MASSMUTUAL ASIA LTD v. CHAN MAN LAI

CACV 181/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 181 OF 2005

(ON APPEAL FROM DCCJ 2700 OF 2002)

______________________

______________________

J U D G M E N T

______________________

Hon Cheung JA :

Facts

1. The plaintiff is an insurance company and the defendant was its agent.  By an agreement dated 29 February 2000 (‘the Agreement’) the plaintiff appointed the defendant as a unit manager (i.e. Grade I manager) to sell insurance policies on commission.   The defendant was later promoted to Grade II Branch Manager on 1st September 2000.   

2. Apart from the Agreement there were two other documents which governed the parties’ contractual relationship.  The one that is relevant for this appeal is the Memorandum on special income for unit manager/marketing executive (‘the Memorandum’).  Under the Memorandum the plaintiff would pay the defendant additional income for 12 months and a special bonus.  The defendant, however, would be liable to immediately repay the special income/special bonus he received if the Agreement was terminated by the plaintiff within 30 months from 16 February 2000 for the reason that he had failed to achieve certain production requirements.

3. By a letter dated 26th March 2002 the plaintiff terminated the Agreement with effect from 1st April 2002.  The plaintiff asked the defendant to repay the special income and special bonus that he had previously received less the commission he was entitled. 

4. The plaintiff then commenced the present action against the defendant for the sum of $206,437.33. 

The defence

5. The defence of the defendant is that the plaintiff had repudiated the Agreement on 25th or 26th March 2002 (the defendant was not certain of the exact date) when it informed him that the Agreement had been terminated and he was asked to leave immediately.  The defendant did as he was told.  He was only able to find a new employment in June or July 2003.  He alleged that he was prevented by the repudiation to earn commissions that he otherwise would have earned as an insurance agent and he made a counterclaim for the sum of $164,397.91.

The judgment

6. H H Judge Marlene Ng rejected the defendant’s case that the Agreement was terminated on either 25th or 26th March 2002 with immediate effect.  She found for the plaintiff and gave judgment to the plaintiff for the sum of $206,437.33 together with interest.  The defendant now appeals against the decision. 

Pleading point

7. The defendant first complained that the plaintiff had not expressly denied his case on the repudiation of the Agreement and hence was deemed to have admitted his case by virtue of Order 18, rule 13 of Rules of the High Court (‘the Rules’). 

8. In my view this is a misreading of the relevant rule.  Rule 13 provides that

‘(1) Any allegation of fact made by a party in its pleading is deemed to be admitted by the opposite party unless it is traversed by that party in his pleading or a joinder of issue under rule 14 operates as a denial of it.’  (emphasis added)

9. In this case the plaintiff had filed an amended reply.  Paragraph 1 of the reply expressly pleaded a joinder of issue :

‘Save insofar as it consists of admissions or save as hereinafter appears, the plaintiff joins issue with the defendant on its defence’. 

10. The effect of a joinder of issue is provided by Rule 14(4) provides that

‘ A joinder of issue operates as a denial of every material allegation of fact made in the pleading on which there is an implied or express joinder of issue unless, in the case of an express joinder of issue, any such allegation is excepted from the joinder and is stated to be admitted, in which case the expressed joinder of issue operates as a denial of every other such allegation.’ 

11. In other words a joinder of issue operates as a series of denial of all the irrelevant facts alleged in the preceding pleading, except in respect of allegation which is expressly admitted : see paragraph 18/14/1 of the Hong Kong Civil Procedure 2006.  This being the case there is simply no question of deemed admission by the plaintiff of the defendant’s allegations because there was an express joinder of issues on this topic. 

12. The defendant further relied on repudiation in support of his counterclaim.  Likewise the plaintiff in his defence to counterclaim expressly repeated the amended reply which included the express joinder of issues.  The defendant’s argument on the pleadings is obviously misconceived.

Challenge on finding of fact

13. The essence of the first two grounds of appeal is a challenge on the finding of fact by the judge.

The evidence of the plaintiff

14. The defendant himself gave evidence on the events that took place on 25th or 26th March.  He also called Mr. Chu Chi Keung Alex (‘Mr. Chu’), his immediate supervisor, to give evidence on his behalf.

