FORTIS INSURANCE COMPANY (ASIA) LTD v. LAM HAU WAH INNEO

CACV 86/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 86 OF 2010

(ON APPEAL FROM HCA NO. 1840 OF 2009)

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JUDGMENT

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Hon Kwan JA:

1.  This is an appeal from the judgment of Fok J on 18 March 2010, with reasons for judgment handed down on 30 March 2010, by which he dismissed the defendant’s appeal against the decision of Master Kwang on 11 December 2009. The Master entered summary judgment in the plaintiff’s favour in the sum of HK$31,023,588.48 with interest and costs. The Judge also dismissed the defendant’s application by summons dated 2 March 2010 for leave to file further evidence in the draft 3^rd affirmation of the defendant.

2.  By his Notice of Appeal, the defendant seeks an order that the judgment be varied by entering judgment for the plaintiff for HK$7,623,347.98 with interest, and giving leave to him to defend the balance of the amount claimed. On 17 August 2010, he issued a summons seeking leave to adduce new evidence in his appeal, being the affirmation of Ma Tim Wai Esperanza dated 7 July 2010, the affirmation of Mak Kwok Wing also known as Oliver Mak dated 21 July 2010, and his 4^th affirmation dated 16 August 2010. 

3.  We gave leave to the defendant at the hearing to adduce part of the new evidence. This judgment will first deal with the reasons for the admission of new evidence, which is important for the resolution of this appeal.

The background

4.  Before doing so, I will give an outline of the relevant background matters.

5.  The plaintiff was formerly known as Top Glory Insurance Co. (Bermuda) Ltd., then as Pacific Century Insurance Co. Ltd, Fortis Insurance Co. (Asia) Ltd., and recently as Ageas Insurance Co. (Asia) Ltd. The defendant was the plaintiff’s insurance agent from 21 February 1994 to 10 June 2009. During the period of his agency, he entered into the six agreements with the plaintiff which formed the subject of this action: a Manager’s Financing Agreement dated 2 January 1996, a Manager’s Financing Agreement dated 1 June 1998 (collectively referred to as “the MFAs”), a Loan Agreement dated 26 April 1999 (“the 1999 Loan Agreement”), a Loan Agreement dated 20 December 2004 (“the 2004 Loan”), a 1^st Loan Agreement dated 15 December 2008 (“the 1^st 2008 Loan”), and a 2^nd Loan Agreement also dated 15 December 2008 (“the 2^nd 2008 Loan”).

6.  It is the plaintiff’s case that these six agreements were loan agreements, and there was an express term in each that the defendant would repay any amount outstanding under them, including interest, if the defendant’s agency contracts were terminated for any reason. The defendant failed to repay the amounts outstanding under the agreements. By the writ issued on 26 August 2009, the plaintiff claimed HK$34,923,392.75, being the total amount outstanding under these agreements as at the date of termination of the defendant’s agency. On 16 September 2009, the plaintiff took out a summons for summary judgment.

7.  The defendant filed his 1^st affirmation in opposition on 30 September. In it, he admitted liability for the amounts claimed in respect of the 2004 Loan and the 1^st 2008 Loan but disputed the claims under the other four agreements. He alleged that the other agreements were not genuine loan agreements and that he did not in fact owe any money to the plaintiff under these agreements.

8.  It is the defendant’s case that when he joined the plaintiff in 1994 from another insurance company, his income from overriding commission had declined dramatically. He used to have 300 agents working under his watch and from whom he derived significant income by overriding commission. About only 80 of his agents moved with him to join the plaintiff, which was a small company at the time. The plaintiff agreed with him verbally to compensate him for his loss in overriding commission by way of amortizations that were agreed in sum and schedule between them. However, for the plaintiff’s own accounting purposes, the compensation payments were described as “loans” or “financing” to him in the documents prepared by the plaintiff for his signature.  

9.  For the MFAs, he alleged that he negotiated with Andrew Yang, the then Chief Executive Officer of the plaintiff, in 1996 and 1998 and they reached verbal agreement. The plaintiff was to pay him the sums stipulated in the MFAs as compensation for his drop in overriding commission, and that notwithstanding the terms of the MFAs there would be no repayment of the sums described as “advance payment”.

10.  For the 1999 Loan Agreement, he alleged that this was made because the plaintiff changed its system of MFAs. The true nature of the payment under the 1999 Loan Agreement was no different from the MFAs. On behalf of at least five other agents in the same position as he, he and Raymond Chau negotiated with Andrew Yang the payments in these agreements. It was verbally agreed the payments described as “loans” in the agreements would not need to be repaid and they were to be written off by the plaintiff as soon as the company would become profitable.

11.  For the 1^st and 2^nd 2008 Loans, he alleged that in 2008 he asked the plaintiff for a special loan of HK$30 million. After negotiation with the plaintiff’s Chief Executive Officer Stuart Fraser, he was given a special loan of HK$10 million (this was the 1^st 2008 Loan) and a lump sum payment of HK$20 million to buy out his ex-Family Head benefits permanently (this was the 2^nd 2008 Loan). The 1^st Loan was a genuine loan and he accepted liability to repay, the repayment date was on or before 14 December 2010, secured by the assignment to the plaintiff of his life insurance policy. It was verbally agreed with Stuart Fraser that notwithstanding the payment in respect of the 2^nd Loan was described as “a loan” in the document, it was in fact payment to buy out permanently his ex-Family Head benefits and was not repayable in any circumstances. The “Repayment Schedule” in the agreement was merely to amortise the payment to him over a three-year period for the plaintiff’s own accounting purposes. 

