WONG WAI SUM v. AXA CHINA REGION INSURANCE COMPANY LTD AND ANOTHER

HCA 1766/2020

[2025] HKCFI 872

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1766 OF 2020

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J U D G M E N T

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A. INTRODUCTION

1.  The Plaintiff (“Ms Wong”) claims against the Defendants (“AXA China” and “AXA General”) for fraudulent misrepresentation, breach of implied terms, wrongful termination of contract, and wrongful deduction of amounts from her payroll.[1]

2.  The Defendants counterclaim for recovery of various advances made to Ms Wong and her downline agents, and amounts under deeds of guarantee signed by Ms Wong.

B.  THE FACTUAL BACKGROUND

3.  Unless otherwise indicated, the following matters are undisputed or indisputable, and I find them as facts. Matters from the parties’ agreed statement of facts and chronology have also been incorporated.

B1.  The parties

4.  Ms Wong was at all material times an agent, and an agency manager, of the Defendants, holding the position of Senior Director of Agency. By the time of the events in question, Ms Wong had acquired substantial experience in the insurance industry. Ms Wong started working in the insurance industry in about 1992. She worked for a number of insurance companies, including companies associated with the Defendants, over the years. She worked as an insurance agent selling insurance policies, as a training manager (between 1995 and about 2006), as a regional manager for a company affiliated with the Defendants (from about 2006 to 2009) and as a member of an agents’ management team (between 2009 and 2015).

5.  The Defendants were at all material times private limited companies carrying on the business of, inter alia, insurance in Hong Kong.

B2.  The Recruitment Meeting

6.  It is Ms Wong’s case that in about May or June 2016, Mr David Tam of the Defendants approached her, seeking to recruit Ms Wong and her team of insurance agents to join the Defendants. Mr David Tam subsequently became Ms Wong’s upline manager at the Defendants.

7.  It is Ms Wong’s case that Mr Peter Lai, the then Chief Agency Officer of the Defendant, met Ms Wong and other prospective recruits at the Hong Kong Jockey Club Happy Valley Clubhouse in about May or June 2016 (“the Recruitment Meeting”). Ms Wong alleges that Mr Peter Lai made various false representations to her which induced her to join the Defendants (“the Alleged Representations”).

8.  Mr Peter Lai was the Chief Agency Officer of the Defendants from about 2013 to 1^st January 2019, although he left the Defendants on or about 18^th December 2018 by virtue of his annual leave arrangements.

B3.  The agreements

9.  On 10^th June 2016, AXA China issued a letter headed “Experienced Hire Program – Offer Letter” (“the Offer Letter”) to Ms Wong, offering her the position of Senior Director of Agency along with a remuneration package under the Defendants’ Experienced Hire Program. (Other documents as referred to below often abbreviated “Experienced Hire Program” to “EHP”.) The offer was subject to Ms Wong’s fulfilment of a number of conditions precedent, including submission of her income proof with her last principal in support and production reports of her team, and signing of the Agent’s Contract, the Manager’s Contract and the M3 Agreement (all as defined below). Ms Wong signed the letter to acknowledge acceptance of the offer.

10.  Ms Wong then entered into a number of agreements with the Defendants.

B3.1  The Agent’s Contract and the Manager’s Contract

11.  First, there was an Agent’s Contract, made on 25^th July 2016 but with an effective date of 30^th August 2016 (“the Agent’s Contract”). Second, there was an Agency Manager’s Contract, also made on 25^th July 2016 and with an effective date of 30^th August 2016 (“the Manager’s Contract”). The material terms of these two contracts were largely similar and were as follows.

11.1  Cl.1.1 of the Agent’s Contract and also of the Manager’s Contract appointed Ms Wong as an agent of each of the Defendants. Cl.1.1 of the manager’s Contract also appointed Ms Wong as an agency manager of each of the Defendants.

11.2  Cl.1.2 of the Agent’s Contract and also of the Manager’s Contract provided that Ms Wong at all times had to comply with, inter alia, the rules and regulations of each of the Defendants (verbal or written) in force from time to time.

11.3  Cl.1.7 of the Agent’s Contract and cl.1.10 of the Manager’s Contract provided that each of the Defendants could assign any client to Ms Wong for her to provide service on terms and conditions specified by the Defendants in writing. Ms Wong’s remuneration, if any in respect of each such client was to be modified or varied in accordance with such terms and conditions. Cl.2.1(b) of the Agent’s contract and cl.4.1(b) of the Manager’s Contract provided that during the term of the agreement, Ms Wong was to service the needs and requirements of both clients introduced by her and clients assigned by the Defendants.

