CHEUNG LI ON v. SUN LIFE HONG KONG LTD

HCA 2549/2016

[2021] HKCFI 3784

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2549 OF 2016

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

1.  The Plaintiff (“Mr Cheung”) was an insurance agent, formerly engaged by the Defendant (“Sun Life”). Their relationship was governed, amongst others, by written agreements which contained a clause for termination of Mr Cheung without cause by written notice (“Termination Clause”). Mr Cheung claimed that there was an implied term that the power to terminate was to be exercised lawfully and rationally in the public law sense (“Implied Term”).

2.  On joining Sun Life, Mr Cheung became head of the Sunshine Agency. Mr Cheung claims that there was an oral agreement which gave rise to a common understanding as would entitle him to set up an incorporated agency if 3 requirements were met and on written notice to Sun Life. The essential terms of the oral agreement were incorporated into an unsigned letter of intent called “Corporate Agency Letter”.

3.  Mr Cheung claimed to have met the 3 requirements although he had never given any written notice. Following discussions, the parties entered into an oral arrangement (“2015 Arrangement”) such that, as a transitional arrangement, the Defendant could treat his agency in Sun Life as the de facto Proposed Incorporated Agency, pending further discussion on the remuneration for the Proposed Incorporated Agency. Sun Life had also promised not to exercise the Termination Clause. However, Sun Life breached that promise and the Implied Term and terminated Mr Cheung in the course of discussions. Mr Cheung was thus deprived of the opportunity to set up the Proposed Incorporated Agency and suffered loss.

4.  Further there was a Buy-Out Agreement such that Sun Life would buy out a downline agency team of Mr Cheung at $3,000,000, but Sun Life failed to pay that amount.

5.  By the time of the trial, Mr Cheung limited his claim for damages to about $20 million, representing loss of remuneration which he would have been able to earn if the incorporated agency were set up. He also sued for the $3,000,000 under the Buy-Out Agreement.

6.  Sun Life denies Mr Cheung’s case. It is asserted that even on his own case, Mr Cheung had not given the requisite written notice to set up the Proposed Incorporated Agency. In any case, Mr Cheung was terminated because the negotiations concerning his change of role in Sun Life broke down and not because of any nefarious reasons. There was no enforceable Buy-Out Agreement, as the buy-out was part of the scheme for changing Mr Cheung’s role as head of an agency to a training consultant, the terms of which had not been agreed upon. Mr Cheung himself denied the existence of the Buy-Out Agreement. The damages are also disputed as being unparticularized and unsubstantiated by evidence.

B. OVERVIEW OF PLAINTIFF’S CASE

7.  Ms Ma, counsel for Mr Cheung, confirms that the alleged oral agreement or common understanding was formed even prior to the signing of any formal agreements between the parties. The brief introduction in section A above shows that Mr Cheung’s case rested heavily on oral agreement or arrangement and an Implied Term against a background where he had signed written agreements with Sun Life. The oral terms and Implied Term were contradictory to the express terms.

8.  The Corporate Agency Letter, despite being commented upon by Mr Cheung and ready for signing, was never signed. The draftsman of the Corporate Agency Letter was at pains in using wording which indicated it to be non-binding and the terms of remuneration under the Proposed Incorporated Agency were never agreed. The requisite written notice was never given.

9.  In respect of the 2015 Arrangement, there was not a single piece of paper that recorded any of the details which should govern the parties’ relationship from then on.

10.  In the emails between the parties, despite not being obliged to, Sun Life gave the reason for termination as “disconnect” in the negotiation on Mr Cheung’s change of role to that of a consultant.

11.  In respect of the $3,000,000, Mr Cheung treated the Buy-Out Agreement as a stand-alone claim. However, Mr Cheung in his own email stated that he did not consider the parties as having reached a Buy-Out Agreement.

12.  With regard to the quantum of damages, no rational basis was given for computation of damages in the sum of $20 million.

13.  Even on paper, it could be seen that Mr Cheung faced an uphill battle both on the facts and on the law. The position was even clearer after evidence was heard.

C. UNDISPUTED OR INDISPUTABLE FACTS

14.  In around late 2012 to early 2013, Mr Cheung and Sun Life engaged in discussions for Mr Cheung to leave AXA and join Sun Life.

15.  Contractual documents were executed by the parties on 26 April 2013, ie an Agent’s Agreement and a Manager’s Agreement, some ancillary agreements and a Letter of Appointment. By those documents (collectively “Written Agreements”), Mr Cheung was appointed as agent of Sun Life to sell financial products and services offered by Sun Life, and as its manager and Regional Director.

16.  For the next 3 years, Mr Cheung headed an agency unit of Sun Life under the title of “Sunshine Agency”, until he was terminated on 11 July 2016.

17.  There is no dispute that whilst working for Sun Life, Mr Cheung had made complaints against his downline agent, Chester Ou Young, and the complaints have been subject to investigations by Sun Life.

