RE SHING PUI KEUNG

HCB 686/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 686 OF 2017

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J U D G M E N T

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Background

1.  This is a bankruptcy petition presented by Chubb Life Insurance Co Ltd against Mr Shing Pui Keung (“Shing”), based on a statutory demand for a debt in the sum of $2,080,070.83.  Shing was an insurance agent of the petitioner, having joined that company, which was then known as ACE Life Insurance Co Ltd, in October 2012.  Shing left the petitioner in May 2016.  It is not in dispute that the following amounts, inter alia, had been paid by the petitioner to Shing in the course of his agency:

(1)   a Personal Performance Bonus (“PPB”) in the sum of $750,000 in October 2012;

(2)   Special Allowance (“SA”), paid monthly from October 2012 to September 2015, in the total sum of $3,030,160.44;

(3)   Manpower Growth Bonus (“MGB”) in the total sum of $2,290,122.89, paid in 2 sums in October 2013 and October 2014 respectively.

2.  There were provisions in the written agreements between the parties for the repayment of these sums or parts thereof if Shing’s appointment was terminated within 4 years of his appointment.  In particular, clause 4.1 of the Remuneration Agreement dated 9 October 2012 provided as follows:

“4.1 In the event of the Agent’s Agreement is terminated for any reason during the four year period after the Effective Date, all Remuneration or a percentage of the Remuneration paid to you (as the case may be) shall be treated as a debt owed by you to the Company and must be repaid to the Company immediately upon termination in accordance with the Repayment Table below.

Repayment Table
Termination Date	Remuneration Scheme
	PPB	SA	MGB
Within 2 years from the Effective Date	100%	100%	100%
Between 2 and 3 years from the Effective Date	100%	50%	50%
Between 3 and 4 years of the Effective Date	100%	25%	25%

For the avoidance of doubt, you are not required to repay any Remuneration paid to you if the Agent’s Agreement is terminated at any time after the expiry of four years from the Effective Date.”

3.  By letter dated 11 May 2016, Shing gave notice to resign from his position with the petitioner.  That was accepted and it is common ground that Shing’s appointment as an agent was terminated with effect from 19 May 2016, which, under the terms of the Remuneration Agreement, fell between 3 and 4 years of the Effective Date. 

4.  Accordingly, based on clause 4.1 of the Remuneration Agreement, the petitioner demanded that Shing repay 100% of the PPB, being $750,000; 25% of SA, being $757,540.11; and 25% of MGB, being $572,530.72.  When these sums were not repaid, the petitioner served a statutory demand (by advertisement) on and presented a bankruptcy petition against Shing in respect of the total amount. 

5.  In these proceedings Shing has essentially advanced 4 grounds in opposition to the petition, disputing the petition debt as well as raising cross‑claims against the petitioner, namely:

(1)   that the petitioner repudiated the agreements by breaching their implied terms and is therefore not entitled to recover the bonuses;

(2)   that Shing has a cross‑claim for $2.4 million for repudiation and breach of implied terms;

(3)   that because of an oral agreement or representation, the petitioner could only claw back 25%, not 100%, of the PPB; and

(4)   that Shing has a cross‑claim for remuneration of $480,000 under an oral agreement.

6.  It is well established that the threshold for opposing a bankruptcy petition based on a dispute of the debt is that there must be a bona fide dispute of the debt on substantial grounds, and it is for the debtor to adduce sufficiently precise factual evidence to meet this requirement.  The relationship between that threshold and the test for summary judgment in an ordinary civil action was discussed in Re Leung Cherng Jiunn (debtor) [2016] 1 HKLRD 850.  As stated by Kwan JA, the debtor in resisting bankruptcy has to show a bona fide defence, not only a fair probability of one, and in that sense the threshold is higher than that required of a defendant in resisting summary judgment in an ordinary action (see §23).  But ultimately these tests are “broadly similar” and most unlikely to result in different results in practice (see §27(4)).  Her Ladyship also reiterated that the bankruptcy jurisdiction of the court would be exercised only in very clear cases.  Where oral evidence is required to decide a real and substantial dispute of fact, the court will dismiss the petition (§27(5)).