11.4  Cl.1.8 of the Agent’s Contract provided that Ms Wong was to act as the agent of the Defendants in Hong Kong for the purpose of introducing Long Term Business or General Business, subject to the terms of the agreement, including any schedule issued together with the agreement (defined as “the Schedule”) as from time to time varied by the Defendants. It further provided that for the avoidance of doubt, the Schedule formed part of the agreement.

11.5  Cl.2.1 of the Agent’s Contract and also of the Manager’s Contract provided that one of Ms Wong’s obligations during the term of the agreement was to meet the key performance indicators specified by each of the Defendants including production and persistency. Cl.2.1 of the Manager’s Contract additionally provided that another of Ms Wong’s obligations was to train, supervise and develop agents and agency managers who were under her supervision as determined by each of the Defendants.

11.6  Cl.8.1 of the Agent’s Contract and cl.10.1 of the Manager’s Contract related to remuneration in respect of AXA China only. These provided that Ms Wong was entitled to remuneration for her services calculated in accordance with the Schedule. Remuneration for services not specified in the Schedule was to be determined by AXA China at its absolute discretion. AXA China also reserved the right from time to time to revoke, alter, add, amend or modify the Schedule without notice at its absolute discretion.

11.7  Cl.8.8 of the Agent’s Contract and cl.10.8 of the Manager’s Contract provided that AXA China had the right at all times on its behalf and on behalf of other AXA companies to offset against any remuneration or other sum due to Ms Wong, and withhold from it, any debt, obligation or liability due or owing or are likely to become due and owing by Ms Wong to AXA China and other AXA companies. Similar provision was made in relation to AXA General under cl.9.2 of the Agent’s Contract and cl.11.2 of the Manager’s Contract.

11.8  Cl.9.1 of the Agent’s Contract and cl.11.1 of the Manager’s Contract related to remuneration where Ms Wong was selling general insurance products for AXA General. These provided that Ms Wong was entitled to remuneration for her services calculated in accordance with the Schedule. Remuneration for services not specified in the Schedule was to be determined by AXA General at its absolute discretion. AXA General also reserved the right from time to time to revoke, alter, add, amend or modify the Schedule without notice at its absolute discretion.

11.9  Cl.11.1 of the Agent’s Contract and cl.13.1 of the Manager’s Contract provided that Ms Wong was to indemnify and undertake to pay to the Defendants amounts equivalent to, and to hold them harmless against, or losses, damages, claims, demands, expenses and other liabilities incurred by the Defendants as a result of any fraud, dishonesty, misconduct or any breach or non-observance of any of the terms and conditions of the agreements or any neglect, failure or refusal to provide services by Ms Wong.

11.10  Cl.18.1 of the Agent’s Contract and cl.20.1 of the Manager’s Contract provided that either of the Defendants or Ms Wong could terminate the agreement at any time and without giving reason by giving one month’s notice.

11.11  Cl.18.2 of the Agent’s Contract and cl.20.2 of the Manager’s Contract provided that either of the Defendants could terminate the agreement immediately with notice to Ms Wong in certain circumstances. Those circumstances included where Ms Wong did not meet training, production, persistency or other requirements in respect of her appointment in the agreement which might be set by the Defendants from time to time.

11.12  Cl.18.2 of the Agent’s Contract and cl.20.2 of the Manager’s Contract further provided that termination of the agreement by one of the Defendants would also terminate the agreement between the other Defendant and Ms Wong.

11.13  Cl.18.4 of the Agent’s Contract and cl.20.4 of the Manager’s Contract provided that in the event of termination of the agreement between AXA China and Ms Wong under cl.18.2 and cl.20.2 respectively, payments of remuneration by AXA China were to be stopped immediately (whether or not they had accrued). All of Ms Wong’s rights to such payments accruing prior to such termination were to immediately cease upon termination of the agreement, and Ms Wong waived all her rights to such payments.

