ING LIFE INSURANCE CO (BERMUDA) LTD v. TSUI CHEUNG ON

DCCJ 3642/2010

IN DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.3642 OF 2010

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J U D G M E N T

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Background

1.  This case is about an insurance company (“P”) claiming against one of its former insurance agents (“D”) for the recovery of some extra remuneration totalling HK$192,665.87 which has already been paid to D.  P relies on contractual provisions stipulating the repayment of such extra remuneration when D’s agency contract with P was terminated within the prescribed time.

2.  D first started to work as an insurance agent of Prudential Assurance Co Ltd from around December 2004 to early 2007.  In April 2007, he left Prudential and became an insurance agent of American International Assurance Co Ltd (“AIA”) where he was under Kenny Leung Chung Shing (“Kenny”).  In 2008, D and his 10 odd AIA colleagues followed their leader Kenny to leave AIA and joined P. 

3.  One day in/around mid-April 2008, D attended P’s office to accept P’s job offer by signing the Letter of Offer dated 14 April 2008 which provides extra remuneration on top of the normal remuneration payable to D consisting of:

(a)   Signing fee of HK$43,740 (“SF”) to be paid upon D’s successful registration with the Insurance Agents Registration Board and signing of the Individual Agent’s Agreement (“IAA”) with P; and

(b)   Monthly Special Bonus of HK$8,100 (“MSB”) payable for 18 months upon achievement of the target earnings as set out in Appendix 1 – Validation Requirement of MSB on page 3 of the Letter of Offer.

4.  On page 1 of the Letter of Offer, under the respective definitions of the SF and MSB, state that any received SF/MSB shall be forthwith repaid if D’s IAA with P is terminated for any reasons within 30 months from the date of the contract, ie the so-called claw-back provisions.

5.  According to Kenny, he has explained the claw-back provisions to D before D signed the Letter of Offer and Kenny has given a photocopy of the entire Letter of Offer to D after his signing of the Letter of Offer.

6.  On 1 June 2008 D signed the IAA and later in the same month received the cheque dated 19 June 2008 for SF payment in the sum of $43,740.

7.  Having joined P, D not only managed to meet the target earnings for MSB and received such bonus of $8,100 each month but also achieved the 18-month overall target within the first 8 months.  Therefore, in February 2009 D received the advanced payment of MSB for March to November 2009, ie D has received full MSB payment from P $8,100 × 18 = $145,000 by February 2009.

8.  In May 2008, D referred a new insurance agent to P and earned $3,000 “Start Up Bonus” (“SUB”) in July 2008 according to P’s prevailing policy as recorded in a Flash Report dated 28 September 2007.  There is a similar claw-back provision in the Flash Report which requires the referrer (D) to repay the SUB to P if he leaves P within 24 months.  It is the P’s case that Kenny has told D the SUB claw-back provision and reminded his team members including D at team meetings.

9.  After D had joined P for about one year, Kenny began to feel dissatisfied with D’s performance leading to the demotion of D from Team Manager to Agent in around August 2009 and P eventually issued the Letter of Termination dated 30 November 2009 to terminate D’s IAA. 

10.  Parties initially had dispute over the issue of termination, but after trial it is now common ground that D’s IAA was terminated in or around December 2009, which was within the respective prescribed period of 24 or 30 months for the purpose of the claw-back provisions of SUB, SF and MSB.

11.  On 17 December 2009, P invoked the claw-back provisions in the Letter of Offer and Flash Report and demanded D to return HK$192,665.87, ie the claim amount of the present case, consisting of:

Items	Amount (HK$)
(i) SF	43,740.00
(ii) MSB	145,800.00
(iii) First Year Commission (“FYC”)	125.87
(iv) SUB	3,000.00

12.  The FYC claw-back is about an insurance policy solicited by D for himself but it was cancelled in November 2009.  Therefore P relies on clause 7.11.1 of the IAA to claw back $125.8 for the FYC paid to D.

13.  On the other hand, D denies having seen the first page of the Letter of Offer or the Flash Report before the commencement of this action. Kenny just represented to D in April 2008 that SF and MSB would be given to D upon joining P and achieving the business targets without mention of any claw-back provisions in the Letter of Offer or the Flash Report.  Hence, D contends that all those claw-back provisions have not been incorporated into any contracts between the parties.

14.  Further D argues that clause 12.1 of the IAA is an “entire agreement” clause which supersedes any previous agreement and correspondence relating to the subject matter of the IAA.  The IAA which provides for the contractual basis of the agent’s remuneration shall supersede the previous Letter of Offer even if the terms in the letter have incorporated into the contract between P and D.