The judgment of Fok J

12.  The plaintiff did not file substantive evidence to rebut the defendant’s allegation of verbal agreements. It rested its case on the documents containing the agreements and the letters of acknowledgment signed by the defendant which were inconsistent with his case.

13.  In his 1^st affirmation, the defendant did not produce or refer to any document in support of his assertions. Not surprisingly, his bare assertions in the face of contemporaneous documents which contradicted the alleged verbal agreements did not find favour with the Master or the Judge. Although he applied to Fok J to adduce evidence in his draft 3^rd affirmation, that short affirmation merely stated that he had approached certain witnesses to provide affidavits for him but they were unwilling to do so and would only promise to tell the truth if they were subpoenaed to give evidence at the trial. He did not even tell the court in gist what evidence these witnesses might be expected to give that could help his case. The Judge rightly refused leave to rely on such further evidence in the appeal.

14.  Fok J did not find the defendant’s assertions to be believable as they were entirely contradictory to the express terms of the agreements in writing. In summary, his reasoning was as follows:

(1)     The defendant was an experienced insurance agent, and must have been aware of the significance of written contractual arrangements. Prudent common sense would dictate that he should secure some written acknowledgment from the plaintiff of the true nature of the transactions lest there should be some dispute in future, yet there was none.

(2)     He gave no explanation why he signed two letters dated 9 May 2007 and 13 August 2004 acknowledging his indebtedness under the MFAs and the 1999 Loan Agreement.

(3)     The 1999 Loan Agreement was in very similar form to the 2004 Loan, which was admitted by the defendant as a genuine loan. There was no evidence of the defendant having raised any question with the plaintiff whether an agreement in this form might give rise to an enforceable repayment obligation, or having recorded in writing the verbal agreement or understanding that this was not truly a loan.

(4)     The good sense in the defendant obtaining some form of written acknowledgment from the plaintiff as to the true nature of the transaction under the 2^nd 2008 Loan was reinforced by the fact that the 1^st 2008 Loan, which was admitted by the defendant as a genuine loan, was in the same form and terms.

(5)     The defendant said Stuart Fraser initially offered to pay him HK$41 million of which HK$36 million would be for the defendant’s overriding commission for 2005 to 2007. Given that initial offer, the Judge found it odd that the defendant would agree to relinquish his overriding commission once and for all for the lesser sum of HK$20 million.

15.  Given that he did not find the defendant’s assertions believable, Fok J did not find it necessary to resolve whether, as a matter of law, the plaintiff was entitled to rely on an “entire agreement clause” in the 1999 Loan Agreement and the 2^nd 2008 Loan.

16.  Subject to what I would say below on the differences in the 1^st and 2^nd Loans in 2008, I am in agreement with the Judge’s reasoning. I would have dismissed the appeal on the evidence before the Judge. He was not correct in stating that the 1^st and 2^nd Loans in 2008 were “in the same form and terms”, but I do not think this error was sufficient to overturn his conclusion having regard to the whole of the evidence before him.

The approach on admission of new evidence

17.  Order 59 rule 10(2) of Rules of the High Court provides as follows:

“The Court of Appeal shall have power to receive further evidence on questions of fact, either by oral examination in court, by affidavit, or by deposition taken before an examiner, but no such further evidence (other than evidence as to matters which have occurred after the date of the trial or hearing) shall be admitted except on special grounds.”

18.  What would constitute “special grounds” for this purpose and the proper approach to be adopted in the context of Order 14 proceedings had been stated by Lord Bridge in Langdale v. Danby [1982] 1 WLR 1123 at 1133B to F:

“The classic statement of what amounts to ‘special grounds’ within the meaning of Ord. 59, r 10(2) comes from the judgment of Denning L.J. (as he then was) in Ladd v. Marshall [1954] 1 WLR 1489, and was expressly approved by your Lordships’ House in Skone v. Skone [1971] 1 WLR 812 in the speech of Lord Hodson, at p. 815, with which all the other members of the Appellate Committee agreed. The statement reads, at p. 1491:

‘To justify the reception of fresh evidence or a new trial, three conditions must be fulfilled: first, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; thirdly, the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.’

In the situation arising on an appeal to the Court of Appeal from a summary judgment, the application of these conditions and perhaps the conditions themselves will require some modification. It may well be that the standard of diligence required of a defendant preparing his case in opposition to a summons for summary judgment, especially if under pressure of time, will not be so high as that required in preparing for trial. The second and third conditions will no doubt be satisfied if the further evidence tendered is sufficient, according to the ordinary principles applied on applications for summary judgment, to raise a triable issue. But I can see no injustice at all in requiring a defendant to use such diligence as is reasonable in the circumstances to put before the judge on the hearing of the summons, albeit in summary form, all the evidence he relies on in defence, whereas it would be a great injustice to the plaintiff to allow the defendant to introduce for the first time on appeal evidence which was readily available at the hearing of the summons but was not produced.”