11.14  Cl.18.5 of the Agent’s Contract and cl.20.5 of the Manager’s Contract provided that in the event of termination of the agreement between AXA General and Ms Wong, Ms Wong was to be entitled to receive all remuneration (except the overriding commission and/or bonus) accrued to the date of termination but was not to be entitled to any compensation in respect of termination or to commission on premiums due from any insured after the date of termination. In the event of termination, payments of overriding commission and/or bonus by AXA General were to be stopped immediately (whether or not they had accrued). All of Ms Wong’s rights to such payments accruing prior to such termination were to immediately cease upon termination of the agreement, and Ms Wong waived all her rights to such payments.

11.15  Cl.21.3 of the Agent’s Contract and cl.23.3 of the Manager’s Contract provided that the agreement represented the entire understanding and constituted the whole agreement in relation to its subject matter between Ms Wong and the Defendants and superseded any previous agreement or understanding in relation to its subject matter (“the Entire Agreement Clauses”).

11.16  Immediately above Ms Wong’s signature in both the Agent’s Contract and the Manager’s Contract was an acknowledgment that she had confirmed that she had fully read, understood and agreed to the terms and conditions of the agreement, together with the Schedule attached thereto.

12.  The Schedule to the Agent’s Contract and the Manager’s Contract was identical.[2] It provided, inter alia, as follows.

12.1  In Section A (the “Definitions” section) “New Business Credit” or “NBC” was said to be “calculated by reference to the percentage of the first year commission (FYC) and/or the renewal commission (if applicable) as specified in the commission tables below for the purpose of calculating bonuses in this Schedule.”

12.2  In Section B (the “Commission” section), there were various tables. The first was headed “Life Product”. It set out the Defendants’ policy plan and tabulated the “Commission as percentage of premium received” which an agent would receive on procuring a client to subscribe for the policy in question, for the first ten years of the policy. It also set out the percentage of the First Year Commission (FYC) which would be treated as New Business Credit for the agent.

12.3  In Section C (the “Bonus” section), provision was made for the payment of “overrides”, that is, earnings derived from the policies sold by agents who were downline from Ms Wong. Ms Wong was entitled to receive overrides from three tiers of downline agents. The method of calculation of the amount of overrides was set out in Section C. This type of bonus is different to the bonuses discussed below.

13.  The Schedule was updated in about March 2017 and circulated to the Defendants’ agents, including Ms Wong. It was updated again in about February 2018 and circulated to the Defendants’ agents, including Ms Wong.

B3.2  The M3 Agreement

14.  There was then an “EHP Manager’s Financing Agreement M3” (“the M3 Agreement”), made on 6^th September 2016 but with an effective date of 1^st September 2016. The preamble referred to the Agent’s Contract and stated that Ms Wong wished to obtain finance advance from the Defendants subject to the terms of the M3 Agreement. The M3 Agreement then provided, inter alia, as follows.

14.1  Ms Wong confirmed that her past annual income which should be used as the base amount for calculating the advances in the M3 Agreement was $1.2m (termed “the Base Amount” in the M3 Agreement).

14.2  The Defendants would advance to Ms Wong the following bonuses:

14.2.1  a “Monthly Transition Bonus” (“the MTB”) every month during the MTB Period (defined as the first 60 months of the Program Period in the Schedule to the M3 Agreement (“the M3 Schedule”));

14.2.2  a “Performance Bonus” (“the PB”) in accordance with the M3 Schedule;

14.2.3  a “HnP Bonus” (“the HnP Bonus”) in accordance with the M3 Schedule;

14.2.4  a “Special Performance Bonus” (“the SPB”) in accordance with the M3 Schedule.

14.3  A condition of obtaining any advance under the M3 Agreement was that Ms Wong had to fulfil the validation and other requirements in the M3 Schedule, which could be revised by the Defendants at their absolute discretion from time to time with a month’s advance written notice.

14.4  If the Agent’s Contract was terminated for any reason within 48 months from the month in which the MTB was advanced to Ms Wong, a specified portion of each of the MTBs advanced was to be immediately repayable to the Defendants (clause 6).

14.5  Ms Wong was to keep the Defendants indemnified against all losses and damages, including all legal costs (cl.10).

15.  The M3 Schedule provided, inter alia, as follows.

15.1  Cl.2 provided that the total maximum amount of MTB that Ms Wong was entitled to be advanced during the MTB Period (that is, the first 60 months of the Program Period) was to be 300% of the Base Amount of $1.2m divided by 60. In other words, Ms Wong was entitled to receive a maximum advance of $60,000 per month during the first 60 months of the Program Period.

