CHENG YUE YEUNG v. AXA CHINA REGION INSURANCE CO LTD

HCSD 9/2019

[2020] HKCFI 1169

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO. 9 OF 2019

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D E C I S I O N

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This Application

1.  The Applicant (“Mr Cheng”) applies for an order to set aside the Statutory Demand of the Respondent (“AXA”) dated 14 February 2019 for certain amounts totaling HK$6,803,775.78.

2.  Mr Cheng relies on his 1st Affirmation dated 13 March 2019 (“Cheng 1st”) and a 2nd Affirmation dated 19 March 2020 (“Cheng 2nd”).  He filed Cheng 2nd late and without leave.  At the hearing the parties agreed for me to consider Cheng 2nd on a de bene esse basis.

The Written Contracts

3.  Mr Cheng joined AXA in late 2016.  He was an experienced insurance agent, having built and led his own team of “downline” agents.  He brought his team to AXA; he had a vehicle decorated with AXA’s logo; he even renovated part of AXA’s office.  In his words, “unlike an employee working for a company”, he was more “carry[ing] my ‘business’ ” (Cheng 2nd paras 12 and 13).

4.  Mr Cheng signed with AXA an Agent’s Contract, an Agency Manager’s Contract, an EHP Special Advance Agreement (the “Advance Agreement”), and an EHP Manager’s Financing Agreement Package M2 (the “Financing Agreement”).  (“EHP” apparently stands for Experienced Hire Program.)  He also signed sealed and delivered Deeds of Guarantee for at least some agents on his team, including a Mr Poon Wing Kwong (“Mr Poon” and the “Poon Guarantee”).

5.  Pursuant to the Advance Agreement, AXA advanced a sum of HK$3,600,000 (the “Advance”) to Mr Cheng.  Pursuant to the Financing Agreement, AXA advanced bonuses to him including Monthly Transition Bonuses totaling HK$2,258,000 (the “MTB”).

6.  The Agent’s Contract clause 18.2(i) provided that AXA may terminate the agreement immediately if “the Agent [i.e., Mr Cheng] does not meet training, production, persistency or other requirements in respect of the Agent’s appointment in this Agreement which may be set by such AXA Company … from time to time.”

7.  The Financing Agreement clause (3) stated that “the Manager [i.e., Mr Cheng] must fulfil the validation and any other requirements in the Schedule. The Companies [including AXA] may revise the Schedule at its absolute discretion from time to time with one month’s advance notice in writing”.

8.  The Schedule then set out detailed formula and mechanisms for calculating, inter alia, the MTB amounts and related monthly validation and other requirements.

9.  Clause (3) also provided that if the related Agent’s Contract is terminated for any reason, any MTB for months within 24 months of the termination will be repayable in full, and any MTB for months within 25 to 36 months will be repayable in half.

10.  Mr Cheng did not meet his monthly validation requirements.  On 18 July and 16 October 2018, AXA sent him Reminders of Performance, which set out his cumulative performance to date and stated:

“ Upon reviewing your performance, you have been unable to meet your MTB targets … Please be reminded that EHP packaged bonuses is [sic] paid in good faith by [AXA] as an incentive to recruit and reward experienced producers under the mutual understanding that the latter, upon joining AXA, would perform at a level reasonably comparable and consistent with your past records. It is therefore expected that your performance should improve in the coming future …”

11.  On 7 January 2019, AXA issued a letter to Mr Cheng stating:

“ Because of business quality issues that your agency’s lapse rate is high and your unsatisfactory performance as indicated by your continuous failure to meet certain production validation requirements … we hereby terminate the Contract and the Manager’s Contract … Please be reminded that any finance or allowance granted to you … should be repaid in accordance with the terms of the relevant agreement(s) …”

12.  AXA demanded repayment in full of the Advance and MTB for months between January 2017 and March 2018, and repayment in half of the MTB for November and December 2016, plus interest.

13.  The Poon Guarantee stated that, at Mr Cheng’s request, AXA advanced HK$1,350,000 to Mr Poon (the “Poon Advance”).  Moreover, Mr Cheng guaranteed Mr Poon’s liabilities under the relevant agreement between Mr Poon and AXA (the “Poon Agreement”).

14.  The Poon Agreement provided that the Poon Advance would be repayable in full if Mr Poon commits any act of bankruptcy, become or is deemed to be unable to pay his debts.  On 18 December 2017, Mr Poon was adjudged bankrupt upon a petition by a creditor unrelated to AXA.

15.  AXA therefore also demanded payment of the Poon Advance from Mr Cheng, plus interest.

The Grounds

16.  In Cheng 1st, Mr Cheng made bare statements that he disputes both liability and quantum.  He said that the Court should decide whether he had breached the relevant contracts.  But he did not give any particulars.  This is obviously not sufficient.

