in advance remuneration would be repayable.  This letter was signed by Yang, and D counter-signed agreeing and accepting the arrangement.  Yang had not yet left the Company and there was no reason as to why D could not have obtained any written agreement or clarification from Yang to the effect that any excess advance payments under the MFAs or the 1999 Loan Agreement would not be repayable by D.

167.  In fact, although the 3^rd 15.10.02 Letter which was signed by Yang on behalf of the Company[63] confirmed waiving interest on the 1999 Loan with effect from 1 October 2002, this letter had also referred to the amount of HK$1,692,000 paid under the 1999 Loan Agreement as a loan, and also stated specifically that the waiver of interest should not prejudice to any accrued rights of the parties under the 1999 Loan Agreement.  I find it clear in this the letter that Yang, who signed the letter on behalf of the Company, had himself regarded the 1999 Loan as a repayable loan from D.

168.  When D received the 09.05.03 Letter signed by So, Yang had not yet left the Company.  This letter had set out the amount of D’s then outstanding balance under the 1995 and 1996 MFAs and that any bonus payable by the Company as set out in that letter would be used to offset all of part of D’s said outstanding balance.  D could have approached Yang for a written clarification or confirmation that the outstanding amounts should not be repayable and yet there was no evidence that he did so, even though he must know Yang was about to leave.  Instead, D signed on the letter agreeing to the arrangement and terms set out therein.

169.  I have found that Yang had made vague verbal assurances to D and the other FALs prior to joining the Company that they would not be financially worse off, and I accept that after joining, D and the other FALs had raised with Yang the matter of repayment of advances under the Financing Documents with Yang and this was what was called the “historical problem”.  The burden is on D to prove that the Yang did then give assurances on behalf of the Company that the advances were not repayable. Having considered the evidence before the court, in particular those documents signed by Yang himself, I do not find there was sufficient evidence that Yang had on behalf of the Company made any assurances to D that the amounts outstanding under the MFAs or the 1999 Loan Agreement were not repayable.

So’s Alleged Assurances

170.  The intention of the Company behind the three 2003 Letters was to declare a “Special Year-end Bonus” to offset part or all D’s outstanding balance under 3 MFAs, the 1995, 1996, and the 1998 MFA, but this was again subject to the conditions therein.  D had signed on all these letters to signify his agreement to the terms therein.  Thereafter, the Company declared a “Special Year-end Bonuses” to offset D’s outstanding balance of the 1995 MFA. 

171.  By 8 May 2007, D’s only outstanding balance was under the 1996 and the 1998 MFAs.  As mentioned earlier, the Company then agreed to extend the time for repayment of this indebtedness with no interest and to write them off eventually subject to the conditions stated in the 09.05.07 Letter. 

172.  As for the 1999 Loan, in an earlier letter, namely the 1^st 13.08.04 Letter, the Company had also agreed to extend the time for repayment of the 1999 Loan with no interest and to write off the indebtedness under the 1999 Loan Agreement and to write them off eventually subject to the conditions therein.

173.  As mentioned earlier, D had acknowledged his then indebtedness under the 1996 and 1998 MFAs and the 1999 Loan Agreement in the 1^st 13.08.04 Letter and the 09.05.07 Letter.  At the hearing of his appeal before Fok J, as he then was, D had not given any explanation in his earlier affirmations as to why he signed those two letters.  It was only in D’s 4^th affirmation that he had explained that it was based on So’s oral assurances.  As stated by Kwan JA in the appeal, there was no reason why such matters could not have been dealt with , properly or at all, in his earlier affirmations/s[64].

174.  D had said in his 1^st witness statement that after So first introduced the so called “Special Year-end Bonus” scheme, there had been complaints from the FALs that the scheme was not working, and that So had “from time to time assured all of them that the Company would definitely write off everything at the time of their retirement or death etc…”[65].  Then he said, by early 2007, when it became increasingly clear that no matter how hard So tried to amend the terms of this fictional bonus scheme again and again, this scheme still did not work for at least some of the FALs who kept complaining to So and that what So eventually put forward was essentially an unconditional “write-off”, which was devised by So to take place, “in name”, on retirement or death, and this was how the 09.05.07 Letter came into being[66].