15.2  Cl.3a) provided that the actual amount of MTB that Ms Wong was entitled to be advanced each month was to be determined by reference to the production validation requirement set out in the M3 Schedule.

15.3  Cl.3b) provided that validation was to be based on Ms Wong’s Eligible Income (“EI”) for the month, comprising New Business Credit (NBC) produced by Ms Wong, plus the 1^st, 2^nd and 3^rd tier overrides, for that month. (The NBC and overrides were those specified in the Schedule to the Agent’s Contract, which were subject to change by the Defendants in their absolute discretion from time to time.)

15.4  Cl.3c) provided that to be entitled to the maximum MTB advance each month, Ms Wong had to generate EI of a particular amount each month (termed the MTB Required EI). That amount was based on a certain percentage of the maximum monthly MTB of $60,000. The percentage started at zero and then gradually increased each month until it reached 125% in the 12^th month of the MTB Period. For example, in the second month of the MTB Period, the specified percentage was 30%, which meant that Ms Wong had to generate EI of $18,000 (30% x $60,000) for that month if she was to obtain the full MTB advance of $60,000 for that month.

15.5  Cl.3d) provided that if the amount of EI generated by Ms Wong in any particular month was less than the amount required under clause 3c), then a pro rata amount of MTB would be advanced, except that no MTB was to be advanced at all if the EI generated for that month was less than 60% of the requirement.

15.6  Cl.3e) provided that EI generated in a month could be carried forward to following months to calculate entitlements to advance for those months, but again provided that the cumulative EI generated exceeded the 60% threshold of the cumulative requirement.

15.7  Cl.3g) provided that if the MTB for any particular month was not validated and advanced by reason of Ms Wong’s failure to generate the requisite EI, then that MTB would be accumulated in a separate account, and Ms Wong would be entitled to validate this at the end of each Program Year as specified in that clause. This was described at trial as the “catch-up” validation. There then followed the requirements for catch-up validation applicable to each of the five Program Years. For the second Program Year, the requirements for catch-up validation were that either (i) Ms Wong generated at least 60% of the cumulative EI for that year, or (ii) Ms Wong generated total PVI of at least $16.2m. If either of these were achieved, then a formula would be applied to work out the applicable catch-up payment which would be paid in the 26^th month of the Program Period.

15.8  Cl.3g)(ii) provided that for the purpose of the M3 Schedule, “PVI” meant the promotion and validation index which was counted upon paid and approved new business, and was calculated based on different calculations for different product lines as determined by the Defendants at their absolute discretion from time to time.

15.9  Cl.3g) provided that the MTB in any one year which could not be validated by the catch-up provisions would be forfeited and could not be carried forward to the following year.

15.10  Cl.4 provided for calculation of the PB.

15.11  Cl.5 provided for calculation of the HnP Bonus.

15.12  Cl.6 provided for calculation of the SPB.

B3.3  The PB Special Advance Agreement

16.  The parties entered into an “EHP Special Advance (PB) Agreement” on 26^th August 2016 (“the PB Special Advance Agreement”). The preamble referred to the M3 Agreement and stated that Ms Wong wished to obtain a special advance of $1.08m. The PB Special Advance Agreement then provided, inter alia, as follows.

16.1  Cl.3.1 provided that Ms Wong was to repay the advance, together with accrued interest, by direct debit from her payroll on the 62^nd month from the Effective Date stipulated in the M3 Agreement (1^st September 2016).

16.2  Cl.4 was headed “Events of Default”. Cl.4.1 provided that the outstanding amount under the agreement was to become immediately due and payable without demand if Ms Wong for any reason, voluntarily or involuntarily, ceased to be the Defendants’ agent. Cl.4.3 provided that Ms Wong agreed to indemnify the Defendants against all losses, liabilities, damages, costs and expenses incurred as a consequence of any event of default.

16.3  Cl.5 was headed “Enforcement Costs” and provided that Mw Wong would reimburse the Defendants for all costs, charges and expenses (including legal fees on a full indemnity basis) incurred by the Defendants in seeking to recover sums under the agreement.