15.  P has amended their Re-amended Reply at late stage by adding an alternative claim based on “unjust enrichment” had the court found that the claw-back provisions had not formed part of the contract between the parties, or the Letter of Offer having been superseded by the IAA.  In this regard, D has raised the defence of “change of position” upon receiving the extra remuneration based on estoppel, by the purchase of two computers, going on a holiday in Thailand, and contributing to his elderly mother.

Issues

16.  In the premises, the main issues of the present case are summarised as follows:

(i) What did Kenny represent to D in relation to the extra remuneration: SF, MSB and SUB and if any such representation binding on P by virtue of apparent authority;

(ii) Did Kenny show D the entire Letter of Offer or just the second and third pages and any copy of the same given to D;

(iii) Did Kenny make known to D of any claw-back provisions in the Letter of Offer / Flash Report;

(iv)  Have those claw-back provisions incorporated into the contract between P and D / Did clause 12 of IAA supersede any purported claw-back provisions in the Letter of Offer;

(v) If the Letter of Offer was actually not incorporated into the contract between the parties or was superseded by IAA, is P entitled to any restitutionary remedies;

(vi) If the answer to the above is yes, could D rely on the defence of estoppel / change of position.

Any Concealment of the SF & MSB Claw-back Provisions of by Kenny?

17.  The above first three issues all relate to whether Kenny has concealed the claw-back provisions of the signing fee(“SF”) & monthly special bonus (“MSB”), the two most significant monetary incentive for D to join P. 

18.  D’s allegation is that when Kenny tried to lure D to join the P, Kenny just told D that the extra remuneration would be given to D without mentioning any claw-back conditions.  Later, when D signed the Letter of Offer, Kenny just gave D to sign an incomplete offer letter without the first page on which the claw-back provisions of the SF & MSB were written and Kenny did not mention any such provisions either.

19.  On the contrary, Kenny denied having given D an incomplete offer letter to sign at the April 2008 meeting, but he claimed that he did explain to D the entire offer letter including the relevant claw-back provisions at that meeting.

20.  Mr Leung for D submitted that Kenny had every motive not to disclose to D about the 30-month restriction of the claw-back provisions at the April 2008 meeting. As 80-90% of his income came from the so-called “overriding commission”, ie commission derived from insurance policies of clients of his down-line managers and agents, it must be obvious to Kenny that his subordinate agents like D were valuable assets to him. 

21.  Kenny was then planning to move to ING together with his team members in AIA as a group and therefore he had to secure their “loyalty” to follow him to move to ING; otherwise it would be pointless for him to make this career move.    It is the defence case that had the 30-month restriction of the claw-back provisions made known to D, he would not follow Kenny to move to ING, as such provisions were “unpalatable” to D.  Hence, Kenny concealed such provisions when he tried to paint a rosy picture of the job with ING.

22.  D did testify in court that had he known about the claw-back provisions, he would not have followed Kenny to join P as he would not find those provisions advantageous to him.  However, D only said so in hindsight, and there was no evidence to suggest that D has made known to Kenny beforehand that such claw-back provisions would be unpalatable to him.  If D has all along been kept in the dark about the claw-back provisions until the demand for the repayment by the P, it is impossible for D to comment on something unknown to him.

23.  Therefore, the question is what made Kenny think that the claw-back provisions would be unpalatable to D if he knew about them.  In fact Mr Leung for D did suggest to Kenny during cross-examination that if he had told D about 30-month restriction, D would not follow him.  However, Kenny denied the suggestion and said P’s 30-month restriction was not the harshest in the trade, as Manulife even had a 5-year restriction.   

24.  D preferred the similar claw-back provisions for the Personal Production Challenge Bonus of the AIA where both Kenny and D came from, because the percentage of recovery of the paid bonus in case of termination of the agency contract with the AIA, decreases gradually from 100% if termination was within the first year of the agency contract to 67% if termination was within the second year and to 33% if it happened within the third year.      

25.  Again it is not the defence case that D has indicated to Kenny of his preferred AIA claw-back provisions before he joined P.  On the contrary, if the recoverability of the extra remuneration is a real concern of D and given that he had experience of similar claw-back provisions in his previous job with the AIA, it is quite improbable that D did not care to clarify with Kenny as to any possible recoverability of the extra remuneration offered to him by the latest at the April Meeting.  This is particularly so when D said that Kenny had never mentioned anything about the possible recoverability of the extra remuneration, before and at the April Meeting. 