15. The defendant’s case is that on that day Mr. Chu was told by one Mr. Leung Chung Shing Kenny (‘Mr. Leung’) who was Mr. Chu’s team leader that the defendant’s Agreement with the plaintiff and Mr. Chu’s own agency leader agreement had been terminated by the plaintiff with immediate effect and that they should remove their belongings as the plaintiff would lock or seal their office rooms soon.  Mr. Chu then informed the defendant what Mr. Leung had said.  Mr. Chu also telephoned Ms Jeannie Hui (‘Ms Hui’) who was an assistant manager of the plaintiff and she confirmed that the defendant and Mr. Chu’s contract had been terminated.

16. The essence of the defendant’s case can be summarized as follows.  The defendant had put forward a positive case on the events that occurred on 25th or 26th March.  The plaintiff on the other hand did not call either Mr. Leung or Ms Hui to give evidence on this issue.  Instead it only called Ms Wong Siu Ngar Christina (‘Ms Wong’), the senior manager of the Agency Administration Department of the plaintiff.  Ms Wong’s evidence only dealt with her personal knowledge of the circumstances in which the letter of termination was issued.  Hence it was said by the defendant that the judge had not evaluated the evidence properly.  Further it was said that the defendant did leave the plaintiff after he was told that the Agreement had been terminated and this supported his case on the termination of the Agreement.  It was said that the judge had not considered the inherent probability of the defendant’s case in finding against him.

Lack of direct evidence not fatal

17. In my view, the fact that the plaintiff had not called direct evidence on the events that took place on 25th or 26th March is not fatal to its case.  Its case was simply that it had issued a letter of termination of the Agreement which was to be effective on 1st April 2002.  It was the defendant who asserted that the Agreement was wrongfully terminated on either 25th or 26th March.  The burden of proof on the repudiation by the plaintiff lied with the defendant.  Ultimately it depends on the quality of evidence adduced by the defendant which determines whether his case on repudiation can succeed or not. 

18. The significance of whether the Agreement was terminated immediately on 25th or 26th March on the one hand or that it would only be terminated on 1st April 2002 on the other hand is that, as the parties have agreed below, under the contractual provisions, the defendant would have until 1st April 2002 to fulfil his production requirements. 

Events leading to the termination

19. To understand the case properly it is necessary to refer to the events leading to the termination of the Agreement by the plaintiff.

20. The plaintiff’s case is that the defendant had performed extremely well after he became its insurance agent.  He was able to effect many insurance policies for the plaintiff.  As a result he was promoted to a higher grade and that he was also allowed by the plaintiff to join the Emerald Club and the Million Dollar Round Table which were recognitions of his achievements.  However, since January 2002, he had not effected a single policy of insurance.  This remained to be the position at the time of the letter of termination. 

21. Under the contractual provisions the defendant was required to achieve an annualised first year commission (‘AFYC’) which is a percentage of the annual premium that varies with different types of policies.  Further he was required to achieve a minimum personal production requirement (‘MPPR’) of AFYC of $12,000 for any calendar quarter. 

22. The evidence of Ms Wong was that shortly before 26th March 2002,Manly Cheng (‘Cheng’), the Assistant Vice President of the plaintiff and the person in charge of the agency of Mr. Leung,told her (i.e. Mrs Wong) briefly that one or two agents/managers from Mr. Chu’s team might leave to join another insurance company.  He further asked Ms Wong to report on the production/persistence status of Mr. Chu’s team.  Ms Wong complied with the request but she did not pay attention to the contents of the report as Cheng had made similar request fairly regularly.  The report clearly showed that the defendant had failed to meet the MPPR for the first quarter of 2002.

23. Cheng then had several discussions with Ms Wong about Mr. Chu’s team including the potential consequences of terminating the services of Mr. Chu and the defendant.  Cheng also sought Ms Wong’s advice on the effective date of termination of the defendant’s Agreement.  Ms Wong advised him to use the 1 April date.  Cheng then told Ms Wong to issue a letter to terminate the Agreement.  The termination was pursuant to Clause 9.2 of the Agreement.  The decision to terminate the Agreement was made by the senior management of the plaintiff.

