XCHRX AMERICAN INTERNATIONAL ASSURANCE CO. (BERMUDA) LTD. v. LEUNG KWUN KAU

HCA4509/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4509 OF 2000

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D E C I S I O N

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1. This is an appeal by the defendant against the Order of the Master made on 27 February 2001 granting the defendant leave to defend on condition that a sum of $286,660 be paid into court within the next 28 days. At the conclusion of the hearing, I dismissed the appeal and gave oral reasons for so doing. I now reduce the reasons into writing.

Background

2. Between 1 September 1998 and 31 March 1999, the defendant was appointed by the plaintiff as its Career Representative Senior Unit Manager. A total of three agreements had been signed by the defendant. They consist of a Career Representative Senior Unit Manager's Contract ("the 1st Agreement"), a Career Representative's Contract ("the 2nd Agreement") and an Agreement ("the 3rd Agreement").

3. In this action commenced on 5 May 2000, the plaintiff claims against the defendant a total sum of $561,242.14 as advancements made to and/or on behalf of the defendant and payments due from the defendant. The breakdown as set out in paragraph 18 of the Statement of Claim is as follows :

	HK$	HK$
Initial Signing Fee		386,660.00
Finance Income	193,332.00
Less Income Withheld	(66,708.75)	126,623.25
Adjustment to First Year Commission in relation to Policy B311101203	4,122.52
Less commission and overriding earned by the Defendant for the month of March 1999	(3,963.39)	159.13
Group Insurance Premium		130.00
LUSEB Fee		800.00
Financing Costs of the said Career Representatives		46,869.76
Total Outstanding		561,242.14 ========

The defendant does not dispute the $130 group insurance premium. Judgment by admission was therefore entered by the Master at the hearing of the plaintiff's application for summary judgment. The remaining items are all challenged by the defendant.

4. The defendant had filed a defence and an affirmation with substantially the same contents as the defence. His case is that he was recruited as a branch manager, but he was given a Senior Unit Manager Contract instead, and although he was paid a guarantee income when he joined the plaintiff, the contractual document he was given to sign was for finance income. As to the 3rd Agreement, the defendant says that he was only given the execution page to sign and he was told it was to acknowledge receipt of the initial signing fee. Further, under the contract(s), his up-line manager is responsible to discharge 25% of his indebtedness with the remaining 75% to be taken up by the plaintiff. He is therefore not liable to pay the plaintiff for any of his indebtedness. On the individual items, he questions the calculations on his income and commission and the financing costs of his down line career representatives. He also queries the adjustment to First Year Commission and the need to pay LUSEB fee. In addition, he states that the plaintiff has also not made allowance for his provident fund contribution and his salary for March 1999. At this appeal hearing, the defendant also refers to a notification given by the plaintiff to the Inland Revenue Department advising that the defendant had earned income in the sum of $40,078 for the year ended 31 March 2000, but he says the plaintiff has never paid this sum to him.

5. The plaintiff accepts there is a mistake in the calculation of the financing costs of the defendant's down line career representatives so that the amount of $46,869.76 should be reduced by $3,500, giving $41,369.76. The plaintiff also accepts that an off-shore trustee company is holding the defendant's provident fund benefit in the sum of US$181.61. Mr Yeung who appears for the plaintiff agreed to set off this sum against the indebtedness of the defendant. As to the LUSEB fee of $800, the plaintiff explains in the 2nd affirmation of Lam Peter Pui Wing that LUSEB is an internal organization of the plaintiff and membership is not compulsory, but it has been the practice of the plaintiff to pay the joining fee to LUSEB on behalf of its employees and to obtain a reimbursement later on. Given this explanation, it is, in my view, arguable whether the defendant had authorized the plaintiff to incur the joining fee on its behalf so as to be liable for the same. The plaintiff further denies the defendant's allegations on the terms of the contractual documents he signed and how he came to sign the 3rd Agreement. The plaintiff also denies that the defendant's up-line manager had made repayment on his behalf to the plaintiff.

Appeal out of time

6. The Order granting conditional leave to defend was made on 27 February 2001, but the Notice of Appeal herein was only filed on 14 March 2001. The defendant's explanation is that he had been given the wrong form(s) by the Appeals Registry acting under the erroneous belief that the defendant was appealing to the Court of Appeal. The plaintiff does not take issue with this. Accordingly, I grant the defendant leave to appeal out of time.

Merits of the Appeal

7. The defendant's argument is that as the Master found in favour of him on most of his grounds of defence and further believed that he had been misled into signing the 3rd Agreement, she should not have imposed condition in giving leave to defend. In addition, the defendant argues that he is unable to meet the condition.