18.  On 20 May 2016, Mrs Belinda Au (then Chief Distribution Officer of Sun Life) brought up the idea of Sun Life buying out Chester Ou Young’s team at a compensation to Mr Cheung. After discussion, a sum of $3,000,000 was agreed upon. Mrs Au proposed that Chester Ou Young should exit the Sunshine Agency with effect from 1 July 2016.

19.  Mrs Au and Mr Cheung further discussed, at around the same time, the change of Mr Cheung’s role from agency head to consultant responsible for recruiting agency leaders under new remuneration terms. On 6 July 2016, Mrs Au informed Mr Cheung that an email would be issued to communicate his new role, which she did on the following day.

20.  After that email was issued, Mr Cheung raised issue as to his entitlement to override and management allowance produced by existing agents and future recruits. Mrs Au replied on the same day that those 2 items “would be replaced by the buy-out arrangement going forward upon signing of contract”.

21.  The remuneration for Mr Cheung’s proposed consultant role had never been agreed upon.

22.  By email on 9 July 2016, Mr Cheung denied accepting his new appointment as consultant, or that any agreement or conclusion for the Buy-Out Arrangement had been reached.

23.  On 11 July 2016, Sun Life invoked the Termination Clause to terminate the Agent’s Agreement (effective on 10 August 2016) and the Manager’s Agreement and all other ancillary agreements (effective immediately) by giving written Termination Notice to Mr Cheung.

D. PLAINTIFF’S CASE

24.  In addition to the Written Agreements, Mr Cheung asserts that the contractual arrangement between the parties also included the following:

(1) The unsigned Corporate Agency Letter dated 26 February 2013;

(2) The 2015 Arrangement; and

(3) The Implied Term.

25.  With regard to the Corporate Agency Letter, Mr Cheung alleged that the agreement between him and Mrs Au (together with some top management of Sun Life) was that he would be permitted to set up an incorporated agency when the following 3 Requirements were satisfied:

(1) That Mr Cheung had formed an agency team in Sun Life and operated it for 2 years;

(2) That the first year commission (“FYC”) for the agency team amounted to $25 million or above for the 12 months preceding the issuance of a written notice of his intention to set up the Proposed Incorporated Agency (“Written Notice”); and

(3) That he was managing no less than 170 in-force agents in his agency team at the time the Written Notice was issued.

26.  The idea was that, with the setting up of the Proposed Incorporated Agency, Mr Cheung would become the owner of an independent company and the cooperation between him and Sun Life would be one between 2 companies. Mr Cheung’s agency team would become his agents instead of Sun Life’s.

27.  Sun Life then drafted those agreed terms into the Corporate Agency Letter, which was said to contain “key essential terms” that had been “assented to by the parties at all material times”. It constituted (i) a common understanding between the parties in the form of a collateral oral agreement; and (ii) gave rise to representation on the part of Sun Life that Sun Life agreed to the terms therein (“1^st Representations”). Mr Cheung relied on the 1^st Representations.

28.  Clause 1.2 of the Corporate Agency Letter provided that Mr Cheung had to give not less than 3 months’ Written Notice to Sun Life between the 2^nd and 3^rd anniversary of his appointment as agent (ie 26 April 2016) to proceed with the setting up of the Incorporated Agency. Otherwise Mr Cheung would be deemed to have elected not to set up one, and his appointment as insurance agent would continue to be governed by the individual agency agreements.

29.  Despite Mr Cheung’s input into the draft, the Corporate Agency Letter had never been signed.

30.  With regard to the 2015 Arrangement, in around January 2015, and/or March or April, the parties (with Mrs Au, Jason Chou and Charles Chan for Sun Life) entered into the 2015 Arrangement, which also constituted the “2^nd Representations”.

31.  It was an oral agreement, the pleaded terms of which were that:

(1) Despite satisfying the 3 Requirements, Mr Cheung need not give the Written Notice or adopt any corporate vehicle as the Proposed Incorporated Agency but could instead treat the Sunshine Agency as the de facto Proposed Incorporated Agency.

(2) Under that model, Mr Cheung would be entitled to remuneration in terms of 15% of the FYC (a rise from the existing 12.5%) under the Sunshine Agency but the Sunshine Agency would have to be responsible for its overheads such as office rental.

(3) The above could be a transitional arrangement pending further discussions on the Proposed Incorporated Agency, including buy-out by Sun Life, and the original time limit (ie 3^rd anniversary of Mr Cheung’s appointment as insurance agent) should be extended generally.

(4) Sun Life would not exercise its Power to Terminate (or would not do so without cause) for as long as the Sunshine Agency remained as the de facto Proposed Incorporated Agency.

32.  By 26 April 2015, Mr Cheung claimed to have satisfied the 3 Requirements but he had never given the Written Notice.

33.  The parties had allegedly engaged in further discussion for the setting up the Proposed Incorporated Agency such that:

(1) Mr Cheung need not satisfy all the terms of the Corporate Agency Letter in order to rely on the same; and

(2) Sun Life would not exercise its power to terminate for so long as the Sunshine Agency remained as the de facto Proposed Incorporated Agency or at least pending discussion on the Proposed Incorporated Agency.