175.  D then said So kept telling D that as he had about 1,000 agents in his family, the Company would never consider firing him, given his significant contribution to the Company, nor would he lightly consider joining other insurance companies and thus, there was no question that he would continue working for the Company until retirement or death and that it was just a matter of time that all such “fictional” debts would be fully written off or resolved, and that it was upon such of So’s oral assurances that the 09.05.07 Letter was signed by him.

176.  As for why D signed the 1^st 13.08.04 Letter acknowledging the 1999 Loan, his explanation was similar to the one he gave for signing the 09.05.07 Letter, that So kept telling him and others that they would have to be patient as the Company had listed, and he would need time to resolve the historical problem and that he could only do this by stages and that they should trust him[67].

177.  Even on D’s own case, he was clearly fully aware that whatever indebtedness under the MFAs and the 1999 Loan Agreement would only be written off when he reached retirement or termination of contracts subject to the conditions set out in the 1^st 13.08.04 Letter and the 09.05.07 Letter.  Anyway, even Lau had said in respect of his own indebtedness under the MFAs as to what So said to him was “If you are not leaving, I’m not chasing after you for repayment”[68].  D’s relationship with So was not as close as his with Yang and there was no reasonable explanation from D as to why he had not insisted on having something in writing, or at least he should have kept a contemporaneous record of what he said was assured by So.

178.  As I have mentioned earlier in this judgment, I do not find So un unreliable witness.  So was charged with the responsibility to resolve the “historical problem” which arose out of D’s or other FALs’ allegations of oral promises/agreements by Yang.  When So gave evidence, he had said he “hates” anything oral[69].  Having heard So’s evidence, I really do not find it inherently plausible that having been charged with the responsibility of solving the “historical problem”, So would then again made oral assurances as alleged by D.  I do not find what D said was credible and I reject his evidence in this regard.

Conclusion on the Purported Loans under the 1996 and 1998 MFAs and the 1999 Loan Agreement

179.  Having considered the evidence, I conclude that there had been no waiver by the Company and there had been no assurances by Yang and So as alleged by D to create any estoppel as pleaded, and as clearly provided in the 1996 MFA, the 1998 MFA and the 1999 Loan Agreement, and also the 1^st 13.08.04 Letter and the 09.05.07 Letter, I find D liable to repay any outstanding amounts to the Company under those MFAs and the 1999 Loan Agreement.

180.  However, I am not certain whether the amounts claimed by the Company would be correct in view my findings that D would not be liable to repay any excess advances under the two MGFSs.  It is not clear whether the Company had applied any bonuses or any of D’s entitlements in the course of his agency, such as 50% of what he was entitled to under the Bali Campaign, towards repayment under the MGFSs, and if so, these should be applied towards D’s liability under the MFAs and/or the 1999 Loan Agreement instead.

181.  As for the interest on the 1999 Loan, D’s evidence was that the pre-October 2002 interest of the total sum of HK$484, 968.06 had been cancelled out by the Company and that in the 3^rd 15.10.02 Letter, the Company had waived any interest on the 1999 Loan as from 1 October 2002 onwards.  This was also supported by Mak’s evidence.  I accept D’s evidence in this regard.  I find that the Company had agreed to waive interest on the 1999 Loan as from 1 October 2002 onwards and interest should not be payable until Termination Date.

182.  I would therefore ask the Company to confirm again the exact amount of D’s outstanding amounts under the 1996 and 1998 MFAs and the 1999 Loan Agreement and the amount of interests.

Whether the loan in the 2^nd 2008 Loan Agreement was a genuine loan

183.  It was D’s pleaded case that the sum of HK$20m paid by P to D under the 2^nd 2008 Loan Agreement in fact represented a settlement sum in full and final settlement of the Ex Family Head Benefits being part of the Buy Out Entitlement he would be entitled to on termination under the 1994 Agreement.

184.  I have already concluded earlier that there was no 1994 Agreement containing any Buy Out Entitlement on retirement or on termination of the 1994 Agreement as alleged by D.  Further, when the parties entered into the 2^nd 2008 Agreement, there was no sufficient evidence that the parties were contemplating D’s retirement or a termination of his Agent’s Contract or Agency Manager’s Contract at that time.

