WINTERTHUR LIFE INSURANCE CO. v. AU OI FONG SUSANA

HCB1178/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO.1178 OF 1999

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J U D G M E N T

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1. This is a bankruptcy petition presented by Winterthur Life Insurance Co. ("the petitioner") against Madam Au Oi Fong Susana ("the debtor") on the ground that the debtor is unable to pay her debt in that she had failed to comply with a statutory demand served on 3 March 1999. The statutory demand is founded on a debt of $56,740.89 made up of advances made to the debtor by the petitioner between September 1997 and April 1998 together with interest. The debtor had not applied to set aside the statutory demand. It is not in dispute that the debtor had received the advances, but has not repaid them nor complied with the statutory demand. The debtor opposes the Petition on the ground that she is not liable to repay the advances. She also questions the calculations of the principal debt and the interest.

Background

2. The petitioner is an insurance company. Between 30 September 1997 and 16 April 1998, the debtor acted as an insurance agent for the petitioner, occupying the position of a unit manager. The debtor had signed a total of three agreements with the petitioner, namely, an Agency Agreement for Selling of Long Term Insurance dated 15 October 1997 ("the Agency Agreement"), an Agency Financing Agreement dated 1 September 1997 ("the Agency Financing Agreement") and a Leader Financing Agreement dated 1 September 1997 ("the Leader Financing Agreement"). All three agreements took effect as from 30 September 1997 when the debtor joined the petitioner.

3. As a result of the Agency Financing Agreement and the Leader Financing Agreement, the debtor was provided with monthly advances of $10,000 and $3,000 respectively. Both these agreements provided that the advances had to be repaid by setting off against commissions and bonus due from the petitioner to the debtor and they carried interest at 0.04% per month. Further, under these two agreements, it was provided that the Agency Financing Agreement and the Leader Financing Agreement shall be terminated upon the termination of the Agency Agreement whereupon any outstanding advances shall be repayable as a debt immediately.

4. The Agency Agreement was terminated by the debtor on her own accord with effect from 14 April 1998. According to the petitioner, the outstanding monthly advances made under the Agency and the Leader Financing Agreements, after deducting commissions held by the petitioner, and together with interest stood at $50,930.31 as at April 1998. This amount became immediately payable upon the termination of the Agency Agreement. The debtor issued 18 post-dated cheques in favour of the petitioner in settlement of her indebtedness to the petitioner. None of them had been presented for payment. By a letter dated 5 September 1998, the debtor offered to repay the outstanding monthly advances by monthly payments of $500 each. The offer was refused by the petitioner. Subsequently, the petitioner issued and served the statutory demand herein for a total debt of $56,740.89, which is inclusive of interest calculated up to 1 March 1999 at judgment rates.

Grounds of opposition

5. The debtor firstly disputes the amount and calculation of the debt stated in the statutory demand. She contends that she has never been informed of the amount of advances made to her and the amount outstanding after taking into account commissions due to her. She also questions the petitioner's right to charge interest and the rates adopted.

6. Secondly, the debtor, while accepting receipt of the monthly advances, denies that she is liable to repay them for the reasons that : (1) the Agency Agreement and the two Financing Agreements contain unfair and unreasonable terms such that they should have no legal binding effect; (2) the provisions of the three agreements are contrary to the oral representations made by the debtor's up-line manager, Mr Chris Cheng, when she was recruited, but she had no alternatives and had to sign the agreements; and (3) the advances should be regarded as remuneration for the work and services she had rendered to the petitioner.

Computation of the debt

7. The debtor's evidence is that throughout the months she was an agent of the petitioner, she had no idea what was the amount of advances made to her and the amount of commissions held by the petitioner. Mr Charles Chan, the Assistant Vice-President of the petitioner, mentioned in his evidence that monthly financial summaries were generated by the petitioner for its agents wherein the advances made and commissions held by the petitioner and any indebtedness of the agent would be set out. The debtor does not dispute the existence of such summaries but said in her oral testimony that in her case, all such summaries had been withheld by Mr Jimmy Sun, her up-line manager.

8. I find this part of the debtor's evidence hard to accept. Firstly, she had offered no reason why Mr Sun had to withhold such summaries from her. Secondly, she had not explained why she was contented not to receive or read these summaries. Surely the debtor must be very concerned as to her monthly entitlements and payments as well as her financial position vis-à-vis the petitioner. There is no conceivable reason why she would not ask to see the summaries, at least to verify whether she had been properly paid, if not to find out what was the commissions due to her and the advances made to her.

