RE NGAN WAI CHUNG

HCB26182/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDING NO.26182 OF 2002

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REASONS FOR JUDGMENT

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1. This is a bankruptcy petition taken out by Prudential Assurance Co. Ltd ("Prudential") dated 16 December 2002 against Mr Ngan Wai Chung ("the Debtor"). On 1 April 2004, after a substantial hearing that lasted for five days, I allowed the petition and made a bankruptcy order against the Debtor with costs on indemnity basis. These are my reasons.

THE DEBTOR

2. Pursuant to a letter of appointment dated 1 February 2001 ("the Service Agreement") signed by the Debtor on 4 January 2001, he was engaged by Prudential as an Assistant Unit Manager. Other than the Service Agreement, the Debtor also signed an agency agreement and a supplemental agreement for managers, both of which were dated 23 July 2003 and took effect from 1 February 2001 ("the Agency Agreement" and "the Supplemental Agreement" respectively).

3. The Debtor left Prudential in mid-May 2002, after about 15 months of service. Subsequently in June 2002, he joined another life insurance company. According to Prudential, that triggered various obligations of his under the Service Agreement, which gave rise to the debt, the subject matter of this petition.

THE DEBT

4. As at the date of the petition herein, the debt consisted of three components :

(1) Goodwill payment of HK$50,000;

(2) Monthly financing net balance of HK$133,316.22; and

(3) Commission advance net balance of HK$1,075.04.

They are described in greater detail below.

(1) Goodwill payment

5. Pursuant to Clause 6 of the Service Agreement, the Debtor was granted a goodwill payment of HK$50,000, which was a one-off interest-free loan repayable upon termination of his service by either party for whatever reason, save that Prudential waived its right to repayment if the Debtor performed his managerial services to Prudential's satisfaction for 18 months. Further, the goodwill payment was repayable if the Debtor joined another life insurance company within 36 months after the commencement of his service with Prudential : see Clause 11 of the Service Agreement.

6. On or about 23 February 2002, the goodwill payment of HK$50,000 was paid over to the Debtor. He had signed an acknowledgment form dated 19 February 2001 ("the Acknowledgment Form"), acknowledging receipt of the same.

(2) Monthly financing

7. Under Clause 7 of the Service Agreement, Prudential agreed to make monthly finance payments of HK$14,000 to the Debtor for a maximum period of 12 months subject to his achieving certain specified minimum requirements as to production and persistency. It is also provided in Clause 7 that during this period of 12 months, 70% of the Debtor's commission earnings would be set off against the monthly finance payments; and that the net negative balance (if any) in Prudential's favour was repayable upon termination of the Debtor's service for any reason by either party prior to expiration of 18 months from the commencement of service. Further, pursuant to Clause 11 of the Service Agreement, the monthly net negative balance was repayable if the Debtor joined another life insurance company within 36 months.

8. As at May 2002, the accumulative monthly finance stood at a negative balance in favour Prudential of HK$133,316.22.

(3) Commission advance net balance

9. As at April 2002, the monthly finance payment scheme had expired. In other words, the Debtor would not be entitled to the monthly advance of HK$14,000.

10. It was Prudential's practice to advance to agents in the middle of a month a sum equal to the expected commission for that month. At the end of that month, adjustments would be made against the actual commission earned by the agents. In the Debtor's case, on or about 22 April 2002, Prudential issued a cheque of HK$5,079.94 dated 18 April 2002 ("the Cheque") to him as the mid-month advance of expected commission for April 2002. However, the actual commission earned by the Debtor for that month was only HK$4,004.90. Accordingly, the excess of HK$1,075.04 (HK$5079.94 - HK$4,004.90) should be repaid to Prudential.

BANKRUPTCY PROCEEDINGS

11. The Debtor had failed to repay the debt despite demands. Prudential accordingly served a statutory demand dated 23 August 2002 on him by way of personal service on 7 October 2002. The demand was not met. In the event, Prudential took out the petition on 16 December 2002 and caused it to be served on the Debtor personally on 24 January 2003.

