BOC GROUP LIFE ASSURANCE AND ANOTHER v. WONG FU WAH

DCCJ 4648/2019

[2024] HKDC 2089

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4648 OF 2019

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JUDGMENT

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Introduction

1.  In this action, the Plaintiff claims for repayment of the following sums as a result of termination of the Defendant’s agreements with the Plaintiff:

(a)  Monthly Allowance in the sum of HK$1,046,000;

(b)  Sign-On Bonus in the sum of HK$784,500; and

(c)  Examination fees of HK$110 (“Outstanding Sums”).

2.  The Examination Fees have been admitted by the Defendant (§57 of the Defendant’s Witness Statement).

3.  The Plaintiff is an insurance company incorporated in Hong Kong, providing insurance policies and products in Hong Kong. The Defendant was an insurance agent of the Plaintiff from 25 November 2016 to 5 April 2019.

4.  The Plaintiff and the Defendant entered into the following agreements:

(a)  The Agent’s Agreement dated 25 November 2016 (“Agent’s Agreement”); and

(b)  The IR Agreement dated 28 December 2016 (“IR Agreement”) (collectively, the “Agreements”).

5.  The termination clause contained in clause 10.1 of in the Agent’s Agreement provides as follows:

“The [Plaintiff] or the [Defendant] may terminate [the Agent’s Agreement] at any time and without giving any reason for so doing, by giving 14 days’ notice to the other in writing.”

6.  A similar termination clause providing the right for both the Plaintiff or the Defendant to terminate the IR Agreement without giving any reason by providing 14 days written notice was contained in clause 7.1 of the IR Agreement. Under clause 7.2 of the IR Agreement, the IR Agreement will be terminated immediately without notice upon the termination of the Agent’s Agreement.

7.  By a letter dated 22 March 2019 and pursuant to clause 10.1 of the Agent’s Agreement, the Plaintiff gave notice to the Defendant to terminate the Agent’s Agreement and the IR Agreement with effect from 5 April 2019.

Undisputed Facts

8.  The Defendant holds a Master degree in Business Administration, and has been an insurance agent since 1 November 1993.

9.  According to the credit report dated 21 September 2016, the Defendant’s credit rating was Grade “I.” According to §5 of the credit report, the Defendant was prosecuted by the Commissioner of Inland Revenue in relation to three claims, for a total of HK$939,169.

10.  On 25 November 2016, the Plaintiff and the Defendant entered into the Agent’s Agreement.

11.  On 28 December 2016, the Plaintiff and the Defendant entered into the IR Agreement for Managers. The Effective Date of the IR Agreement is 28 December 2016.

12.  Pursuant to the IR Agreement, a sum of HK$784,500 was advanced by the Plaintiff to the Defendant as Sign-On Bonus, and a sum of HK$1,046,000 was advanced by the Plaintiff to the Defendant as Monthly Allowance.

13.  On 6 October 2017, the Defendant signed a Confidentiality Agreement with the Plaintiff concerning business collaboration between the Plaintiff, Chiyu Banking Corporation Ltd and Industrial Bank Co Ltd.

14.  As of 13 June 2018, the Defendant owed the Inland Revenue Department (“IRD”) a total sum of HK$1,407,516.87.

15.  Between June 2018 and January 2019, the Defendant provided the Plaintiff with payment receipts, showing that a total of HK$95,000 has been paid by the Defendant to the IRD.

16.  On 29 January 2019, Mr Cyrus Li (as the Chief Distribution Officer) sent the Defendant a letter titled “Final Reminder on Submission of Documentary Proof Regarding your Tax Payment Arrangement with Inland Revenue Department”, requesting the Defendant for (1) proof of partial payment of HK$200,000, and (2) proof of 24-month instalment agreement for the outstanding balance of tax payable (the “Requests”). The Defendant did not reply to this letter.

17.  According to the credit report of the Defendant dated 30 January 2019, the Defendant’s credit rating was Grade “I”.

18.  On 1 February 2019, Mr Billy Tang (as the Head of Tied Agency) sent the Defendant a letter titled “Re-submission of Documentary Proof Regarding your Tax Payment Arrangement with Inland Revenue Department,” repeating the Requests made in the letter dated 29 January 2019.

19.  On 26 February 2019, the Defendant signed an Authorisation Letter titled “報考「保險中介入資格考試 」及「 強積金仲介人考試 」收費授權書. It is common ground that the Defendant owes the Plaintiff a sum of HK$110 (together with interest), being the outstanding balance of the examination fee owed under this Authorisation Letter.

20.  Between February and March 2019, the Defendant provided the Plaintiff with two further sets of payment proof, showing that HK$40,000 has been paid by the Defendant to the IRD.

21.  On 14 March 2019, the Plaintiff organised a meeting with the Defendant. The transcript disclosed is a transcription of the audio recording of the meeting (“Transcript”).

22.  On 22 March 2019, the Plaintiff issued a letter terminating the Defendant’s Agent’s Agreement and IR Agreement.

23.  On 25 March 2019, the Plaintiff issued a demand letter to the Defendant requesting for repayment of the Sign-On Bonus and the Monthly Allowance. The Defendant did not comply with the request.

Witnesses

24.  The following witnesses gave evidence at the trial:

(a)  Mr Ko Ka Lok, the District Director of the Plaintiff’s insurance agent team;

(b)  Mr Li Haw Nan Cyrus, the Chief Distribution Officer of the Plaintiff until February 2019;

(c)  Ms Lui Wai Sze Gigi, the Agency Development Manager of the Plaintiff;

(d)  Mr Tang Chi Wai Billy, the Head of Tied Agency of the Plaintiff; and

(e)  Mr Wong Fu Wah, the Defendant, the District Director of the Plaintiff’s insurance agent team until 5 April 2019.

Issues to be decided

25.  Five issues to be decided were agreed between the parties. Two issues were disputed by the Plaintiff as unpleaded.

26.  Issue 1: Whether the Plaintiff is entitled to the Outstanding Sums?

27.  Issue 2(a): Whether the Agreements contain the alleged Implied Terms?

28.  Issue 2(b): Whether the Plaintiff was in breach of the alleged Implied Terms?

29.  Issue 3: Whether there was any collateral agreement between the Plaintiff and the Defendant in relation to cooperation with banks. If so, whether the Plaintiff was in breach?

30.  Issue 4: Whether there was any agreement between the Plaintiff and the Defendant on recruitment. If so, whether the Plaintiff was in breach?

31.  Issue 5: Whether the Defendant is entitled to any relief sought in the Counterclaim?

32.  Two other issues which the Defendant sought to be determined by the Court but were disputed by the Plaintiff as unpleaded, are as follows:

33.  Issue 6 (Disputed): Did the parties enter into the Overall Agreement as set out in §§3-10 of the Defence and Counterclaim (“D&CC”), and whether the Plaintiff breached the Overall Agreement by terminating the Agreements?

34.  Issue 7 (Disputed): Whether the Plaintiff made the representations as set out in §§4 (d) – (f) of the D&CC, and the legal effect of such representations?

ISSUE 1: WHETHER THE PLAINTIFF IS ENTITLED TO THE OUTSTANDING SUMS?

35.  Clause 3.1 of the IR Agreement provides that “[a]ny [Monthly] Allowance and/or [Sign-On and Productivity] Bonus…will only be vested in the [Defendant] once:

(a)  the [Defendant] has met all of the applicable conditions set out in Appendix I to this Agreement; and

(b)  has served as an agent of the [Plaintiff] for such duration(s) as specified in clause 3.2;

and will not be vested in the [Defendant] unless and until such time, regardless of whether the [Monthly] Allowance and/or [Sign-On and Productivity] Bonus has been advanced to the [Defendant] or not.”

36.  Clause 3.2 of the IR Agreement provides that “[i]f the [Defendant] ceases to be an agent of the [Plaintiff] and/or the Agent’s Agreement is terminated at any time before the 61^st month from the date of the IR Agreement, the [Defendant] undertakes and agrees to immediately repay the [Plaintiff] in full the applicable clawback percentage (as determined in accordance with the following table) of the [Monthly] Allowance and/or [Sign-On and Productivity] Bonus which the [Plaintiff] has advanced to the [Defendant] under the IR Agreement:

Date of termination of the Agent’s Agreement or the date on which the [Defendant] ceases to be an agent of the [Plaintiff]	Applicable Clawback Percentage on
	Sign-on Bonus	Monthly Allowance	Productivity Bonus
Within the first 36 months	100%	100%	100%
Within the 37th to 48th month	75%	75%	100%
Within the 49th to 60th month	50%	50%	75%

37.  Clause 3.3 of the IR Agreement provides that “[t]he [Defendant] must repay all of the amounts owing to the [Plaintiff] under this Agreement…in full within seven (7) days after (i) the date on which the [Defendant] ceases to be an agent of the [Plaintiff] or (ii) the date of termination of the Agent’s Agreement, whichever is earlier.”

38.  Clause 3.4 of the IR Agreement provides that “[t]he [Defendant] undertakes and agrees to immediately repay to the [Plaintiff] in full on its request any [Monthly] Allowance and/or [Sign-On and Productivity] Bonus not vested in the [Defendant] should the [Defendant] fail to meet the applicable conditions set out in this Agreement (including without limitation Appendix I to this Agreement), regardless of whether such [Monthly] Allowance and/or [Sign-On and Productivity] Bonus have been advanced to the [Defendant] or not.”

39.  Clause 3.6 of the IR Agreement provides that “[i]f the [Defendant] fails to repay any of the amounts owing to the [Plaintiff] in accordance with this Agreement, the aggregate of the amount due for repayment will be subject to interest at the rate of 2% per annum above the prevailing Interest Rate determined by the [Plaintiff]. The interest will accrue on a daily basis, will be computed daily and will be immediately payable”.

40.  It is agreed between the parties that the Plaintiff advanced a sum of HK$1,046,000 to the Defendant as the Monthly Allowance and a sum of HK$784,500 to the Defendant as the Sign-On Bonus.

41.  The Effective Date of the IR Agreement is 28 December 2016. The IR Agreement was terminated with effect on 5 April 2019. Hence the Defendant ceased to be the Plaintiff’s Agent within 27 months from the Effective Date. Given that the date of termination of the Agent’s Agreement or the date on which the Defendant ceases to be an agent of the Plaintiff is within the first 36 months, the applicable clawback percentage of the Sign-On Bonus and Monthly Allowance is 100%.

42.  Subject to Issues 2(a) and 2(b) below, the Plaintiff is entitled repayment of 100% of the Monthly Allowance and Sign-On Bonus from the Defendant in the sums of HK$1,046,000 and HK$784,500.

ISSUE 2(a): WHETHER THE AGREEMENTS CONTAIN THE ALLEGED IMPLIED TERMS?

43.  The Defendant submits in §21 of the Defendant’s Opening Submissions that he only needs to rely on the implied term pleaded in §11(a) of the D&CC that:

“The Plaintiff would not terminate the Agent’s Agreement without cause to prevent the Defendant from performing the Agreements, during the period where Clause 3.2 might be invoked by the Plaintiff, thus depriving the Defendant of his entitlement to the allowance and/or bonus, as long as the Defendant met the conditions of minimum number of downline agents and commissions.” (“1^st Implied Term”).

44.  Two other implied terms were pleaded by the Defendant:

“Should the Defendant terminate the Agent’s Agreement, his obligation under Clause 3.2 should be strictly complied with.” (“2^nd Implied Term”) [§11(b) of the D&CC].

“The Plaintiff was only entitled to rely on Clause 3.2 of the IR Agreement to claim the repayment of the allowance and/or bonus if (i) the Defendant failed to satisfy the conditions as regards the number of downline agents and total commissions generated by the Defendant as imposed in Appendix I to the IR Agreement; (ii) the Defendant terminated the Agent’s Agreement on his own accord; or (iii) the Agent’s Agreement was terminated pursuant to Clauses 10.2 and 10.3 of the Agent’s Agreement (“3^rd Implied Term”) [§11(c) of the D&CC].”(collectively “Implied Terms”).

45.  The Defendant submits that the other two implied terms pleaded by the Defendant in §§11(b) & (c) of the D&CC follow from that 1^st Implied Term – i.e., that the Plaintiff is only entitled to terminate the Defendant’s agency if the Defendant did not meet the minimum number of downline agents and commissions (but not if the Defendant terminated the agency on his own accord or if the Agent’s Agreement was terminated pursuant to clauses 10.2 or 10.3 of the Agent’s Agreement).

46.  I first address the appropriate test for anti-avoidance or anti-recoupment implied terms. The Defendant relies on Tadjudin Sunny v Bank of America National Association (unreported judgment of the Court of Appeal, CACV 12/2015 dated 20 May 2016) for its argument that the Implied Terms are capable of existing as a matter of law.

47.  It is trite that for a term to be implied into a contract:

(a)  it must be reasonable and equitable;

(b)  it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;

(c)  it must be so obvious that “it goes without saying”;

(d)  it must be capable of clear expression; and

(e)  it must not contradict any express term of the contract.

See Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §59 per Ribeiro PJ, adopting the test for implied terms in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 at 26 per Lord Simon.

48.  Tadjudin Sunny concerned the termination of an employment contract. The employee claimed that it was entitled to a performance bonus. The Court of Appeal held that the employer could not exercise an express contractual right to terminate a contract of employment by giving a payment in lieu of notice with the intention to avoid paying the employee a performance bonus.

49.  The Court of Appeal noted the five conditions above which must be satisfied for a term to be implied into a contract (at §37).

50.  The Court of Appeal held that, in practice, instead of asking whether the term sought to be implied is necessary in the sense that without it the contract would become unworkable in practice, the correct question to ask is whether it is necessary to give effect to the reasonable expectations of the parties (at §41).

51.  Instead of asking whether the actual parties to the contract would have regarded the terms sought to be implied as being obvious although the contract does not expressly say so, the correct question to ask is whether the implied term is what a reasonable person would understand the contract to mean (at §42).

52.  The Defendant submits that the test for anti-avoidance or anti-recoupment implied terms is given by Tadjudin Sunny at §§41-42:

“Hence, instead of asking whether the term sought to be implied is necessary in the sense that without it the contract would become unworkable in practice, the correct question to ask is whether it is necessary to give effect to the reasonable expectations of the parties.

Likewise, instead of asking whether the actual parties to the contract would have regarded the term sought to be implied as being obvious (or immediately apparent) although the contract does not expressly say so, the correct question to ask is whether it is what a reasonable person would understand the contract to mean.” (my emphasis).

53.  The Defendant submits that the Implied Terms (particularly the 1^st Implied Term pleaded at D&CC §11(a)) are necessary to give effect to the reasonable expectations of both the Plaintiff and the Defendant and that a reasonable person would understand the Agreements to include the Implied Terms.

54.  However, this is not the test for the implication of terms in Hong Kong. The Court of Appeal in Tadjudin Sunny was influenced by §§17-27 of AG of Belize v Belize Telecom [2009] 1 WLR 1988 (§§38-40 of Tadjudin Sunny). The “reasonable expectation of the parties” test for the implication of terms has not been followed in subsequent decisions in the U.K and Hong Kong.

55.  In Marks and Spencer v BNP Paribas & Anor [2015] UKPC 72, the U.K. Supreme Court held that the reasonable expectation of the parties test for the implication of terms should not be treated as diluting the test of necessity. Reasonableness per se is not a sufficient ground for implying a term. The proper test is that a term will be implied only if (1) the reasonable reader is treated as reading the contract at the time it was made; and (2) he/she would consider the term to be so obvious to go without saying or to be necessary for business efficacy (at §§23-31). Lord Hoffmann’s observations in §§17-27 of Belize Telecom should not be treated as “authoritative guidance on the law of implied terms.”

56.  As Lord Neuberger observed in Marks and Spencer (at §§22-26):

“22. Before leaving this issue of general principle, it is appropriate to refer a little further to Belize Telecom, where Lord Hoffmann suggested that the process of implying terms into a contract was part of the exercise of the construction, or interpretation, of the contract. In summary, he said at para 21 that “[t]here is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?”. There are two points to be made about that observation.

23. First, the notion that a term will be implied if a reasonable reader of the contract, knowing all its provisions and the surrounding circumstances, would understand it to be implied is quite acceptable, provided that (i) the reasonable reader is treated as reading the contract at the time it was made and (ii) he would consider the term to be so obvious as to go without saying or to be necessary for business efficacy. (The difference between what the reasonable reader would understand and what the parties, acting reasonably, would agree, appears to me to be a notional distinction without a practical difference.) The first proviso emphasises that the question whether a term is implied is to be judged at the date the contract is made. The second proviso is important because otherwise Lord Hoffmann’s formulation may be interpreted as suggesting that reasonableness is a sufficient ground for implying a term. …

24. It is necessary to emphasise that there has been no dilution of the requirements which have to be satisfied before a term will be implied, because it is apparent that Belize Telecom has been interpreted by both academic lawyers and judges as having changed the law. … The Singapore Court of Appeal were in my view right to hold that the law governing the circumstances in which a term will be implied into a contract remains unchanged following Belize Telecom.