17.  In Cheng 2nd, Mr Cheng made the following arguments:

(a)  The “training, production, persistency or other requirements” in the Agent’s Contract should be reasonable, and there is an implied term to this effect (the “Implied Term Argument”) (Cheng 2nd paras 9 and 10).

(b)  “ … the arrangements between [AXA] and me … both before and after the sending of such reminders [in July and October 2018] can prove that there was an agreement … that I may further carry on my ‘business’ or duties … for a longer period in order to recap any shortfall in terms of the MTB validations” (the “Agreed More Time Argument”) (Cheng 2nd paras 12, 13, and 15).

(c)  The arrangement was “in effect a promise or representation” (the “Promise/Representation Argument”) (Cheng 2nd para 16).

(d)  AXA “deliberately choose a time to terminate the Contracts at a time which was most unfair” (the “Unfair Timing Argu-ment”) (Cheng 2nd para 16).

(e)  AXA’s termination of relationships with Mr Cheng and his team members was the reason which “wrongfully triggered” their default and even bankruptcies (the “Wrongful Trigger Argument”) (Cheng 2nd paras 17 and 21 to 24).

18.  At the hearing, Mr Arthur Yip acting for Mr Cheng argued 3 grounds:

(a)  Mr Yip maintained the Implied Term Argument.

(b)  He combined the Agreed More Time Argument and Promise/ Representation Argument into one of promissory estoppel (the “Promissory Estoppel Argument”).

(c)  He made the Unfair Timing Argument and Wrongful Trigger Argument to the effect that AXA’s exercise and enforcement of its contractual rights should be reasonable (which I take to suggest an allegation that AXA has been unreasonable) (the “Unreasonableness Argument”).

19.  In the course of his submissions, Mr Yip mentioned that Mr Cheng should have an opportunity to dispute AXA’s claims “in the normal way”, ie, in a High Court Action with pleadings, discovery etc, and that for him to have to seek to set aside the Statutory Demand is to “reverse the burden of proof”.  Upon the Court’s questions, however, Mr Yip did not pursue this point.

20.  Upon the Court’s questions, Mr Yip also confirmed that, for present purposes, he is not in a position to dispute quantum.

The Law

21.  The applicable legal principles are well established and not in dispute.

22.  Rule 48 of the Bankruptcy Rules (Cap. 6A) provides that the court may grant an application to set aside a Statutory Demand if, inter alia, “the debt is disputed on ground which appear … to be substantial”.

23.  To succeed in an application, “the debtor must show a bona fide dispute on substantial grounds, by sufficient precise evidence which is believable, and must established that he actually has a defence of substance, not just a fair probability of one”: see Chan Ping Lam Waymond v Noble Art Ltd, CACV No. 270 of 2012, unreported, 30 September 2013, per Fok JA (as he then was) at paras 8 to 10.

The Implied Term Argument

24.  Turning first to Mr Cheng’s 1st ground, ie, his Implied Term Argument, it is worth being clear about the content and effect of the alleged term.

25.  Mr Cheng accepts that the Agent’s Contract clause 18.2 gives AXA a right to set “training, production, persistency or other requirements” for him and to terminate its relationship with him if he does not meet such requirements.  His argument is that “such setting of [requirements] shall be reasonable” (Cheng 2nd para 9).

26.  Mr Yip confirmed the same: the alleged term does not go to AXA’s right to set requirements or to terminate for Mr Cheng’s failure to meet the requirements; the alleged term would go only to the setting of the requirements.

27.  In this light, it is clear that the Implied Term Argument cannot succeed:

(a)  As I have noted earlier, the monthly MTB requirements were set out in the Financing Agreement.  Mr Cheng signed the agreement and agreed to the requirements.

(b)  Mr Cheng does not explain why or how the requirements set out in the Financing Agreement, or any other requirements, or the setting of the requirements, are said to be unreasonable.

28.  Moreover, it is difficult to see why the alleged implied term is necessary for business efficacy.  While clause 18.2(i) gives AXA the right to set requirements, this is subject to the principle that a right must not be exercised in an arbitrary, capricious or irrational manner.  An implied term of reasonableness is not necessary.

29.  Upon the Court’s questions, Mr Yip added that he would also base the Implied Term Argument on the above principle.  Even if this could be done, the argument still could not succeed.  Mr Cheng has not adduced any evidence on why or how AXA’s exercise of its right to set requirements may be arbitrary, capricious or irrational.

30.  In short, Mr Cheng has not provided a basis, still less adduced sufficient precise evidence, for his 1st ground.

The Promissory Estoppel Argument

31.  Mr Cheng’s 2nd ground is that he alleges AXA has promised to give him “a longer period” to meet his validation requirements (Cheng 2nd paras 12 and 15).  This allegation is the foundation of his Agreed More Time Argument, Promise / Representation Argument, and also Promissory Estoppel Argument.

32.  The allegation and arguments cannot succeed:

(a)  The allegation is devoid of particulars and evidentiary support.  Mr Cheng makes no mention of when, in what circumstances, and who at AXA made the alleged promise.