26.  Apart from the question of why Kenny saw it necessary to conceal the claw-back provisions from D, I also have doubt as to how Kenny could ensure that the claw-back provisions could be successfully concealed by simply taking away the first page of the Letter of Offer when D signed the Letter of Offer. 

27.  In fact by reading pages 2 and 3 of the Letter of Offer alone, it is not difficult to see that the letter is incomplete.  For example, the page number on the second and third page indicate “Page 2 of 3” and “Page 3 of 3” respectively. 

28.  Further, the references to “Your appointment”, “the stated remuneration package” and “the above-mentioned extra remuneration” on page 2 of the offer letter do not make any sense without reading page 1 where the details of the appointment and the extra remuneration are provided for.

29.  D claimed that he did not realise the page 1 of the letter was missing when he signed on page 2 and explained his failure to read the letter more carefully because he trusted Kenny very much.  However, there is no evidence to show that Kenny could have anticipated D’s failure to spot the missing page 1 when pages 2 & 3 were shown to him.

30.  Another challenge of D’s evidence on the April Meeting is about the SF.  It is D’s evidence that the exact amount of SF has never been mentioned by Kenny who all along just said it was about $40,000 odd and the exact amount of $43,740 could only be found on page 1 of the offer letter but allegedly it was not mentioned by Kenny at the April Meeting.  Mr Nip for the P queried why D did not clarify with Kenny the exact amount of SF by the latest at the April Meeting if page 1 was not given to D.  Again D explained such omission by his trust on Kenny.

31.  I have also considered Mr Leung’s submissions on the inconsistent evidence between the two P’s witnesses: Kenny and his boss Leon Sze.  The inconsistencies mainly relate to logistic arrangement of the new office of Kenny and his team and whether Kenny explained the terms of the offer letter in the presence of Leon. I agree with Mr Nip that the inconsistencies are peripheral which do not undermine their credibility. 

32.  Having considered all the circumstances and in light of the above analysis, I find D’s contention of Kenny’s concealing the recoverability of the extra remuneration before and at the April Meeting is in general hard to believe and on balance of probabilities I prefer Kenny’s evidence.  Thus I make the following findings:

(i)   Kenny did show to D the entire Letter of Offer including page 1 at the April Meeting;

(ii)   Before D signed the Letter of Offer at the April Meeting, Kenny had explained to D the terms of the Letter of Offer, including the extra remuneration: SF & MSB and their claw-back provisions; and

(iii)  After D had signed the Letter of Offer, Kenny did give D a photocopy of a complete Letter of Offer.

33.  In light of the above factual finding, I further find that the parties have entered into contract as per the entire Letter of Offer when the same was signed. 

The Letter of Offer & the Individual Agent’s Agreement (“IAA”)

34.  The next issue is whether the Letter of Offer has been superseded by the subsequent IAA signed by the parties.  Clause 12.1 of the IAA provides that,

“12.1 This Agreement constitutes the entire agreement between the parties and supersedes any previous agreement and correspondence between the parties relating to the subject matter of this Agreement.”

35.  The subject matter of the IAA is an agreement between the parties for the appointment of D as an agent for the P, defining the rights and duties of an agent, including the entitlement of remuneration calculated according to the Schedule of Commission.

36.  The clause 12.1 in question serves the purpose of superseding all previous agreement of the parties relating to the subject matter of the IAA.  The issue is whether the previous agreement contained in the Letter of Offer relating to the subject matter of the IAA.  The Letter of Offer begins with:

“It is with a good deal of pleasure that I welcome you to join ING Life Insurance Company (Bermuda) Limited (“the Company”) and confirm your appointment as our Team Manager.

On top of the normal remuneration paying in accordance with the position you are appointed, an extra remuneration is arranged exclusively for you with the following details: …” (emphasis added)

Then it continues to set out the details of the one-off signing fee (SF) and the monthly special bonus (MSB) accompanied by the corresponding claw-back provisions.

37.  It is noteworthy that the Letter of Offer in fact appoints D as a Team Manager of P instead of an agent of P.  The offer of SF and MSB is “extra remuneration” arranged exclusively for D qua a Team Manager. In other words, SF and MSB are not the entitlement of an agent as defined by the IAA which does not provide such kinds of remuneration. 

38.  Moreover, Leon Sze, a regional director of the P, has described such offer of SF and MSB to D as a “行家Package”, ie a special package to attract veterans in the trade to switch to P.   