25. The second point to be made about what was said in Belize Telecom concerns the suggestion that the process of implying a term is part of the exercise of interpretation. …

26. I accept that both (i) construing the words which the parties have used in their contract and (ii) implying terms into the contract, involve determining the scope and meaning of the contract. However, Lord Hoffmann’s analysis in Belize Telecom could obscure the fact that construing the words used and implying additional words are different processes governed by different rules.”

57.  In the Court of Appeal decision of Lo Yuk Sui v Fubon Bank (Hong Kong) Limited [2019] HKCA 261, Lam VP, Cheung and Barma JJA referred to the U.K. Supreme Court’s ruling in Marks and Spencer that the law on implied terms had not been changed and there had not been any relaxation of the traditional, highly restrictive approach to implication of terms. The Court of Appeal also noted the caution raised in Marks and Spencer against reading too much into the observations of Lord Hoffmann in Belize Telecom (at §§25-26). Lam VP, Cheung and Barma JJA observed the following (at §§30-32):

“30. In respect of the proper test for implication of term, Mr Jat referred us to the Court of Final Appeal’s judgment in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 where the requirements identified by Lord Simon in BP Refinery v Shire of Hastings (1978) 52 ALJR 20 were adopted:

“ ... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

31. These requirements were commented upon by Lord Neuberger in Marks & Spencer plc v BNP Paribas Securities Services, supra at [21]:

“ I would add six comments on the summary given by Lord Simon in the BP Refinery case 180 CLR 266, 283 as extended by Bingham MR in the Philips case [1995] EMLR 472 and exemplified in the APJ Priti [1987] 2 Lloyd’s Rep 37. First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was ‘not critically dependent on proof of an actual intention of the parties’ when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon’s first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, paragraph 27, although Lord Simon’s requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is ‘vital to formulate the question to be posed by [him] with the utmost care’, to quote from Lewison, The Interpretation of Contracts 5^th ed (2011), p 300, paragraph 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of ‘absolute necessity’, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is, as suggested by Lord Sumption JSC in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”

32. We respectfully agree with these comments. In the more recent decision of the Privy Council in Nazir Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2, Lord Hughes (with whom Lord Neuberger, Lord Clarke and Lord Carnwath agreed) summarized the law at [7]:

“ It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contract work, and this it may be if (i) it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, “Oh, of course”) and/or (ii) it is necessary to give the contract business efficacy. Usually the outcome of either approach will be the same. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement.” ”

58.  I do not think that the reasonable expectation of the parties test is the test that this Court should adopt for the implication of terms.

59.  There are a number of problems with the Defendant’s case on the Implied Terms.

60.  First, Lord Hughes observed in Nazir Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2 at §7 that if there is an express term in the contract which is inconsistent with the proposed implied term it cannot meet the tests of having an implied term.

61.  In the Agreements, there are express terms that are inconsistent with the Implied Terms alleged by the Defendant.

62.  Clause 10.1 of in the Agent’s Agreement provides that the Plaintiff or the Defendant may terminate the Agent’s Agreement at any time and without giving any reason for so doing, by giving 14 days’ notice to the other in writing (emphasis added). Under clause 7.1 of IR Agreement, the Plaintiff or the Defendant may terminate the IR Agreement at any time and without giving any reason for so doing by giving 14 days’ notice to the other in writing (emphasis added). The IR Agreement will be terminated immediately without notice upon the termination of the Agent’s Agreement (clause 7.2 of the IR Agreement).

63.  The Plaintiff’s express contractual right to terminate the agreements without cause under clauses 10.1 of in the Agent’s Agreement and 7.1 of the IR Agreement are inconsistent with the 1^st Implied Term sought by the Defendant. The exercise of an express contractual right to terminate does not have to be justified: Reda v Flag [2002] UKPC 38 at §42.

64.  Clause 7.4 further provides that the Plaintiff will have no obligation to pay the Monthly Allowance and/or Sign-On and Productivity Bonus upon termination of this Agreement, including any Monthly Allowance and/or Sign-On and Productivity Bonus accrued as at the date of termination of the IR Agreement.

65.  Under clause 3.2 of the IR Agreement, if the Defendant ceases to be an agent of the Plaintiff and/or the Agent’s Agreement is terminated at any time before the 61^st month from the date of the IR Agreement, the Defendant undertakes and agrees to immediately repay the Plaintiff in full the applicable clawback percentage (as determined in accordance with the table in clause 3.2) of the Monthly Allowance and/or Sign-On and Productivity Bonus which the Plaintiff has advanced to the Defendant under the IR Agreement. The table in clause 3.2 of the IR Agreement sets out the applicable clawback percentage on the Sign-On Bonus, the Monthly Allowance, and Productivity Bonus respectively, which are 100% for termination of the Agent’s Agreement within the first 36 months from the date of the IR Agreement.

66.  Under clause 3.3 of the IR Agreement, the Defendant must repay all of the amounts owing to the Plaintiff under the IR Agreement in full within seven (7) days after the date on which the Defendant ceases to be an agent of the Plaintiff or the date of termination of the Agent’s Agreement, whichever is earlier.

67.  Clause 3.4 of the IR Agreement further provides that the Defendant undertakes and agrees to immediately repay to the Plaintiff in full on its request any Monthly Allowance and/or Sign-On and Productivity Bonus not vested in the Defendant should the [Defendant] fail to meet the applicable conditions set out in this Agreement (including without limitation Appendix I to this Agreement), regardless of whether such Monthly Allowance and/or Sign-On and Productivity Bonus have been advanced to the Defendant or not.

68.  There have been cases involving insurance companies and insurance agents in which the insurance agents had argued similar implied terms to the ones that the Defendant alleges in this case.

69.  In Shek Kin Pong v FTLife Insurance Co Ltd [2019] HKCFI 1781, Mimmie Chan J considered a claim from the insurance company against its agent for repayment of the allowance and bonus upon termination of the agency agreement (and side agreement which set out the terms of the renumeration payable by the insurance company to the plaintiffs as agents). The contract allowed the insurance company or the agent to terminate the agreement at any time and without giving any reason for so doing by giving thirty days’ notice to the other in writing (clause 10.1 of the agency agreement). There was a clause allowing the insurance company to clawback the allowance and the bonus received by the plaintiffs. The side agreement contained a further term stating that notwithstanding anything contained herein, or implied to the contrary, the agent shall forthwith repay to the company all the allowance and bonus received by the agent if: (a) the agent’s contract is terminated for any reason during the financial period or within 18 months thereafter; or (b) the agent’s contract is terminated for any reason during the financial period or within 42 months thereafter, and the agent enters into an agreement with any other insurance company.

70.  The plaintiffs claimed that that the agency agreement was subject to implied terms, that the company shall not: (1) exercise its right to terminate under clause 10.1, in order to seek repayment of the allowance and bonus earned and received by each plaintiff; and (2) act in a manner contrary to the implied term of mutual trust and confidence between a principal and agent, by exercising a power to terminate the Contract (i) unconscionably and without reasonable cause and contrary to the legitimate expectations of each plaintiff; and/or (ii) to deprive or seek repayment from each plaintiff of a contractual benefit earned, which results in the unreasonable forfeiture of such benefit.

71.  In rejecting the plaintiffs’ claims and implied terms, Mimmie Chan J in Shek Kin Pong reiterated that a term cannot be implied if it contradicts an express term of the agreement (Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381) (at §41). A term should not be implied into a detailed commercial contract merely because it appears fair: Marks & Spencer.

72.  Mimmie Chan J also referred to Reda v Flag which is authority for the proposition that the very nature of a power to terminate a contract without cause is that its exercise does not have to be justified (see also Cheung Li On v Sun Life Hong Kong Limited [2021] HKCFI 3784 at §114 per Au-Yeung J). She noted that although Reda v Flag was decided in the context of a contract of employment, but the observations made as to meaning of a “termination without cause” term is just as apposite to a termination without cause term in an agency contract.

73.  As the Privy Council in Reda v Flag recognised (at §45), an implied term must yield to the express provisions of the contract and cannot be used to circumscribe an express power of dismissal without cause.

74.  Mimmie Chan J in Shek Kin Pong observed that the implied terms contended by the plaintiffs, that the right of termination under clause 10.1 should not be exercised in order to seek repayment of the monthly allowance and bonus earned and received, and so as not to deprive the plaintiffs of the benefits or result in their contractual benefits being forfeited, are all directly contradictory to the express provisions of the agency and side agreement. For that reason, they should not be implied under the principles clearly stated in Kensland and applied in Yifung Developments Limited v Liu Chi Keung Ricky HCA 1341/2014, unreported, 25 April 2016 (at §56).

75.  This is also the case with the 2^nd and the 3^rd Implied Terms pleaded by the Defendant, as they restrict the Plaintiff’s right to enforce the repayment clause if the Agent’s Agreement is terminated by the Plaintiff under clause 10.1 of the Agent’s Agreement.

76.  Regarding the implied term sought by the plaintiffs, Mimmie Chan J noted that clause 10.1 gave both parties the contractual right to terminate the Contract by 30 days’ notice, as opposed to and distinct from a discretionary power. There was no reference in either the agency agreement or the side Agreement to any duty of good faith on the parties, or to the parties’ duty to cooperate. She referred to GDH Ltd v Creditor Co Ltd [2008] 5 HKLRD 895, in which the Court stated that an overriding principle that in making and carrying out contracts, parties should act in good faith, or observe an obligation to act in the best interests of and in good faith to other parties, is not an obligation recognised by Hong Kong law.

77.  Similarly, in this case, the 1^st Implied Term relied on by the Defendant is inconsistent with clauses 10.1 of the Agent’s Agreement and 7.1 of the IR Agreement. The Plaintiff had an express contractual right to terminate the agreements without cause. It is also inconsistent with clauses 3.2, 3.3, and 3.4 of the IR Agreement which allows the Plaintiff to clawback the Monthly Allowance and Sign-On Bonus on termination. The 1^st Implied Term is inconsistent with the very nature of a power to terminate a contract without providing any reason.

78.  On cross examination, the Defendant said he was fully aware of clause 10.1 of the Agent’s Agreement, but gave evidence that he did not raise any issues with modifying this clause because he believed that this was a clause which was present in all contracts of insurance companies, and any insurance company would disagree if he attempted to change it. He also confirmed that he was aware of clause 7.1 of the IR Agreement but did not raise any issues regarding changing this clause as Mr Li, the Chief Distribution Officer of the Plaintiff, would not have agreed to it.

79.  As Mimmie Chan J observed in Shek Kin Pong (at §57), the Defendant should have considered and weighed the termination clause prior to entering into the Agent’s Agreement and IR Agreement, and not after the event, for raising arguments at trial. The Agent’s Agreement and IR Agreement were freely entered into by the Defendant, and the Court has no role to play in rewriting the agreements. The Defendant gave evidence that he had not insisted on modifying the terms of the Agreements (§28 of the Defendant’s Witness Statement). The Court is bound to enforce the terms of the Agreements which the parties have freely entered into: Shek Kin Pong (at §64), quoting Winterthur Life Insurance Company v Au Oi Fai HCB 1178/1999, unreported, 28 November 2000).

80.  In addition, I do not think that the Implied Terms relied on by the Defendant are so obvious that it goes without saying. The termination clauses in clause 10.1 of the Agent’s Agreement and clause 7.1 of the IR Agreement can function perfectly well without the Implied Terms: see Cheung Li On at §117. It was open to either party in this case to terminate on 14 days’ notice – without specifying any ground. This includes irrational grounds but such termination would not be considered wrongful. As Yvonne Cheng J observed in Cheung Hon Kin v Chubb Life Insurance Company Ltd [2024] HKCFI 1313 at §54, if the insurance company could choose the terminate an agent’s contract for irrational reasons, then business efficacy or obviousness has no application (in that case, for a decision as to promotion). The contract does not lack commercial or practical coherence without the Implied Terms alleged by the Defendant.

81.  There is mutuality on the position on termination. The circumstances in which the Plaintiff can terminate the Agent’s Agreement and IR Agreement are identical to those in which the Defendant can choose to terminate and leave the agency. It would be nonsensical if the Defendant could not terminate the Agent’s Agreement or IR Agreement unless and until he has good or justified reasons for doing so, or could only do so in good faith. The Defendant can choose to terminate and leave the Plaintiff for whatever reason he wants – including whether logical or illogical, or whether on a correct or mistaken belief of some wrong done to him by the Plaintiff: see Haveaux Xavier Marie-Ghislain v Hong Kong Express Airways Limited [2023] HKCFI 2073 per Coleman J at §74.

82.  So long as the requirements of providing for 14 days written notice for the exercise of an express contractual right to terminate under clause 10.1 and 7.1 of the Agent’s Agreement and IR Agreement respectively are met, that right may be exercised irrespective of the exercising party’s reasons for doing so. Both clauses 10.1 and 7.1 state that no reasons are required to be given.

83.  In my view, Tadjudin Sunny can be distinguished from the present case.

84.  First, as observed by Mimmie Chan J in Shek Kin Pong (at §61), Tadjudin Sunny concerns implied terms and limits on contractual discretions in a contract of employment between the plaintiff and the defendant, whereas this is an agency relationship between the Plaintiff and the Defendant. Clause 1.5 of the Agent’s Agreement provides that it is understood and agreed that there is no employer-employee relationship either expressed or implied between the Plaintiff and the Defendant.

85.  Second, in Tadjudin Sunny, the implied term was to prevent the bank from evading an existing obligation to properly exercise a discretion to award a bonus, but the employee’s performance was terminated in order to prevent her from being eligible for such.[1] However, the purpose of the clawback provision is to encourage the agents to attain the specified performance not only in the first three years, but to maintain the performance after the first three years until the end of the contract period: FTLife Insurance Company Ltd v Ho Suk Yue [2023] HKDC 363 at §§29, 32-33 per DCJ Harold Leong.

86.  Third, in considering the implied anti-avoidance term, the Court of First Instance in Tadjudin Sunny was influenced by the employer/employee relationship built on mutual trust and confidence. This does not exist in commercial contracts such as the Agent’s Agreement and IR Agreement. The Agreements in question do not involve an employment contract and there is no special relationship involving mutual trust and confidence between a principal insurance company and its agent.

87.  Although the implied term of mutual trust and confidence was not pleaded in Tadjudin Sunny, To J in the Court of First Instance observed (at §12) that the duty of mutual trust and confidence is a trite principle, and the employee was not precluded from arguing that it had been implied in the employee’s employment contract by reason of this legal principle, though not pleaded.

88.  As To J observed (at 36):

“There is no dispute that the obligation of mutual trust and confidence is implied into any contract of employment. An employer is under an implied duty to deal with his employees fairly and in good faith. Thus, if at the time the Plaintiff was entering into the employment agreement with the Bank she had asked,

“What about my bonus if I am dismissed through no fault of my own during the year, by notice or payment in lieu?”

An officious bystander knowing of the performance incentive programme and clause 1 and clause 3 of the letter of employment would have readily responded saying:

“Surely your employer will act in good faith. It goes without saying that he won’t do that to deprive you of your bonus unless he has good reasons to terminate your employment.”

Such an answer certainly covers the implied anti-avoidance term. The implied term is obvious and ‘it goes without saying.’ It is also capable of clear expression. It may be even wide enough to cover the un-pleaded ‘sub-category’ implied terms.[2]” (my emphasis).

89.  To J went on to observe (at 38) that:

“[the employer’s] argument [regarding the anti-avoidance implied term being inconsistent with the express term allowing the employer to terminate with or without cause] loses sight of the employer’s overarching obligation implied by law as an incident of the contract of employment. An employer has a duty imposed by law to deal with his employee in good faith. Under that duty, he may not exercise his express contractual rights so as to destroy or seriously damage the relationship of trust and confidence. To say the minimum, he may not exercise his right to terminate employment by giving notice or payment in lieu with the intention to avoid paying the employee the performance bonus.” (my emphasis).

90.  The Court of Appeal also recognised the existence of an implied obligation of mutual trust and confidence between the employer and employee (at §58) which was “an overarching obligation implied by law as an incident of the contract of employment.” (at §59, quoting Johnson v Unisys Ltd [2003] 1 AC 518 at §24, per Lord Steyn).

91.  Fourth, the Court of Appeal in Tadjudin Sunny acknowledged the narrow and specific application of the implied term in Tadjudin Sunny in which the Court of Appeal observed they were not called upon to decide whether the anti-avoidance term, or a term to similar effect, should be implied into employment contracts generally but whether, on the particular facts and circumstances of this case, the anti-avoidance term ought to be implied into the employee’s employment contract with the Bank (at §77(3) of Tadjudin Sunny).