B3.4  The SPB Special Advance Agreement

17.  The parties entered into an “EHP Special Advance (SPB) Agreement” on 26^th August 2016 (“the SPB Special Advance Agreement”). The preamble referred to the M3 Agreement and stated that Ms Wong wished to obtain a special advance of $600,000. The SPB Special Advance Agreement then provided, inter alia, as follows.

17.1  Cl.3.1 provided that Ms Wong was to repay the advance, together with accrued interest, by direct debit from her payroll on the 62^nd month from the Effective Date stipulated in the M3 Agreement (1^st September 2016).

17.2  Cl.4 was headed “Events of Default”. Cl.4.1 provided that the outstanding amount under the agreement was to become immediately due and payable without demand if Ms Wong for any reason, voluntarily or involuntarily, ceased to be the Defendants’ agent. Cl.4.3 provided that Ms Wong agreed to indemnify the Defendants against all losses, liabilities, damages, costs and expenses incurred as a consequence of any event of default.

17.3  Cl.5 was headed “Enforcement Costs” and provided that Mw Wong would reimburse the Defendants for all costs, charges and expenses (including legal fees on a full indemnity basis) incurred by the Defendants in seeking to recover sums under the agreement.

B3.5  The 2016 MTB Special Advance Agreement

18.  The parties entered into an “EHP Special Advance (MTB) Agreement” on 26^th August 2016 (“the 2016 MTB Special Advance Agreement”). The preamble referred to the M3 Agreement and stated that Ms Wong wished to obtain a special advance in the amount of the difference between the maximum MTB less the MTB to be advanced in the first six months under the M3 Agreement. The 2016 MTB Special Advance Agreement then provided, inter alia, as follows.

18.1  Cl.3.1 provided that Ms Wong was to repay the advance, together with accrued interest, by direct debit from her payroll in the 14^th month from the Effective Date stipulated in the M3 Agreement (1^st September 2016).

18.2  Cl.4 was headed “Events of Default”. Cl.4.1 provided that the outstanding amount under the agreement was to be come immediately due and payable without demand if Ms Wong for any reason, voluntarily or involuntarily, ceased to be the Defendants’ agent.

B3.6  The 2017 MTB Special Advance Agreement

19.  The parties entered into an “EHP Special Advance (MTB) Agreement” on 29^th September 2017 (“the 2017 MTB Special Advance Agreement”). The preamble referred to the M3 Agreement and stated that Ms Wong wished to obtain a special advance in the amount of the difference between the maximum MTB less the MTB to be advanced in the first six months of the second Program Year under the M3 Agreement. The 2017 MTB Special Advance Agreement then provided, inter alia, as follows.

19.1  Cl.3.1 provided that Ms Wong was to repay the advance, together with accrued interest, by direct debit from her payroll in the 26^th month from the Effective Date stipulated in the M3 Agreement (1^st September 2016).

19.2  Cl.4 was headed “Events of Default”. Cl.4.1 provided that the outstanding amount under the agreement was to be come immediately due and payable without demand if Ms Wong for any reason, voluntarily or involuntarily, ceased to be the Defendants’ agent.

B4.  Advances made to Ms Wong

20.  The Defendants made the following advances to Ms Wong:

20.1  MTBs pursuant to the M3 Agreement in the total sum of $240,600 (with $60,000 in each of September 2016 and December 2017, $36,000 in April 2017, $40,800 in October 2017 and $43,800 in January 2018);

20.2  an MTB catch-up payment pursuant to the M3 Agreement in the sum of $459,940.72 in December 2018;

20.3  an advance under the PB Special Advance Agreement in the sum of $1.08m by way of a cheque dated 8^th September 2016; and

20.4  an advance under the SPB Special Advance Agreement in the sum of $600,000 by way of a cheque dated 8^th September 2016.

B5.  The Deeds of Guarantee

21.  After joining the Defendants, Ms Wong had a number of downline agents, including Mr Chan Ka Biu (“Mr Chan”), Mr Sit Chun Wai (“Mr Sit”), Ms Chan Sau Fong (“Ms Chan”), and Mr Choi Yiu Ming (“Mr Choi”).