7.  Similarly, where the debtor relies on a cross‑claim or set‑off, he has to adduce relevant supporting details to establish that the cross‑claim or set‑off is genuine, serious, and of substance: Re Sinom (Hong Kong) Ltd [2009] 5 HKLRD 487, §12.

Breach of implied term preventing recovery of sums

8.  Shing contends there were 3 implied terms in the contract between the parties, namely:

(1)   the petitioner shall not conduct its performance evaluations in respect of Shing and/or exercise its right to amend the Agency Operation Manual in an irrational, perverse or arbitrary manner that was not bona fide (“1^st Implied Term”);

(2)   the petitioner shall not administer its policy in relation to the measure of the persistency rate and/or recruitment of new agent in an irrational, perverse or arbitrary manner that was not bona fide (“2^nd Implied Term”);

(3)   the petitioner would not be entitled to recover the bonuses paid to Shing under the repayment clause if the Agent’s Agreement was terminated in consequence of the petitioner’s repudiatory breach (“3^rd Implied Term”).

9.  Shing alleges that the petitioner breached the 1^st and 2^nd Implied Terms in 2 main ways.  First, in 2014, following the merger of Ace Life Insurance Co Ltd into Chubb Life Insurance Co Ltd, the petitioner suddenly, without any notice, consultation or explanation, imposed a new requirement with immediate effect that new agents recruited must be at least 25 years of age.  Shing contends that the change was irrational, perverse or introduced in an arbitrary manner that was not bona fide.  He says that it is common in the industry to recruit agents between 18 and 25 years old, that the Hong Kong Federation of Insurers only require an agent to be at least 18.  No other insurance company had imposed a minimum age of 25 in relation to new recruits.  This had a substantial impact on Shing because 40% of the agents under him were under 25, and he could no longer recruit fresh graduates as he had been doing under successful programmes between 2012 and 2014, and he did not have time to respond or build up an alternative network to replace his recruitment programmes.  It would be extremely difficult for him to recruit enough people to meet the MGB targets.  As a result, he was not able to meet the minimum requirement under the Remuneration Agreement for the MGB to be payable, and he lost $1.4 million in estimated income by way of MGB for the period of October 2014 to September 2015.

10.  Secondly, Shing alleges that in around 2015, the petitioner suddenly and without consultation or explanation changed the way “persistency rate” in relation to an agent’s performance was measured (being a percentage of the relevant insurance policies still in force after a specified period of time), from a standard known as LIMRA 19 (ie after 19 months) which was commonly used in the industry, to LIMRA 25 (ie after 25 months).  According to Ben So (who was the direct line-manager of Shing when they were working for the petitioner), this change was only revealed when the petitioner began issuing warning letters to the agents about the drop of persistency rate (based on LIMRA 25).

11.  Apart from being a higher standard, Shing and Ben So both say the new requirement could not in practice be managed because the petitioner’s computer system could only generate persistency reports based on LIMRA 19 (identifying lapsed policies for the past 18 months) but not on LIMRA 25.  Without such reports, he was unable to manage and improve on the persistency rate under the new standard.  The drop in his persistency rate (previously at 90%) under the new measure affected his promotion prospects and led to a substantial reduction of his entitlement to benefits and bonuses.  He alleges that the petitioner introduced this new measure in an irrational, perverse or arbitrary manner and in bad faith, with a view to depriving him of his bonus entitlements.

12.  Moreover, Shing says that the petitioner unreasonably issued a warning letter asking him to improve his performance by reference to LIMRA 25 within a month, and that he was effectively given the options of (i) extending the contract for 2 years on what he regarded to be unacceptable terms, and (ii) being dismissed by the petitioner.  According to Ben So, of the agents who joined the petitioner in around 2012, about one‑third (ie over 400 people) had been terminated by the petitioner in about mid 2016 after the changes to the measure of persistency rate and the minimum age for new recruits, which he considered to be imposed for the purposes of terminating the agents’ appointments and recovering their bonuses.