92.  It was recognised by Anthony Chan J in Lam Siu Wai v Equal Opportunities Commission [2021] 5 HKLRD 30 at §§27, 29-32 that the application of Tadjudin Sunny was narrow and specific, even in the employment context. It is not authority for the proposition that the right to terminate without cause was qualified by an implied duty to exercise such right in good faith (see also Chubb Life Insurance Company Ltd v Chan Christy [2023] HKDC 1113 per DDJ David Chan at §47):

“27. Tadjudin is of course binding on this court. As the law stands (and stood at the time of the Decision), the Duty cannot be applied to water down an employer’s right to terminate the employment of a worker without cause by invoking the notice provisions (contractual and/or statutory).

… …

29. Three further legal points should be addressed. Firstly, consistent with the above analysis on the Duty, it is reasonably well-established that a contractual right to terminate an employment (on the part of either employer or employee) can be exercised unreasonably or capriciously so long as the right is exercised in accordance with the contract, and the court is not concerned with the rightness or wrongness of a dismissal: Malloch v Aberdeen Corp [1971] 1 WLR 1578 at 1581G; Johnson v Unisys Ltd [2003] 1 AC 518 at §§38-41; Cheung Chi Keung v Hospital Authority [2006] 2 HKLRD 46 at §19.

30. Secondly, in Tadjudin, the CA upheld an implied term in a contract of employment whereby the Bank “shall not exercise its right to terminate the Plaintiff’s employment by giving one month’s notice or by paying one month’s salary in lieu of notice in order to avoid her being eligible for performance incentive programme”[6]. In doing so, Johnson v Unisys was distinguished. However, the CA emphasised that the issue before it was “narrow and specific”, based on the particular facts and circumstances of the case (§77(3)).

31. I do not believe that Tadjudin can assist Lam in this appeal. Fundamentally, it was not an authority for the proposition that the right to terminate without cause was qualified by an implied duty to exercise such right in good faith. At the highest, it may be said that the door for further development in the common law in this regard was left ajar by the CA (see §§78-80).

32. Speaking for myself, to imply a duty of good faith in the termination of employment without cause would have far reaching effect on the law of employment. Reason(s) for termination may well have to be given for the exercise of such right, they may be subject to scrutiny by the Labour Tribunal and litigation complexity and costs may increase significantly, not to mention to the delay which may be caused. Such an exercise should be one for the legislature.” (my emphasis).

93.  Fifth, the structures of the Agreements in this case are different to the employment contract in Tadjudin Sunny. In Tadjudin Sunny, the performance bonus formed a major part of the remuneration of an employee, and for the plaintiff, her bonuses for the years from 2002 to 2006 were between two to three and a half times her annual salary (at §63(5)); as To J observed in the Court of First Instance, the performance bonus was the “meat” while her basic salary was the “sauce.”

94.  In this case, amounts under the Agent’s Agreement were not subject to a clawback. It was only the Monthly Allowance and Sign-On Bonus (and Productivity Bonus) paid under the IR Agreement that were subject to the clawback. The Defendant received HK$4,248,283.64 in the form of commission, bonus, incentive payments, allowances and other reimbursements before termination. None of these sums form part of the Plaintiff’s claim under the clawback clause in the IR Agreement in this case (HK$1,830,500).

95.  Sixth, this case concerns the exercise of an absolute contractual right to terminate as opposed to the exercise of a contractual discretion in an employment contract, as in Tadjudin Sunny. I refer to the observations of Au-Yeung J in Cheung Li On at §120. In my view, despite Mr Kwan’s submissions, the right to terminate without cause is a binary decision – whether or not to terminate. See also Monde Petroleum SA v Westernzagros Limited [2016] EWHC 1472 (Comm); [2016] 2 Lloyd’s Rep 229 per Deputy High Court Judge Richard Salter QC (at §266):

“One reason for this is that a contractual right to terminate, as the Court of Appeal noted in Lomas, not the exercise of a contractual discretion. Contractual discretions arise where there are a range of options to choose. A contractual right to terminate involves a binary choice.” (my emphasis).

96.  In response to the Plaintiff’s submissions that that the power to terminate is distinct from a contractual discretion (such that the principle in Tadjudin Sunny becomes inapplicable), the Defendant submits that there are clear authorities applying the Tadjudin Sunny principle (or the use of discretion) in the context of the right to terminate. The Defendant cites the Court of Appeal judgment in So Sheung Hin Ben v Chubb Life Insurance [2018] 5 HKC 47, the New South Wales Court of Appeal decision of Renard Construction v Minister of Public Works (1992) 26 NSWLR 234, the New South Wales Court of Appeal judgment in Burger King Corporation v Hungry Jack’s Pte Ltd [2001] NSWCA 187, and the English case of Bates v Post Office [2019] EWHC 606 (QB).

97.  The above cases can be distinguished and are inapplicable in this case.

98.  In an application to set aside a statutory demand served by the insurance company on the agent after termination of the agent’s agreement which alleged debts were pursuant to a clawback clause, the Court of Appeal in So Sheung Hin Ben only decided that the judge was in error that no substantial dispute was raised in respect of [the agent’s] contention that there was an implied term that the power to terminate by notice without cause would not be exercised with the dominant intention of triggering a clawback clause in the agent’s agreement. This was an action between an insurance company and an insurance agent, and the Court of Appeal ruled that it was not clearly unarguable that such “anti-recoupment” term may be implied (at §§49 and 50). The Court of Appeal did not decide whether such an implied term existed, and made clear that the factors advanced by counsel to distinguish Tadjudin Sunny and Re Shing Pui Keung, ex-parte Chubb Life Insurance Co Ltd (HCB 686/2017, unreported decision of Lam J dated 20 December 2017) must be properly considered to arrive at a view if they are truly relevant and material, for the court to gauge the impact of such factors on the determination of the point of law. However, it was not the proper occasion to discuss whether the criticism of the Court of Appeal decision in Tadjudin Sunny was justified (at §49).

99.  In Renard Construction, the New South Wales Court of Appeal held that the there was an implied term that the principal would give reasonable consideration to both the question of failure to show cause against the exercise of the power and whether one of more of the powers should be exercised, including termination. Priestley JA held that such a term was to be implied as a matter of law into similar construction contracts (at pp 260C&G and 261D). However, the clause in question provided for a procedure to be followed on default of a contractor (with the option to suspend payment, take over the whole of the works, or cancel the contract), whereas the clauses in question in the Agent’s Agreement and IR Agreement allowed for termination without cause. Priestly JA observed that the kind of reasonableness to be implied in the contract had much in common with the notions of good faith (at p 263G):

“The result is that people generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness to contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard, and anything less is contrary to prevailing community expectations.” (at p 268F).

100.  Implied terms of good faith have not been accepted in Hong Kong. Similar implied terms argued that an insurance company should not exercise its power to terminate unconscionably, without reasonable cause, or in a manner that is not bona fide, have all been rejected in Hong Kong (see §106 below).

101.  In Burger King Corporation, the New South Wales Court of Appeal held that the development agreement was subject to implied terms of good faith and reasonableness. It was in respect of a standard form contract. The New South Wales Court of Appeal relied on the reasoning in Renard Construction, among others.

102.  The IR Agreement was not a standard form contract. The Defendant in this case agreed on cross examination that the terms of the IR Agreement with the Plaintiff would be subject to negotiation on a case by case basis, and the IR package was tailor made (see also §31 of the Defendant’s Witness Statement); it had to be designed according to the individual circumstances of the agent. Mr Ko in his evidence referred to the more stringent requirements in the Defendant’s IR Agreement compared to the usual IR Agreements.

103.  In the English High Court case of Bates v Post Office, Fraser J implied a duty to act in good faith into a contract on the basis of it being a relational contract. He addressed the specific characteristics that are expected to be present in order to determine whether a contract between commercial parties ought to be considered a relational contract, which included there must be no specific express terms in the contract that prevents a duty of good faith being implied into the contract (at §725), unlike in this case. Bates v Post Office has not been applied in Hong Kong.

104.  However, implied terms of good faith and reasonableness in respect of a right to terminate as opposed to the proper exercise of a contractual discretion have been rejected in Shek Kin Pong (§§58 – 59) and Cheung Li On (§§115 – 120). Any implied duty of good faith cannot override the express provisions of the contract. I have pointed out above the express terms of the Agreements which are inconsistent with the Implied Terms. I also refer to GDH Ltd v Creditor Co Ltd which observed that the obligation of good faith is not an obligation recognised by Hong Kong law (at §64). Furthermore, there is no implied duty of good faith if it involved a simple decision where or not to exercise an absolute contractual right, as opposed to a discretion involving making an assessment or choosing from a range of options which took into account the interests of both parties: Mid Essex Hospital Services NHS Trust v Compass Group UK [2013] EWCA Civ 200 at §83.

105.  Termination involves the ending of a contract as opposed to regulating the performance of the contract. Both parties should be able to consider their own commercial interests when exercising their right to terminate, rather than be qualified with an obligation of good faith. There is a need for certainty in termination clauses. Either party could terminate the Agreements without cause with 14 days written notice. A party exercising their right to terminate, either the Plaintiff or the Defendant, would be doing so against the interests of the counterparty.

106.  Implied terms resembling those pleaded by the Defendant were rejected in agency agreements involving insurance companies in the following cases:

(a)  Shek Kin Pong: implied terms that clause 10.1 should not be exercised by the company in order to seek repayment of the monthly allowance and/or bonus earned and received by each plaintiff, and that the company should not exercise its power to terminate unconscionably, without reasonable cause and contrary to the legitimate expectations of each plaintiff, or so as to deprive each plaintiff of the contractual benefit earned and which results in the unreasonable forfeiture of such benefit rejected by Mimmie Chan J.

(b)  Ho Suk Yee: implied terms that the plaintiff shall not exercise its right under clause 10.1 of the Agent’s Contract to terminate the Agreements: (i) for the sole or dominant purpose of “clawing back” part of the performance bonus paid to the defendant; (ii) unconscionably or in a manner that is not bona fide, rejected by DJ Leong.

(c)  Cheung Li On: implied term that the power to terminate was to be exercised lawfully and rationally in the public law sense rejected by Au-Yeung J;

(d)  Cheung Hon Kin: implied terms that the decision-making process of the defendant had to be lawful and rational in the public law sense such that the decision-making process should (i) not be arbitrary, capricious, perverse, or irrational; (ii) exclude extraneous considerations and take into account those considerations which are obviously relevant to the decision in question; and (iii) be carried out rationally, in good faith and consistently with its contractual purpose) rejected by Yvonne Cheng J; and

(e)  Chan Christy: implied terms that (i) the plaintiff should not conduct its performance evaluations and administer its policy in relation to the measure of persistency rate in an irrational, perverse or arbitrary manner that was not bona fide; (ii) the power to terminate the agent’s agreement would be exercised in good faith and would not be exercised for arbitrary, capricious, perverse and/or irrational reasons; (iii) the agency agreement would not be terminated without valid reasons, and (iv) the agency agreement would not be terminated with the dominant intention to trigger the repayment of the sign-on bonus, special allowances and /or manpower growth bonus by the defendant, rejected by DDJ David Chan.

107.  For the reasons provided above, I am not persuaded that the Agreements should contain the Implied Terms. There is nothing in this case that would make me rule differently to the cases set out at §106 above.

108.  For completeness, the Plaintiff relies on the entire agreement clauses at clause 14.3 of the Agency Agreement and clause 11.3 of the IR Agreement for the exclusion of the Implied Terms pleaded by the Defendant. The Defendant referred me to Hipwell v Szurek [2018] EWCA Civ 674 at §§26, 27, 53 as authority for the proposition that entire agreement clauses cannot prevent the implication of a term to be implied on the grounds of business efficacy. However, this was not argued before the Court of Appeal as it was a concession made by counsel in that case, although Hildyard J observed that a contract lacking business efficacy must, if possible, be supplemented to cure the defect and that the parties would not have intended an entire agreement clause to cause the agreement to fail (at §27). See also Chitty on Contracts (35^th ed, 2023) at §17-020 stating the reason for this is that an implied term is intrinsic to the agreement itself and so not caught by the terms of the entire agreement clause.

109.  I am of the view that it is possible for entire agreement clauses to exclude implied terms, although it may be difficult to do so: see Mid Essex Hospital Services at §83.

110.  I do not think the scope of the entire agreement clauses in the Agent’s Agreement (clause 14.3) and the IR Agreement (clause 11.3) exclude any implied terms, if such terms existed, for a different reason. Such exclusion of implied terms needs to be clearly and unambiguously drafted: see for e.g. Exxonmobil Sales and Supply Corporation v Texaco Limited [2003] EWHC 1964 (Comm) in which an entire agreement clause was effective in excluding terms implied by usage or custom.

111.  In Exxonmobil Sales and Supply Corporation, the English High Court held that the reference to usage and course of dealing in the entire agreement clause was a clear reference to two particular methods which can give rise to an implied term and clearly indicates that the clause was not restricted to excluding from the contract things said orally or in writing during negotiations (at §25). See also Mid Essex Hospital Services at §83 regarding the entire agreement clause not excluding the implied term.

112.  By contrast, the entire agreement clauses in the Agent’s Agreement and IR Agreement do not expressly refer to the exclusion of implied terms. Clear words are required in order to do so.

ISSUE 2(b): WHETHER THE PLAINTIFF WAS IN BREACH OF THE ALLEGED IMPLIED TERMS?

113.  I now address even if I am wrong in my conclusion that the alleged Implied Terms do not exist, whether the Plaintiff was in breach of the alleged Implied Terms.

114.  I conclude below that even if the Implied Terms exist, the Plaintiff did not breach them for the reasons provided below.

115.  In considering whether the Plaintiff was in breach of the Implied Terms, the Defendant has to show the reason for the Plaintiff to terminate the Agreements (based on the outstanding tax issue) was not genuine. The Defendant alleges that the outstanding tax issue was a sham reason used to terminate the Agreements (see Defendant’s Closing §4(b) and §141).

116.  This is a high threshold. Sham is synonymous to “not bona fide” and the burden of proof is a heavy one for the Defendant: Asia Jet Partners Limited v Wild Wing LLC & Ors [2019] HKCFI 402 per Master Queenie Lau SC at §§53 and 61.

117.  In Tadjudin Sunny, the Court of Appeal confirmed the first instance judge’s decision that the test for the Bank’s intention is not reasonableness but genuineness, even though the reason was not substantiated. The reason need not be one “which commends to a reasonable man and may even be irrational, provided it is genuine and one which is sufficient to negative the intention to avoid her being eligible for consideration under the performance incentive programme”, and “the further the reason moves away from the realm of reasonableness to irrationality, the easier it is for the inference to be drawn that the reason given by the Bank was not genuinely held.” (at §139).

Defendant’s pleaded case

118.  As a starting point, the Defendant’s arguments should be dismissed due to the pleadings. The Defendant’s case as pleaded in §23 of the D&CC is as follows:

“[t]he Defendant avers that the Plaintiff allegedly terminated the Agent’s Agreement and the IR Agreement without cause with intent to unlawfully deprive the Defendant of his entitlements to the remunerations under the IR Agreement.”

119.  This claim morphed in the Defendant’s Witness Statement (at §§69, 71 and 72) to if the Defendant was terminated, his entire team (which at the time had 42 intermediaries, more than Mr Ko’s own team) would directly become Mr Ko’s downline. The proportion of commissions Mr Ko would receive would greatly increase. If the Defendant had maintained his upward momentum and continued to be promoted, while Mr Ko’s team failed to meet the basic regional manager performance requirements in the next fiscal year, he would have to decouple from the Defendant’s team. In that case, the Defendant and his team members and would no longer have to share their commissions with him. This would significantly reduce his income. The Defendant then states that his guess is that this financial interest is the reason why Mr Ko unilaterally and without any proper justification terminated his contract.

120.  I agree with the Plaintiff’s submissions that the Defendant cannot simply rely on allegations made in the Defendant’s Witness Statement. It is the pleadings that define the issues in a trial. It is the pleaded issues that define the scope of the evidence, and not the witness statements. It will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced: Kwok Chin Wing v 21 Holdings Ltd (2013) 16 HKCFAR 663 per Ma CJ at §21; §§11 and 12 of Tadjudin Sunny, Court of First Instance judgment per To J.

121.  Another issue with the Defendant’s pleading is that Mr Ko’s alleged ulterior motive which shall be attributed to the Plaintiff is not pleaded: Kwong Yi Ling v Lau Kwun Leung [2021] HKCFI 2303 at §28(1) per Linda Chan J. For example, if a pleader asserts that an individual’s knowledge should be attributed to a corporate entity, such attribution must be specifically pleaded (The Pui Ying Middle School of Hong Kong v The Hong Kong Council of the Church of Christ in China [2021] HKCFI 692, §§123-124, per DHCJ Bernard Man SC).

122.  In addition, I do not accept the Defendant’s evidence that the Plaintiff’s senior management was colluding with Mr Ko. This is a serious allegation and there is no basis for this allegation from the evidence which I have reviewed. It was not raised in the 14 March 2019 meeting. Even in the Transcript, it was recorded that the Defendant never considered that Mr Ko was attempting to terminate the Agreements for ulterior purposes. The allegation that the Plaintiff’s senior management was colluding with Mr Ko has also not been pleaded.