34.  In around that time, Mr Cheung discovered suspected unlawful conduct of Chester Ou Young, details of which were not relevant for this trial. Mr Cheung reported repeatedly to Mrs Au. Mr Cheung claimed that Sun Life had refused to investigate further.

35.  On 20 May 2016, Mrs Au proposed to buy out Chester Ou Young’s team from Mr Cheung. After discussion, Sun Life offered a buy-out price of $3,000,000 which was accepted by Mr Cheung on 24 June 2016.

36.  With regard to the Implied Term, Mr Cheung claimed that the decision-making process of Sun Life, including the exercise of the Termination Clause, (i) should not be arbitrary, capricious, perverse or irrational; (ii) should exclude extraneous considerations and take into account relevant considerations; and (iii) should be made rationally, in good faith and consistently with its contractual purpose.

37.  In issuing the Termination Notice, Sun Life had breached the 2015 Arrangement and/or the Implied Term and the Buy-Out Agreement. Sun Life was estopped from denying the Representations.

38.  Mr Cheung’s claim for breach of contract was for:

(1) $20,000,000 being the value of the Sunshine Agency as the de facto Proposed Incorporated Agency, based on past income from Sun Life at about $10 million for 3 years; and

(2) $3,000,000 under the Buy-Out Agreement.

E. ISSUES

39.  I prefer the framing of the issues by Mr Man SC (leading Mr Justin Ho) for Sun Life:

(1) Whether the Corporate Agency Letter formed part of the contractual arrangement (issues 1-6 of the agreed list of issues) (“Contract Issue”);

(2) Whether the parties entered into an oral agreement waiving Written Notice under the Corporate Agency Letter (issues 1-2 of the agreed list) (“Waiver of Written Notice Issue”);

(3) Whether Mr Cheung has any viable claim that (a) in 2015, Sun Life promised him not to exercise the right to terminate in accordance with the 2015 Arrangement; or (b) there was an Implied Term preventing his termination in 2016 (issues 1, 2 and 7 of the agreed list) (“2015 Arrangement Issue”);

(4) Whether Mr Cheung is entitled to the quantum of damages claimed (issue 13 of the agreed list) (“Quantum Issue”);

(5) In respect of the Buy-Out Agreement, (a) whether the parties had entered into it; and (b) whether Mr Cheung had repudiated it and was estopped by a communicated convention that the parties were not bound by it (issues 8-10 of the agreed list) (“Buy-Out Agreement Issue”); and

(6) Whether Sun Life had breached the Implied Term (“Implied Term Issue”).

40.  Mr Cheung has to succeed on the first 4 issues in order to succeed on his $20,000,000 claim. Sun Life only has to succeed on any one of 4 to defeat this part of the claim. Further, Mr Cheung has to succeed on the 5^th and 6^th issues in order to succeed on the $3,000,000 claim.

41.  There are other allegations of misrepresentations and breaches of duty alleged by Mr Cheung (issues 5, 6, 11 and 12 of the agreed list of issues). However, they would not affect the outcome of this case.

F. ISSUE 1 – CONTRACT ISSUE

F(1). Legal principles on making of agreements

42.  Businessmen do not, any more than the courts, find it easy to say precisely when they have reached agreement, and may continue to negotiate after they appear to have agreed to the same terms. The court will then look at the entire course of negotiations to decide whether an apparently unqualified acceptance did in fact conclude the agreement. If it did, the fact that the parties continued negotiations after this point does not affect the existence of the contract between them: Chitty on Contracts, 33^rd ed, §2-028.

43.  An agreement is valid so long as the essential matters are agreed, even if there may be further negotiations or agreements between the parties: Chan Wan Chuen Snaky v Chan Wah Tat Carlmen, [2020] HKCA 471, §§29-30.

44.  Although a century ago, the courts had leaned against finding collateral agreements, the modern tendency is to take a far less restrictive view. A collateral agreement, like any other contract, must be objectively viewed, so the test must be this: on the totality of the evidence, must the parties be taken to have intended that the representation made by one of them should form part of the basis of the legal relationship between them? See Bank of China (Hong Kong) Ltd v Fung Chi Kan & anor (2002) 5 HKCFAR 515 at §§55-57.

45.  Parties reaching an express agreement of a commercial character are presumed to intend it to have legal effect unless the contrary is shown. The onus is on the party who asserts that no legal effect was intended, and is a heavy one. In deciding whether the onus has been discharged, the courts will be influenced by the importance of the agreement to the parties, and by the fact that one of them acted in reliance on it: New World Development Co Ltd & ors v Sun Hung Kai Securities Ltd & anor (2006) 9 HKCFAR 403 at §§13-15.

F(2). Corporate Agency Letter

46.  I take into account the wording of the Corporate Agency Letter and the totality of circumstances leading up to that Letter.

47.  Firstly, the wording of the Corporate Agency Letter made it plain that it was only a letter of intent with no binding effect.