24. Ms Wong accepted that had the defendant been able to satisfy the MPPR on 1st April the plaintiff would not have been able to terminate the Agreement and it would have to issue a letter to him to revive the Agreement.  This process was known as ‘contract reinstatement’.  It was a common occurrence in the plaintiff.

25. The letter of termination was prepared on 26th March 2002 and was posted on 28th March 2002.  The role of Ms Hui was to check the contents of the letter and the calculations.  She signed the letter. 

Defence of repudation not raised immediately

26. When the defendant first filed his defence in person on 29th May 2002 he made no allegation whatsoever about him being told orally that Agreement had been terminated on 25th or 26th March 2002.  In the defence he denied that he had not met the production requirement.  He referred to the date of termination of 1st April 2002 set out in the letter of termination.  He questioned about his entitlement to commission for the month of March.  He further alleged that he had sent a letter of complaint to the president of the plaintiff and was awaiting his reply (he admitted in evidence that he had not in fact sent the letter).  Likewise in his affirmation filed on 25th November 2002 in response to the plaintiff’s application for summary judgment he made no reference to the immediate termination of the Agreement on 25th or 26th March 2002.  The allegation of repudiation only surfaced when the defence was amended in November 2003 by his lawyers who took over the case on his behalf. 

The judge’s view

27. The judge was obviously not impressed with the evidence of the defendant and Mr. Chu.  At paragraph 29 of the judgment she stated that :

‘ Overall impression of the witnesses

29. Wong [i.e. Ms Wong] gave evidence in a straightforward and candid manner and I find her evidence honest and reliable.  I am not persuaded by D’s [i.e. defendant]/Chu’s versions of the events, which I find contradictory and/or unreliable in certain material respects.  I am unimpressed with D’s excuses for his zero production for Quarter and his claimed lack of inquiry over the reasons for Termination on/after D’s Date [i.e. 25th or 26th March].  Where the evidence of D/Chu conflicts with Wong’s, I prefer Wong’s evidence.’

28. The judge had given detailed reasonswhy she chose not to accept the evidence of the defendant and Mr. Chu.  In a 32-page judgment consisting of 96 paragraphs the judge gave detailed analysis of the evidence of the parties.  It would be too numerous to repeat her finding.  However just to give a favour of the unsatisfactory nature of the defendant’s case I will repeat the following parts of the judgment :

‘ 72.  D claimed that on D’s Date he felt it strange that P wished to terminate Agreement and he did not understand P’s reasons.  Yet he never asked Chu or anyone else why Agreement was terminated.  Mr Leung [i.e. counsel for the defendant] submitted that D did not bother to do so as Chu (who was his upline Manager and whom he trusted) confirmed the fact of Termination to him.  I find D’s apathetic attitude and lack of enquiry or protest even to Chu (if not to P) unconvincing when on D’s case Termination was unexpected and unjustified (since D/Chu claimed they made no major mistakes).  The absence of any follow up on the reason for Termination is particularly surprising as D claimed he had no other available job and the commission he earned from P was his only income.  The likely inference is that D knew that he did not satisfy MPPR and further knew that Agreement was terminated for such reason.

73.  The unreliability of D’s evidence is also highlighted by its conflict with Chu’s evidence that about 1-2 days after D’s Date D should have asked him why the Agreement was terminated.  Chu’s case was that he was aggrieved and he took active steps to ascertain the reason for the termination of his/D’s appointments by liaising with Leung about 1-2 days after D’s Date (although Leung did not give any explanation) and by making an appointment to meet Cheng a week after D’s Date (although the meeting eventually did not materialize).  Chu felt obliged to do so as he was D’s upline Manager.  For D, Termination by P was still unexplained and unjustified at that time.  Against such background, it is improbable that Chu would not have reported to D on his follow up efforts or that they would not have discussed the same.  I bear in mind that D claimed he was Chu’s right hand man and they suffered similar fate at P’s hands.  Further, they were in constant contact after D’s Date.’