123.  I do not think Mr Ko’s conduct is attributable to the Plaintiff. Mr Ko is neither an employee nor a director of the Plaintiff. He was not empowered to terminate the Agreements himself. It was a collective decision to terminate, which included but was not limited to Mr Tang (Head of Tied Agency and Chief Agency Officer of the Plaintiff) and Mr Alfred Cheung (Deputy Chief Executive and Chief Sales Officer of the Plaintiff).

124.  The Defendant submits that as a matter of legal principle, it does not matter if other members of the Plaintiff (including its senior management) did not share Mr Ko’s intentions. It is not necessary to show that each and every single one of management personnel is invested with the same intention as Mr Ko.

125.  The Defendant relies on the Court of First Instance judgment of Tadjudin Sunny, in which To J ruled as follows (at §257):

“From John Liptak’s malice and his concealing the true reason of the Plaintiff’s dismissal, the inference may reasonably be drawn that John Liptak, and therefore the Bank, intended all the foreseeable consequences that termination would bring, including depriving the Plaintiff of her eligibility of being considered for the performance incentive programme. That intention, along with John Liptak’s intention to get rid of the Plaintiff, must be one of the dominant intentions or purposes of the dismissal. It may be argued that a prestigious bank as Bank of America would not do anything so mean or so lacking in commercial sense as to dismiss a performing employee to avoid paying her bonus. I have no doubt that was not the intention of Peter Santry or the Bank’s senior management. But John Liptak’s intention must be attributed to the Bank. That was what the Bank did through the hands of John Liptak and with his intention.”

126.  Tadjudin Sunny can be distinguished from this case. The reason why To J drew that conclusion was his finding that much of what John Liptak (Managing Director, Head of the Hong Kong Desk of the International Special Situations Group, as well as the plaintiff’s immediate manager) said about the plaintiff was untrue or at least did not reflect the situation in 2007, which misled Peter Santry (Managing Director, Head of Global Special Situations Group) into authorising the Performance Improvement Plan (PIP) process when there was no basis to do so, and was clearly instituted with malice (§§243 and 245). To J also found that John Liptak manipulated Peter Santry (at §244). With the blessing of Peter Santry, he started pushing the Human Resources Department to execute his plan to terminate the plaintiff. However, John Liptak misled Peter Santry into thinking that the plaintiff’s situation was unacceptable and unsustainable (at §239). The trial judge found that John Liptak was exaggerating or even misrepresenting the situation to put pressure on Peter Santry to take action against the plaintiff (at §241).

Termination was not to take the Defendant’s downline agents: “kill the chicken and take the eggs”

127.  Regarding the substance of the Defendant’s allegations, the Defendant only speculates that Mr Ko terminated due to his financial interest at §72 of his witness statement.

128.  The Defendant accepted that he is an outspoken person and if he saw things in the wrong in his view, he would speak up. However, it is noteworthy that in the important 14 March 2019 meeting, the Defendant did not allege that the fit and proper persons requirement was all a pretext for Mr Ko to “kill the chicken and take the eggs” – to take the Defendant’s downline agents. The Defendant also did not raise that the Plaintiff had promised that he would not be terminated as long as the Defendant had met the business intake or downline agent target.

129.  Even though the Defendant gave evidence that “kill the chicken and take the eggs” is prevalent in the insurance industry, I do not think it necessarily follows that any downline agents would stay at the existing insurance company after termination of the intermediate agent by the hiring agent. In the Defendant’s situation, given his 25 years of experience in the industry, close relationships with many high level contacts, and his loyal customer base, most of the intermediaries under him at AXA also expressed their willingness to follow him (§11 of the Defendant’s Witness Statement). The Defendant’s downline agents were loyal to him and 10 followed him to the Plaintiff after the Defendant’s termination at AXA. This included Ms Connie Wong, the Defendant’s longtime partner. Mr Ko gave evidence that “this possibility [of taking the Defendant’s downline agents] has a variety of uncertainties because, judging on the relations between [the Defendant] and his team, when he left his previous company, he had the capability of bringing all the people to the new company; therefore I cannot believe that I got the capability of keeping all his team so what I was calculating was the loss that [would] occur to me, instead of the additional benefits that I would get from this.”

130.  In addition, Mr Li gave evidence that the bond between the second tier (in this case the Defendant) and the third tier (in this case the Defendant’s downline agents) is the closest, and the relationship is not with the one tier up. If an agency conducted the “kill the chicken and take the eggs” behavior, then their reputation would be ruined and it would be difficult to recruit in the future.

131.  The Defendant acknowledged that if the downline agent is experienced enough, they could get a sign on bonus from the new insurance company. The Defendant confirmed that one purpose of the sign on bonus is to compensate an experienced insurance agent for the loss that they may suffer under a clawback clause for leaving their former insurance company. The downline agents who had an IR Agreement also had a similar termination clause allowing for either party to terminate without cause upon 14 days’ notice. Such a termination clause could work in the agent’s favour so that an agent could terminate if a prospective aggressive employer was willing to pay a significant sign on bonus which exceeded the clawback in the agent’s current IR Agreement. Mr Ko also gave evidence that if an agent could get an IR Agreement from the Plaintiff, it is very likely that an agent could get the same or better IR Agreement from other insurance companies.

Plaintiff had a genuine cause for terminating the Agreements

132.  In my view, the Plaintiff had a genuine cause for terminating the Agreements. The Plaintiff did not terminate the Agreements with the intention to unlawfully deprive the Defendant of his remunerations under the IR Agreement, or for Mr Ko to take the Defendant’s downline agents.

133.  According to the TransUnion (“TU”) Individual Credit Report of 21 September 2016 which the Defendant submitted to the Plaintiff, there were three tax claims from the IRD in the District Court for amounts of HK$540,902 dated 6 September 2012, HK$168,571 dated 17 November 2010, and HK$229,696 dated 1 December 2009. The Litigation Check Service also revealed the same. Despite this, the Defendant still declared that he had not been involved in any judicial or other legal proceedings, claims, and judgments in his Application Form for Agent’s Agreement dated 22 November 2016. It is no answer to say that the Defendant asked Mr Ko as to what box to tick.

134.  Based on the Defendant’s credit information which also included outstanding loans with banks, the Defendant’s credit score was listed as “I”.

135.  The Defendant gave evidence that he had received HK$1.3 million from AXA, his former employers but despite this, he had not settled his outstanding tax liabilities, which in August 2016, was around HK$1 million.

136.  Mr Ko gave evidence that in December 2016, the Defendant’s outstanding tax liabilities were not a serious concern at that stage. I accept this as a fact. Otherwise, the Plaintiff would not have hired him. Mr Ko gave evidence that “[a]t the time, [the Defendant] promised that he would deal with it. I believe that he would do that.”

137.  Before he joined the Plaintiff, the Defendant had outstanding tax liabilities dating back to 2007. Before the Defendant’s employment, the Plaintiff dealt with the outstanding tax liabilities in three ways.

138.  First, the Defendant was requested to sign a declaration which he handwrote himself to confirm his outstanding tax liabilities of approximately HK$1 million “which had been discussed with the IRD and [the Defendant had] come up with a repayment plan by paying the outstanding liabilities” concerning the years 2009-2010 and 2012. The Defendant agreed on cross-examination that he indicated to the Plaintiff that he would deal with his previous tax issues by repayment by instalments. Mr Ko understood from the declaration that the problem was being dealt with. Although the Defendant submits that the declaration was merely perfunctory, I do not draw that conclusion from the fact that it was handwritten. I also do not draw that conclusion from the date of the declaration, 5 December 2016, which postdates the first signature of the Offer for New Application Form (on 2 December 2016). I accept the evidence of Mr Li that he had requested the approval process for the offer on the assumption that the Defendant would make the declaration regarding the payment of the outstanding tax liabilities by instalments. In any event, the IR Agreement was only given to the Defendant at the end of December 2016.

139.  Second, Mr Ko wrote to the Distribution Support and Administration Department (“DSAD”) of the Plaintiff regarding the Defendant’s TU rating of “I” and explained it was mainly due to his outstanding tax liabilities but he had been settling these by instalments. The DSAD is a department of the Plaintiff responsible for ensuring that the Plaintiff complies with all the relevant laws and regulations issued by the Insurance Authority. He recommended deferring the Defendant’s Sign-On bonus to be payable in three phases. This is reflected in the Offer for New Application Confirmation Form.

140.  Third, the Sign-On Bonus was deferred, as reflected in Appendix I I of the IR Agreement. This special arrangement was to protect the Plaintiff in case the Defendant was unable to repay the Sign-On Bonus if he left, as opposed to ensuring that the Defendant would settle his outstanding tax liabilities, or reduce the risk that the Defendant would not settle his tax. The Defendant was willing to accept the conditions for obtaining the Sign-On Bonus because he knew his outstanding tax liabilities and low credit rating had caused concern to the Plaintiff.

141.  Even though the deferral of the Sign-On Bonus was not to ensure that the Defendant would settle his outstanding tax liabilities, I do not think that the Plaintiff treated the tax issue as administrative. The Defendant had indicated to the Plaintiff that he would deal with his previous outstanding tax by repayment by instalments.

142.  At the time of signing the declaration on 5 December 2016, the Defendant referred to a repayment plan in §1 of the declaration. However, the Defendant did not inform Mr Ko and Mr Li that the IRD had allegedly agreed to defer pursuing the unpaid taxes for 18 months. I accept the Plaintiff’s submissions that the Defendant’s declaration, when properly construed, was representing to the Plaintiff that there was a payment plan in place to pay the outstanding tax liabilities by instalments, and not any alleged tax deferral agreement which postpones the Defendant’s payment of the taxes. Mr Li gave evidence, which I accept, that when preparing the declaration, the Defendant had to tell the Plaintiff that he had to settle the tax owed to the IRD. As can be seen from the Offer for New Applicant Confirmation Form (under the box titled “Additional Requirements/Information”), the Plaintiff understood that “[the Defendant] has been settling his outstanding taxation by instalments.” Mr Ko’s letter to the DSAD of the Plaintiff also stated that the Defendant had been settling his outstanding tax liabilities by instalments.

143.  The Plaintiff started having serious concerns regarding the Defendant’s outstanding tax liabilities when the Plaintiff received a Notice for Recovery of Tax Under Section 76(1) of the Inland Revenue Ordinance dated 13 June 2018 (“Notice”). This required the Plaintiff to pay to the IRD any money that should be payable to the Defendant to settle the Defendant’s outstanding tax liabilities. Failure to do so would render the Plaintiff personally liable for the whole of the tax which the Plaintiff was required to pay. At that time, the Defendant was in default in paying tax in the amount of HK$1,407,516.87. The Defendant accepted that as of 13 June 2018, he had unpaid taxes dating back to 2007, which were still unpaid as of June 2018. Mr Tang gave evidence that the Plaintiff had never previously received such a notice, and based on his knowledge in the past seven years, none of the Plaintiff’s insurance agents had been indebted to the IRD.

144.  The Defendant then obtained a Letter of Release from the IRD so that his remuneration from the Plaintiff would not be deducted in order to pay his outstanding tax liabilities.

145.  Items 8 to 9 of the Notice, relating to outstanding tax liabilities in the tax years 2013/2014 (final), 2014/2015 (provisional), 2014/2015 (final), and 2015/2016 (provisional) had not been previously disclosed to the Plaintiff. The declaration only addressed outstanding tax liabilities from 2009 to 2010, and 2012, as revealed in the TU credit report and the IRD’s court actions against the Defendant.

146.  By June 2018, the Defendant had joined the Plaintiff for one and a half years and the payments to the Defendant from the Plaintiff were more than HK$3.5 million. However, the Defendant had still not fully settled his outstanding tax liabilities as stated in the TU credit report, even though he had sufficient funds in order to do so. The Defendant agreed that he did not honour what he confirmed in his declaration to the Plaintiff. The amount of the outstanding tax liabilities had increased from HK$1 million to HK$1.4 million. Even after the Defendant had joined the Plaintiff in December 2016, the Defendant had failed to pay tax for 2016/2017 (final) and 2017/2018 (provisional) (item 11 of the IRD’s Notice).

147.  In response, the Defendant by a declaration dated 22 June 2018, informed the Plaintiff that when he applied to join the Plaintiff, he had promised the Plaintiff that he would handle his previous tax issues. He informed the Plaintiff that the IRD had deferred pursuing the Defendant for outstanding tax for 18 months (to June 2018), and had not received any tax demand notices from the IRD up until the Notice dated 13 June 2018. He informed the Plaintiff that the IRD had accepted his proposed payment arrangement when he visited the IRD on 22 June 2018 and the IRD had issued the Letter of Release.

148.  Even if the Plaintiff had failed to consider the 18 months standstill by the IRD on termination, I do not consider that this casts the Plaintiff’s bona fides into serious doubt.

149.  In June 2018, it was the first time that the Plaintiff had been informed of the 18 months deferral. However, no confirmation of the deferral by the IRD in writing had been submitted by the Defendant. The Defendant gave evidence during cross examination that the IRD sent letters to him at his old residential address but he was not aware of them as he had moved out and that was the reason leading to the Notice. I can only conclude that the IRD had been chasing him for his outstanding tax liabilities.

150.  Furthermore, the Plaintiff had wrongly understood that the Defendant had been settling his outstanding tax by instalments.

151.  The Plaintiff’s personnel handled the Notice seriously and not merely as an administrative matter. Due to the Notice, Mr Li and Mr Ko had asked for an explanation as to the outstanding tax liabilities and a number of meetings were held with the Defendant. Given the Defendant’s declaration of 5 December 2016 that there was a proposal for repayment with the IRD, the Plaintiff was justifiably concerned when they received the Notice, given that the outstanding tax liabilities had increased to circa HK$1.4 million in 18 months.

152.  Furthermore, despite an 18 months standstill, the Defendant acknowledged as at June 2018, the deferral to pay outstanding tax had expired. By a letter dated 6 July 2018, the Defendant stated that in November 2016 when he applied to join the Plaintiff, he had proactively disclosed his tax situation and had promised to handle the relevant tax matters as soon as possible. The Defendant informed the Plaintiff of the terms of a preliminary agreement reached with the IRD with a new repayment arrangement: (i) payments of HK$10,000 on 11 July 2018 and 11 August 2018; (ii) HK$25,000 by 11 September 2018; (iii) the Defendant would file his tax return for 2017/2018 by the end of August 2018; (iv) pending the IRD’s assessment of the Defendant’s tax, a further meeting would be held in September to discuss the repayment plan with the IRD. The plan was to pay HK$200,000 as partial payment of the outstanding tax by 15 January 2019; and (v) for the remaining outstanding amount, payment from January 2019 onwards within two years, by 24 instalments including interest.

153.  I do not agree with the Defendant’s submissions that any consternation caused by the IRD letter in June 2018 would have evaporated by the time the Plaintiff considered termination.

154.  Ms Lui gave evidence that after receipt of the Notice, Mr Li had asked her to follow up with the Defendant regarding his outstanding tax liabilities, and payments to the IRD. Ms Lui called the Defendant every week to ask him whether he had made payments to the IRD. The payments were based on the vouchers issued to him by the IRD. As can be seen from the undisputed facts, the Plaintiff also wrote to the Defendant twice to provide evidence of a repayment plan, and attended a meeting with the Defendant with the IRD in late February 2019 just before termination. The Plaintiff was rightly skeptical of the Defendant, given the increase in the outstanding tax liabilities as shown in the June 2018 Notice and the previous erroneous understanding that the Defendant had been settling his outstanding tax liabilities by instalments.

155.  Despite the preliminary agreement, the Defendant only paid HK$95,000 to the IRD by January 2019, and HK$135,000 up to March 2019. One reason given by the Defendant of his inability to pay was that the Defendant’s father had suffered a stroke in August 2018, but no evidence as to the medical expenses incurred by the Defendant was given. The other reason for non-payment was the Defendant’s inability to receive the first instalment of the Productivity Bonus of HK$470,700.

156.  I think it is a red herring for the Defendant to focus narrowly on the reasons why the Defendant failed to make the HK$200,000 payment in January 2019, and whether the Plaintiff had considered the reasons for non-payment when terminating. Even before the Defendant’s father had a stroke, the Defendant had ample time, opportunity, and ability to deal with his outstanding tax liabilities from the remuneration received from the Plaintiff. I refer to the evidence of Mr Ko below at §164.

157.  The Defendant acknowledged that he had failed to adhere to the preliminary agreement with the IRD.

158.  Furthermore, the payments up to March 2019 related to the outstanding tax in 2007 which matches with the shroff number 31704102-08-6 as indicated on the Notice, and not the tax concerning years 2009-2010 and 2012, as identified in the Defendant’s 5 December 2016 declaration.

159.  Mr Tang considered that payment of the HK$200,000 by 15 January 2019 was important given the amount of the Defendant’s outstanding tax liabilities was large. It was his view that HK$200,000 was not a substantial amount and even without interest, at that rate, would take the Defendant more than seven years to settle his outstanding tax liabilities.