19.  With the above guidance, I turn to consider the new evidence sought to be adduced.

The affirmation of Esperanza Ma

20.  Ms. Ma was the head of the Agency Division of the plaintiff in 1996 and the Vice President and General Manager of Hong Kong in 1997. She retired from the plaintiff in 2002. On behalf of the plaintiff, she signed the 1999 Loan Agreement with the defendant and another agreement in substantially the same terms with Oliver Mak dated the same date. She would give evidence on how the agreements came to be prepared in 1999, when the plaintiff was planning for an initial public offering of its shares (“IPO”), that she was informed by Andrew Yang a financial arrangement was set up for some time to compensate the defendant and other senior agency leaders for their significant drop in income such as overriding commission and bonus when they joined the plaintiff in 1994, that for accounting purpose the plaintiff needed to classify the compensation as “loans”, and that she was instructed to follow up the matter with the Legal Department to prepare the necessary documents (such as the 1999 Loan Agreement) for the defendant and his colleagues to sign.

21.  The defendant explained in his 4^th affirmation why he did not procure an affirmation from Ms. Ma until he changed solicitors in April 2010, after he lost his appeal before Fok J. Ms. Ma is married to a partner of the firm of solicitors that had been acting for him in these proceedings. He said that all along he had been proceeding on the premise that it was inappropriate or inadvisable for him to approach Ms. Ma and obtain an affirmation from her when that firm of solicitors were acting for him. Besides, he had no idea if she was privy to the agreements he had with the various Chief Executive Officers and other people and whether she was in a position to give meaningful evidence. It was only after he changed solicitors that he brought up this matter with them and was advised he should approach Ms. Ma.

22.  Mr. Smith, SC, who appeared for the defendant, submitted that was sufficient to constitute reasonable diligence for the defendant to obtain an affirmation from Ms. Ma only in July 2010. I disagree. As pointed out by Mr. Harry for the plaintiff, the defendant did not appear to say that he was advised by his former solicitors that it was inappropriate or inadvisable to approach Ms. Ma, and even if he were wrongly advised, this should not assist him in this application. I do not think the defendant could satisfy the requirement of reasonable diligence here.

23.  On the remaining conditions in Ladd v. Marshall, I am inclined to agree with Mr. Smith that the evidence of Ms. Ma would probably satisfy those conditions in the sense that it is sufficient to raise a triable issue. I do not propose to go into Mr. Harry’s counter arguments, as Ms. Ma’s affirmation should be excluded on the basis that the first condition regarding reasonable diligence has not been satisfied. The defendant is not allowed to rely on Ms. Ma’s affirmation for the purpose of this appeal.

The affirmation of Oliver Mak

24.  Mr. Mak was one of the seven agency leaders who joined the plaintiff in 1994, from the same previous insurance company as the defendant. He retired from the plaintiff in July 2008.

25.  He produced certain agreements he had signed with the plaintiff. There was a Loan Agreement dated the same date as the 1999 Loan Agreement and it was in similar terms to the defendant’s agreement. The other documents were in relation to the agreements he signed on his retirement, called the “Cash Loan Agreement” and “Special Agreement”, according to which he was re-positioned as a consultant with a commitment not to join any insurance company for three years, that a “loan” of HK$2,630,704 would be released to him in one lump sum in August 2008 after deducting HK$50,000 to repay the advance he owed under the Manager’s Financing Agreement dated 1 March 1999, and that the income and consultancy fee he was entitled to over the three-year lock-in period capped at HK$2,630,704 would be used solely to settle the “loan” of the same amount. 

26.  He gave evidence that in 1994 when the agency leaders including him and the defendant were induced to join the plaintiff, which was a new company, it was agreed verbally that their income especially in terms of overriding commission would be maintained. By 1995, when it became reasonably clear to the agency leaders that they could not achieve the same level of overriding commission, the defendant and Raymond Chau were appointed as their representatives to negotiate with Andrew Yang and an agreement was reached that the plaintiff would compensate the agency leaders for their loss in overriding commission so they would receive a like level of income as before. Because the plaintiff planned to launch an IPO as early as practicable, the compensation was packaged and described as “financing” or “loan” to Manager or agency leader. In those circumstances, he signed MFAs similar to those of the defendant in 1995 and the succeeding years up until 1999. The arrangement was re-named a “Loan Agreement” in 1999 because of the need to formalise such arrangement for the IPO. The payments to him under the MFAs and the Loan Agreement were not loans in fact and at no time had the plaintiff called for repayment of the “financing” or “loans” under those documents.

27.  As for the Cash Loan Agreement and Special Agreement he entered into with the plaintiff, his evidence was that the Fortis group acquired the plaintiff in mid 2008 and the new management approached him and four other agency leaders with an offer to buy out their business, namely, the agents under their watch and their right to overriding commission from business brought in by their agents. He agreed with the plaintiff to buy out his business and it would pay him a sum equivalent to the average overriding commission he had received for the past three years. The other agency leaders also received similar packages from the plaintiff. To minimise the immediate impact on the plaintiff’s accounts, the payment was described as a “Cash Loan” to him and he was appointed as “consultant” with an entitlement to receive a fictional “income and consultancy fee”, which would be used to set off the “Cash Loan” over a three-year period. But it was clearly understood by both that his appointment existed in name only.