29. Although the plaintiff did not call either Mr. Leung or Ms Hui to give evidence there is clear evidence before the judge which entitled her to come to the view that despite the absence of their evidence the defendant had not proved his case.  She accepted Ms Wong’s evidence that Mr. Leung as the leader of his team might be told informally once the plaintiff decided to terminate the appointment of an agent or manager because he was the one who would recommend the termination of an agent and that his agency operations may be affected by the departure of the agent or manager under his team.  But the judge found that Mr. Leung had merely telephoned Mr. Chu to alert him that his own agreement with the plaintiff and the defendant’s agreement with the plaintiff would be terminated.  This is a finding that  the judge was entitled to make.  Likewise for Ms Hui who had signed the letter which provided that the termination was effective on 1st April could not possibly tell Mr. Chu of an early date of termination.  What is more important is that the following finding by the judge :

‘58.          ..... But Chu’s evidence is illuminating.  He regarded Leung’s information given on D’s Date (i.e. 25th/26th March) as unverified and expected formal notice by letter.  It is therefore plain Chu did not regard Leung’s telephone call as formal notice.  I find that Leung on being informally told of the plaintiff’s decision as aforesaid merely gave Chu/D informal early alert and that Chu well knew the nature of such telephone call.’

30. The plaintiff’s case on the termination is that on 26th March it was decided that the termination would take effect on 1st April 2002.  This being the case it would be extremely odd that the plaintiff would at the same time through Mr. Leung and Ms Hui tell Mr. Chu or the defendant that the Agreement had already been terminated or would be terminated immediately.  There was no allegation and certainly there was no evidence that the plaintiff had made up a case about the letter after it had allegedly orally terminated the Agreement.  On these facts the judge’s rejection of the defendant’s case cannot be faulted.

Achievement of production requirement

31. It was further submitted that with the track record of the defendant he could easily have achieved the production requirement if he had been told theAgreement would only be terminated on 1st April 2002 instead of being told that the Agreement had been terminated or would be terminated immediately.

32. The stark fact of this case is that such a high achiever had failed to effect a single policy for the months of January, February and March.  In my view it is a mere speculation that the defendant could easily have met the target in the remaining days of March.

33. In any event the defendant’s case as pleaded is that he only accepted the repudiation by the plaintiff by the time the Re-amended defence and counterclaim was filed and servedi.e. November 2003 (see paragraph 10 of the Counterclaim).  Two points can be made.  First, this is inconsistent with the defendant’s case that he complied with Mr. Leung’s notification that the Agreement had been or would be terminated immediately which meant he had accepted the repudiation there and then.  Second, if he only accepted the repudiation later on, he had ample opportunity to achieve the production requirement and yet he had not done so.  This could only mean that he had chosen to leave the plaintiff for reasons of his own after he was told that the Agreement would be terminated but without being told of its immediate effect.  This highlights the totally unsatisfactory nature of the defendant’s case and further reinforces the correctness of the decision by the judge to reject his case.

Authority of Mr. Leung and Ms Hui

34. There are numerous other attacks on the judge’s finding.  In my view none is of significance which affects the soundness of the finding.  For example, it is said that the judge had wrongly found that Mr. Leung and Ms Hui had no authority from the plaintiff to terminate the Agreement when the plaintiff had not raised the issue of authority of these two persons in the pleading. 

35. It is plain from the judgment that the judge only dealt with the question of their authority as an alternative basis of her decision.  She only did so after she rejected the allegation that Mr. Leung had informed Mr. Chu the termination was to take immediate effect.  Likewise for Ms Hui. 