160.  The Plaintiff through Mr Li by a letter dated 29 January 2019 to the Defendant titled “Final Reminder on Submission of Documentary Proof Regarding your Tax Payment Arrangement with Inland Revenue Department”, requested the Defendant to submit proof of a partial payment of HK$200,000 made to the IRD by 15 January 2019 and proof of the 24 month instalment agreement with the IRD for the outstanding tax liabilities. The Defendant was warned that if he failed to provide the documents by 31 January 2019, the Plaintiff reserved the right to take further action in February in accordance with the terms and conditions of the Agent’s Agreement.

161.  The Defendant did not respond to this letter, even though the Defendant considered the letter to be very unfair.

162.  By a letter dated 1 February 2019, the Plaintiff through Mr Tang sent the Defendant a further letter titled “Re-submission of Documentary Proof Regarding your Tax Payment Arrangement with Inland Revenue Department,” repeating the Requests made in the letter dated 29 January 2019, and requesting that the Defendant provide the documents by 28 February 2019, failing which the Plaintiff reserved the right to take further action in accordance with the terms and conditions set out in the Agent’s Agreement.

163.  Again, the Defendant did not respond to this letter, even though the Defendant considered the letter to be unreasonable. One would have expected the Defendant to advance reasons why he had failed to adhere to the preliminary agreement with the IRD as a minimum.

164.  Mr Ko gave evidence, which I accept, that the Plaintiff could not see the Defendant’s attempt to resolve the outstanding tax liabilities and he deliberately delayed settlement of his outstanding tax liabilities:

“Because we could not see his attempt to resolve the tax issue, we just saw that he was delaying the matter. And, also, because that we noticed that he got sufficient income but he did not make any repayment arrangement, apart from the small sums, like $10,000 per month or HK$25,000 per month, which should not be enough to cover the interest of the outstanding sum, so I believe that the major purpose of him was to delay the repayment of the outstanding sum and this seems to be a habit on his part regarding his liabilities, his debts.”

165.  The Plaintiff was concerned about the Defendant’s outstanding tax liabilities so it sent two representatives of the Plaintiff, Ms Gigi Lui, who reported to Mr Li, and Ms Christina Lui, to attend a meeting with the Defendant and the IRD’s Ms Cheng on 27 February 2019. Both were Agency Development Managers of the Plaintiff’s Tied Agency Department. Ms Lui reported to Mr Tang and Mr Ko on the conversations which took place in the IRD meeting and made enquiries with the IRD as to the Defendant’s tax situation.

166.  The Defendant needed to submit some documents to the IRD as they were considering another repayment plan as the Defendant had defaulted on the preliminary agreement. At the time, there was no repayment plan in place and the IRD had yet to approve the Defendant’s new repayment plan, which was to occur at the end of April 2019. When Ms Lui asked the IRD whether there was a formal repayment plan in place, the IRD’s Ms Cheng responded there had been no formal approval of a repayment plan. By the time of the February 2019 meeting, the amount of the Defendant’s outstanding tax liabilities was HK$1,613,229.87, which increased as it included the Defendant’s tax liability for 2018. As reported by Ms Lui, and from the evidence given by Mr Ko, the tax situation of the Defendant was even larger than what the Plaintiff had known at the time.

167.  The outstanding tax liabilities did not include legal and court fees of HK$600,000. It was the first time during the IRD meeting that Ms Lui had known about this sum.

168.  Even if the Plaintiff did not consider when terminating that the IRD were reviewing a new repayment plan from the Defendant for the future, I do not think this means that the Plaintiff’s reason to terminate the Agreements was not genuine. The Defendant already had ample time to deal with his outstanding tax liabilities, which were increasing. As referred to in the Defendant’s two declarations of December 2016 and June 2018, there were already two previous repayment plans, which were not adhered to. A new repayment plan - “yet another promise”, was only one of the factors taken into consideration by Mr Tang and Mr Albert Cheung on termination, according to Mr Tang. There was also the Defendant’s past conduct.

169.  An important meeting was held on 14 March 2019 between the Defendant, Mr Ko, Ms Queenie Cheung, Consultant, and Ms Christina Lui, Agency Development Manager, responsible for dealing with the administration of the agencies. In this meeting, the Defendant acknowledged that Mr Ko had issued a letter concerning termination not because of anything emotional or about the relationship or inability to cooperate, but he was concerned about the Defendant’s financial situation. It would affect Mr Ko’s future obligations as under the Deed, Mr Ko had agreed and undertook to the Plaintiff to pay to the Plaintiff all amounts due and payable to the Plaintiff from or by the Defendant (clause 1 of the Deed). The Plaintiff, as Mr Ko confirmed, had already sought to recuperate amounts owing to them under the Deed due to the Defendant’s default in repayment of the Monthly Allowance and Sign-On Bonus.

170.  In the meeting, the Defendant did not allege that Mr Ko was terminating with an ulterior motive - “killing the chicken and take the eggs” or the Plaintiff was terminating with the intent to unlawfully deprive the Defendant of his entitlements to the remunerations under the IR Agreement (as pleaded in §23 of the D&CC), as in these proceedings. In any event, although Mr Ko made a recommendation to terminate, the final decision as to whether or not to terminate the Agreements was not made by Mr Ko.

171.  According to Mr Ko, which evidence I accept, as of 14 March 2019 (the date of the meeting), the Plaintiff had suspicions as to the Defendant’s personal financial status and credibility. Accordingly, the Defendant needed to provide evidence that he could cope with his financial situation. The Defendant had the habit of delaying the payment of his outstanding tax liabilities. In the meeting, the Defendant suggested to defer the Productivity Bonus to three or five years and be held as security by Mr Ko, but this was rejected. Ms Cheung asked the Defendant was there any other solution other than the Productivity Bonus deferment, as this would involve amending the IR Agreement, which would be difficult.

172.  In any event, the Plaintiff’s refusal to accept the Productivity Bonus deferment and security proposal made by the Defendant, or to remortgage the Defendant’s property to repay his tax liabilities (which was neither mentioned in the Transcript nor the Defendant’s Witness Statement) or implement other options such as clause 4.1 of the IR Agreement to cease, suspend and/or reduce the amount of any Monthly Allowance and/or Sign-On and Productivity Bonus at any time in its absolute discretion, does not mean that the Plaintiff’s reason to terminate the Agreements was not genuine. Mr Ko gave evidence that nine months had already elapsed when questioned on clause 4.1 of the IR Agreement.

173.  Mr Tang gave evidence of his concern over the integrity and financial status of the Defendant. Both Mr Tang and Mr Cheung thought the outstanding tax liabilities constituted a serious integrity issue at the time of termination. The Defendant had made promises that never materialised. Mr Ko gave evidence that he had lost trust in the Defendant. Since the June 2018 Notice, the situation with the Defendant’s outstanding tax liabilities had gone on for over nine months and the Plaintiff was concerned as to the fitness and properness of the Defendant as an agent.

174.  Ms Cheung in the meeting of 14 March 2019 stated that human resources had received information about the Defendant’s tax situation. This involved the issue of fit and proper person and integrity. The Defendant did not respond to this in the meeting. She added that all the Plaintiff’s employees, including those in senior positions, must be fit and proper persons. When Ms Cheung added that she felt very frustrated, this had been going on for quite some time, and was an issue from last year, the Defendant did not respond in the meeting. Ms Cheung also stated that HR of the BOC Group needed to respond to management as to why the financial situation of a district director such as the Defendant was in such a situation. It was a serious matter, and not merely administrative.

175.  As the Defendant was representing the Plaintiff, the Plaintiff must ensure the fitness and properness of the Defendant. The Plaintiff had every justification to be concerned about the fitness and properness of the Defendant as an agent:

(a)  The Hong Kong Federation of Insurers Best Practice Guide for Life Insurance Companies on Contracting Procedures with Insurance Agents (“Best Practice Guide”) states (at §6) that “insurance agents are required to be fit and proper persons. The matters taken into consideration in determining a person’s fitness and properness include, inter alia, his competence, capability, honesty, integrity, reputation and financial soundness.” (my emphasis).

(b)  The Best Practice Guide further states (at §6) that “[a]s far as an insurance agent’s financial soundness is concerned, besides whether the agent has ever been declared bankrupt, there may be concerns about an agent joining a new life insurance company without discharging his debts owed to his current or former appointing insurance companies. Failure to fulfil such financial obligations may adversely affect the agent’s fitness and properness.” (my emphasis). In my view, the Defendant’s outstanding tax liabilities is akin to this example. Mr Tang gave evidence there is in principle no difference between insurance agents owing debts to their former insurance company and owing debts to other creditors such as the Hong Kong Government, which is an even bigger concern.

(c)  In Appendix 3 of the Best Practice Guide titled “Fitness and Properness – Financial Soundness Best Practice Guide on Checking of Agents’ Debts” provides that “where individual agents owing debts to their current or former appointing insurers (collectively referred to as “Appointing Insurers”) have moved to a new insurer without discharging their debts. Such behavior casts doubt on the financial soundness of such agents.” It is further stated that “where there are undischarged debts [to the Appointing insurers], the recruiting insurer should critically review the fitness and properness of the agent concerned and proceed with the appointment after liaising with the agent and/or the Appointing Insurers concerned about settlement of the debts.” (my emphasis).

(d)  In the Guideline on “Fit and Proper” Criteria For Licensed Insurance Intermediaries Under the Insurance Ordinance (Cap.41) issued by the Insurance Authority (“IA”), the fit and proper requirements of licensed insurance intermediaries and related persons aim at ensuring that licensed insurance intermediaries are competent, reliable and financially sound, and have integrity (at §1.2). The criteria and matters set out in the Guideline are not intended to be exhaustive (at §1.4). The IA must have regard to “(c) the reputation, character, reliability and integrity of the person; (d) the person’s financial status or solvency …” in determining whether a person is fit and proper (at §4.1). The IA may take into account the present or past conduct of the person (at §4.3). The criteria and matters in sections 5 and 6 are not exhaustive and the IA may take into consideration any other information which it considers relevant in assessing the fitness and properness of a regulated person (at §4.6). Matters relevant to the IA’s assessment of the financial status of the individual include, but are not limited to, whether the individual concerned: (a) has entered into a voluntary arrangement with creditors or been adjudicated bankrupt by a court, or is currently subject to bankruptcy proceedings, in Hong Kong or elsewhere; or (b) has failed to satisfy any judgment debt under an order of a court in Hong Kong or elsewhere (my emphasis).

176.  Regarding the Defendant’s past conduct, Mr Tang gave evidence that “[the Defendant’s] behavior in the past was very important in [his] industry. When there [were] two previous record in the past like this, it’s very difficult for us to believe that he would realise it.”

177.  According to Mr Tang, the Plaintiff considered two points when deciding to terminate the Defendant: first, the integrity of the Defendant. Second, the financial situation of the Defendant. The decision to terminate was made by Mr Tang and Mr Alfred Cheung, the Deputy Chief Executive. Mr Tang also gave evidence that what he and Mr Cheung considered was whether the Defendant was able to pay off his tax liabilities. The Defendant had made two declarations which he failed to fulfil. For the reasons stated above and in §§178 and 179 below, I consider these to be genuine reasons.

178.  Despite the Defendant’s two declarations, the outstanding tax liabilities increased from circa HK$1.4 million when the Defendant joined the Plaintiff in December 2016 to circa HK$1.6 million in March 2019 at the time of termination. The Defendant during this period had only paid HK$95,000 to the IRD, despite the Plaintiff paying the Defendant over HK$4.2 million during this period in the form of commission, bonus, incentive payments, allowances and other reimbursements. None of these sums form part of the Plaintiff’s claim in this case (§§10 and 29(a) of Mr Tang’s Witness Statement).

179.  The outstanding tax liabilities increased despite the Defendant working for approximately 27 months before termination. The Plaintiff was entitled to take the view that the Defendant had sufficient time and opportunities to resolve his outstanding tax liabilities with the IRD, but the Defendant failed to do so. The outstanding tax liabilities dated back to 2007. The outstanding tax liabilities were substantial, circa HK$1.6 million. The Defendant had not even fully discharged the unpaid tax under the three claims stated in the TU credit report. There was no current 24 month repayment plan. There was no actual approved repayment plan in place. The fitness and properness of the Defendant was mentioned in the 14 March 2019 meeting, which the Defendant chose not to rebut in the meeting.

180.  I conclude that the Plaintiff’s decision to terminate the Agreements was genuine and justified, given the Defendant’s financial status and failure to fulfil his financial obligations to the IRD to discharge his debts. The Plaintiff was justified to take the view that this impacted on the fitness and properness of the Defendant as an insurance agent.

ISSUE 3: WHETHER THERE WAS ANY COLLATERAL AGREEMENT BETWEEN THE PLAINTIFF AND THE DEFENDANT IN RELATION TO COOPERATION WITH BANKS

181.  The Defendant claims there was a collateral contract to the Agent’s Agreement between the Plaintiff and the Defendant (“Collateral Contract”) containing the following terms (at §40 of the D&CC):

(a)  The Defendant should be responsible for the expenses incurred in the cooperation with Industrial Bank Co Ltd;

(b)  A portion of the commissions to be generated from the insurance policies bought by the clients of Industrial Bank Co Ltd and payable to the Defendant would be deducted by the Plaintiff and would be paid in cash to the private equity managers of Industrial Bank Co Ltd as remunerations;

(c)  The Defendant should apply and pay for a cross-border private car license to provide services to those clients; and

(d)  The Defendant should from time to time offer additional benefits to the staff of Industrial Bank Co Ltd in order to maintain the business relationship.

182.  In breach of the Collateral Contract, the Defendant claims that the Plaintiff removed the Defendant from the cooperation plan with Industrial Bank Co Ltd and Chiyu Bank in or about May 2018 (at §42 of the D&CC). It was claimed by the Defendant that he had spent HK$450,000 on the acquisition of a cross-border private car license for the purpose of transporting clients of Industrial Bank Co Ltd between Hong Kong and mainland China and about HK$400,000 on organising seminars for private banking managers and clients of the Industrial Bank Co Ltd in Huizhou, Shanghai and Zhengzhou (at §41 of the D&CC). Pursuant to the Collateral Contract, the Defendant claims that he started to form a basketball team and recruit young agents after joining the Plaintiff. The Defendant claims that he incurred expenses of about HK$120,000 on recruitment seminars, among other things. The Defendant claims an outstanding amount of HK$42,000 as the Plaintiff had only paid HK$18,000 (HK$60,000 being half the expenses) (at §43 of the D&CC).

183.  According to the Defendant’s evidence, Mr Li first shared the details of the bank cooperation to him at the Tai Hang meeting, which became his main reason for joining the Plaintiff.

184.  Mr Ko, whose evidence I regarded as credible, testified that there was no agreement to pay half of the expenses. He said that the Plaintiff had tried to explore if there was any possibility of cooperation with the Industrial Bank of Guangzhou. The full details of the cooperation, which was only a preliminary project regarding the possibility of cooperation, was unknown and did not materialise. The cooperation failed because of the legal impediment preventing Hong Kong insurance agents from selling policies on the mainland.

185.  Mr Li gave evidence of the parties – the Plaintiff, Industrial Bank Co Ltd. of Guangzhou, and Chiyu Bank in Hong Kong exploring a potential cooperation in the third quarter of 2017 which involved finding an insurance company partner in Hong Kong. The Industrial Bank Co. Ltd would have clients interested in purchasing insurance policies in Hong Kong and would refer clients to the Plaintiff. The role of Chiyu Bank was to act as a referral to Industrial Bank Co Ltd as at the time, they were selling policies of the Plaintiff and the manager of Chiyu Bank knew Mr Li.

186.  When questioned by Mr Kwan as to whether the potential cooperation would be profitable, Mr Li answered that it was not possible to commence it in the first place. He denied mentioning there would be a potential cooperation in the first meeting in Tai Hang with the Defendant in 2016.

187.  There are a number of difficulties with the Defendant’s claim. First, I do not think there was any Collateral Contract in place at all. Mr Ko and the Defendant recognised the legal impediments for the bank-cooperation. Both Mr Ko and Mr Li gave evidence that the Plaintiff was exploring the potential for cooperation with the banks. The potential cooperation never materialised. I accept their evidence.

188.  As observed by Au-Yeung J in Cheung Li On at §44:

“[a]lthough a century ago, the courts had leaned against finding collateral agreements, the modern tendency is to take a far less restrictive view. A collateral agreement, like any other contract, must be objectively viewed, so the test must be this: on the totality of the evidence, must the parties be taken to have intended that the representation made by one of them should form part of the basis of the legal relationship between them? See Bank of China (Hong Kong) Ltd v Fung Chi Kan & anor (2002) 5 HKCFAR 515 at §§55-57.”