39.  In view of the above, the offer of SF and MSB provided by the Letter of Offer is an independent agreement between the parties serving as the incentive for D to join P and payable to D as a Team Manager.  SF and MSB are not relating to the subject matter of the IAA and thus clause 12.1 of the IAA does not apply to supersede the relevant provisions in the Letter of Offer.   Therefore, the SF and MSB offered by P to D including the corresponding claw-back provisions are thus binding on the parties.

Unjust Enrichment

40.  In case my above finding that the clause 12.1 of the IAA does not apply to supersede the Letter of Offer and the claw-back provisions of SF and MSB are binding on D is wrong, I then proceed to consider the issue of unjust enrichment and its defence. 

41.  P has pleaded in the alternative in the Re-Re-Re-Amended Reply that it had paid the SF and MSB pursuant to a mistaken belief that the terms of the Letter of Offer remained legally valid and enforceable.  D has thereby been unjustly enriched at the expense of P and it is therefore entitled to seek recovery of the SF and MSB on a restitutionary basis.

42.  In this regard, the P relying on Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349; and Goff & Jones, The Law of Unjust Enrichment, 8^th ed §9-31 and submits that  a person’s mistake of his legal liability to pay over a certain sum to another person could render it unjust for that other person to retain the enrichment.  Therefore, it would be unjust for D to retain the SF and MSB given P’s mistaken belief of its legal liability to pay.

43.  Mr Leung for D, however, argues that the retention of the SF and MSB by D is not unjust, simply because Kenny did not tell D there was a catch and he also failed to show D the page 1 of the Letter of Offer on which the claw-back provisions were found.  As I have made the factual finding against D, ie Kenny did show to D and explain to D the claw-back provisions of the SF and MSB on page 1 of the Letter of Offer, the above argument by D could no longer stand.

44.  D has also raised the defence of estoppel / change of position in response to the P’s alternative case of “unjust enrichment”.  It is the defence case that after having received the extra remuneration of SF and MSB, D spent them on a holiday in Thailand, on 2 computers (ThinkPad and BenQ) and on his mother, on the belief that they were his money that he was free to keep and spend.

45.  Mr Leung for D relying on Chitty on Contracts 31^st Ed. Vol.1 para.29-182 and submits that all 3 elements of the defence of estoppel / change of position are present in this case:

“In certain circumstances a person making a payment may be precluded from recovering it by an estoppel. He may, for instance, be estopped from subsequently alleging that he acted under a mistake. To raise an estoppel the payee must satisfy 3 conditions. First, he must show that either the payer was under a duty to give him accurate information and failed to do so, or that there was an unequivocal misrepresentation made to him for which the payer was responsible. Secondly, he must show that his inaccurate information led him to believe that he was entitled to treat the money as his own. Thirdly, he must show that because of his mistaken belief he changed his position in a way which would make it inequitable to require him to repay the money.”

46.  Since I have held that Kenny did explain to D about the claw-back provisions of SF and MSB without concealing the page 1 of the Letter of Offer when the same was signed, I further find that Kenny did not make any misrepresentation and did not provide any inaccurate information on the offer of SF and MSB to D. Therefore, I could not agree with Mr Leung that estoppel/change of position being a valid defence in the present case, as D was not misrepresented or misled to believe that he was entitled to treat the money as his own in the first place.  In the absence of such mistaken belief of the entitlement of SF and MSB by D, this defence could not stand and it is not necessary to further consider the issue of change of position.

Start Up Bonus (“SUB”)

47.  The claw-back provision of the SUB was found in the Flash Report dated 28 September 2007 issued by Edmond Lee on behalf of P and addressed to various internal sales and agents of P.  The Flash Report provides that a SUB of HK$3,000 would be paid to an agent who has successfully referred an agent to join P on the condition that the new agent achieved certain minimum earnings criteria.  It was stated in the Flash Report that the SUB was repayable if the referrer were to leave P within 24 months from the date of receipt of the SUB.

48.  On 8 May 2008, D submitted an Agent Referral Form to P referring Marco Cheung as a new agent.  It is common ground that Cheung was later appointed as an agent of P and that he attained the minimum earnings criteria stipulated in the Flash Report.  As a result, the SUB of HK$3,000 was paid to D in July 2008.

49.  It was Kenny’s evidence that the claw-back provision of the SUB was mentioned to D before D joined P.  After D had joined P, Kenny had also mentioned in the regular team meetings to his team members, including D that the SUB must be repaid if the referrer were to leave P within 24 months of payment.  The fact that Kenny mentioned this at the team meetings was corroborated by Lau’s evidence.