36. In any event I would have thought that if the defendant contendedthat Mr. Leung and Ms Hui had authority to act on behalf the plaintiff, then he himself should have raised the issue in the defence.  This was not done.  Instead what was pleaded in the re-amended defence and counterclaim on the repudiation is as follows :

‘ 4. As for paragraph 15, the Defendant admits the existence of the letter dated 26.3.2002 but does not admit that the Agreement, the Memorandum and the Supplemental Agreement were lawfully terminated and the Plaintiff is put to strict proof thereof.  The Defendant avers that his supervisor Mr Alex Chu notified him verbally on or about 25.3.2002 that the Agreement was then immediately terminated by the Plaintiff.  The office of the Defendant was immediately sealed up by the Plaintiff’s administration staff.  The Defendant further avers that the purported termination, whether by the verbal notification of Mr Alex Chu, by the conduct of the Plaintiff or otherwise by the letter dated 26.3.2002, was wrongful. In the circumstances, the Plaintiff has no right to demand repayment of the Special Income and Special Bonus.’

Mr. Chu’s authority

37. The defendant’s evidence in this case is that Mr. Chu was notified by Mr. Leung of the alleged early termination and then he notified the defendant accordingly.  In this appeal Mr. Leung, counsel for the defendant, suggested that the judge had formulated the wrong issue when she stated that

‘(a) whether on D’s Date Leung/Hui (through Chu) verbally notified D Agreement had been or would immediately be terminated and if so, whether it amounted to P’s repudiation of Agreement;’

Instead Mr. Leung submitted that the judge should have asked whether Chu had verbally notified the defendant that the Agreement had been or would immediately be determined. 

38. I am unable to accept this submission.  First the judge’s formulation is in accordance with the evidence.  Second if it is suggested that the notification by Chu to the defendant was sufficient for the purpose of terminating the Agreement then the defendant clearly had to plead and adduce evidence that Chu had the authority to terminate the Agreement in such a manner.  This was simply not the case.

Sealing of the room

39. Mr. Leung had also argued extensively on the evidence about the sealing of the room.  It was an issue that the judge had dealt with in her judgment and I cannot see how she could be faulted. 

Failed to meet the threshhold

40. To conclude the defendant has simply failed to overcome the high threshold that is required to appeal against a finding of fact by a trial judge who had the benefit of seeing and hearing the witnesses at first hand.  In my view the judge had not overlooked any material evidence or had failed to consider the inherent probability of the parties’ case when she rejected the evidence of the defendant.  Once she rejected the evidence of the defendant on the alleged oral repudiation then the defendant’s case simply collapsed.  The judge accepted the evidence of the plaintiff on the issuance of the letter of termination.  As the Agreement was properly terminated the plaintiff was clearly entitled to the repayment of bonus that had been previously paid to the defendant less the commission that he was entitled to.

Construction of the Agreement

41. The other ground of appeal concerns the construction of the Agreement.  The defendant argued that the plaintiff had no right to terminate the Agreement despite the failure by the defendant to meet the production requirement.  Clause 9.2 of the Agreement provided that:

‘ This Agreement shall forthwith determine without the need for any notice to be given by the Company if:-

......

(e) the Manager is in breach of any of the terms of this Agreement; or

(g) the Manager does not meet training, production, recruitment, persistency or other requirements in respect of the Manager’s operations which may be set by the Company from time to time; or ......”

42. Clause 2.2 of the Memorandum provided that :

‘Maintenance of an Agent’s Agreement:

2.2.1        The minimum production for the calendar year is as below:

Designation	AFYC
Agents or Managers Grade 1, 2 or 3	HK$118,000

2.2.2 In addition, the personal persistency of 85% must be achieved (all Managers must also meet this criteria).

2.2.3 In addition, there will be a minimum level of productivity of AFYC HK$12,000 in any calendar quarter.  Marketing Executives under probation are also required to meet this minimum productivity on each of the contract quarter.  Failing that may be terminated immediately.’

43. The defendant was a Grade II manager.  According to clause 2.2 he was required to maintain a minimum level of productivity of AFYC of $12,000 in any calendar quarter.  It was not disputed that the defendant had not achieved this targetfor the first quarter when the letter of termination was issued which was to be effective on 1 April 2002.  As such the plaintiff was entitled under clause 9.2 to terminate the Agreement. 