189.  On the totality of the evidence, I do not think that any representation made in respect of the potential cooperation with the banks was intended by the parties to form part of the basis of the legal relationship between them. At the Tai Hang meeting, any potential cooperation was so uncertain that it was unlikely that the Plaintiff made promises to the Defendant about it. If there is no such Collateral Contract, then the Plaintiff cannot be in breach for removing the Defendant from the alleged cooperation plan.

190.  Second, clause 14.3 of the Agent’s Agreement contains an entire agreement clause: “[t]his Agreement including its Annexure constitutes the entire Agreement between the parties hereto with respect to the subject matter thereof as at the date hereof and supersedes any prior representation, agreement or understanding provided always that this Clause does not affect the validity of any supplementary and/or ancillary agreement separately entered into between the [Plaintiff] and the [Defendant].” A similar entire agreement clause is contained in clause 11.3 of the IR Agreement. If the Collateral Contract was mentioned in the Tai Hang meeting, then the Collateral Contract – being an oral agreement, is inconsistent with the entire agreement clause.

191.  In Glory Gold Ltd v Star Play Development [2008] 2 HKLRD 416, Cheung JA states the effect of an entire agreement clause (at §16):

“The clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clauses and not elsewhere and that any promises or assurances made in the course of negotiation (which in the absence of such a clause may have effect as a collateral warranty) shall have no contractual force, save, insofar as they are reflected and given effect in that document.”

192.  Even if it was not mentioned at the Tai Hang meeting, then the Agent’s Agreement and IR Agreement will not be amended, modified, varied or supplemented except in writing signed by the duly authorised officer of the Plaintiff and the Defendant (clause 14.2 of the Agent’s Agreement; clause 11.2 of the IR Agreement). Such no oral modification clauses are frequently contained in commercial agreements. The law should and does give effect to contractual provisions requiring formalities to be observed for modifications of contract: Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24 at §10. Lord Sumption at §12 provides legitimate commercial reasons why no oral modification clauses are included in agreements: (i) they prevent attempts to undermine written agreements by informal means, a possibility which is open to abuse, for example in raising defences to summary judgment; (ii) in circumstances where oral discussions can easily give rise to misunderstandings and crossed purposes (like in the instant case), it avoids disputes not just about whether a variation was intended but also about its exact terms; and (iii) they provide a measure of formality in recording variations makes it easier for corporations to police internal rules restricting the authority to agree them. See also Great Pacific Investments Ltd v 张华荣 [2023] HKCFI 1539 per DHCJ MK Liu at §29.

193.  Third, in his witness statement (at §42), the Defendant claimed that he was removed from the cooperation plan with Industrial Bank Co. Ltd and Chiyu Bank which caused loss and damage. When questioned by Ms Ho, he gave evidence that it was impossible to implement (the cooperation) because he rejected it, and withdrew from the bank-cooperation agreement on 29 August 2018. He also confirmed that there were significant legal and compliance difficulties. He confirmed at §52 of his witness statement that due to the cooperation plan containing risk, he decided to withdraw from the cooperation to focus on the Hong Kong insurance business.

194.  Accordingly, even if I am wrong on the existence of the Collateral Contract, the evidence given by the Defendant was that he withdrew from the cooperation plan with Industrial Bank Co Ltd and Chiyu Bank in or about May 2018, and not because the Plaintiff removed him from it (as pleaded at §42 of the Defence and Counterclaim): “[i]t was impossible to implement because I rejected it.” (see also §52 of the Defendant’s Witness Statement).

195.  Finally, no evidence of the expenditure has been provided by the Defendant.

ISSUE 4: WHETHER THERE WAS ANY AGREEMENT BETWEEN THE PLAINTIFF AND THE DEFENDANT ON RECRUITMENT. IF SO, WHETHER THE PLAINTIFF WAS IN BREACH?

196.  It is the Defendant’s case that “[i]t was the agreement of Mr. Ko for and on behalf of the Plaintiff and the Defendant that the Defendant would make use of his experience to build a basketball team at the Plaintiff from scratch, so as to attract young people to join the Plaintiff. The Defendant would be responsible for hosting recruitment seminars and activities for young people and arranging the team to participate in competitions as part of the public relation activities of the Plaintiff. Pursuant to the agreement, the Plaintiff would share half of the expenses incurred by the Plaintiff [sic].” (§13 of the D&CC). See also §43 of the D&CC, as referred to in §182 above.

197.  The Defendant’s claim concerns his expenses incurred in conducting the agency.

198.  This claim also fails for the following reasons. Pursuant to clause 2.3(a) of the Agent’s Agreement, the Defendant shall bear all expenses incurred in conducting the agency except when it is determined and advised to the Defendant in writing by the Plaintiff. No such case is pleaded or made out that the Plaintiff advised the Defendant in writing that the Plaintiff would share half of the expenses incurred by the Defendant.

199.  Based on the evidence, the Plaintiff did not make any representation that it would share half of the expenses of the new basketball team; rather, Mr Ko did (§27 of the Defendant’s Witness Statement). Mr Ko, as an insurance agent of the Plaintiff (and not an employee), did not have the authority to enter into any agreement with the Defendant on behalf of the Plaintiff.

200.  When cross-examined on §20 of his witness statement that it was Mr Li and Mr Ko who said they would bear half of the expenses, the Defendant gave the following evidence:

“No. Mr Li said that he would ask the company to subsidise half the basketball team was not mentioned. And, for Mr Ko, well, the person who said that he would subsidise half of the expenses, it was Ko-Ka-lok. He said whether he could participate in it as well. So, because it was Ko’s agency, so the basketball team’s name was Ko and then Leap Forward. ‘Leap Forward’ represent me and ‘Ko’ represent Mr Ko Ka-lok.”

201.  When questioned whether it was Mr Ko who would share half of the expenses, the Defendant confirmed that this was the case:

Q. “You let him pay or join in and then you share the other half?”

A. “So, it was like this is a basketball team and we are like the group leaders. Well, originally, I am the only group leader leading the basketball team and then, in this, Ko suggest that why don’t I include him as well so let’s join in together, so we will share it like half and half so that this basketball team got two leaders, that is, Mr Ko and I.”

202.  This is consistent with §54 of the Defendant’s Witness Statement.

203.  Finally, any representation would have no contractual force for the reasons stated in §§190 and 191 above.

ISSUE 5: WHETHER THE DEFENDANT IS ENTITLED TO ANY RELIEF SOUGHT IN THE COUNTERCLAIM?

Productivity Bonus for the 19^th to 24^th month (“1^st PB”)

204.  The Defendant claims that he would have been able, ready and willing to fulfil his obligations under the Agent’s Agreement and the IR Agreement and enjoy the full amounts of remuneration under Appendix I to the IR Agreement, had the Plaintiff not terminate the same without cause (§35 of the D&CC).

205.  The Defendant submits that if this Court finds that the Plaintiff had breached the 1^st Implied Term, then it would follow naturally that the Defendant’s termination was wrongful (§163 of Defendant’s Closing Submissions).

206.  The Defendant further claims that in breach of the IR Agreement, the Plaintiff has failed and/or refused to pay the instalment bonus for the 19^th to 24^th month in the sum of HK$470,700 (§36 of the D&CC).

207.  The 1^st PB claim fails for the reasons provided below. In respect of the termination of the Agent’s Agreement and the IR Agreement, I refer to Issues 2(a) and 2(b) decided above.

208.  Under Appendix I of the IR Agreement (III Productivity Bonus “PB”), the PB will be advanced in 3 instalments in the 25^th, 31^st and 37^th month from the Effective Date in accordance with the following table if the [Defendant] meets the requirements below at the end of each PB period:

PB Period	PB instalment
19th to 24th month	HK$470,700
25th to 30th month	HK$575,300
31st to 36th month	HK$784,500
Total	HK$1,830,500

(a)  the Cumulative [Defendant’s] Adjusted Team FYC as at the end of MA Period is equal to or exceeds 100% Target FYC;

(b)  the Whole Tree 19-Month LIMRA Type Persistency as at the end of MA Period is equal to or exceeds 80%;

(c)  Either (i) or (ii) is met

(i)  the 25/75 Cumulative [Defendant’s] Adjusted Team FYC for the relevant PB Period is equal to or exceeds 100% of the Target FYC for that period;

(ii)  the 25/75 Cumulative [Defendant’s] Adjusted Team FYC as at the end of the relevant PB Period is equal to or exceeds 100% of the Target FYC; and

(d)  the Whole Tree 19-month LIMRA Type Persistency as at the end of the relevant PB period is equal to or exceeds 80%.

209.  Provided that if conditions (a), (b) and (d) are met but the [Defendant’s] Achievement Ratio of 25/75 Cumulative [Defendant’s] Adjusted Team FYC for the relevant PB Period or as at the end of the relevant PB Period is equal to or exceeds 80%, the relevant PB will be adjusted in proportion to the [Defendant’s] Achievement Ratio of 25/75 Cumulative [Defendant’s] Adjusted Team FYC.

210.  The Defendant did not meet these conditions for the 1^st PB. The Defendant’s Cumulative Agent’s Adjusted Team FYC for the relevant PB Period or as at the end of the PB Period had to be equal to or exceed 80%. From the Defendant’s Monthly Financial Statement (month end of December 2018), the Cumulative 6 months Defendant’s Adjusted Team FYC achieved was 62.34%, the Cumulative Adjusted Team FYC achieved was 77.13% (see also §12(g)(i) and (ii) of Mr Tang’s Witness Statement). The Whole Tree 19-month LIMRA Type Persistency as at the end of the relevant PB period was achieved (99.32%), but the Defendant had to meet all the conditions in Appendix I of the IR Agreement (III PB).

211.  When cross-examined, the Defendant gave evidence that he thought he knew all the conditions for him to get the 1^st PB, but overlooked the IR Agreement conditions because they were unique for the Plaintiff. The Defendant thought that it was another standardised IR Agreement in the industry with the usual clauses, but it turned out there was a clause under Appendix I of the IR Agreement (III PB) which was unique in the entire industry for the 25/75 Cumulative Defendant’s Adjusted Team FYC for the relevant PB Period. According to the Defendant, he only found out about this aspect of the IR Agreement when he failed to obtain the 1^st PB in January 2019.

212.  The Defendant conceded that he accepted he was bound by the condition in the IR Agreement for his entitlement for the PB, and that he was not entitled to the 1^st PB. He also acknowledged that at the 14 March 2019 meeting, he did not raise that he could not get the 1^st PB because he got cheated by Mr Li as to the terms of the IR Agreement.

213.  When cross-examined, the Defendant also gave evidence that he was willing to accept the conditions for the PB because he knew that his unpaid tax liabilities and his low credit rating had caused concern to the Plaintiff.

Productivity Bonus for the 25^th to 36^th month (or 25^th to 27^th month)

214.  The Defendant claims that as a result of the Plaintiff’s breach of the Implied Terms of the Agent’s Agreement and the IR Agreement, the Defendant has suffered loss of bonus described as PB from the 25^th to 36^th months in the total sum of HK$1,359,800 (§37 of the D&CC).

215.  The Defendant submits (at §166 of Defendant’s Closing Submissions) there is no serious dispute that the Defendant was a successful agent at the Plaintiff. The Defendant claims that it is far likelier than not that the Defendant would be able to gain the PBs had the Plaintiff not wrongfully terminated his agency. Accordingly, the Defendant is entitled to his counterclaim of HK$1,359,800 (representing the PB for the period after he was wrongfully terminated (the 27^th month) to the end of the period during which PB would be paid (36^th month). This represents the 2^nd PB and 3^rd PB.

216.  In the alternative to the above, the Defendant should be entitled to pro-rated bonus described as PB for the period from 25^th to 27^th months in the sum of HK$287,650 (§38 of the D&CC).

217.  It is further claimed that in breach of the Agent’s Agreement, the Plaintiff has wrongfully withheld payment of the commission, bonus, override and referral bonus payable to the Defendant in the sum of HK$60,484.92 (§39 of the D&CC).

218.  I reject all of these claims. There are no Implied Terms as alleged by the Defendant. Even if there existed Implied Terms, the Plaintiff did not breach them. I refer to my findings above for Issues 2(a) and 2(b).

219.  Further, under clause 7.4 of the IR Agreement, the [Plaintiff] will have no obligation to pay the Monthly Allowance and/or Sign-On and/or Productivity Bonus upon termination of the IR Agreement, including any accrued as at the date of termination of the IR Agreement i.e. on 5 April 2019.

220.  Regarding §166 of the Defendant’s Closing Submissions on the Defendant’s loss of a chance claim, the Defendant must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one: Cheung Shun Yee v Rich Resource Development Ltd [2019] HKCFI 2835 at §28.

221.  I agree with the Plaintiff’s submissions that there is no basis for the Defendant to claim that he could have earned the bonus but for the termination, when the nature of the claim is entirely speculative. The Defendant has not shown, on the balance of probabilities, that he has lost the particular chance to obtain the 2^nd PB or the 3^rd PB. At the time of the termination, the Defendant had not met the requirements of the 1^st PB. In the 14 March 2019 meeting, the Defendant acknowledged that after his promotion, his business had become a bit weaker, he would discuss with Mr Ko how he could do better, and his business was not as good as before his promotion.

222.  Not only did the Defendant acknowledge that his business had become a bit weaker in the 14 March 2019 meeting, but the Defendant also conceded this in cross-examination when compared to his past performances:

“Q. But you accept that, when you all right saying, after your promotion, the business was a bit weaker, you were referring your own team and your business being weaker, correct?

A. Yes, because the year when I got promoted, my business turnover, the achievement, was great. Then, when I compare with myself, the business was weaker. In year 2018, after my father suffered from a stroke, it was true that I returned to the company less often. Well, for the business turnover of the month November and December in year 2018, if I compare it with my own record, it, indeed, was a bit weak but it will certainly be better than the agency of Mr Ko Ka Lok.”

223.  As to the Defendant’s claim for entitlement to a pro-rated PB for the period from 25^th to 27^th months, Appendix I of the IR Agreement (III PB) does not provide for any pro-rata entitlement to PB but the PB would be advanced in three instalments in the 25^th, 31^st and 37^th month from the Effective Date.

224.  Regarding the Defendant’s claims in §40 of the D&CC in respect of the Collateral Contract, I refer to my findings under Issue 3 above.

ISSUE 6 (DISPUTED): DID THE PARTIES ENTER INTO THE OVERALL AGREEMENT AS SET OUT IN §§3-10 of the D&CC, AND WHETHER THE PLAINTIFF BREACHED THE OVERALL AGREEMENT BY TERMINATING THE AGREEMENTS?

Whether the Overall Agreement has been pleaded

225.  The Plaintiff opposes the Defendant from raising Issue 6 as it is unpleaded.

226.  First, the alleged “overall agreement” (“Overall Agreement”) has never been specifically defined in the D&CC. The Court should not refer to Annex B of the Defendant’s Opening (an attempt to reformulate the alleged overall agreement). It is trite that pleadings cannot be “amended” by way of submissions: China Concrete Company Ltd v Secretary for Justice [2023] HKCFI 2282 at §84 per Coleman J.

227.  Second and more fundamentally, there is no plea that the Plaintiff breached the “Overall Agreement” in the D&CC. The Defendant’s pleaded case has always been that the Plaintiff’s termination of the Agreements without cause constitute breach of the express and/or implied terms of the Agreements, not the alleged “overall agreement” (see §§35-39 of the D&CC).

228.  Third, the alleged “overall agreement” is simply inconsistent with the express terms of the Agreements, including the entire agreement clauses.

229.  Fourth, the Court is invited to find that such alleged overall agreement does not exist as a matter of fact.

230.  The Defendant’s case is that there was an “overall arrangement or agreement” which preceded or was contemporaneous with the parties’ execution of the Agent’s Agreement and IR Agreement: §3 of the D&CC. “Overall Agreement” is not defined in the D&CC.

231.  The terms of the Overall Agreement included (inter alia) that:

(a)  This was going to be a long-term cooperation between the parties which would not be terminated lightly (particularly without fault of the Defendant) (§4(f) of the D&CC); and

(b)  The Defendant’s agency would not be terminated so long as the Defendant met the requirements of minimum number of downline agents and business turnover (as set out in Appendix I to the IR Agreement), the Agreements would not be terminated without cause: §9 of the D&CC.

232.  According to the Defendant, the Overall Agreement was expressly pleaded in §3 of the D&CC where it is averred that the Agent’s Agreement and the IR Agreement “formed only part of the overall arrangement or agreement” between the parties. The clear meaning is that the written agreements are not a complete embodiment of the parties’ agreement, and there was a further (independent) agreement alongside it.

233.  Further, §§4-9 of the D&CC proceeded to explain how the Overall Agreement arose and set out the terms of the Overall Agreement:

(a)  §3 of the D&CC clearly indicated that the “overall arrangement or agreement” would be pleaded in the paragraphs below.

(b)  §4 of the D&CC sets out the representations made by the Plaintiff to the Defendant.

(c)  §5 of the D&CC pleaded “[r]elying on the abovementioned promises and inducements…”. The word “promises’ is referred to the series of averments set out in §4 of the D&CC.