8. It is trite law that in an application for summary judgment, the onus is on the defendant to condescend to particulars and to adduce evidence to show that there are triable issues or other reasons justifying the matter proceeding to a trial. Where the defence put up is shadowy, it will be appropriate to impose conditions when granting leave to defend.

9. In this case, the defendant's defence is extremely brief. So is his affirmation. Little or no particulars had been given to support the various allegations and defence. At the appeal hearing, the defendant repeatedly alleged that there had been misrepresentations on the terms and conditions of the three Agreements. Again, very little is mentioned about this in the defendant's defence and affirmation. As a matter of fact, the term "misrepresentation" has never featured in the defence and the defendant's affirmation. All that had been said is that he did not know the contents of the 3rd Agreement when he signed. Given the very sketchy evidence presented by the defendant, I agree with the Master that this is an appropriate case for imposing condition when granting leave to defend.

10. The question that falls for decision is the terms of the condition. There is no evidence before the Master or before this court on the defendant's financial means. Although the defendant had in the course of his argument repeatedly stated that he was unable to meet the condition, no evidence was placed before the court to show his financial position or the limit of his financial ability. Secondly, it is not clear as to how the Master came to the figure of $286,660. The calculation is not apparent from the notes kept in the court file. Mr Yeung who also appeared for the plaintiff before the Master was unable to say with certainty how the figure was worked out. The defendant, on the other hand, suggests that this was achieved by deducting $100,000 from the figure of $386,660, being the amount of the initial signing fee. The $100,000 deduction was said to be a compensation for damages suffered by the defendant arising from misrepresentations as to the terms of the three Agreements. That cannot be right. If indeed the Master, as the defendant says, believed that the defendant was misrepresented as to the contents and purpose of the 3rd Agreement, which was to govern, inter alia, the payment and refund of the initial signing fee, then the Master would have given unconditional leave to defend the initial signing fee of $386,660. More importantly, the Master would not have adopted $386,660 as the starting point for working out the amount to be paid into court. As a matter of fact, the amount of $286,660 represents approximately 50% of the plaintiff's claim. It is possible that the Master, in determining the amount to be paid into court, simply took half of the claim as the appropriate figure.

11. The court, in hearing an appeal from the Master's decision, does have power to approach the condition to be imposed afresh. In the normal course, one would start with the amount of the plaintiff's claim less any set-off. In this case, given the plaintiff's concessions on the financing costs and the provident fund benefit, the plaintiff's claim (after deducting the $130 for which judgment had been entered), is reduced to $543,442.56 (i.e. $561,242.14 - $130 - $3,500 - US$181.61@7.8). In addition, there should also be excluded the amounts of $800, being the LUSEB joining fee, and $40,078, being income which the plaintiff in its notification to the Inland Revenue Department said was accrued to the defendant in the year after the defendant resigned from the plaintiff. That will produce the figure of $502,504.56, an appropriate figure for determining the amount to be paid into court. I am, however, conscious of the fact that the plaintiff had not cross-appealed against the Master's decision. The plaintiff merely supports the decision of the Master. In the circumstances, it will not be appropriate on appeal to increase the amount which the defendant has to brought into court as a condition for defending the action. The condition imposed by the Master will remain as it is.

12. For the reasons mentioned above, the defendant's appeal is dismissed together with costs to the plaintiff, to be taxed if not agreed.

Plaintiff's summons for judgment on failure to comply with the Order of the Master

13. Consequential upon the defendant's failure to pay into court the amount ordered by the Master within the 28 days' period, the plaintiff applied by summons for judgment be entered which was adjourned to be heard after the appeal.

14. The defendant applied for an extension of time to comply with the condition imposed by the Master. The defendant indicated that he needed time to arrange his finances. Mr Yeung, for the plaintiff, did not seriously object to the request for time. Accordingly, I extended the time for making payment into court to 25 May 2001. Other than ordering costs be to the plaintiff in any event, I made no order on the plaintiff's summons.

Conclusions

15. The orders that I make are :

(1) The defendant be granted leave to appeal against the Master's decision out of time.

(2) The defendant's appeal be dismissed.

(3) The time for complying with the Order of the Master made on 27 February 2001 be extended to 25 May 2001.

(4) In the event the defendant fails to comply with the condition imposed by the Master for defending the action on or before 25 May 2001, the plaintiff be entitled without further leave to enter judgment for the balance of the claim herein less HK$3,500 and US$181.61 together with interests and costs.

(5) There be no order on the plaintiff's summons filed herein on 28 March 2001, save that the costs of the summons be to the plaintiff against the defendant in any event.

(6) The costs of this appeal be to the plaintiff against the defendant, to be taxed if not agreed.