48.  The letter was headed “Intended terms with regard to the proposed corporate agency arrangement”.

49.  The preamble expressly provided the following:

“... While any formal definitive agreement between you [ie Mr Cheung] and the Company [ie Sun Life] with regard to the Proposed Incorporated Agency is yet to be agreed between us, we [ie Sun Life] would like to outline in this letter of intent the general framework of the anticipated arrangements between you and the Company in relation to the Proposed Corporate Agency. We trust that this would facilitate us in agreeing on its details in the future.

At this point in time, we envisage that the terms of the Proposed Incorporated Agency may include, but may not be limited to the following terms and conditions:” (underline added)

50.  Clause 1.4 provided that:

“Nothing in this letter of intent or any other communication (whether oral, written, or otherwise and whether before or after the date of this letter of intent) shall prejudice both parties’ rights to terminate the appointment under the [Agent’s Agreement or the Manager’s Agreement] according to the terms of the respective … Agreements.” (underline added)

51.  The concluding paragraph provided that:

“We acknowledge that this letter of intent, except the obligation of confidentiality, does not constitute or create, and shall not be deemed to constitute or create, any legally binding or enforceable obligation on the part of either party. Without prejudice to the generality of the above provisions, this letter of intent does not impose an obligation on either party to enter into any Incorporated Agency Agreement with the Proposed Incorporated Agency or any other entity that is or may be controlled or owned, directly or indirectly, by you.” (underline added)

52.  Finally, at the signature section, which was left blank, it read:

“I [ie Mr Cheung] confirm my acknowledgement and agreement to the contents of this letter of intent”. (underline added)

53.  Even on the most lenient view of what constituted a collateral agreement, the Corporate Agency Letter showed that the parties had, at best, only agreed on some matters of principle. They plainly intended there to be a more formal agreement.

54.  Secondly, as admitted by Mr Cheung under cross-examination, the Corporate Agency Letter did not even deal with the most important point, that of remuneration. Clause 3.1 expressly stated that:

“The compensation of the Proposed Incorporated Agency under the Incorporated Agency Agreement will be as agreed between the Proposed Incorporated Agency and the Company. However, it is intended that the Proposed Incorporated Agency will be eligible to receive remuneration in respect of the relevant agent(s). The details of the eligibility, calculation and payment of such remuneration will be agreed between the Company and the Proposed Incorporated Agency. …” (underline added)

55.  The idea of setting up a Proposed Incorporated Agency was but an agreement to agree. Mr Cheung, Mrs Au and Mr Jason Chou all agreed that there were details to discuss, in particular the remuneration.

56.  Thirdly, after the alleged oral agreement or common understanding was reached, the parties cared to sign the Written Agreements in paragraph 15 above, but not the Corporate Agency Letter.

57.  Mr Cheung had no prior working relationship with Mrs Au or the top management of Sun Life. It was simply incredible that he had not signed the Corporate Agency Letter or chased Sun Life to sign it despite having commented on it. He made no suggestion to change the non-binding wording to terms that could give rise to enforceable rights.

58.  Mr Cheung explained that he had not been asked to sign. Mrs Au’s evidence could not state who, if at all, had asked him to. Mr Cheung said that there was no point in signing when he had not met the 3 Requirements. Even if he had signed, it would not create any contractually binding obligations but merely provided an opportunity for him to set up the Proposed Incorporated Agency in future. Allegedly Mrs Au had told him that if he had “close to” 170 agents or $25 million FYC, Sun Life would allow him to set up the Proposed Incorporated Agency. Mr Cheung testified that it simply meant that the parties could engage in further discussions if the 3 Requirements were met.

59.  Such evidence went to show that he himself did not consider the oral terms or the Corporate Agency Letter to have any binding effect.

60.  Fourthly, the subsequent events, be they encouragement of Mrs Au at company gatherings that the Sunshine Agency should meet the 3 Requirements, or a reference to “your corporate agency letter agreement” in Mrs Au’s letter of 4 August 2016 (issued after the Termination Letter), could not elevate non-binding terms into binding ones.

61.  I find that the Corporate Agency Letter did not form part of the contractual arrangement between the parties. This finding is in itself sufficient to dismiss the claim for $20,000,000.

G. ISSUE 2 – WAIVER OF WRITTEN NOTICE ISSUE

62.  There is no dispute that the Written Notice had never been given. Accordingly, even if the Corporate Agency Letter was binding and Mr Cheung had met the 3 Requirements, he had no entitlement to set up the Proposed Incorporated Agency.

63.  Further, the Termination Letter would have terminated any oral agreement or the Corporate Agency Letter anyway. Mr Cheung had to resort to the 2015 Arrangement for waiver of the Written Notice.

64.  However, neither Mr Cheung’s witness statement nor oral evidence spoke of waiver of the Written Notice.

65.  All that happened was that Mr Cheung raised a concern about the possibility of being terminated in the course of the discussion about setting up the Proposed Incorporated Agency. In response, Charles Chan (Assistant Vice-President of Sun Life) said, “How come?” (點會呀 ?) That was far from being a contractual promise not to enforce the Termination Clause.