(d)  §§6-9 of the D&CC further elaborated on the true construction of the parties’ “overall arrangement and agreement” and expressly set out the parties’ “mutual understanding” (§9 of the D&CC).

234.  The Defendant submits that after §§4-10 of the D&CC set out the terms of the Overall Agreement, the immediate next paragraph (§11 of the D&CC) started with the words “further or in the alternative”, and then set out the Defendant’s case on implied terms. The pleas placed before §11 of the D&CC naturally set out the Defendant’s other case (which was not based on implied terms).

235.  The Defendant further submits that he had clearly pleaded (at §24 of the D&CC) that §10 of the Statement of Claim (“SoC”) (which pleads that the Plaintiff is entitled to the clawback) is denied by reasons of §§4-13 of the D&CC (i.e., the primary plea of the Overall Agreement and the secondary plea of implied terms).

236.  The Defendant submits that it is unnecessary to plead that the Plaintiff had breached the Overall Agreement. Any allegation of breach of the Overall Agreement is part of the Defendant’s counterclaim. It does not affect its Defence.

237.  I am of the view that the Overall Agreement has been pleaded, and is different from the Implied Terms relied on by the Defendant at §11 of the D&CC, as indicated by the “further and/or alternative” plea by the Defendant in respect of the Implied Terms.

238.  At §3 of the D&CC, it is admitted that the Defendant executed the Agent’s Agreement on or about 25 November 2016 and the IR Agreement on or about 28 December 2016 and that they contain the terms pleaded by the Plaintiff therein. The Defendant avers that, for reasons pleaded herein below, the Agent’s Agreement and the IR Agreement formed only part of the overall arrangement or agreement between the Plaintiff and Defendant. (my underlining)

239.  At §4(d) of the D&CC, it is pleaded by the Defendant that to induce the Defendant to enter into an agency contract with the Plaintiff, the Plaintiffs representatives, namely, Mr 李浩嵐 (Mr Li), then Chief District Director, and Mr 高嘉樂 (Mr Ko), then District Director; (1) offered special payment package commensurate with the insurance policies sold and the number of downline agents maintained by the Defendant for the first 36 months of the agency; (2) offered the Defendant to participate in a business plan to jointly develop insurance business opportunities with Industrial Bank Co Ltd in Guangzhou（廣州興業銀行）and Chiyu Bank; and (3) asked the Defendant to establish and promised to share the expenses of establishing a basketball team in the name of the Plaintiff with a view to recruiting young people to the Plaintiff. Pursuant to the arrangement, the Defendant would be an downline agent of Mr Ko.

240.  At §4(f) of the D&CC, the Defendant pleads that Mr Li and Mr Ko also promised that the cooperation between the parties was intended to be a long term cooperation and would not be terminated lightly, particularly without fault of the Defendant.

241.  At §5 of the D&CC, the Defendant pleads that relying on the abovementioned promise and inducements, the Defendant agreed to join the Plaintiff and executed the Agent’s Agreement.

242.  At §9 of the D&CC, the Defendant pleads that it was the mutual understanding between the Plaintiff, by its representatives Mr Li and Mr Ko, on the one part and the Defendant on the other part that, so long as the Defendant met the requirements of minimum number of downline agents and business turnover set out in Appendix I to the IR Agreement, the Agent’s Agreement and the IR Agreement would not be terminated without cause.

243.  Further, no prejudice has been established by the Plaintiff in respect of the Defendant’s case on the Overall Agreement. I note that Mr Ko addresses the Defendant’s alleged representations made by he and Mr Li prior to the entry of the Agent’s Agreement and IR Agreement at §§43-45 of his witness statement, and Mr Li also addresses the alleged representations made in §26 of his witness statement.

Existence of the Overall Agreement

244.  I make the following introductory comments regarding collateral agreements. With respect to a collateral agreement, the sole effect of which is to vary or add to terms of written documents, the court will always view the same with some suspicion: China Jianxin Credit Services Ltd v IR Resources Ltd [2021] HKCFI 575 at §23 per Liu DHCJ; Huang Mucai v Cheng Zhen Shu unreported judgment of Lok DHCJ dated 17 September 2011, HCA 1237/2011 at §§19-21. Any laxity would enable parties to escape from the full performance of the obligations of contracts unquestionable entered into by them. More especially, it would have the effect of lessening the authority of written contracts by making it possible to vary them by suggesting the existence of verbal collateral agreements relating to the same subject matter (Universal Dockyard Ltd v Trinity General Insurance Co Ltd [1989] 2 HKLR 160 (PC), per Lord Goff at 164H-165A).

245.  Although the modern approach is that the courts are more willing to accept pre-contractual assurance giving rise to a collateral contract, the burden remains on the party alleging such a collateral contract to adduce credible evidence to prove its existence: Bank of China (Hong Kong) Ltd v Fung Chin Kan (2002) 5 HKCFAR 515, per Litton NPJ at §§57.

246.  I find that the Overall Agreement did not exist. I accept Mr Ko’s evidence on cross-examination that “I did not promise anything because it was not a promise that I could make. It was an agreement between the company and [the Defendant].” I also accept Mr Li’s evidence that “if during the recruitment, from day 1, the downline of that manager is concerned about this killing the chicken and getting the egg from its up-line manager, and how was it possible for us to cooperate further?”

247.  When questioned that he had made a promise on the Plaintiff’s behalf that the Defendant’s agency would not be terminated unless he did not meet his business targets and the requisite downline agents, Mr Li gave evidence that he disagreed as without referring to the records of the Defendant, it was not possible for him to know the Defendant’s number of downline agents and his request. Mr Li’s evidence was that he “was never authorised and I would never make promises like that”, which I accept. There was already a right for the Plaintiff to terminate without cause in clause 10.1 of the Agent’s Agreement and clause 7.1 of the IR Agreement, which are inconsistent with the alleged Overall Agreement (see below at §§252 and 253).

248.  Both parties expected a long term cooperation, as distinct from a promise by the Plaintiff’s representatives to the Defendant of a long term cooperation. When asked by the Court as to why he had an expectation of a long term contract, Mr Ko responded by stating that “the contract itself has no end date, and the second reason being the IR Agreement was at least for after five years, and his responsibility would not be finished until at least after five years.”

249.  I do not think Mr Ko or Mr Li were desperate for the Defendant to join the Plaintiff so as to make the alleged representations, even though there was the expectation that the Defendant would continue with his good performance at the Plaintiff. At the time of the Tai Hang meeting, the Defendant had yet to secure an offer. The IR Agreement with the Defendant did not contain a high percentage. Mr Li confirmed that “[i]f I really want that agent, in the past, I made an offer of 450 to 500 per cent.” Furthermore, the Defendant had yet to provide to the Plaintiff evidence of his remuneration and earnings from AXA – and his business, so the financial terms of any offer were not discussed. According to Mr Li’s evidence which I accept, “we will first go to have some mutual understanding, okay, and see if it is okay and the candidate will also see if they would like to apply …” If the Defendant was concerned about the termination clause, then Mr Li would not hire him as there was no trust.

250.  Regarding §4(d) of the D&CC, at that time of the Tai Hang meeting, the Defendant had not signed any Confidentiality Agreement and it was uncertain whether he would even join the Plaintiff. It was the first time that Mr Li had met the Defendant. I consider that it was unlikely that the Plaintiff’s Mr Li (and Mr Ko) would mention a potential business opportunity to the Defendant, and offer the Defendant to participate in a business plan to jointly develop insurance business opportunities with Industrial Bank Co Ltd in Guangzhou and Chiyu Bank, in these circumstances.

251.  The Defendant has not adduced any credible evidence of the existence of the Overall Agreement. It is rare in modern litigation to encounter a claim based on an agreement which is not only said to have been made purely by word of mouth but of which there is no contemporaneous documentary record of any kind: Dr Martin John Coward v Ms Elena Ambrosiadou [2019] EWHC 2105 per Andrew Henshaw QC at §§68-70. I note that the Defendant did not put the Plaintiff’s alleged promises contained in the Overall Agreement in writing, even though they were important to the Defendant and he had been through a bad termination experience involving his superior at AXA, his former company where he was an insurance agent. Furthermore, there are no internal documents produced by the Defendant making reference to the Overall Agreement.

252.  The terms of the alleged Overall Agreement are inconsistent with clause 10.1 of the Agent’s Agreement and clause 7.1 of the IR Agreement, namely, that (i) the Agent’s Agreement and IR Agreement would not be terminated lightly, particularly without fault of the Defendant; and (ii) so long as the Defendant met the requirements of minimum number of downline agents and business turnover set out in Appendix I to the IR Agreement, the Agent’s Agreement and the IR Agreement would not be terminated without cause. When questioned on cross-examination as to why he did not ask for this provision to be taken out, the Defendant gave evidence that although it was not reasonable, the clause was present for every insurance company, and he did not have that power to request the Plaintiff to take the clause out. The Defendant gave evidence that he had never noticed any insurance company willing to get rid of clause 10.1 and if he had raised it at the time, then the Plaintiff would think he was ridiculous. The Defendant also acknowledged that he did not ask the Plaintiff to include a provision that it would not terminate his agency unless he failed to meet the business target or the downline agent target. Rather, the evidence given by the Defendant was that if he became a district director, then he would not be terminated:

“Because I’ve never seen any insurance company firing a district director lightly, in particular with the excuse of fit and proper, so at the time, I choose to work very hard and become a district director as soon as possible.”

253.  When questioned on clauses 7.1 and 7.2 of the IR Agreement allowing the Company (and the Agent) to terminate the IR Agreement at any time and without giving any reason for so doing by giving 14 days’ written notice, which were contradictory to the alleged representations of Mr Ko and Mr Li, the Defendant gave evidence that he expected senior management not to use these clauses to perform the act of killing the chicken and taking the egg. He also chose to believe and he did believe that he would be able to make it to district director in two years’ time, so that would protect him from having that situation occurring to him i.e. the Defendant being terminated in order to obtain the Defendant’s downline agents.

254.  It was the promotion to district director, and not what the Plaintiff’s representatives allegedly said which constituted the Overall Agreement, that made the Defendant believe that he would not be terminated. The Defendant did not plead that there was a representation from the Plaintiff’s representatives that he would not be terminated if he had reached the district director level.

255.  The Defendant’s own conduct is also inconsistent with the existence of the Overall Agreement. Although it is not permissible to use subsequent conduct to interpret an agreement, subsequent conduct is admissible to show whether there was a contract and what the terms of the contract were, either originally or by variation, or as the basis for an estoppel: James Miller v Whitworth Street Estates [1970] AC 572; Schuler v Wickman [1974] AC 235; Yuen Ching Yuen v Union Insurance Society of Hong Kong Ltd [1998] 1 HKLRD 650; 雲天曼v 香港航空有限公司 [2023] HKCFI 149 at §174; see also Chitty on Contracts (35^th ed, 2023) at §16-061 p 1230.

256.  I note that the terms of the Overall Agreement were never raised at the time of the termination as a response to the Plaintiff’s termination letter dated 22 March 2019. At the time, the Defendant had not yet instructed lawyers but had consulted some of his lawyer friends for legal opinions. The Defendant did not respond in writing to this termination letter to allege that the termination was wrongful given the alleged Overall Agreement and/or the Implied Terms. I also note at the critical 14 March 2019 meeting between the Defendant, Ms Queenie Cheung, Ms Christina Liu, and Mr Ko, that throughout the entire meeting, the Defendant had not alleged that Mr Ko was terminating the Agent’s Agreement and IR Agreement in order to obtain the Defendant’s downline agents – to kill the chicken and grab the eggs. Furthermore, the Defendant acknowledged that he did not raise in the same meeting that the Plaintiff could not terminate the Agent’s Agreement as Mr Li promised that the Defendant would not be terminated as long as he had met the business intake or the downline agent intake. This was only raised for the first time in the Defendant’s Defence.

Effect of the Entire Agreement Clause

257.  Even if I am wrong and the Overall Agreement existed, the Defendant may not rely on the Overall Agreement to raise any defence to the Plaintiff’s claim. The Overall Agreement is superseded by clause 14.3 of the Agent’s Agreement and clause 11.3 of the IR Agreement. No legal effect should be given to the Overall Agreement if it existed.

258.  Clause 14.3 of the Agent’s Agreement provides as follows:

“This Agreement including its Annexure constitutes the entire Agreement between the parties hereto with respect to the subject matter thereof as at the date hereof and supersedes any prior representation, agreement or understanding provided always that this Clause does not affect the validity of any supplementary and/or ancillary agreement separately entered into between the Company and the Agent.”

259.  Clause 11.3 of the IR Agreement provides as follows:

“This Agreement is a separate agreement to the Agent’s Agreement and governs the Agent’s entitlement to the Allowance, Bonus and/or other benefits and constitutes the entire agreement between the parties with respect to the matters aforesaid and supersedes any prior representation, agreement or understanding provided always that this Clause does not affect the validity of any supplementary and/or ancillary agreement separately entered into between the Company and the Agent.”

260.  In general, an entire agreement clause gives rise to a contractual estoppel, precluding a party from asserting that something outside the four corners of the contract was a term of the contract or a contract collateral to it: Matchbet Ltd v Openbet Retail Ltd [2013] EWHC 3067 (Ch) at §112; Lewison, The Interpretation of Contracts (8^th ed, 2023) at §3.137.

261.  In Rock Advertising Ltd, Lord Sumption at §14 observed that an entire agreement clause would nullify an oral collateral agreement which seeks to modify the contents of the written contract containing the entire agreement clause, but authorities such as Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] L & TR 26 (CA) at §43, and North Eastern Properties Ltd v Coleman [2010] 1 WLR 2715 at §57 (Briggs J), §§82-83 (Longmore LJ) which have upheld oral collateral agreements did so because they were independent contracts which did not modify the written contracts containing the entire agreement clause. See also China Jianxin Credit Services Ltd at §31; 雲天曼v 香港航空有限公司 [2023] HKCFI 149 at §154 per Marlene Ng J.

262.  In Inntrepreneur Pub Co v East Crown Ltd [2009] 3 EGLR 31, the purpose of an entire agreement clause was explained by Lightman J (at p33):

“The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement (often long-forgotten or difficult to recall or explain) upon which to found a claim, such as the present, to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search, and the peril to the contracting parties posed by the need that may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that, accordingly, any promises or assurances made in the course of the negotiations (which, in the absence of such a clause, might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence, as is suggested in Chitty on Contract (28^th ed) vol 1 para 12-102; it is to denude what would otherwise constitute a collateral warranty of legal effect.”

263.  雲天曼v 香港航空有限公司 at §152 refers to AIA International Limited (formerly known as American International Assurance Company (Bermuda) Limited) v Shum Ka Wai & Others unreported judgment of D Ho DDJ dated 20 January 2014 (DCCJ 1571, 1615, 1616, 1620, 1685, 1686, 1687, 1688 and 1690/2013). Upon termination of service of the defendant insurance agents (engaged under Career Representative’s Contracts) by written notice, the plaintiff insurance company sued for refund of certain monetary incentives or bonuses paid to the defendants. The defendants asserted that the purported termination was an act of repudiatory breach on the plaintiff’s part which they had not accepted, and they counterclaimed for damages for breach and specific performance. The defendants further pleaded a district director, when luring the defendants to join AIA and to bring with them the defendants as downline agents, assured the defendants that AIA would only terminate their service and that of their downline agents for a sound reason (“Assurance”) and that the Assurance had the backing of a Vice President of AIA.

264.  There was an “entire contract” clause in each of the Career Representative’s Contracts which read “[t]his Agreement together with the Schedule of Commission constitutes the basis of the entire contract between the parties herein” (§14). D Ho DDJ (as he then was) referred to the long line of cases that followed Lightman J’s observations in Inntrepreneur Pub Co (§§21-22), and found they served a complete answer to the defendants’ reliance on the Assurance to bar the plaintiff from invoking clause 23(b) of the Career Representative’s Contracts that allowed for termination of the contracts without any reason by either party upon 15 days’ notice in writing (§23).

265.  In this case, clause 14.3 of the Agent’s Agreement and clause 11.3 of the IR Agreement are also a complete answer to the Defendant’s reliance on the Overall Agreement to bar the Plaintiff from invoking clause 10.1 of the Agent’s Agreement and clause 7.1 of the IR Agreement that allowed for termination for the Agreements without cause by either party upon 14 days’ notice to the other in writing.

266.  The Defendant submits that it is legally possible for collateral contracts to be inconsistent with the principal or main contract: City and Westminster Properties v Mudd [1959] Ch 129. However, City and Westminster Properties is irrelevant as it does not concern an entire agreement clause.

267.  The Defendant further submits that if the Court is satisfied that there had been an Overall Agreement as a matter of fact, then it would be open for this Court to hold that that such an agreement existed even though the written/main contract is not consistent with the main or principal agreement. The true position is that if the collateral agreement is capable of operating as an independent agreement, and is supported by its own consideration, then most standard forms of entire agreement clause will not prevent its enforcement: Business Environment Bow Lane v Deanwater Estates [2007] EWCA Civ 622, §43; North Eastern Properties Limited v Damien [2010] EWCA Civ 277, §§57, 82-83.