(b)  The ways Mr Cheng attempted to give sense to his allegation are internally inconsistent.  He based the “conception” of the alleged promise to his joining and bringing his team to AXA (Cheng 2nd para 13), ie, before it turned out that he could not meet the monthly requirements.  But he also said the longer period was allowed to him so that he could “fill the shortfall” (Cheng 2nd para 15), ie, after he did not meet the requirements.

(c)  Mr Cheng’s case about his reliance on the alleged promise is equally confusing.  He made a point that he incurred expenses in reliance on AXA’s promise “after the letter of reminders [in July and in October 2018]” (Cheng 2nd para 15).  But the invoices he adduced at best show maintenance expenses, eg, for car parking and for maintaining the vehicle.  This hardly proves the existence of alleged promise and certainly does not show reliance thereon.

(d)  Mr Cheng makes no reference to the requirements already in the Financing Agreement, still less explains why AXA would promise, and why he would accept a mere oral promise, to let him deviate from those written requirements.

(e)  Indeed, the Financing Agreement clause 21.3 records that the agreement was the entire understanding and whole agreement between the parties.  Clause 21.2 provides that save for AXA’s right to modify the Schedule all revisions must be in writing and signed by each party.  These clauses are at odds with Mr Cheng’s story.  Mr Cheng has not attempted to deal with them.

(f)  The alleged promise is too vague.  Estoppel may arise only if, inter alia, a promise is clear and unequivocal: see Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1, at para 55.  Mr Cheng says AXA has promised “a longer period”.  How long the period is rather unclear.  The best Mr Yip could submit was that it should be a reasonable period.  This is not a sufficient basis for a promissory estoppel.

(g)  Put in another way – even if one were to accept Mr Cheng’s story and hold AXA to the alleged promise, it would not stop AXA from terminating its relationship with Mr Cheng when it did.  The 2 Reminders of Performance show that Mr Cheng failed to meet validation requirements as early as in July and October 2018.  AXA already gave him “a longer period” of up to January 2019 before terminating the relationship.

33.  In sum, Mr Cheng has not adduced sufficient precise evidence which is believable to show his 2nd ground to be of substance.

The Unreasonableness Argument

34.  Mr Cheng’s 3rd ground is essentially a moral argument that AXA should not have terminated its relationships with him and/or his team members when he or they reasonably should have more time to fulfill their requirements and/or to recoup the expenses he had invested in his business.  A spin on the argument is that AXA should blame itself that Mr Poon had to go bankrupt, because it was AXA’s decision to terminate its relationship with Mr Poon which caused his inability to pay his creditor(s).

35.  At the hearing, Mr Yip argue generally that AXA had a duty to be reasonable.

36.  It was not explained, however, what basis may be relied upon to impute a general duty of being reasonable or acting reasonably into the AXA’s contractual relationship with Mr Cheng.  I cannot discern any.

37.  It also was not stated what precise content such a duty should have. A general allegation of “you need to be reasonable” is not a sufficient legal argument for imputing a duty into a relationship governed by detailed express written contractual terms.

38.  In any event, the allegations that AXA acted unreasonably in not giving Mr Cheng and/or his team members more time, and in causing Mr Poon not to be able to pay his creditor(s), by themselves cannot go very far.  The basic question remains that either AXA has a contractual right to terminate or it does not.

39.  Mr Cheng has not alleged, still less adduced evidence to show a defence of substance, that AXA has breached any written contractual term or not followed any contractual mechanism. He alleged an implied term, which I have decided against above.

40.  What Mr Cheng has alleged is, in fact, inconsistent with the the written terms.  The Agent’s Contract clause 18.2(i) gives AXA a right to set requirements.  The Financing Agreement in its Schedule set out some of those requirements.  Clause (3) provides for return of the MTB advanced upon termination of relationship – at 100% of the amount advanced for the more recent months and half the amount advanced for the earlier months.

41.  If AXA were bound to give Mr Cheng or his team members more time, or not to terminate its relationship with Mr Poon when he could not pay his creditor(s), it would be inconsistent with the above terms.  In fact, AXA would have to refrain from enforcing its express rights exactly when enforcement is contemplated and at the cost of losing its right to the full return of the amount advanced for some months.

42.  This may seem reasonable to Mr Cheng.  But it cannot be said to be reasonable objectively and to both sides.

43.  Mr Cheng’s 3rd ground fails.  The Unfair Timing Argument, Wrongful Trigger Argument, and Unreasonableness Argument are without merit.

Conclusion and Costs

44.  Mr Cheng has not shown a defence of substance and has not shown that the debt is disputed on substantial grounds.  The application to set aside the Statutory Demand is dismissed.

45.  The parties have produced Statements of Costs and agreed to summary assessment. Having considered the items therein, I make an order nisi that costs be to AXA, summarily assessed and allowed at $110,000.

46.  I thank counsel for their able assistance.