22.  Ms Wong signed deeds of guarantee in respect of each of these downline agents, agreeing with the Defendants to act as guarantor in respect of advances made to these agents, as follows:

22.1  in respect of Mr Chan, on 23^rd August 2016 (in respect of a sum of $792,000 agreed to be advanced to Mr Chan);

22.2  in respect of Mr Sit (for whom there were two deeds of guarantee), on 29^th September 2016 (in respect of sums of $1,017,000 and $565,000 agreed to be advanced to Mr Sit);

22.3  in respect of Ms Chan, on 23^rd June 2017 (in respect of a sum of $675,000 agreed to be advanced to Ms Chan);

22.4  in respect of Mr Choi, on 10^th October 2017 (in respect of a sum of $205,500 agreed to be advanced to Mr Choi).

23.  Under the deeds of guarantee, Ms Wong also agreed to reimburse the Defendants for all expenses on a full indemnity basis incurred in seeking to recover sums under the guarantees (cl.8).

B6.  The Agency Bulletins

24.  On 5^th October 2016, the Defendants issued Agency Bulletin No.1006, which took effect on 1^st October 2016 (“Agency Bulletin 1006”). It was circulated to the Defendants’ agents, including Ms Wong, in an email from Ms Trace Lai (who was then the Head of Sales Human Resources Team) of the Defendants (“Ms Trace Lai”) of 5^th October 2016. The bulletin highlighted that the definition of PVI had been amended:

“PVI for career allowance, finance and related recruitment package validation will be adjusted should there be any policy movements affecting premium payable occur in the first policy year. Such policy movements are including but not limited to:

○ Lapsation

○ Reinstatement

○ Rider termination

○ Premium increase or reduction

○ Term conversion”

25.  Agency Bulletin 1006 further included a table setting out PVI calculations for various product lines. For “Traditional Life” and “Investment-Linked Life” products, the PVI of the regular premium amount was said to be “100% AFYP”, whereas the PVI of the single premium or top-up premium amount was said to be “10% Collected”.

26.  Given Ms Wong’s recent date of joining the Defendants as agent and manager, Ms Jennifer Tam (who was then the Senior Manager, Agency Business Development – Agency Management Division) forwarded Ms Trace Lai’s email of 5^th October 2016 once again to Ms Wong on 1^st November 2016, to specifically draw her attention to Agency Bulletin 1006.

27.  On 29^th March 2017, the Defendants issued Agency Bulletin No.1023, which took effect on 1^st April 2017 (“Agency Bulletin 1023”). It was circulated to the Defendants’ agents, including Ms Wong, in an email from Ms Trace Lai of 29^th March 2017. The definition of PVI had been further amended:

“PVI for finance independence bonus, career allowance, finance and related recruitment package validation will be adjusted should there be any policy movements affecting premium payable occur in the first 13^th policy month. Such policy movements are including but not limited to:

○ Lapsation

○ Reinstatement

○ Rider termination

○ Premium increase or reduction

○ Term conversion”

28.  On 28^th April 2017, the Defendants issued an appendix to Agency Bulletin 1023, informing the Defendants’ agents, including Ms Wong, that they could now check and monitor their PVI movements via their consolidated commission reports.

29.  On 18^th October 2017, the Defendants issued Agency Bulletin No.1079-1, which took effect on 1^st September 2017, regarding internal policy replacement (“Agency Bulletin 1079-1”). It was circulated to the Defendants’ agents, including Ms Wong in an email from Ms Trace Lai of 18^th October 2017.

30.  On 19^th January 2018, the Defendants issued Agency Bulletin No.1100, which took effect on 1^st January 2018 (“Agency Bulletin 1100”). It was circulated to the Defendants’ agents, including Ms Wong, in an email from Ms Trace Lai of 19^th January 2018. The bulletin highlighted that the definition of PVI had been amended:

“For the finance independence bonus, career allowance, finance package, and related bonus/allowance in the recruitment package, the PVI would be counted as net of internal replacement.”

B7.  The updates to the Schedule

31.  The version of the Schedule in force at the time of the Agent’s Contract was the 2016 version. Ms Jennifer Tam’s evidence was that the schedule would generally be updated annually and then circulated to the Defendants agents in around February to March.

32.  On 22^nd March 2017, Ms Trace Lai sent an email to the Defendants’ agents, including Ms Wong, enclosing the 2017 version of the Schedule.

33.  On 2^nd February 2018, Ms Trace Lai sent an email to the Defendants’ agents, including Ms Wong, enclosing the 2018 version of the Schedule.