28.  In 2009, he became increasingly uncomfortable with the “Cash Loan Agreement” and “Special Agreement” he had signed and the mis-description of the payment as a “loan”. He was also aware that the plaintiff had started demanding the return of the payment made to the defendant to buy out some of the defendant’s non-contractual benefits by arguing that it was a loan. So he and another agency leader Samuel Lau pressed Edwin Yung, the Chief Commercial Officer of the plaintiff, for written confirmation that the payment to them under the “Cash Loan Agreement” and “Special Agreement” was not repayable. On 14 January 2010, the plaintiff issued a letter to him stating that it would “write off” the three loans as mentioned in those agreements, provided that he would comply with all the terms of the “Special Agreement”.

29.  He stated that he was approached “a few months back” by the defendant who asked him to make an affirmation to clarify the nature of the payments made by the plaintiff to the agency leaders under the MFAs and Loan Agreements, as well as the buy-out arrangement he reached with the plaintiff in 2008, which was packaged as a “cash loan”. He turned down the defendant and said he “would not and could not testify”, unless ordered by the court. He was concerned that if he was to testify against the plaintiff, it might retaliate by calling for repayment under the “Cash Loan Agreement” and “Special Agreement”, as the terms of these agreements provided that the plaintiff could terminate the consultancy service and call for repayment of the “cash loan” at any time. He changed his mind and agreed to make an affirmation in July 2010 only after he became aware that the plaintiff had obtained judgment against the defendant on the strength of MFAs and Loan Agreements similar to his case and he was indignant at the plaintiff in the measures taken to enforce the judgment, which gave the defendant’s family a very hard time. Out of sympathy for the defendant, he agreed to provide an affirmation to his solicitors in July 2010.

30.  The defendant in his 4^th affirmation gave an account that shortly after the plaintiff brought this action against him, he started approaching other “founding agency leaders”, namely, senior agency leaders who joined the plaintiff from the same previous insurance company like him in 1994, and sought their assistance to give evidence for him, as the other agency leaders were in a similar position and had signed similar MFAs and Loan Agreements with the plaintiff for the payments made to them as compensation for the resultant loss in overriding commission. The defendant had a lunch meeting with these agency leaders at this time but all of them baulked at his request of rendering assistance or getting involved in his legal action. These agency leaders had sold and transferred their pool of agents to the plaintiff.  He learned that in the agreements they signed for this purpose, the plaintiff could terminate the agreements and call for repayment of the “loan” that represented the agreed price. He understood that they would be “at the mercy” of the plaintiff, so did not seek help from them when he was served with the application for summary judgment. He approached some of the founding agency leaders again, pleading for their help after summary judgment was entered by the Master. Even then, none was willing to help unless they were subpoenaed to testify. After his appeal was dismissed, in June and July 2010, his solicitors wrote to six agency leaders asking them to co-operate failing which they would be subpoenaed to testify and produce documents. Oliver Mak was the only one who responded to those letters. The others remained unwilling to get involved.

31.  Special grounds are clearly made out for Oliver Mak’s affirmation to be admitted. Mr. Harry made the point it was unclear from the defendant’s 4^th affirmation if Oliver Mak was among the founding agency leaders the defendant had approached in 2009 to seek assistance. I do not think it matters. Even if he had done so, it is fairly clear Oliver Mak would not have agreed, as apparent from the latter’s affirmation. It was only out of sympathy for the defendant’s family who had a very hard time when judgment was enforced that Oliver Mak changed his mind. There is cogent explanation to account for the apparent reluctance of Oliver Mak and other founding agency leaders to render assistance on a voluntary basis, notwithstanding the defendant’s repeated requests. The condition about reasonable diligence to obtain evidence is fulfilled.

32.  Mr. Harry submitted there is a credibility problem about Oliver Mak’s evidence, and he did not conduct negotiations with Andrew Yang as alleged, so the remaining conditions of Ladd v. Marshall are not satisfied. As for the documents he had signed (the Loan Agreement in 1999, the “Cash Loan Agreement” and “Special Agreement” in 2008) and the letter issued by the plaintiff dated 14 January 2010, they are entirely consistent with the payments made to him being loans, not compensation for the loss of overriding commission or consideration to buy out his business as alleged. His position was the same as the defendant’s. He would have some explaining to do in asserting that the true nature of the payments was contrary to those documents.

33.  The test is whether Oliver Mak’s evidence is sufficient to raise a triable issue. He may or may not be believed at the trial, which is beside the point. He has no axe to grind against any one, and only changed his mind to provide an affirmation for the defendant out of sympathy. His evidence is sufficiently important as it lends considerable support to the defendant’s case. His Loan Agreement in 1999 was on all fours as the defendant’s 1999 Loan Agreement, and the manner in which his agreements in 2008 were packaged as a “loan” bore similarity to the defendant’s case about the 2^nd 2008 Loan. At this stage and for present purpose, I am satisfied his evidence is believable. We therefore gave leave to rely on his affirmation.