50.  It is P’s case that D accepted that the SUB would be repayable if D’s IAA were to be terminated within 24 months from the payment of the SUB by submitting Cheung’s referral form to P on 8 May 2008.

51.  Mr Nip for the P submitted the following inconsistencies of D’s evidence on SUB.  In paragraph 3 of his 1^st witness statement, D described how Kenny had represented to him that the SF offered to him was to compensate for the loss of clients and commission on existing policies at AIA.  D also said in the same paragraph that Kenny also represented to him that D would receive a SUB of HK$3,000 if he referred agents to P.

52.  In this regard, D confirmed under cross-examination that Kenny mentioned the HK$3,000 SUB at the same time as he mentioned the SF and MSB in around February 2008. However, this was inconsistent with his 2^nd witness statement at paragraph 11 which said that he only knew about the exact amount of the SUB of HK$3,000 at a later stage. 

53.  When confronted with the inconsistency by Mr Nip, D explained that he had not much impression of this because the sum involved was quite small.

54.  D also said during his cross-examination that he did not know the exact amount of the SUB until the receipt of it in July 2008.  Mr Nip submitted that it is unbelievable that D would not know the amount of SUB after Kenny had spoken to him about SUB in around February 2008 and that he did not bother to clarify with Kenny before signing the referral form for Cheung on 8 May 2008.

55.  Having considered the above inconsistencies of D’s evidence and the fact that Kenny’s evidence on SUB is corroborated by Lau’s evidence to some extent, on balance I prefer the P’s evidence on SUB. 

56.  In the circumstances, I find that D was fully aware of the 24-month repayment term of the SUB at the time of submitting the referral form on 8 May 2008 and at all material times subsequently.  Since parties no longer dispute that the departure of D from P was within 24 months, D is liable to refund the $3,000 SUB to P.

First Year Commission (“FYC”)

57.  The contractual basis of the P’s claim of the refund of the $125.87 FYC is found in paragraph 7.11.1 of the IAA:

“7.11 It is hereby expressly agreed and acknowledged that:

7.11.1  in calculating the balance of the commission account for the purposes of this Agreement, the Company shall be entitled to debit to the commission account all commission and bonus paid or credited to the Agent in respect of any policy which has lapsed or has been cancelled by the Company or in respect of any premium on any policy which has lapsed or has been cancelled by the Company.”

58.  This sum of $125.87 FYC arises from a life insurance policy to insure D himself taken out on 27 October 2009.  D then exercised his right to cancel the said policy during the cooling off period by a notice to terminate dated 17 November 2009.  P formally demanded to claw back such FYC by the letter to D dated 17 December 2009.

59.  I do not agree with the submission by D’s counsel that such FYC claim is not covered by the evidence of any of the P’s witnesses.  In paragraph 20 of Kenny’s first witness statement includes such claim.  Further the above factual basis leading to the claw-back of the FYC is not disputed by D.

60.  Therefore, I find that D is liable to P for the FYC claw-back of $125.87.

Conclusion

61.  In view of the above, I enter judgment against the defendant in favour of the plaintiff for the sum of HK$192,665.87, consisting of:

1. SF	$43,740.00
2. MSB	$145,800.00
3. FYC	$125.87
4. SUB	$3,000.00

62.  I also order the defendant to pay the plaintiff interest at judgment rate on the judgment sum from the date of the writ until payment.

Costs

63.  P submits that costs should be awarded in favour of P on an indemnity basis pursuant to clause 3.2 of the IAA which stipulates that D shall pay P’s legal costs on an “indemnity basis” as a result of D’s refusal to repay P Debit balance upon demand by P’s letters dated 15 & 17 December 2009, in breach of clause 7.10 of the IAA.  P also submits that the court should give effect to this contractual provision according to Chekiang First Bank v Fong Siu Kin & Anor [1997] 2 HKC 302 at 309B-H and in particular the following paragraphs at 309E-G:

“Plainly, the exercise of the court's jurisdiction as to costs cannot be fettered by anything in the mortgage deed.

On the other hand, where parties have contractually provided for the basis upon which costs are to be quantified, the court would in the normal course of events give effect to that: The English Court of Appeal so held in Gomba Holdings v. Minories Finance [1993] Ch 171 at 191-B.”

64.  Having considered the above case and all the circumstances of the case, I fail to find any reasons to depart from clause 3.2 of the IAA.

65.  I therefore make an order nisi that the costs of this action be to the plaintiff, to be taxed on an indemnity basis if not agreed, with certificate for counsel.

66.  Lastly, I wish to express my gratitude to both counsel for their assistance rendered to this court.