66.  Sun Life has not pleaded that its staff had no authority to waive the Termination Clause. I make no finding on Charles Chan’s authority.

67.  The more important context was that Mr Cheung had only worked for just over 2 years with Sun Life at the time of the discussions. The investigation of Chester Ou Young was on foot. As Jason Chou testified, if Chester Ou Young’s misconduct was established. Mr Cheung himself could be liable as agency head. In such circumstances, I could see no logical reason why Sun Life would have waived the Termination Clause indefinitely.

68.  In fact, as Mr Cheung himself agreed, a provision to terminate by notice without cause was one which would certainly be found in a corporate agency contract.

H. ISSUE 3 – 2015 ARRANGEMENT ISSUE

69.  There was not a single document which recorded the terms of the 2015 Arrangement. Mr Cheung pointed to a contemporaneous document dated 30 January 2015 headed “GA Model”, which he described as a profits model. However, that document was far from evidencing any agreement. At best it evidenced that the discussions concerning the Proposed Incorporated Agency took place in around January 2015.

70.  The GA Model was not only a profit forecast but also expense forecast. At least 2 significant terms have not been agreed upon even if Mr Cheung was entitled to set up the Proposed Incorporated Agency:

(1) ABP (Agency Builder Plan): ABP as of December 2014 showed a figure of $22.2 million with full potential liability of $56.2 million for buy-out. As Jason Chou testified, it meant that Mr Cheung would be liable to pay Sun Life up to $56.2 million if agents in Sunshine Agency who had received ABP were to join his Proposed Incorporated Agency.

(2) Remuneration: it was anticipated that the terms would be different from what Mr Cheung used to receive. However, his evidence under cross-examination was that he was merely considering and he had not agreed to the remuneration proposed by Sun Life in paragraph 31(2) above.

71.  Mr Cheung claimed that Jason Chou had discouraged him from setting up the Proposed Incorporated Agency. Having heard the evidence, I am of the view that Jason Chou was really trying to let Mr Cheung understand the financial implications of his dream in setting up the Proposed Incorporated Agency.

72.  In fact, on Mr Cheung’s own evidence, no agreement was even reached in 2015. His evidence in the witness box was that he had not decided whether to set up the Incorporated Agency yet, the key reason being that he did not want Chester Ou Young (whom he described as a “malignant tumour”) to be in the Incorporated Agency.

73.  For the reasons given in this section, I am not satisfied that the 2015 Arrangement existed.

I. ISSUE 4 – QUANTUM ISSUE

74.  Having ruled against Mr Cheung on liability, I deal with the question of damages only for the sake of completeness.

75.  Damages are to put the innocent party, so far as a monetary award can do so, in the same position as if the contract had been performed in accordance with its terms: Richly Bright International Ltd v De monsa Investments Ltd (2015) 18 HKCFAR 232, §15.

76.  The damages sought were for (i) the value of the Sunshine Agency as the de facto Proposed Incorporated Agency, (ii) income/return that he could derive from the Sunshine Agency, and/or (iii) the opportunity to reach buy-out agreement with Sun Life as to the whole of the Sunshine Agency, in an amount to be assessed.

77.  In her opening submission, Ms Ma submits that this is worth at least $20,000,000, based on the past income of about $10 million in 3 years with Sun Life. The inference from that submission is that Mr Cheung is seeking 6 years’ loss of earnings. She submits that the Court should also take into account the $3,000,000 offered under the Buy-Out Agreement.

78.  In her closing submission, no attempt was made by Ms Ma to justify the damages of $20,000,000 and the multiplier of 6 years.

79.  Further, to use Mr Cheung’s past earnings as a basis for computing damages was wrong in principle because his capacity was not supposed to be an agent/manager but owner of a corporation having to bear expenses.

80.  The suggestion of using the buy-out price of $3,000,000 for Chester Ou Young’s team as a reference point was equally baseless. That team accounted for 80% of the total sales revenue of the Sunshine Agency in the year 2015. It was unlikely that the other 4 teams together could have commanded the same buy-out price.

81.  The damages claimed were unsubstantiated.

J. ISSUE 5 – BUY-OUT AGREEMENT

82.  In the course of discussions of Mr Cheung’s conversion into the Proposed Incorporated Agency, Mrs Au suggested that Chester Ou Young’s team do branch out from Sunshine Agency to form an independent agency under Sun Life’s supervision. Sun Life proposed compensating Mr Cheung as head of the Sunshine Agency to reflect the loss of manager’s override income as a result of the branching out.

83.  Mr Cheung relied on 2 emails: (a) one dated 17 June 2016 from Mrs Au as constituting the offer to buy out; and (b) his dated the 24^th as acceptance.

84.  Mr Man SC’s submission is that: (a) the pleaded case discloses no reasonable cause of action; (b) there was no enforceable agreement; the buy-out was but a term of Mr Cheung’s change of role to that of a consultant; and (c) even if there had been an agreement, Mr Cheung himself repudiated it, which repudiation was accepted by Sun Life.