The defendant’s 4^th affirmation

34.  This is the longest affirmation filed by the defendant in these proceedings and it covered a number of matters: (1) he explained why he had paid up the judgment debt in full in May 2010 on an entirely without prejudice basis; (2) he explained why he had not adduced the new evidence earlier; (3) he gave an account of the discussions he had with the plaintiff’s management before and after this action was brought against him to buy out the pool of over 1,000 agents he had recruited; and (4) he produced in exhibit 10 the documents that he was able to locate with the help of his assistant Ms. Lam Sau Hung and gave an explanation of these new documents in paragraphs 42 to 97.

35.  We have taken into account the matters in (2) in considering whether the requirement of reasonable diligence is satisfied for admitting the new evidence. I do not think the matters in (1) and (3) are of sufficient importance to this appeal to warrant their inclusion. It is unnecessary to express any view whether the matters in (3) are without prejudice settlement discussions as contended by Mr. Harry and should have been excluded on that basis.

36.  For the matters in (4), in giving an explanation of the new documents he sought to produce, the defendant went into the evidence in far greater detail than was justified. He gave a much more detailed account of the genesis of the agreements for compensation for loss of overriding commission. He sought to explain various matters which were criticised by the Judge, such as why he had not secured written acknowledgment from the plaintiff as to the true nature of the transactions, why he had signed the two letters of acknowledgment of indebtedness dated 13 August 2004 and 9 May 2007. He alleged that he had made a mistake in paragraph 8(e) of his 1^st affirmation regarding what was covered by the offer of HK$41 million by Stuart Fraser, a matter which was criticised by the Judge as odd as mentioned earlier. There is no reason why these matters could not have been dealt with, properly or at all, in his earlier affirmation. The requirement of reasonable diligence would clearly not be satisfied in respect of those matters. Thus, the only matters that would warrant consideration for present purpose are the new documents in exhibit 10 and the explanation given by the defendant regarding these documents.

37.  Regarding the new documents, the defendant stated that when his contract was terminated on 11 May 2009 by a telephone call, he was not allowed by the plaintiff to return to the office. He was required to remove his personal belongings in his office by appointment and he had to rely on assistants to attend to this. Ms. Lam went to fetch his belongings in June 2009 and as the defendant did not have a new office at the time, she simply packed and stored his belongings in a warehouse. His belongings were kept in 59 cartons and took up 400 cubic feet. He had no idea what Ms. Lam had packed or what documents had or had not been filed and kept in his office over the years.

38.  The defendant had new office premises in October 2009 when he secured an offer to join another insurance company. He was tied up with work in his new position, associated with recruiting, training and supervising a great number of agents under his watch. He said that he had no time to take care of things such as the filing and storage of documents, which was delegated to his assistants. As for Ms. Lam, by the time he had a new office, she had started taking her leave and was busy attending to her marriage and expecting a baby in a few months’ time. In November 2009, she was diagnosed to have low lying placenta and advised by her doctor to have bed rest to minimise the risk of ante partum haemorrhage. She gave birth in January 2010 and returned to work from maternity leave on 22 March 2010, which was after the appeal was heard by the Judge. Even though the documents were retrieved from the warehouse and sent to his new office in October 2009, most of the cartons remained untouched, especially those bearing the name of Ms. Lam, until after she reported to duty. It was only in April 2010 when Ms. Lam, on the defendant’s instruction, trawled through all the documents packed away by her and reported to the defendant that she had kept some documents potentially relevant to the present dispute.

39.  Mr. Harry submitted that the requirement of reasonable diligence was not fulfilled, as the defendant could have searched for relevant documents himself, or asked someone else to do it, or asked Ms. Lam a “simple question” if relevant documents had been retained. That simple question might not be capable of a ready answer, depending on the circumstances. According to the defendant, as the termination of his contract was abrupt, almost everything was in a mess. He was not around to supervise the removal of his belongings in the office he had occupied for quite some time and Ms. Lam simply packed away his things in cartons. Given the combination of factors, it is understandable that no attempt was made to trawl through the considerable number of cartons for relevant documents until April 2010. The standard to be applied is reasonable diligence in all the circumstances. I think that requirement is met in the present situation.

40.  As for the other conditions in Ladd v. Marshall, Mr. Harry submitted that the new documents could be read as supporting the plaintiff’s case rather than the defendant’s. That the documents could equally be viewed as consistent with the plaintiff’s case does not mean they should be excluded. What is important for present purpose is that these documents, when viewed in the light of the defendant’s explanation, are sufficient to raise a triable issue. I will deal with these documents separately when I consider the defendant’s case in the light of the new evidence. For the above reasons, we allowed the defendant to adduce the documents in exhibit 10 and rely on the explanation he gave in his 4^th affirmation in respect of these documents.