13.  Shing contends that these breaches constituted repudiatory breaches of the contract of appointment.  Accordingly, by virtue of the 3^rd Implied Term, the petitioner was not entitled to recover from him the bonuses in question.

14.  Ms Wong, who appeared for Shing, submitted that terms would be implied to prevent the principal from playing a trick on the agent to prevent the agent from earning his commission.  On behalf of the petitioner, while he noted there was a clause for termination by notice, Mr Chan accepted for present purposes that it was sufficiently arguable that the 3 implied terms contended for should be implied into the contract between the parties.  He submitted, however, that Shing had not made out a bona fide case of breach or causation. 

15.  With respect I do not think Shing’s allegations can simply be brushed aside summarily.  The petitioner’s affidavits were silent on the bases for the new measures introduced by the petitioner, and did not seek to justify them.  Changing the age requirement for new agents with immediate effect could understandably have an effect on the MGB entitlements of agents including Shing.  The evidence was that Shing knew of no other insurance company that had implemented such requirement.  Likewise, there was no denial that the petitioner changed the measure of persistency rate without providing any supporting equipment necessary to apply and manage the new measure, and that as a result Shing was unable to manage or improve the persistency rate. There was no attempt in the evidence to defend these changes other than a statement that it was provided in the Agent’s Agreement that the standards and requirements were subject to amendments from time to time.  In these circumstances I do not think that I can simply dismiss Shing’s claims of breach of implied terms as incredible or untenable.

16.  Mr Chan argued that in any event, Shing failed to make out a case that the agency was terminated in consequence of the petitioner’s repudiatory breaches so as to trigger the 3^rd Implied Term, because Shing voluntarily resigned.  Counsel pointed to the fact that in his resignation letter, Shing did not make any complaint about breach of implied terms.  In my view the fact that Shing resigned (as opposed to being dismissed for his standard of performance) does not necessarily mean that the 3^rd Implied Term cannot operate.  There can be cases in which a principal has so changed working conditions and made life so difficult for the agent that the agent is driven to resign.  In the context of employment law this could amount to constructive dismissal.  The bonuses which depended on Shing’s performance as measured by the petitioner according to its policies constituted about half of his income, and were affected by the changes imposed.  In the context of the present case it could be argued that the agency was terminated in consequence of the petitioner’s repudiatory breach within the meaning of the 3^rd Implied Term. 

17.  Although Shing’s resignation letter did not make any complaint, his evidence on oath is that he repeatedly complained during the term of the agency, including complaints to Jeffrey Woo (“Woo”), the Vice President and Chief Agency Officer of the petitioner.  Shing’s evidence is corroborated by that of Ben So, who also made an affidavit.  Ben So said Woo actually called him in June 2015 to set up a meeting to address Shing’s complaints.  There is no evidence from Woo (or anyone within the petitioner who dealt with Shing at the time) to deny this, and no explanation why no such evidence has been adduced (other than a statement that Woo had left the petitioner). On the state of the evidence, I am unable to accept Mr Chan’s submission that Shing’s evidence that he was forced to resign because of the petitioner’s repudiatory breaches could be dismissed as incredible at this stage.  The 3^rd Implied Term was therefore arguably triggered which, if ultimately upheld, could provide a defence to the petitioner’s claim.

Claim for damages for breaches of implied terms or repudiatory breaches

18.  Based on the same breaches of implied terms, Shing claims against the petitioner $1.4 million in damages for loss of MGB between October 2014 and September 2015, and $1 million in damages representing 5 months’ income (for the remainder of the 4‑year period after May 2016).

19.  Mr Chan criticised the figure of $1.4 million as being a mere unparticularised assertion.  However, Ms Wong was able to show, by reference to Shing’s income records, that the amounts of MGB earned by him were approximately $1.03 million for the year ended September 2013 and $1.26 million for the year ended September 2014.  A claim of $1.4 million is perhaps over optimistic but that criticism falls away if the average figure of $1.15 million is adopted as an estimate for present purposes.