185.  D had not denied that in September or October 2008, he was in dire need of money to finance his property investments, and that according to him, Fraser had told him that he Company had declined his request but offered to buy out both his Contractual Benefits and his Ex Family Head Benefits on like terms as offered to Mak and Lau, and the price offered was only about HK$41m.  D said after further discussions he only agreed to offer a buy out of his Ex Family Head Benefits for an agreed price of HK$20m, plus the Company would grant him a special loan of HK$10m.  The HK$10m was paid to D under the 1^st 2008 Loan Agreement, which D had admitted was a repayable loan.

186.  As for the sum of HK$20m paid to him under the 2^nd 2008 Loan, D said as this was a buy out arrangement and therefore not repayable.

187.  It was further D’s case that to induce D to sign the said document, Fraser had orally assured D that the money to be paid to him under the 2^nd 2008 Loan Agreement was not repayable, and that it was described as a loan purely for P’s accounting purposes, and that D had relied on such assurances in signing the document. As a result, the Company was estopped from asserting that the buy out payment was a loan or relying on the “entire agreement clause” in the 2^nd 2008 Loan Agreement.

188.  At the same time that D signed the 2^nd 2008 Agreement, P had requested D to sign a Deed of Relinquishment whereby D had confirmed that he had relinquished his claim to the Ex Family Head Benefits.

189.  Fraser had said that when he joined in July 2007, the Company already had the intention to cancel the Ex Family Head Benefits for the selected senior agents[70].

190.  Further, it would seem that towards end of 2008, the only two senior agents/agency managers who were still entitled to those Ex Family Head Benefits were Ng and D.  D’s case there were others but I accept the Company’s case that there were only Ng and D. There was no dispute that D needed a loan urgently at that time, and the Company clearly seized this as an opportunity to try and discuss with the two of them to in relation to the cancellation of such of their benefits.

191.  The Company had maintained that those Ex Family Head Benefits were discretionary benefits to which that D had no strict entitlement.  Ng, the other executive regional director who was still receiving these benefits at that time gave evidence on behalf of the Company and although he had said these benefits were discretionary benefits, he had also said he and D were “entitled to be awarded these benefits”[71].

192.  The memorandum which So sent to D on 8 January 2004 had stated the granting of the “Special Non-Contractual Bonus” to D by the Company with detailed calculations set out, and this was followed by the letter of 16 February 2004 from the Company to D setting out D’s benefits at the time when the New Package was introduced.  It was clearly stated that D would be “entitled to” the various types of non-contractual benefits namely the Ex Family Head Benefits as set out in the earlier memorandum.  This “entitlement” to the Ex Family Head Benefits was also reflected in an internal memorandum of the Company of 18 February 2004[72]. Thereafter, each year, there would be a memorandum sent to D from So in the first quarter of each calendar year setting out the “RD Benefits” for that year.

193.  Although it was stated in some of these memoranda that the non-contractual benefits, namely the Ex Family Head Benefits were subject to review at end of each year, it appears that what was subject to review would only be the amounts or formulae for calculations of the benefits for the following year.

194.  I find that after the New Package, D was entitled to be awarded such Ex Family Head Benefits.  D’s case was that the 2^nd 2008 Loan Agreement was an agreement to buy out D’s entitlement to these benefits.  Although the Company had originally denied that the 2^nd 2008 Loan Agreement was a buy out, it seemed from Fraser’s own evidence that there was an element of buy out, save that it was subject to conditions[73].

195.  I accept the 2^nd 2008 Loan Agreement was a buy out of D’s Ex Family Head Benefits structured by the Company as a loan, but I find that such buy out was clearly subject to the conditions set out in the 2^nd 2008 Agreement.

196.  Fraser had said that he had told D that any payment made to D required a corresponding obligation in the form of a lock-in period and that the granting of the loan was conditional upon D giving up his Ex Family Head Benefits, and that at no point he suggested that the loan under the 2^nd 2008 Loan Agreement was an outright payment without any reciprocal obligations from D[74].  The lock-out period must have been important to the Company.  I accept Fraser’s evidence in this regard.

197.  Yung had said that the 2^nd 2008 Loan was to help D out of his then financial difficulty, but that Ng also needed to be party to similar arrangements, and that the object was to cancel out or extinguish their rights to Ex Family Head Benefits[75].