44. Mr. Leung argued that the determination would only be applied to marketing executive under probation.  It is clear from clause 2.2.3 that a marketing executive under probation is not the only one who is required to meet the minimum productivity on each of the contract quarter.  The clause provided that he is ‘also required’ to meet the requirement.  Certainly the last sentence in that clause namely, ‘Failing that may be terminated immediately’ does not exclude Grade II managers to whom the defendant belonged to be terminated on their failure to meet the minimum productivity. 

45. Mr. Leung further argued that under Section F of the Memorandum the defendant was entitled to six months extension to fulfill the requirement.  In my view this argument failed to take into account that Section F dealt with the question of promotion and maintenance of these agents in respect of their group AFYC.  Clause 2.1 in section F clearly stated that Grade III or below managers were required to achieve personal production requirement of a marketing executive as described in section A-2.  Section F does not assist the defendant.  The judge rightly found against the defendant on the construction of the Agreement. 

Other ground of appeal

46. Mr. Leung abandoned his last ground of appeal that the judge had taken irrelevant matters into account in construing the terms of the Agreement.

Admission of fresh evidence

47. The defendant applied to admit fresh evidence in the form of a letter dated 24 September 2002 from the plaintiff to Ms Chow who was another of its insurance agent.  The letter stated that her contract ‘has been terminated with effect from 20 September 2002 (“Termination Date”) in accordance with clause 9.2(g) of the Agency Leader’s Agreement’. 

48. The relevance of this letter as relied upon by the defendant is that this letter showed that the plaintiff gave notice of termination retrospectively.  This document contradicted Ms Wong’s assertion in her evidence that it was the plaintiff’s general practice that notice of termination by letter was usually given before the intended date of termination. 

49. The defendant argued that Ms Wong in her witness statement did not refer to this practice.  It was only raised by her for the first time at the trial during her examination-in-chief.  It took the defendant by surprise.  The defendant believed that there was no such practice but was then unable to obtain any evidence to rebut Ms Wong.  After the defendant received the judgment he realised that the judge had attached much weight to this assertion.  He then looked for evidence to contradict this assertion.  He was then informed by Miss Chow that the plaintiff had issued her a letter purporting to give notice of termination.  The letter was given after the alleged termination date. 

Ladd v. Marshall

50. At the hearing of the appeal the Court informed the parties that it would consider the new evidence on a provisional basis and would make the ruling in our judgment.  I will not allow the new evidence to be admitted because the new evidence failed to fulfil the first two conditions of Ladd v. Marshall [1954] 1 WLR1489.  The three conditions are

(1) It must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial;

(2) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive;

(3) the evidence must be such as is presumably to be believed, or, in other words, it must be apparently credible though it need not be incontrovertible.

Conditions not fulfilled

51. The letter was dated 24 September 2002 and hence was available at the time when trial was conducted in September and October 2004.  If the defendant was indeed taken by surprise on this issue he could easily have applied for an adjournment.  This was not done.  What is more important is that the defendant had ample opportunity to deal with this matter.  The hearing took place on 20 to 23 September and 14 October 2004.  The evidence was dealt with on the first four days of the hearing while the last day was reserved for the submissions of the parties.  If this matter was so important to the defendant he could have after the hearing of the evidence, made inquiries and applied to recall Ms Wong when the hearing resumed on 14October 2004.  This was not done.  In my view it shows that the defendant has not fulfilled the first condition, namely the evidence could not have been obtained with reasonable diligence for use at the trial. 

52. Second the evidence could only be of marginal importance.  No doubt the judge had referred to the practice of the plaintiff in the service of notice of termination in her judgment, however, a reading of the judgment shows that this is not the basis in which the judge found against the defendant.  It is at best a collateral issue that may affect the credibility of Ms Wong.  However, looking at the judgment and the evidence as a whole the new evidence could have no significant impact whatsoever on the correctness of the decision.  Hence, it also fails to fulfil the second condition, namely that it would probably have an important influence on the result of the case.  Accordingly we will reject the defendant’s application for admission of the new evidence.

Conclusion

53. The appeal is dismissed with costs (including the costs to adduce fresh evidence) to the plaintiff.

Hon Yeung JA :

54. I agree with the judgment of Cheung JA and have nothing to add.

Hon Yam J :

55. I also agree.