41.  Pursuant to directions given prior to the hearing of the appeal for the plaintiff to file evidence in reply in the event that the defendant’s evidence was admitted, the plaintiff filed an affirmation of Chan Siu Chau, a senior manager who works in the Distribution Services and Support Department of the plaintiff and whose responsibilities are primarily related to the payroll, finances and compensation of agents. We gave consequential leave to the plaintiff to rely on this affirmation. The plaintiff did not file any evidence of its former or present officers alleged by the defendant to have entered into verbal agreements with him or given verbal promises to him.

42.  I turn to consider the defendant’s case in the light of the new evidence we have admitted. I will take the disputed loans in the same order as Mr. Smith.

The 2^nd 2008 Loan

43.  This is the largest item of the plaintiff’s claim. The amount claimed, after setting off commissions and other sums, is HK$12,567,866.47.

44.  Mr. Smith pointed to four items of new documents as supportive of the defendant’s case.

45.  Firstly, there was the “Collateral Assignment” executed by the defendant on 3 February 2009 in favour of the plaintiff, being the security provided by the defendant to the plaintiff pursuant to the 1^st 2008 Loan, which was admitted by the defendant as a genuine loan. By this document, the defendant assigned to the plaintiff the benefit of his life insurance policy with an insured amount of US$2.5 million odd (equivalent to HK$20.2 million), as collateral security in consideration of loans outstanding as of 10 January 2009 at about HK$12.8 million odd, which clearly did not cover the 2^nd 2008 Loan in the sum of HK$20 million. Mr. Smith asked rhetorically if the 2^nd 2008 Loan was indeed a genuine loan, one would have expected the benefit of the whole of the insured amount to be assigned as security, to cover also the 2^nd 2008 Loan to the extent of HK$7 million or so. The Judge was aware of the existence of the assignment but not the limited extent of the benefit actually assigned. Mr. Smith submitted that this document supports the defendant’s case that the 2^nd 2008 Loan was not in reality a loan.

46.  Mr. Harry submitted that in the 2^nd 2008 Loan, the plaintiff had the benefit of the defendant’s projected Non-Contractual Benefits for the three-year period commencing December 2008 which amounted to HK$20 million in that clause 4.2 gave the plaintiff the right to withhold and apply such Non-Contractual Benefits to set off the repayment instalments to be made by the defendant in clause 4.1. So whilst the plaintiff had not taken security in the strict sense for the 2^nd 2008 Loan, it had a right of recourse to cover its exposure. Nevertheless, I think that Mr. Smith has made a valid point that should be taken into consideration in assessing if the defendant’s case is believable.

47.  Secondly, the defendant executed a deed at the same time as the 2^nd 2008 Loan, by which he agreed and confirmed that he shall not be entitled to any Non-Contractual Benefits with effect from 1 January 2012. By clause 4.2 in the 2^nd 2008 Loan, the defendant surrendered all Non-Contractual Benefits for the three years commencing 1 January 2009. The combined effect of this clause and the deed was that the defendant gave up all Non-Contractual Benefits as from January 2009. Mr. Smith submitted that this supports the defendant’s assertion that the lump sum payment of HK$20 million was in truth payment to buy out permanently his ex-Family Head benefits, which were defined as “Non-Contractual Benefits” in the 2^nd 2008 Loan.

48.  Thirdly, there were the “Commission Payment Details” issued by the plaintiff to the defendant before and after the 2^nd 2008 Loan, which was dated 15 December 2008. In respect of the item “8001 ex-Family Head Production Bonus”, the “Commission Payment Details” for the months of October, November and December 2008 showed fluctuation in the amounts earned by the defendant, which was what this item should be, as this was determined with reference to the business performance of the defendant and the agents under him, and calculated on the basis of “persistency”, being the conservation rate of the policies sold. In respect of the same item, the “Commission Payment Details” for the months of January, February and March 2009 showed a fixed amount of HK$611,075.22 each month. This is precisely the figure of the monthly repayment amount in schedule 1 to the 2^nd 2008 Loan. Mr. Smith submitted that the clear implication was that the bonus payments from January 2009 had been tailored to match the repayments supposedly due under the 2^nd 2008 Loan, they were not genuine figures of production bonus, and this supports the defendant’s case that no loan was intended by the transaction.

49.  Fourthly, there was an email dated 10 November 2008 from Stuart Fraser to the defendant and Paul Ng (they were the Executive Regional Directors at the time). In it, Stuart Fraser referred to his suggestion for payments to be made “on the basis of a non-refundable loan with a three-year lock-in” “for accounting purposes”, which would allow him “to amortise the payment over the three years and reduce the P&L impact.” Mr. Smith submitted that this illustrated the practice of the plaintiff in making payments described for accounting purposes as loans, when they were not intended to be repaid, and supports the defendant’s case in this and other disputed loans.

50.  In answer to these new documents, Mr. Harry submitted that it does not follow from these documents that the instalments due under clause 4.1 of the 2^nd 2008 Loan were pursuant to a fictional arrangement, or that no loan was intended. The test to be applied at this stage is whether the defendant’s case is believable. I accept these new documents do not in themselves contradict the plaintiff’s case, but they do raise questions why the arrangements were structured or packaged in that way and they give some credence to the defendant’s assertion, as Mr. Smith has submitted.