198.  Ng had also given evidence to say that although he was asked to sign a similar document as D’s 2^nd 2008 Loan Agreement, he had never asked the Company for any loan at the time when D asked for it, and Ng accepted that the whole idea behind him also getting a HK$20m loan was for cancelling his right to the Ex Family Head Benefits.  Ng clearly said that if the Company had decided to terminate his contracts shortly after the loan had been taken out, as he had signed an agreement and there were conditions in the agreement, under those conditions, he had to make repayment, although he did not think the Company would do something like that[76].

199.  The Company’s CFO, Headey, had said that the HK$20m loan was in lieu of paying D the Ex Family Head Benefits over the coming period, and although there was no contractual entitlement, it was in lieu of those payments, and the payments that were made were then used to offset that loan over a three-year period, and that the expectation at the time was that D would stay in service for next three years, and would continue effectively to earn those Ex Family Head Benefits within the Company which would be used to pay off the HK$20m loan.

200.  The evidence of Yung, Headey and Ng was consistent with Fraser’s evidence.  I find them all reliable witnesses.  I accept that D, and also Ng, was asked to each sign the Deed of Relinquishment as the Company wanted only to ensure that neither D nor Ng could claim any “entitlement” to the Ex Family Head Benefits in the future, namely from 1 January 2012 onwards.

201.  D had said that the 2^nd 2008 Loan Agreement was an artificial structure for accounting purpose only.  I have found that it was a buy out subject to conditions which was structured as a loan, but this did not mean that had the conditions not been met the amount paid was not repayable by D.  D said that he was first requested to structure the buy-out in the form of a loan on 15 December 2008 when the 2^nd 2008 Loan Agreement was signed.  D had in his 1^st witness statement described what happened on that day[77].  He had, however, said that some time before he went into Fraser’s office, Fraser had telephoned him, stating that the buy-out agreement and loan agreement (meaning the 2^nd and the 1^st 2008 Loan Agreements) were ready for signing and asked him to go to Fraser’s office.  He said he was told that the Company would need to amortise the price for his Ex Family Head Benefits for 3 years for accounting reasons, and he did not express disagreement.  Then they went into another room and the then in-house lawyer of the Company was waiting for them, and D then signed the agreements, together with the Deed of Relinquishment.

202.  I accept that D probably did not have much time or bargaining power at the time as he needed the money, but he should know what he was signing and he must have been aware of the significance of what he was signing.  It was his own evidence that he did not express disagreement.

203.  There was no dispute that D needed to borrow HK$30m.  Even assuming that there were no buy-out, or cancellation agreement, and the HK$20m was a straightforward loan from the Company to D, like the loan under the 1^st 2008 Loan Agreement, it would have been repayable by D.

204.  As for oral assurances made by Fraser as alleged by D, I accept Fraser’s evidence that no such assurances were made.

Entire Agreement Clauses

205.  In view of my above findings that there were no waiver or estoppels or oral assurances as alleged by D, I do not need to deal with the authorities on “entire agreement clauses”.  I find that in the present case, the Company was entitled to rely on the “entire agreement” clauses in those relevant agreements, namely the Agent’s Contract, the Agency Manager’s Contract, the 1999 Loan Agreement and the 2^nd 2008 Agreement.

D’s Counterclaim

206.  I have concluded earlier that there was no 1994 Agreement and thus no Buy Out Entitlement as alleged by D.  I accept Yung’s evidence that D’s “family” of agents were not D’s “assets”.  Further, in practice, any buy out would be subject to conditions and a lock-in period.  D’s counterclaim must therefore fail.

Conclusion

207.  In view of my findings, the Company should be entitled to judgment on any outstanding amounts under the 1996 MFA and the 1998 MFA, the 1999 Loan Agreement and the 2^nd 2008 Loan Agreement.  I would, however, need further clarification and confirmation from the Company as to the exact outstanding amounts and interests under the MFAs and the 1999 Loan Agreement before entering final judgment.

208.  D’s Defence and Counterclaim is hereby dismissed.

209.  D shall pay the Company’s costs of this action, with certificate for two Counsel.  This is an order nisi, which shall be made final after 21 days.

210.  Finally, I would like to thank all Counsel for their assistance to this court.