20.  In my view, however, the claim for 5 months’ income in the sum of $1 million is not properly substantiated, because it is not in dispute that Shing joined another insurance company at the end of May 2016.  Even if there was a right to damages, Shing only suffered a loss insofar as his new income was lower than what it would have been if he had remained with the petitioner.  As Shing has not disclosed any information regarding his new income, I take the view no substantial cross‑claim has been made out for this $1 million.

Oral agreement in relation to PPB

21.  Shing said that in 2012, prior to this appointment, he negotiated the terms of his contract with Ms Phyllis Wong (“Wong”), the Assistant Vice President and Agency Manager of the petitioner. He was assured by Wong during the negotiation that there would be no repayment clause in his contract with the petitioner (“1^st representation”). Subsequently, on 30 July 2012, when he received the letter from the petitioner (signed by Wong) offering him the position of Sales Manager, it did not expressly contain any repayment clause, although I note that there was a sentence saying the “terms and conditions regarding the validation and payments methods will be provided in the Financing Scheme upon confirmation of this appointment”.  Shing said that, relying on the 1^st representation by Wong, he accepted the offer and resigned from his previous job.  On 21 September 2012, Shing became registered as an agent of the petitioner and started work. 

22.  On or about 9 October 2012, in the presence of Ben So, his direct line-manager, Wong handed Shing copies of the contracts now relied upon by the petitioner, and told Shing that the terms were just the same as the offer letter (“2^nd representation”).  Relying on what Wong said, Shing signed the contracts without going through the terms in detail. 

23.  About half a year later, Shing learned that there was in fact a repayment clause in his contract.  When he complained to Wong about the existence of the repayment clause, Wong told him that the repayment percentage for PPB between 2 and 3 years from the Effective Date was 50% and that between 3 and 4 years from the Effective Date was 25% (“3^rd representation”). Relying on this representation, Shing decided to let the matter go and did not make further complaint about it.  On this basis, Shing contends that the petitioner is now estopped or barred from claiming anything more than 25% of the PPB. This ground, if established, would reduce the petition debt by $562,500.

24.  Although there was an “entire agreement clause” in the Agent’s Agreement, Mr Chan accepted that it was not necessarily a conclusive answer at this stage to a case based on estoppel: Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455, §§28–35; Fortis Insurance Co (Asia) Ltd v Lam Hau Wah Inneo (unrep, CACV 86/2010, 28 October 2010), §74.  A fortiori in this case where the alleged 3^rd representation and reliance thereon took place post‑contract.

25.  Mr Chan who appeared for the petitioner submitted that Shing’s evidence was incredible.  While Mr Chan was able to point to certain factual inconsistencies and improbabilities with some force, I do not think they warrant a conclusion at this stage that Shing’s claim is wholly incredible.  Shing’s account is corroborated by Ben So who (i) confirmed Shing’s version of what happened at the signing meeting in October 2012 and hence the 2^nd representation; (ii) said that in fact Wong had told him much the same thing about the PPB as the 3^rd representation; (iii) said that he had also told Shing the petitioner would write off the PPB by 25% every year; and (iv) said that Shing had informed him Wong had told him that only 25% of the PPB would be repayable if the agency was terminated between 3 and 4 years.  On the other hand, there is no contrary evidence from the petitioner denying the representations.  There is no affirmation from Wong nor any explanation why there was no such evidence (except a statement that Wong had left the petitioner in April 2015, without any suggestion that she is now uncontactable or hostile).

26.  Mr Chan further argued that even if Wong made an oral agreement with or representation to Shing, it could not avail Shing because (i) there is no evidence Wong had the requisite authority, and (ii) there was no detrimental reliance by Shing on the 3^rd representation.