268.  Both Business Environment Bow Lane and North Eastern Properties Limited can be distinguished from the instant case.

269.  In Business Environment Bow Lane, the case did not involve the consideration of an entire agreement clause and its effect on a collateral contract.

270.  In North Eastern Properties Limited which contained unusual facts, the existence of a 2% finders fee agreement, which was to be the Appellants’ profit from participating in the chain of sales to sub-purchasers, was held to not form part of any of the eleven contracts for the sale of land. It was capable of existing as an independent contract and the 2% finders fee was not inconsistent with the terms of the eleven contracts. The 2% finders fee was not part of the consideration for the performance of the eleven sale contracts. It was necessary for the parties to exclude the 2% finders fee from each of the land contracts if those normal consequences of its inclusion as a term of those contracts were to be avoided (i.e. that the finders fee would accrue to the sub-purchasers). The 2% finders fee agreement was part of a composite transaction which included the contracts for the sale of land. Performance of the land contracts was not conditional upon performance of the finders fee agreement. The eleven contracts for the sale of land contained an entire agreement clause. Briggs J observed (at §64) that the primary meaning of an entire agreement clause (namely that there are no other contractual provisions at all between the parties) must yield to the commercial reality in the present case that there was a finders fee agreement. Even in the absence of the entire agreement clause, he would have concluded that the 2% finders fee agreement did not form part of the terms of any of the land contracts, in the sense they were not conditional upon it. But the entire agreement clause puts this beyond doubt.

271.  Longmore LJ observed in North Eastern Properties Ltd that (at §82):

“If the parties agree that the written contract is to be the entire contract, it is no business of the courts to tell them that they do not mean what they have said.”

272.  As Lord Sumption observed in Rock Advertising when referring to both cases at §14:

“The true position is that if the collateral agreement is capable of operating as an independent agreement, and is supported by its own consideration, then most standard forms of entire agreement clause will not prevent its enforcement: see Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] L & TR 26 (CA), at para 43, and North Eastern Properties Ltd v Coleman [2010] 1 WLR 2715 at paras 57 (Briggs J), 82-83 (Longmore LJ). But if the clause is relied upon as modifying what would otherwise be the effect of the agreement which contains it, the courts will apply it according to its terms and decline to give effect to the collateral agreement.” (my emphasis).

273.  The Defendant’s reliance on an Overall Agreement falls squarely within the second situation observed by Lord Sumption in Rock Advertising.

274.  Finally, I note that the entire agreement clauses in clause 14.3 of the Agent’s Agreement and clause 11.3 of the IR Agreement contain a carve out for supplementary and/or ancillary agreements separately entered into between the Plaintiff and the Defendant, the validity of which are unaffected. The Defendant made no submissions that the Overall Agreement constitutes a supplementary and/or ancillary agreement and is therefore an exception to the entire agreement clauses. Even if the Overall Agreement constitutes a supplementary and/or ancillary agreement, I accept the Plaintiff’s submissions that any such supplementary and/or ancillary agreement shall be in writing and signed by the duly authorised officer of the Plaintiff and the Defendant: clause 14.2 of the Agent’s Agreement and clause 11.2 of the IR Agreement. As the alleged Overall Agreement is an oral agreement, no such supplementary and/or ancillary agreement has been signed by the parties. This renders any supplementary and/or ancillary agreement unenforceable: Great Pacific Investments Ltd. v 张华荣 [2023] HKCFI 1539 per DHCJ MK Liu at §29. The law should and does give effect to contractual provisions requiring formalities to be observed for modifications of contract: Rock Advertising per Lord Sumption at §10.

ISSUE 7 (DISPUTED): WHETHER THE PLAINTIFF MADE THE REPRESENTATIONS AS SET OUT IN §§4 (d) – (f) OF THE D&CC, AND THE LEGAL EFFECT OF SUCH REPRESENTATIONS?

275.  It is the Defendant’s case, as pleaded in §4(d)-(f) of the D&CC, that in and around mid-November 2016, Mr Li and Mr Ko of the Plaintiff made representations to him which induced him to join the Plaintiff (to his detriment). The question is whether the Plaintiff is estopped from resiling from such representations.

276.  The Defendant submits that a promissory estoppel may be said to arise where:

(a)  the parties are in a relationship involving enforceable or exercisable rights, duties or powers;

(b)  one party (“the promisor”), by words or conduct, conveys or is reasonably understood to convey a clear and unequivocal promise or assurance to the other (“the promisee”) that the promisor will not enforce or exercise some of those rights, duties or powers; and

(c)  the promisee reasonably relies upon that promise and is induced to alter his or her position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise.

See Luo Xing Juan v Estate of Hui Shui (2009) 12 HKCFAR 1 at §55.

277.  I am satisfied that the elements of promissory estoppel have been pleaded (albeit the type of estoppel relied on has not been pleaded). The detriment pleaded is the Defendant executing the Agreements and joining the Plaintiff (§5 of the D&CC). In any event, I note that the Court may even uphold an estoppel that has not been specifically pleaded or argued by one party, but only if the other party has not been prejudiced by the failure, and all the relevant facts are before it, because estoppel is the mechanism by which to do justice in the case: Spencer Bower: Reliance-Based Estoppel (5^th ed., 2017) at §15.11, p 692.

278.  I do not think the Plaintiff has suffered any prejudice, as Mr Ko deals with the alleged representations at §43-45 of his witness statement and Mr Li addresses the alleged representations at §26 of his witness statement.

279.  This defence fails on the law and the facts. I have already decided above at §§246 to 256 that no such representations were made. In addition, even if the Plaintiff had made the representations as pleaded by the Defendant, there is a question of whether the Defendant has relied on those representations, given the Defendant’s evidence that he believed that if he was promoted to district director, then he would not be terminated (as opposed to what was allegedly represented). Accordingly this defence is dismissed.

280.  Even if I am wrong in finding that there were no representations as a matter of my finding of fact, the alleged pre-contractual representations giving rise to a claim of estoppel have been superseded by the entire agreement clauses in the Agreements.

281.  In Lucky Zone Holdings Ltd v Winning Beauty Investments Ltd (unrep, HCA 784/2012, 29/5/2013), To J made the following observations regarding an entire agreement clause (at §§30-31):

“30 … Thus, the meaning and effect of an entire agreement clause is a question of construction; and whether that clause shall have that effect as intended by the parties may be subject to the principles of waiver and estoppel. There are two questions involved: one is a question of construction, the other is a question of waiver and estoppels. The Court of Appeal entertained no doubt in respect of the first question but thought there is room for debate in respect of the latter. It is important to note that the Court of Appeal in Natamon and Fortis Insurance Company (Asia) Limited never for a moment suggested on the basis of construction that pre-contract oral negotiations or oral agreements are capable of defeating the express provisions of an entire agreement clause. Also, the conduct in those two cases which constituted waiver or estoppels was conduct subsequent to the entire agreement clause.

31. Returning to the undisputed facts and the assertions of the Defendants in the present case, the oral term outside the written agreement was made prior to the two share subscription agreements. Assuming for the purpose of the present application that the software had been delivered to and accepted by the Plaintiff, there was no other conduct whatever on which to launch any argument of waiver or estoppel. Furthermore, the clause relied on by the bank in Natamon related to variation of the written terms in future and not to representations, understanding in the past as in the present case. The present case is clearly distinguishable from Natamon and Fortis Insurance Company (Asia) Limited. It can hardly be argued that on the true construction of the exclusive agreement clause that any oral terms reached prior to the share subscription agreements were rendered ineffective. In fact, no such argument has been advanced. Also, there was hardly any post-contract conduct on which the Defendants could launch any argument of waiver or estoppels. The defence relying on the oral term fails as a matter of law and fact.”

282.  The Defendant’s case is that the alleged representations took place prior to the entry into of the Agreements. Accordingly, the entire agreement clauses are capable of excluding the operation of any defence based on estoppel.

Interest

283.  Under clause 3.6 of the IR Agreement, if the Defendant fails to repay any of the amounts owing to the Plaintiff in accordance with the IR Agreement, the aggregate of the amount due for repayment will be subject to interest at the rate of 2% per annum above the prevailing Interest Rate determined by the Plaintiff. The interest will accrue on a daily basis, will be computed daily and will be immediately payable. “Interest Rate” is defined in the IR Agreement to mean the rate announced by the Plaintiff from time to time as its rate of interest for lending Hong Kong dollars to its policyholders, being 10% per annum as at 28 December 2016.

284.  A similar clause for the payment of interest was contained in clause 7.9 of the Agent’s Agreement.

285.  It is pleaded at §17 of the SoC that the contractual rate of interest is 9.5% per annum (i.e. rate announced by the Plaintiff from time to time as its rate of interest for lending Hong Kong dollars to its policyholders, being 7.5%, plus 2% per annum).

286.  In its Closing Submissions, the Plaintiff claims interest on the Outstanding Sums at the contractual rate of 9.5% per annum accrued on a daily basis and computed daily from 28 August 2019 (the date of the Writ of Summons) until the date of full payment. The Defendant made no submissions on interest in his Closing Submissions.

287.  Mr Tang in his witness statement refers to clause 3.6 of the IR Agreement (at §8(g)) but does not specify the Plaintiff’s rate of interest for lending Hong Kong dollars to its policyholders. Mr Tang addresses the Plaintiff’s claims in §§31-35 of his witness statement but these paragraphs do not address the Plaintiff’s claim for interest.

288.  I note that before the commencement of this proceeding, in Messrs Keith Lam, Lau & Chan’s letter to the Defendant dated 26 April 2019, the Plaintiff’s solicitors demanded payment of the Outstanding Sums and informed the Defendant that interest shall be calculated at the rate of 9.5% per annum from the due date of full repayment. The Defendant did not respond to this letter. I am satisfied that 9.5% per annum is the contractual rate of interest (comprising of the Plaintiff’s rate of interest for lending Hong Kong dollars to its policyholders, being 7.5%, plus 2% per annum), pursuant to clause 3.6 of the IR Agreement.

289.  Accordingly, I order interest on the Outstanding Sums at the contractual rate of 9.5% per annum accrued on a daily basis and computed daily from 28 August 2019 until the date of this judgment, and interest at judgment rate thereafter.

290.  I am unwilling to apply the contractual rate of interest post judgment. No submissions have been provided by the Plaintiff as to why I should exercise my discretion to award the contractual rate of interest post judgment until payment under section 50(1)(a) of the District Court Ordinance, as opposed to the default position in section 50(1)(b) of the District Court Ordinance. In practice, the courts are normally content to award interest at the judgment rate for the sake of consistency and certainty: Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2016] HKEC 2909 per To J at §§50, 55, and 60.

291.  In my view, it is possible for the contractual rate of interest to apply post judgment but such a clause must state specifically that any judgment obtained for recovery of the debt shall carry interest at a specified rate per annum and the higher rate until payment should form part of the judgment: Hong Kong Civil Procedure 2024 at §42/1/17. Clause 3.6 of the IR Agreement and clause 7.9 of the Agent’s Agreement do not so provide.

Indemnity Costs

292.  The Plaintiff claims costs on an indemnity basis pursuant to clause 4.3 of the Agent’s Agreement and clause 10.4 of the IR Agreement (§§2(c) and 3(n) of the SoC; §3 of the Reliefs Sought in the SoC). The Defendant did not make any submissions on indemnity costs in its Closing Submissions.

293.  Under clauses 4.3 of the Agent’s Agreement and 10.4 of the IR Agreement, the Defendant acknowledges that the Plaintiff has the right, whether during or after the termination of this Agreement, to take any lawful means to recover any monies the Defendant may owe to the Plaintiff and the Defendant shall indemnify the Plaintiff for any costs, expenses and other liability it may incur in seeking to recover any outstanding monies to and payable to the Plaintiff by the Defendant.

294.  In Wood v Capita Insurance Services Limited [2017] UKSC 24, Lord Hodge of the Supreme Court held (at §10) that the correct approach to contractual interpretation in respect of an indemnity clause is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. This is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning.

295.  I also note clause 10.2 of the IR Agreement which provides that the Defendant shall indemnify the Plaintiff and hold it harmless against all loss, claims, demands, costs, expenses and other liabilities incurred by the Plaintiff as a result of any breach of any terms of this Agreement by the Defendant including the representations, warranties and undertakings incorporated by way of clause 10.1 above. A similar indemnification clause is contained in clause 4.1 of the Agent’s Agreement. The breach is the failure of the Defendant to repay the Outstanding Sums under clause 3.2 of the IR Agreement (the clawback clause).

296.  Where a contract provides for costs to be payable on an indemnity basis, it provides the starting point for the court’s discretionary exercise and the court should be slow to disturb the parties’ agreement: Air Charter Service (HK) Ltd v 美拓国际物流(上海)有限公司 [2021] HKCFI 56 at §54 per DHCJ Dawes SC quoting Bank of China (Hong Kong) Ltd v Twin Profit Ltd (2012) 15 HKCFAR 560 at §21 (per Ribeiro PJ).

297.  In respect of the costs of the Plaintiff’s action, clauses 4.3 of the Agent’s Agreement and 10.4 of the IR Agreement provide for costs to be paid to the Plaintiff on an indemnity basis. As a matter of ordinary language, “any costs” (and “all” costs) means that any (and “all”) costs incurred by the Plaintiff are to be recoverable on an indemnity basis when the Plaintiff initiates proceedings to recover monies owed to the Plaintiff.

298.  In respect of the Plaintiff’s costs incurred for defending the counterclaim, there were no submissions as to why clauses 4.3 and 10.4 of the Agent’s Agreement and IR Agreement respectively contain a contractual agreement for the Plaintiff to recover indemnity costs.

299.  In my view, these clauses do not provide for costs to be payable on an indemnity basis for the counterclaim as they only cover indemnity costs incurred by the Plaintiff in seeking to recover any outstanding monies to and payable to the Plaintiff by the Defendant i.e. the costs of the Plaintiff’s claims.

300.  The parties could have drafted the indemnification provisions to cover for the costs of the counterclaim and/or for the Defendant to indemnify the Plaintiff as a result of any court action whatsoever but they chose not to do so. Clear and unambiguous language must be used.

Conclusion

301.  I now set out the answers to the issues to be decided below.

Issue 1: Whether the Plaintiff is entitled to the Outstanding Sums? Yes.

Issue 2(a): Whether the Agreements contain the alleged Implied Terms? No.

Issue 2(b): Whether the Plaintiff was in breach of the alleged Implied Terms? No, even if the alleged Implied Terms exist (which they do not).

Issue 3: Whether there was any collateral agreement between the Plaintiff and the Defendant in relation to cooperation with banks. If so, whether the Plaintiff was in breach? No.

Issue 4: Whether there was any agreement between the Plaintiff and the Defendant on recruitment. If so, whether the Plaintiff was in breach? No.

Issue 5: Whether the Defendant is entitled to any relief sought in the Counterclaim? No.

Issue 6 (Disputed): Did the parties enter into the Overall Agreement as set out in §§3-10 of the D&CC, and whether the Plaintiff breached the Overall Agreement by terminating the Agreements? No.

Issue 7 (Disputed): Whether the Plaintiff made the representations as set out in §§4 (d) – (f) of the D&CC, and the legal effect of such representations? No.

Order

302.  I allow the Plaintiff’s claim for the Outstanding Sums, plus interest on the Outstanding Sums at the contractual rate of 9.5% per annum accrued on a daily basis and computed daily from 28 August 2019 to the date of this judgment, and thereafter at judgment rate until the date of full payment.

303.  The Defendant’s counterclaims are dismissed.

304.  There be a costs order nisi that the costs of the Plaintiff’s claim be to the Plaintiff to be paid by the Defendant on an indemnity basis, with certificates for two counsel, to be taxed if not agreed.

305.  The Plaintiff has also requested indemnity costs for the Defendant’s counterclaim. I decided above at §§298 to 300 that the indemnity provisions did not cover the Plaintiff’s costs of the Defendant’s counterclaim. In addition, the Plaintiff referred me to Hong Kong Civil Procedure 2024 at §62/28/2 and Heung Wing Yan v Hangway Housing Management Ltd (unreported judgment, HCPI 347/2012, 14/2/2017).

306.  I am not prepared to order indemnity costs for the Defendant’s counterclaim in the order nisi. No submissions on indemnity costs were provided by the Defendant. I make an order nisi that the Plaintiff’s costs of the counterclaim be to the Plaintiff to be paid by the Defendant on a party and party basis, with certificates for two counsel, to be taxed if not agreed.

307.  Any party who seeks any variation should lodge their submissions within 14 days from the date hereof, response within 7 days upon receipt, and reply within 7 days thereafter.

308.  It remains for me to thank counsel for their helpful assistance rendered to the Court.