J(1). No reasonable cause of action on the pleaded case

85.  Having pleaded the offer, §31 of the re-amended statement of claim pleaded that Sun Life’s issuance of the Termination Notice was a breach of the Buy-Out Agreement, which deprived Mr Cheung of the $3,000,000.

86.  However, the Buy-Out Agreement (assuming it was a stand-alone agreement) did not contain a clause preventing termination. Nor was there waiver of the Termination Clause. Since the termination was valid (see paragraph 123 in Section K below), Mr Cheung’s claim under the Buy-Out Agreement must fail.

87.  I would not say that there was no reasonable cause of action in the Order 18, rule 19 sense as there was a need to investigate whether there had been waiver of the Termination Clause.

J(2). No enforceable agreement

88.  The offer proposed the buy-out price to be paid by 3 yearly instalments on these terms:

“Each $1M has a binding period of 2 years, clawback applies if termination/resignation within binding period. Each payment is subject to satisfactory validation of AD 2 title [ie Chester Ou Young’s title] maintenance requirement at calendar year end with 80% persistency.

Business of Chester will be separated from Sunshine after branch-out, and persistency of Chester’s tree will not appl (sic) to Sunshine going forward. It is also proposed the branch-out to take place July 1, 2016.

Welcome any comments to above.”

89.  Mr Cheung accepted the offer without comment.

90.  Ms Ma invites the Court to look at the 2 emails on their own. They did constitute an agreement over all the essential terms for the buy-out. Prior to 17 June 2016, the role of a consultant was never mentioned. “Branching out” Chester Ou Young’s team necessarily meant that the rest of the teams in Sunshine Agency would continue to be run by Mr Cheung.

91.  Even though, as Mr Cheung accepted under cross-examination, the offer did not set out the exact dates of payment or the date when each binding period was to commence and end, that would not preclude the formation of a binding agreement. As there were to be 3 instalments, and branch-out would take effect on 1 July 2016, the payment dates could hardly exceed 3 years or thereabouts. The subsequent failure to reach agreement on the terms of consultancy could not affect the Buy-Out Agreement already concluded. It was Mrs Au’s own evidence that it was not the case that the Buy-Out Agreement was bundled with the consultancy position (“唔係話有A就一定要有B”).

92.  The Buy-Out Agreement was breached by Sun Life taking over Chester Ou Young’s team out of Sunshine Agency on 1 July 2016 without payment to Mr Cheung. Further, Sun Life was in repudiatory breach when Mrs Au imposed additional terms which were not agreed to by Mr Cheung, and Mr Cheung accepted the breach by commencing action.

93.  I would have agreed with Ms Ma but for the need to apply the legal principles in paragraphs 42-43 above. I think one should look at the whole course of the communication from 10 June up to 9 July 2016 (as set out in the table agreed between counsel). It indicated that the buy-out terms emerged in the course of discussion of an intended consultancy role of Mr Cheung.

94.  Firstly, as admitted by Mr Cheung, on the day before the “acceptance”, there was a discussion between Mr Cheung and Mrs Au about the proposed buy-out and a proposed change of Mr Cheung’s status from head of the Sunshine Agency to that of a consultant on terms to be agreed.

95.  That discussion was referred to in the email dated 24 June from Mrs Au, about an hour after acceptance of the “offer”:

“We discussed at length yesterday and felt that your expertise is in industrial recruiting, and you have built your team from zero to over 200 within 3 years, which is excellent work. We agreed that you will move from your current position as agency head and will take up a consultancy position for Sun Life and focus only on recruiting agency leaders. For each successful hire, the company pay an upfront plus bonus based on the performance of the recruits, detail terms will be ready for discussion early July.

In the meantime, Chester’s team will be separated from Sunshine effective July, and we can factor into Chester’s buy out into the consultancy compensation.” (underline added)

96.  Mr Cheung did not dispute the accuracy of that email. Pausing here, taking into account the discussion on 23 June, one could not say that Mr Cheung could take the $3,000,000 without accepting his change of role to that of a consultant. In my opinion, agreeing on the $3,000,000 was just to resolve one issue out of several.

97.  Secondly, the parties plainly anticipated the signing of a contract with regard to the terms of buy-out and the consultancy. This could be seen from the email about a week later, on 5 July 2016, apparently sent out after Mrs Au’s leave, setting out the “latest proposal” for Mr Cheung’s consideration. The $3,000,000 was to be paid by 4 instalments: (i) $500K upon signing of the consultancy contract; (ii) $500K on 01.2017; (iii) $500K in 2018; and (iv) $1,000,000 in 2019. Further details on the recruitment fees which Mr Cheung would be paid upon recruiting new agents were also set out. Mrs Au concluded by stating, “I have informed [the CEO] this is effective immediately. We will prepare the contract asap.”

98.  Seven minutes later, Mrs Au sent a whatsApp message to Mr Cheung, explaining that there would be no conditions attached to the buy-out payment based on performance.