9. There is before the court a breakdown showing how the principal sum of $50,930.31 is derived. Mr Chan explained that this breakdown is an internal accounting document generated from the petitioner's computer system for the purpose of enabling discussions with the debtor on the settlement of the indebtedness shortly after the termination of the Agency Agreement. It is not in dispute that shortly after the termination of the Agency Agreement, there had been discussions between Mr Sun and the debtor on the ways in which the debtor were to repay the advances made to her. At that stage, the amount adopted for the discussions was $49,260, which is the total amount of the 18 post-dated cheques issued by the debtor. Mr Chan's explanation for the difference between the two figures of $49,260 and $50,930.31 is that subsequently further sum(s) was/were debited from the debtor as a result of the termination or cancellation of policies previously concluded by the debtor. It is true that no particulars nor details had been provided by the petitioner to demonstrate how the difference came about. On the other hand, the debtor has not in either her defence, statement or oral evidence pointed to any part of the breakdown for the figure of $50,930.31 as being inaccurate or erroneous. While the debtor said she had hitherto not been supplied with any financial summary nor the breakdown for the principal sum, she has since July 1999, when Mr Chan's affirmation exhibiting the breakdown was filed, had all the time and opportunity to study and check the breakdown. If it contains any error, the debtor will no doubt point it out.

10. Finally on the question of interest, although the Agency Agreement makes no reference to payment of interest, the Agency Financing Agreement and the Leader Financing Agreement, under which the advances were made, clearly provide for the payment of 0.04% monthly interest. As to the interest rates referred to in the statutory demand, they were the prevailing judgment rates.

11. In my view, the petitioner is not entitled to further interest on the sum of $50,930.31 in that neither the Agency Financing Agreement nor the Leader Financing Agreement enables the petitioner to levy further interest on the accrued outstanding advances after the agreements are terminated. There is also no entitlement to charge interest based on judgment rate when no judgment has been obtained on the outstanding debt.

12. The amount of the debt, i.e.$56,740.89, appearing on the statutory demand is therefore erroneous, but that does not necessarily render the statutory demand defective or void. It has to be demonstrated that injustice would be caused to the debtor by allowing the statutory demand to stand : In re Kwok Chok Yee HCB670/1999 applying In re A Debtor (No.1 of 1987) [1989] WLR 271, 276 and 279.

13. In the present statutory demand, the debt is over-stated by less than $6,000. Notwithstanding that, there has never been any suggestion by the debtor that she is in a position or is prepared to pay the debt or any part of it. That being the case, these can be no injustice occasioned to her as a result of the over-statement. In short, the debtor's objections based on the amount and computation of the debt have no substance and must fail.

Liability to Pay

14. The debtor's stated intention of opposing the Petition is to demonstrate the unreasonableness and unfairness of the Agency Agreement and the other two Financing Agreements and also to voice out the grievances and oppressions suffered by insurance agents. According to the debtor, while insurance agents are not employees of insurance companies, they are obliged to report punctually and observe all regulations imposed by the insurance companies by whom they are appointed. The insurance agents are further obliged to solicit business and generate income for the insurance companies, but they do not receive salaries or remuneration for their work and can only live on commissions earned on successful deals. When the agency relationship is terminated, the insurance companies continue to receive premiums on the policies previously concluded by the agents, the insurance agents, however, stand to lose all commissions that may arise in the future.

15. It may be that the debtor genuinely feels aggrieved by the contractual arrangement between her and the petitioner. That does not, however, afford her with a valid ground for opposing the Petition. As a starting point, the debtor admittedly is not a newcomer to the insurance trade. She had years of experience working as insurance agent before she joined the petitioner. The debtor is not suggesting that the agreements of the petitioner are uniquely or unusually oppressive or harsh. On the contrary, in her submissions, the debtor suggested that agreements of insurance companies on the whole are one-sided and high-handed. The reality therefore is that the debtor has opted to remain with the insurance trade knowing full well the alleged unfair or unreasonable working condition and contractual arrangements in the trade. In the spirit of freedom of contract, the court is bound to enforce the terms of contract which parties freely enter into, unless the party seeking to avoid the contract can bring himself within the recognized principles of the law.