ADJUSTMENT OF THE DEBT

12. After the presentation of the petition, Prudential found out that the Cheque had not been presented for payment. As a result, Prudential credited the Debtor's actual commission earned for April 2002 to his account in January 2003. Once this credit is given, the amount of the debt currently due and owing from the Debtor is reduced to HK$179,311.31 (HK$184,391.26 - HK$5,079.94). At the commencement of the substantive hearing before me on 9 December 2003, Prudential revised the amount of the debt in the petition accordingly.

THE DEBTOR'S DEFENCE

13. None of the matters set out above is seriously disputed by the Debtor. However, he opposed the petition on a number of grounds raised in his affirmations and oral evidence. These grounds can be conveniently summarized as follows :

(1) Before signing the Service Agreement, he was told that the goodwill payment would be his net gain and not be refunded to Prudential ("the Oral Representation Ground").

(2) He signed the Agency Agreement and the Supplemental Agreement under pressure, including an alleged threat that he would not be paid if he did not sign ("the Duress Ground").

(3) He had an employer-employee relationship with Prudential. The monthly financing was salary ("the Employment Ground").

(4) He was banned from submitting clients' insurance applications after an interview he gave to Apple Daily in March 2002 ("the Policy Application Rejection Ground").

(5) Prudential failed to pay him commission earnings of HK$4,500 in each of April and May 2002 ("the Non-payment of Commission Ground").

(6) In April 2001, he was required to take a training course for which HK$2,244 was deducted from his account with Prudential allegedly without his prior approval ("the Non-reimbursement Ground").

THE TEST

14. The test applicable to an opposed creditor's petition, such as the present one, is well settled. In gist, it is incumbent upon the debtor to adduce cogent evidence to demonstrate that he has a bona fide dispute of the debt on substantial grounds : Re ICS Computer Distribution Ltd [1996] 3 HKC 440.

15. Apply this test, I readily come to the conclusion that the Debtor has failed miserably in each of the grounds raised. I will deal with them in turn below.

THE ORAL REPRESENTATION GROUND

16. This ground concerned the goodwill payment only. The way this ground was raised cast considerable doubt on its veracity.

17. Firstly, the Debtor had not raised it in his 1st affirmation filed on 24 March 2003. In that affirmation, he alleged that he was pressurized into signing the Agency Agreement and the Supplemental Agreement. He mentioned nothing about the goodwill payment at all. Prudential then made clear in the affidavit evidence filed in response to his 1st affirmation that the main contractual terms relevant to the debt including the goodwill payment were to be found in the Service Agreement. The Debtor then for the first time raised this ground of representation in his 2nd affirmation filed on 6 May 2003. Given the importance of the ground, I see no reason why it was not raised in his 1st affirmation in the first place. The Debtor has offered no credible explanation in this regard.

18. In his 2nd affirmation, the Debtor alleged that it was Tony Chiu Yu Wah, Prudential's senior branch manager, and Idy Kwok Choi Har, Prudential's senior unit manager, who made the alleged representation to him. He made no allegation against Vivian Choi Ling Chi, a director of the Agency Development Department of Prudential, who was present at the time when the Debtor signed the Service Agreement on 4 January 2001. She was responsible for explaining generally the terms of the Service Agreement before the Debtor signed on it. In both her affirmation filed on 14 April 2003 and her oral testimony, she said she had followed her usual practice in fully explaining the contents of the Service Agreement to the Debtor, including the provisions that the goodwill payment was repayable as provided for therein.

19. In his oral testimony, the Debtor said what Vivian Choi said to him when explaining the contents of the Service Agreement to him was consistent with what Tony Chiu and Idy Kwok said. He was there implying that Vivian Choi had also misrepresented the position relating to the goodwill payment to him. This is no doubt made up in response to Vivian Choi's evidence.