51.  Further, although the Judge had mentioned in the earlier part of his judgment that the undisputed loans were made against security provided by the defendant in the form of an assignment of his life insurance policy, he did not appear to have taken that fact sufficiently into account when he came to consider each of the four disputed loans, that in marked contrast to the undisputed loans no similar security was obtained from the defendant. For the 1^st 2008 Loan, it was stipulated in clause 5(a) that security must be provided by an assignment of the defendant’s insurance policy by a certain date, failing which an event of default would arise. Despite the similarity in format in the 1^st and 2^nd 2008 Loans, which were signed on the same date, there was no such provision in the 2^nd 2008 Loan, and the Judge was mistaken in thinking that they were in the same form and terms.

52.  Oliver Mak’s affirmation as regards the agreements he entered into with the plaintiff in 2008 by which the payment made to him to buy out his business was packaged as a “Cash Loan” also lends credence to the defendant’s case.

53.  Subject to the point raised by the plaintiff on the “entire agreement clause” in clause 9 of the 2^nd 2008 Loan, which will be dealt with separately, I hold that the defendant has raised a triable issue for this claim.

The 1999 Loan Agreement

54.  Three items of new documents were adduced here by the defendant.

55.  Firstly, there was a letter dated 15 October 2002 from the plaintiff to the defendant by which the plaintiff waived all interest on the 1999 Loan Agreement with effect from 1 October 2002. Secondly, it could be seen from the bundle of “Commission Statements” issued to the defendant for May 1999 to September 2002 that a deduction was made each month under an item numbered 617 entitled “Interest – Special”. The 42 deductions in this period came up to HK$484,968.06. Thirdly, in the “Commission Statement” issued to the defendant for October 2002, it was recorded in item numbered 190 described as “Miscellaneous Comm/Overriding  BONUS PAYMENT” that a sum of HK$484,968.06, which matched exactly the deductions made from May 1999 to September 2002, was credited to the defendant.

56.  The defendant stated in his 4^th affirmation that ‘fictional’ interest was charged by the plaintiff in respect of the 1999 Loan Agreement, which was not a loan at all. He and other founding agency leaders had complained to Andrew Yang on discovering the deduction of ‘fictional’ interest from their monthly commission. The latter asked for their co-operation as he needed to package the transaction as a loan for accounting purposes and amortise it, further the amount deducted as interest per month was insubstantial and would be returned to them in the disguise of special payment or ‘fictional’ bonus. In keeping with that promise, all the sums deducted as interest were returned to the defendant in October 2002 and the plaintiff did not make any further deduction for interest as from October 2002.

57.  In Oliver Mak’s affirmation, he exhibited an agreement he entered into with the plaintiff in the same format as the 1999 Loan Agreement and in similar terms except for the amount of the “loan” and it was dated the same date. I have summarised his evidence earlier. He corroborated the defendant’s evidence in this respect. Mr. Smith also made the point that if the 1999 Loan Agreement had recorded a genuine loan to the defendant, it is curious to say the least that another loan should be made to Oliver Mak on the same date.

58.  Mr. Harry relied on the acknowledgment of indebtedness signed by the defendant in the letter dated 13 August 2004, a matter which found favour with the Judge. He also contended that it was the “commercial prerogative” of the plaintiff to grant a non-contractual bonus to the defendant linked to what was outstanding under the 1999 Loan Agreement and there was nothing fictional about the arrangement.

59.  There was also an “entire agreement clause” in clause 6 of the 1999 Loan Agreement, which was relied on by the plaintiff. This will be dealt with subsequently.

60.  Looking at the available evidence and the new evidence we have admitted in the entirety, I am satisfied that the defendant has raised a triable issue to this claim as well.

The MFAs

61.  There were two items of new documents relied on by the defendant.

62.  In the statement of account of the defendant as of 31 July 2003, the total outstanding finance shown for items 1 to 4 was HK$5,504,996.23, whereas the sub-total for finance from February to December 1995 and finance for January 1996 was HK$2,344,672.73. The difference between these two figures was HK$3,160,324, which was the figure of indebtedness under the MFAs as stated in the letter of acknowledgment of 9 May 2007 signed by the defendant and relied on by the plaintiff.

63.  The other document was a letter from the plaintiff to the defendant dated 12 August 2003 with the caption of “Special Year-end Bonus”. By this letter, the defendant was granted a bonus capped at HK$2,344,672.73 payable within “the Period”, defined to mean from 1 January 2003 to such date as the plaintiff may determine at its discretion.

64.  Chan Siu Chau exhibited a statement of account of the defendant as of 31 August 2003 and a letter of the plaintiff to the defendant dated 15 September 2003 captioned “Special Year-end Bonus” which expressly superseded the letter of 12 August 2003 and which was signed by the defendant in acceptance of its terms. The differences in the terms of these two letters have no significant bearing for present purposes.