99.  The next morning at 7:22 am, Mr Cheung replied to Mrs Au. Although he did not state “OK”, he stated “老闆, 早晨, 辛苦你！” At no time had Mr Cheung objected to or expressed surprise to the changes in the terms of payment of the $3,000,000. It was apparent that the signing of a consultancy contract (not just buy-out contract) was important, as the first instalment was pegged to the date of signing.

100.  There followed a series of emails when Mr Cheung asked Mrs Au for interpretation on override and management allowances of business produced by the existing agents and future recruits, to which Mrs Au replied on the same day.

101.  By 1 July 2016, Sun Life had taken over Chester Ou Young’s team. On 7 July 2016, Mrs Au sent out an email to the staff announcing Mr Cheung’s new role before the terms have been agreed upon. She explained that Chester Ou Young was threatening to leave. Sun Life had plainly acted on what Mr Cheung had agreed to in principle, although the terms of the consultancy role had not been agreed upon.

102.  In the witness box, Mr Cheung himself commented that the terms of the buy-out and consultancy were rough, lacking in details and documentation. Usually, there should be documents for him to sign. Ultimately he agreed that he had never reached any contractually binding agreement with Sun Life on this matter.

103.  For the reasons given in paragraphs 93-102 above, I find that there was no enforceable Buy-Out Agreement.

J(3). Mr Cheung’s own view that there was no Buy-Out Agreement

104.  On 9 July 2016, Mr Cheung sent an email to Sun Life’s staff:

“With regard to this email of Agency Structure for Better Synergy, I would like to point out that:

1. I have never resigned my position as Sunshine Agency Tre (sic) Head and Sun Life has never given me any termination letter or notice.

2. I did not accept to be appointed as consultancy position on agency recruitment and expansion subjects.

3. We have not reach (sic) any agreement or conclusion for the Buyout Agreement.

Therefore, I would like to have an open discussion for the listed issues.” (underline added)

105.  In his witness statement, Mr Cheung explained that with regard to point no. 3 in that email, the Buy-Out Agreement actually meant buying out for the other 4 teams under the Sunshine Agency and not the buy-out regarding Chester Ou Young’s team which had already been agreed.

106.  I am unable to accept this explanation. Nowhere in the contemporaneous emails or whatsApp messages was there any mention about buy-out of the other 4 teams. Any reasonable person reading the email dated 9 July 2016 would have interpreted the Buy-Out Agreement as referring only to Chester Ou Young’s team.

107.  Mr Cheung’s belief that there was no enforceable Buy-Out Agreement was reflected in his pleadings. The first version of his statement of claim filed on 4 October 2016 (less than 3 months after his termination) did not claim the amount of $3,000,000. The first version of the reply dated 2 December 2016 pleaded that the parties entered into discussions including but not limited to a buy-out of an entire line of agents within Sunshine Agency but there was no specific plea in relation to the $3,000,000 (§7(d)). Mr Cheung could not explain why, knowing the contents of his pleadings before their filing, he had not claimed for the $3,000,000 until the amended statement of claim was filed about a year later on 1 December 2017.

108.  Even if there had been a Buy-Out Agreement, Mr Cheung’s email dated 9 July 2016 had evinced an intention not to be bound by it. His repudiation was accepted by Mrs Au’s email dated 11 July 2016, giving the notice of termination. Any Buy-Out Agreement was discharged.

109.  For the reasons given in this section, there was no enforceable Buy-Out Agreement or, if there was, it had been discharged. The claim for $3,000,000 must be dismissed.

K. ISSUE 6 – IMPLIED TERM ISSUE

110.  The principles for implying terms into a contract are as follows:

(1) The starting point for the test of whether a term may be implied into a contract is that 5 conditions (which may overlap) must be satisfied, namely:

(a) It must be reasonable and equitable;

(b) It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(c) It must be so obvious that “it goes without saying”;

(d) It must be capable of clear expression; and

(e) It must not contradict any express term of the contract.

(2) The question of whether any particular term ought to be implied into a contract must not, however, be approached by going through a mechanical process of considering these 5 conditions independently to see whether they can each be satisfied.

(3) Hence, instead of asking whether the term sought to be implied is necessary in the sense that without it the contract would become unworkable in practice, the correct question to ask is whether it is necessary to give effect to the reasonable expectations of the parties.

(4) Likewise, instead of asking whether the actual parties to the contract would have regarded the term sought to be implied as being obvious (or immediately apparent) although the contract does not expressly say so, the correct question to ask is whether it is what a reasonable person would understand the contract to mean.

(5) Lastly, it should be borne in mind that when one is undertaking the exercise of construing a contract for the purpose of determining whether a term ought to be implied into it, one must take into account the proper contextual background against which the contract was entered into by the parties.

Tadjudin Sunny v Bank of America, National Association, (unrep), CACV 12/2015, 20 May 2016, §§37-43.

111.  With regard to the implied duty when exercising a power under contract:

(a) It is well established that an apparently unqualified power or discretion given to a party to a contract should generally be construed as being subject to some implied restrictions regarding the exercise of that power of discretion.