20. In my view, the Oral Representation Ground was nothing but a recent fabrication.

21. Further, this ground does not stand up to close scrutiny on evidence for a number of reasons.

22. First, the Debtor in substance alleged that Tony Chiu and Idy Kwok made the representation to him in order to lure him into joining Prudential. I see no reason why they would have to do so even if they were keen to recruit the Debtor. They denied that they had ever made the representation to the Debtor. I accept their evidence.

23. Second, as noted above, in his oral testimony, the Debtor at one stage implied that Vivian Choi also made the representation to him. But later he said he could not recall exactly what Vivian Choi had told him at the time. Any implied allegation against Vivian Choi must be negated by his own evidence.

24. Third, this allegation was contradicted by the Acknowledgment Form, which clearly stated that the goodwill payment was a loan. To counter the Acknowledgment Form, the Debtor said that the matter was handled by Mandy So Man Chung, Agency Operations Manager of Prudential. When he signed the Acknowledgment Form, he queried Mandy So why the goodwill payment was stated to be a loan. Mandy So said to him that everybody receiving the goodwill payment signed such an acknowledgment and that if he did not sign, he would not received the goodwill payment. Mandy So denied this in both her affirmation and oral evidence. She said she was simply not there when the Debtor collected the cheque. The matter was handled by Tracy Lam, an assistant officer of her division. It was Ms Lam who asked the Debtor to sign the Acknowledgment Form. She also signed on it as a witness. Mandy So herself only signed on the form afterwards. In my view, collecting the cheque for the goodwill payment was a simple matter that could well be handled by the junior officer. It did not require Mandy So's particular attention. Accordingly, I reject the Debtor's evidence and accept Mandy So's.

25. Lastly, the Debtor's had not made any complaint whatsoever to Prudential about the goodwill payment until these proceedings. His lack of action at the time clearly contradicts his own case now. And he has not offered any credible explanation. In my view, the only reason why he had not done so is obvious. It is but a recent fabrication.

26. This ground must fail.

THE DURESS GROUND

27. The Debtor alleged that he was put under pressure by Idy Kwok and Benny Tsoi Chuen I, Senior Manager of Prudential's Hong Kong Branch office when he was about to sign the Agency Agreement and the Supplemental Agreement in July 2001. No similar allegation of duress is raised in respect of the Service Agreement. These allegations are all denied.

28. I am unable to accept the Debtor's evidence. He agreed that he had not made any protest at the time when he signed the agreements or when he subsequently received copies of them. Indeed, he had not made any such allegation until now. There is no reason why he did not complain earlier. Further, the Debtor's liability is founded primarily on the Service Agreement, against which no allegation of duress has been raised. The Debtor cannot possibly avoid liability thereunder by raising duress, even if established, on the other agreements.

29. This ground also fails.

THE EMPLOYMENT GROUND

30. Clause 2.6 of the Agency Agreement expressly provided that there would be no employment relationship between Prudential and the Debtor. It is Benny Tsoi's evidence that it is a well known trade practice of the insurance trade in Hong Kong that agents engaged by insurance companies are not hired as employees; and that since the Debtor was not a newcomer to the trade when he joined Prudential, there was no reason that he did not understand how the insurance business operated.

31. The Debtor had not adduced any evidence to contradict Benny Tsoi. Instead, he relied on two matters.

32. First, it is common ground that his team of agents had imposed a "fines" system whereby a small "fine" might be imposed on teammates who were late for meetings. Those "fines" were used for the team purposes, including funding of team social events and buying toner for team photocopying. The evidence of Tony Chiu, Idy Kwok and Benny Tsoi is to the same effect : the system of "fines" was an internal arrangement of the Debtor's team. Prudential is not a party to it at all. The Debtor suggested that since the toner was for photocopying Prudential's documents, Prudential must be a party to it. This only demonstrates that the Debtor is liable to make up assertions, however nonsensical they may be, so long as they suit his purposes. I reject his evidence.