27.  As to authority, Mr Chan relied on Ng J’s decision in Re Wong Lo Fung (unrep, HCB 1864/2013, 29 August 2014), §§22–30.  In my view, the question of authority is one of fact and evidence in each case and, with respect, the decision on the facts of one case offers limited guidance for how another case should be decided.  Here, Wong was the “Head of Agency Zone” of the petitioner.  There is no averment by the petitioner that Wong had no authority.  The petitioner’s reply affirmation only stated there was “no record of Ms Wong being authorised” to make the alleged representations to Shing or Ben So.  Her main duties admittedly included “overseeing recruitment process”.  It was asserted that she was “not responsible for agency contracting matters” but this must be read in light of the fact that she actually signed the offer letter dated 30 July 2012 as the “Assistant Vice President and Agency Manager” of the petitioner to Shing.  It would appear that the letter was intended to be an “offer” (in the sense in which the word is used in the law of contract) capable of being accepted and was in fact accepted by Shing.

28.  As to reliance, Mr Chan argued that Shing had failed to show he relied on the 3^rd representation to his detriment.  On the evidence, it can be said that in reliance on the 3^rd representation, Shing decided not to pursue the matter about the previous 2 representations or make any further complaint about them and instead decided to carry on working as an agent of the petitioner. 

29.  Mr Chan argued that because the earlier 2 alleged representations were made before or at the time of the signing of the agreements, they were caught by the entire agreement clause and therefore Shing had no basis to make any complaint about them.  In my view, this is too tenuous a basis to determine summarily at this stage that Shing had no case of reliance on the 3^rd representation.  As a matter of fact, Shing could have left the petitioner but instead chose to continue.  By continuing as an agent in the faith that the longer he served, the less of the PPB would be repayable, it seems to me arguable that he altered his position in such a way that there would be detriment if the petitioner was allowed to resile from the representation. 

30.  Further, whether Shing’s complaints based on the 1^st and 2^nd representations were so entirely baseless that forgoing them was not in the least detrimental to Shing, is not a straightforward question.  The modern approach to detriment and consideration alike is practical rather than dogmatic.  The entire agreement clause might not be sufficient to offer the petitioner watertight protection against a complaint by Shing based on estoppel and waiver arising from the 1^st and 2^nd representations. There is also the question of the state of mind of Wong in making the first 2 representations.  I therefore consider that there is a sufficiently arguable case raised on behalf of Shing on this claim.

Cross‑claim for $480,000

31.  Shing said that after his repeated complaints about the changes imposed by the petitioner, there was a meeting on 10 June 2015 between Woo (the Vice President and Chief Agency Officer of the petitioner), Ben So and him to address his complaints.  To compensate Shing for his loss of bonus, Woo agreed that the petitioner would pay him a sum of $40,000 per month for a year from October 2015 onwards conditional upon his achieving an MDRT (million‑dollar round table) target.  Shing did meet the condition (and the documents show a marked rise in Shing’s performance over the relevant period) but the petitioner did not pay him the amount.  Shing said he complained to Woo but Woo said the petitioner was preparing the relevant documents for payment.  Shing’s claim was mentioned in this regard in the first response to the petitioner’s demand letter for repayment of the various sums.

32.  For the petitioner, Mr Chan has made some valid criticisms of Shing’s case including an inconsistency in relation to the period covered by the alleged agreement between Shing’s affirmation and his earlier solicitors’ letter.  Ultimately, however, this is a question of fact and there is no evidence from Woo to deny the oral agreement, nor any explanation why no such evidence has been adduced (although Woo has left the petitioner, there is no suggestion he cannot be found or is hostile).  Further, Ben So has also made an affirmation stating he was present at the meeting and confirming Shing’s account.  Indeed, Ben So said that subsequently he chased Woo many times on Shing’s behalf and Woo stated that the money would be released once the formal papers were ready.  On the evidence before me I am unable to dismiss Shing’s case as lacking in substance for being incredible.

Conclusion

33.  Overall the evidence and arguments put forward on Shing’s behalf in my view passed the hurdle, even if not with flying colours.  I do not consider that his claims are so lacking in substance as to permit the petitioner to obtain a bankruptcy order against him.  After all, bankruptcy proceedings are summary in nature and intended for clear cases and even a cross-claim said to be “somewhat shadowy” had been held to constitute a defence[1], although ultimately it is a question of applying the established principles to the facts of each case.

34.  For these reasons, the bankruptcy petition is dismissed. There will be an order nisi that the petitioner do pay Shing the costs of the petition.