(b) Outside the employment context, the court has also shown a willingness to construe an apparently unqualified or unrestricted contractual power or discretion as being subject to some implied restriction.

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

Tadjudin Sunny, §§46-55 and Chitty on Contracts, 33^rd ed, 14-026 & 14-028.

(d) Where a contract confers a power to exercise a discretion upon a party, it is not for the court to rewrite the parties’ bargain for them. That party and not the court is the primary decision-maker. The law implies the term in (c). The Wednesbury unreasonableness test applies, ie the court will examine whether the decision-maker has refused to take into account relevant matters or has taken into account irrelevant matters. Even where the right matters have been taken into account, the outcome must not be so unreasonable that no reasonable decision-maker could ever have come to it. See Braganza v BP Shipping Ltd & anor [2015] 1 WLR 1661, Baroness Hale at §§18-24, 27-30; So Sheung Hin Ben v Chubb Life Insurance [2018] 5 HKC 47; FWD Life Insurance Co (Bermuda) Ltd v Poon Cindy [2019] 3 HKLRD 455, §§35-39 in Hong Kong in the context of the exercise of the power to terminate insurance agency contracts.

112.  In Ms Ma’s closing submission, the alleged breaches of the Implied Term were:

(a) Failing to take into account the 2015 Arrangement;

(b) Failing to take into account any legitimate expectation on Mr Cheung’s part in respect of the 2015 Arrangement;

(c) Issuing the Notice of Termination in bad faith in order to preclude Mr Cheung from further investigating into the suspicious conduct of Chester Ou Young, to avoid the need to pay the $3,000,000, and to take over the entire interest and/or business potentials of the “Sunshine Agency” without paying any consideration to Mr Cheung at all;

(d) Failing to exercise its best endeavours and act in good faith to fulfil its obligation under the Corporate Agency Letter and/or negotiate with Mr Cheung on the terms of the formal agreement for the Proposed Incorporated Agency; and

(e) Wrongfully terminating the contract when both parties were still in the course of negotiating the buy-out arrangement in respect of Mr Cheung’s other interests in the “Sunshine Agency” and the detailed terms for the Proposed Incorporated Agency.

113.  For the following reasons, I reject Mr Cheung’s case.

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

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

116.  Secondly, applying Reda v Flag and Shek Kin Pong v FTLife, the Implied Term would be contrary to the Termination Clause and the following express terms in the Corporate Agency Letter (if it had formed part of the contract between the parties):

“1.4. Nothing in this letter of intent or any other communication (whether oral, written or otherwise and whether before or after the date of this letter of intent) shall prejudice both parties’ rights to terminate the appointment under the Individual Agency Agreements according to the terms of the respective Individual Agency Agreements.”

“2.1 You [Mr Cheung] will procure the Proposed Incorporated Agency to: (a) enter into a incorporated agency agreement with the Company (the “Incorporated Agency Agreement”), the terms of which are intended to be in all material respects similar to those of the Individual Agency Agreements; …”

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

118.  Thirdly, Mr Cheung himself accepted under cross-examination that even if there was an unqualified right to set up the Proposed Incorporated Agency, it could still be terminated by notice.

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

120.  The present case did not involve exercise of contractual discretion but a right to terminate.

121.  Fifthly, even if the Implied Term formed part of the contract and was breached, the 5 breaches set out in paragraph 112 above have no merits. With regard to (a) and (b), (d) and (e), they have no leg to stand on upon the finding that that there were no agreements beyond the Written Agreements. With regard to (c), investigation of Chester Ou Young was done by the Compliance Department of Sun Life, not Mr Cheung nor Mrs Au. I have also held that the Buy-Out Agreement did not contain any waiver of the Termination Clause.

122.  Sixthly, Sun Life had given a direct cause for termination by email dated 11 July 2016 – “disconnect”, meaning “it’ll be difficult to continue any working relationship” when Mr Cheung would not accept the buy-out and consultancy terms documented. In my view, that cause could hardly be described as taking into account irrelevant circumstance, arbitrary, irrational or perverse.

123.  In summary, the termination was valid. There was no Implied Term and, in any case, there was no breach of the Implied Term.

L. CONCLUSION

124.  The Corporate Agency Letter, the 2015 Arrangement and the Implied Term did not form part of the contract between the parties. Sun Life had not waived the Written Notice or the Termination Clause whilst discussions were ongoing about the setting up of the Proposed Incorporated Agency. Breach of contract by Sun Life was not proved and so the claim for damages falls away. Following these findings, the issues on misrepresentation or estoppel have no leg to stand on. There was no enforceable Buy-Out Agreement and even if there was, it had been discharged by Mr Cheung’s own repudiation and Sun Life’s acceptance by issuing the Termination Notice. In the premises, the claim is dismissed.

125.  Costs follow the event and should be borne by the Plaintiff with certificates for 2 counsel. I make an order nisi accordingly.

126.  I thank counsel for their assistance.