65.  The defendant explained in his 4^th affirmation that the figure of HK$3,160,324 in the letter of 9 May 2007 was arrived at by deducting HK$2,344,672.73 from HK$5,504,996.23. The figure of HK$2,344,672.73 was worked out pursuant to a scheme suggested by the plaintiff’s then Chief Operating Officer Peter So to write off and cancel out the purported loans to the founding agency leaders under the MFAs. This was called a “Special Year-end Bonus” based on a formula with a cap. In the defendant’s case, it was capped at HK$2,344,672.73, which represented the total compensation paid to him for the loss of overriding commission in 1995 and 1996. In order to mitigate the impact on the plaintiff’s accounts, the purported loans would be written off by stages. Pursuant to this arrangement, between 2003 and 2007, the plaintiff had written off the said sum of HK$2,344,672.73 from his account from time to time.

66.  Chan Siu Chau stated in his affirmation that the “Special Year-end Bonus” was calculated with reference to certain targets and capped at HK$2,344,672.73 in the defendant’s case and this “Special Year-end Bonus” was then used partially to offset the defendant’s MFA loans, such that the remaining outstanding sum was HK$3,160,324, which is claimed by the plaintiff in this action.

67.  Oliver Mak gave evidence in his affirmation regarding the MFAs he signed, similar to those of the defendant, as I have summarised earlier. He corroborates the defendant’s case.

68.  As submitted by Mr. Smith, there may be two ways of reading the documents, but the defendant’s way of looking at them should not be rejected as totally implausible at this stage. On the totality of the available evidence, I am inclined to agree that the defendant has raised a triable issue for this claim.

The entire agreement clause

69.  The entire agreement clauses were in the 1999 Loan Agreement and the 2^nd 2008 Loan. This is the subject of the Respondent’s Notice served by the plaintiff. It contended that the judgment should be affirmed on the additional ground that the entire agreement clauses were a complete answer to the defendant’s contentions that there was some agreement outside the terms of the written agreements themselves or that the principles of waiver and/or estoppel were available to him.

70.  I do not propose to set out the entire agreement clauses. Suffices it to say they were widely worded. The plaintiff’s argument was that it was entitled to rely on these clauses as a matter of law, the effect of which was to preclude the defendant from relying on previous agreements or understandings which were superseded by the written agreements. Mr. Harry referred the court to a number of authorities in support of this proposition, most notably the decision of Lightman J in Inntrepreneur Pub Co. Ltd. v. East Crown Ltd. [2000] 2 Lloyd’s Rep. 611 at 614 to 615, which had been applied in several judgments at first instance in Hong Kong.

71.  Mr. Smith’s answer to this is two-fold. Firstly, he submitted that an entire agreement clause would not preclude evidence to be adduced as to the true nature of an agreement, citing Chitty on Contracts, 30^th ed., vol. 1, paragraph 12-113, which stated that extrinsic evidence is admissible to prove the true nature of the agreement, or the legal relationship of the parties, even though this may vary or add to the written instrument. Secondly, he referred this court to Edwin John Phillips v. Sa Sa International Holdings Ltd. [2002] HKEC 483 at paragraphs 31 to 35 and the judgment of the Court of Appeal in Natamon Protpakorn v. Citibank NA [2009] 1 HKLRD 455 at paragraphs 28 to 35, in support of his submission that in the absence of decisive authority on the issue, summary judgment should not be granted to preclude reliance by the defendant on waiver or estoppel to render ineffective an entire agreement clause.

72.  Mr. Harry queried the correctness of the proposition in Phillips, which was concerned with applications to strike out pleadings and the amendment of pleadings. In that case, Deputy Judge A Cheung (as he then was) considered it arguable that the entire agreement clause was not intended by the parties to be applicable and where it would be unjust and inequitable to allow a party to deny the existence of the oral term by reference to the entire agreement clause, estoppel may be invoked and extraneous evidence would be admissible to prove the oral term deliberately omitted from the signed written contract. Mr. Harry submitted that this proposition, if upheld, would undermine the purpose of the entire agreement clause.

73.  Natamon Protpakorn was also an application for amendment of pleadings. Phillips was cited by Cheung JA at paragraph 34 as an illustration for the proposition in Chitty on Contracts at paragraph 12-104, that an entire agreement clause may be waived by a party who might otherwise have relied on it.

74.  I agree with Cheung JA that there is room for debate on the applicability and effectiveness of the entire agreement clause in situations where waiver and estoppel might be invoked. The defendant’s case, if believed, may found a factual basis for waiver and estoppel. This action should go to trial.

Disposition of the appeal

75.  For the above reasons, I would allow this appeal and vary the judgment by entering judgment for the plaintiff for HK$7,623,347.98 with interest, and give unconditional leave to the defendant to defend the balance of the amount claimed.

76.  As the appeal is allowed on the basis of the new evidence admitted on appeal, I do not think the costs of the application before the Master and of the appeal before the Judge should be disturbed.

77.  I propose to order the costs of the defendant’s application to adduce new evidence in this appeal to be costs in the cause of the appeal. Costs on appeal would normally follow the event but as the appeal succeeded on materials not placed before the Judge, I would make an order that the costs on the appeal be costs in the cause of the action (Hong Kong Civil Procedure 2010, vol. 1, paragraph 14/7/18).

78.  All costs orders proposed above would be orders nisi.

Hon Sakhrani J:

79.  I agree.

Hon Kwan JA:

80.  Accordingly we allow the appeal and make the orders as stated in paragraphs 75 to 78 above.