16. The debtor said that before she joined the petitioner, one Mr Chris Cheng, who was her up-line manager, had represented that she would be paid a $10,000 monthly manager allowance, which needed not be repaid, together with another $3,000 monthly agent allowance. This is obviously different from the terms of the Agency Financing Agreement and the Leader Financing Agreement. The debtor accepted that she realized the differences and was fully aware that the advances carried interest and had to be repaid when she signed the two agreements. She, however, stated that she had no alternative but to sign them because by the time the agreements were presented to her for execution, she had already joined the petitioner for 11/2 months and all arrangements to facilitate her joining the petitioner, including notification to clients, had already been made.

17. Assuming all these allegations are true, the question is whether there is any remedy in law which will enable the debtor to avoid her liabilities under the two Financing Agreements. The answer is no. Firstly, there is no case of a misrepresentation because the debtor acknowledged that she knew the terms of the Financing Agreements were different from the alleged representations made by Mr Cheng. Although the debtor had in cross-examining Mr Charles Chan suggested that the petitioner did not take steps to ensure that the agents properly understand the various agreements which are in English, the debtor agreed under cross-examination that she knew the terms of the two Financing Agreements before she signed them. She was therefore not misled by the alleged representations of Mr Cheng into signing the various agreements.

18. Secondly, while the debtor claimed that she had no choice but to sign the agreements, she has not made out any case in duress or undue influence. The evidence does not reveal any threat to the debtor's person or property or economic interests as to deprive the debtor of practical alternatives. The evidence also does not show the petitioner having exercised such control or domination over the debtor's mind as to substantially undermine the debtor's independence of decision. On the contrary, the evidence of the debtor suggests that she had weighed the undesirable consequences of not signing the various agreements and leaving the petitioner against the advantages brought by signing the documents and remaining as an agent of the petitioner, and eventually decided to sign the various agreements. According to the debtor, she had considered the inconveniences and troubles that she had to go through if she were to leave the petitioner and join another company. She also stated that she signed the various agreements because she wanted to get paid by the petitioner. It is not a true case of the debtor having no practical alternative or that the dominating power of the petitioner is such as to deprive the debtor of independent decision. Rather, it is a case of the debtor having weighed the options opened to her, decided that signing the agreements and remaining with the petitioner was a more preferred course. She is therefore to be bound by her own decision. Further, even if she has made out a case of duress or undue influence, the various agreements are only voidable and not void ab initio. By continuing to receive the advances, the debtor had clearly affirmed the agreements and it is too late to seek to avoid them in these proceedings.

19. Thirdly, the debtor had in her closing submissions drawn analogy from loan shark agreements and bank agreements which the court had in the past refused to enforce. The argument, as counsel for the petitioner observed, is misconceived. Lending money at excessive interest rate is a criminal offence and agreements for doing so are rendered illegal by the Money Lenders Ordinance. For those bank agreements which the court had refused to enforce, they are consumer contracts such that they are governed by the Unconscionable Contracts Ordinance. All these have no application to the three agreements signed by the debtor. As stated above, unless the debtor can bring herself within any recognized principles of law or statutes, she is bound by the terms of the various agreements which she fully understood and signed.

20. Finally, the debtor also argued that the advances should be regarded as salaries or remunerations for the work and service she had rendered, and, as such, they need not be repaid. The Agency Agreement expressly provided that there was no employer-employee relationship between the debtor and the petitioner. When the debtor joined the petitioner and signed the Agency Agreement, she knew that no employment relationship was to be created. She had also agreed to this. It is therefore not open to her now to suggest that the advances were in fact salaries or remuneration arising out of an employment. Even accepting the debtor's argument that her relationship with the petitioner was no different from that of employer and employee, the fact remains that the monthly sums paid to the debtor were advances made under the Agency Financing Agreement and the Leader Financing Agreement and the debtor was aware of this. That being the case, the debtor is obliged to repay them in accordance with the terms of the two agreements, irrespective of whether she was an employee of the petitioner.

21. In short, the debtor's allegation that she is under no liability to repay the advances, hence the debt, is unsubstantiated. The debt of $50,930.31 remains a valid and subsisting debt.

Conclusion

22. By reason of section 6A(1)(a) of the Bankruptcy Ordinance, Cap.6, the debtor is regarded as being unable to pay her debt as she fails to comply with the statutory demand and she has not applied to have it set aside. The debtor has also not indicated at all that she is in a position to pay the debt. The requirements for the making of a bankruptcy order have therefore been met. Accordingly, there shall be a bankruptcy order against the debtor with costs.