33. The next matter relied on by the Debtor is that Prudential made providential contributions for him. It is stated in the relevant contribution form that Prudential made the contributions as employer. Benny Tsoi explained the position thus. Prior to the coming into force of the relevant provisions of the Mandatory Provident Fund Schemes Ordinance in December 2000, Prudential was already making matching contributions to provident funds which it arranged for its agents. As a result of the Ordinance, it became mandatory for agents to contribute to a provident fund and Prudential chose to make the necessary arrangements for this can continue paying matching contributions as before. However, the standard forms used by the fund trustee continued to use the terminology of employer and employee. Benny Tsoi was told that this could not be changed. The Debtor has not adduced any credible evidence to contradict Benny Tsoi. I accept his evidence entirely.

34. In my view, there is no substance in this ground and I reject it.

THE POLICY APPLICATION REJECTION GROUND

35. The Debtor complained that in or about March of April 2002, Idy Kwok banned him from submitting a policy application by his wife.

36. Idy Kwok did not dispute this but she maintained that the decision was fully justified in the circumstances. She said at that time, the Debtor's wife already had two policies with Prudential and two further policies with other insurance companies. The premiums for the second Prudential policy were paid for from an account of the Debtor as were two policies of his own and one of his son. However, he had regularly been defaulting on the payments from that account. When Idy Kwok saw that new application, she spotted an apparent difference in the purported signatures of the Debtor's wife on the form and the application for the first policy, which was the policy paid for from the wife's account. She then consulted Tony Chiu and they both agreed to reject the new application. Her evidence is corroborated by Tony Chiu. Idy Kwok further said in oral testimony that after she told the Debtor her decision to reject the policy, he appeared embarrassed and guilty and said "OK". He then took away the application form.

37. In cross-examination, the Debtor alleged for the first time that the application form was kept by Idy Kwok. This allegation was not put to Idy Kwok in cross-examination. When asked why he did not simply submit a new application to Prudential's underwriting department directly, which he agreed he could do, the Debtor then changed his evidence and said that Idy Kwok told hem that she was not approving it and would hold on to it pending a decision. He was further asked why he did not make a complaint to Prudential's management when according to him, what Idy Kwok had done was a serious breach of the Insurance Agents' Code of Conduct, he said he did not do so because it was being withheld. The Debtors' evidence is incredible. He was obviously making it up as he went along. I reject his evidence entirely.

38. This ground also fails.

THE NON-PAYMENT OF COMMISSION GROUND

39. The Debtor complained that he had been paid the Cheque for his commission earnings for April 2002. Prudential's case is that it was the Debtor who failed to collect it.

40. In my view, this ground of complaint has become academic now that Prudential has made corresponding adjustment to the quantum of the debt. No reliance can be placed on it.

THE NON-REIMBURSEMENT GROUND

41. The Debtor complained that he had not been reimbursed the fee of a course that he undertook in the sum of HK$2,500. Prudential's case is that the fee of HK$2,440 (not HK$2,500 as alleged) was not reimbursed because the Debtor had not met the requirements for reimbursements. Again, I accept Prudential's evidence. In any event, the Debtor is unable to derive any support from this ground because even if his allegation were to be accepted, the amount of the fees cannot possibly set off the debt due to Prudential.

CONCLUSION

42. For the above reasons, I find that the Debtor has failed to raise any bona fide dispute on substantial grounds. I therefore make a bankruptcy order against him.

COSTS

43. I see no reason why costs should not follow the events. In my view, the Debtor has gone beyond what a party to adversary proceedings would normally do. The allegations that he raised in these proceedings are wholly unmeritorious and untenable. He is a poor and unreliable witness. His evidence is full of inconsistencies and inherent improbabilities. He must know that none of the grounds that he relied on is capable of being substantiated. Yet he chose to fight the case to the bitter end. His stance in these proceedings is in direct contradiction of what he did before the petition was issued. For it is not disputed that on 13 September 2002, he attended a meeting with Benny Tsoi and discussed repayment of the debt to Prudential and that he had not disputed liability there and then. The Debtor had failed to offer any credible explanation why there was such a complete change of stance. By defending the petition in such a way, the Debtor has wasted judicial time and resources. To mark the court's strong disapproval of his conduct, he should be visited with indemnity costs. And I so order.