B8.  Commission Reports and Agent Scorecards

34.  The Defendants issued monthly commission reports to Ms Wong, setting out the commission earned by Ms Wong and the downline agents in the three tiers of overrides (whose business from which she was entitled to earn commission) (“the Commission Reports”). Although Ms Wong originally denied that during the thirty months with the Defendants, there were many months in which she failed to meet the MTB validation requirements sufficiently to be awarded any MTB advance at all, on cross-examination, she accepted that this was the case. The Commission Reports show that this was the case for October to December 2016, January to March 2017, May to September 2017, November 2017, February to December 2018, and January to March 2019. They also show that in April 2017 and October 2017, Ms Wong only partially met the MTB validation requirements, so that she received a pro-rata MTB advance.

35.  Ms Jennifer Tam’s evidence, which was not challenged, was that in around August 2017, the Defendants launched a system of “Agent Scorecards” to measure the performance of each individual agent. The scorecards were issued on a quarterly basis and set out various measures of an agent’s performance, such as the premiums collected, number of downline agents, persistency, lapse rate (that is, the rate at which policies lapsed), and number of customers’ complaints.

36.  Ms Wong accepted in cross-examination that a high lapse rate would affect an insurance company and also the income of the relevant agent. Ms Jennifer Tam’s unchallenged evidence was that if an agent had a high lapse rate, this was usually because the agent did not understand the client’s true needs, or that the client could not afford the premium of the policy sold to him.

37.  On 14^th May 2018, Ms Jennifer Tam sent an email to Ms Wong informing her that the agent scorecards for the first quarter of 2018 were available to be downloaded from the Defendants internal Ipro system, and attaching her and her downline agents’ scorecards. The lapse rate for Ms Wong shown on this scorecard was 8%.

38.  On 16^th August 2018, Ms Sissy Tam (who assisted Ms Jennifer Tam) sent an email to Ms Wong informing her that the agent scorecards for the second quarter of 2018 were available to be downloaded, and attaching her and her downline agents’ scorecards. The email further stated that a warning/reminder letter was to be delivered to a number of agents as named in the email and would be distributed to Ms Wong shortly (for onward distribution). The lapse rate shown for Ms Wong shown on this scorecard was 46%.

39.  On 12^th December 2018, Ms Jennifer Tam sent an email to Ms Wong informing her that the agent cards for the third quarter of 2018 were available to be downloaded, and attaching her and her downline agents’ scorecards. The email further stated that a warning would be issued to the agent named in the email; the warning would be sent to Ms Wong for passing to the agent. The lapse rate shown for Ms Wong on this scorecard was 55%.

B9.  The reminder and warning letters regarding Ms Wong’s performance

40.  On 19^th June 2017, Ms Jennifer Tam sent an email to Mr David Tam (Ms Wong’s upline manager), attaching a reminder letter to be issued to Ms Wong regarding her failure to meet MTB validation requirements. Ms Wong says that she did not actually receive a copy of the letter, although she acknowledges that she was told about its contents by Mr David Tam. (As will have been seen, and as the Defendants’ witnesses explained, it was the Defendants’ practice to send reminder or warning letters to an agent’s upline manager for distribution to the agent.) The letter was headed “EXPERIENCED HIRE PROGRAM” and bore the subject header of “Reminder of Performance”. It went on as follows:

“Upon reviewing your performance, you have been unable to meet your MTB validation targets. Based on our records as of May 2017, your performance was unsatisfactory (cumulative MTB validation* below 50%).”

41.  The letter set out that as at the 9^th month of Ms Wong’s package, the cumulative MTB required in terms of NBC or EI, was $324,000, that she had achieved only $130,451 in Approved NBC or EI, which was 40% of the cumulative MTB validation. It went on:

“Please be reminded that EHP packaged bonuses is paid in good faith by the Company 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. Please discuss with your Director of Agency on the performance plan if required.”

42.  The reminder letter was signed by Mr Peter Lai as Chief Agency Officer.

43.  On 22^nd September 2017, Ms Jennifer Tam sent another email to Mr David Tam indicating that upon reviewing the performance of Ms Wong and another agent, they had been unable to meet their MTB validation targets. The email attached reminders for Mr David Tam’s distribution. Again, Ms Wong says that she did not actually receive a copy of the letter, although she acknowledges that she was told about its contents by Mr David Tam.

44.  The letter for Ms Wong was dated 21^st September 2017 and was in the same form and had the same contents as the one of 19^th June 2017, save that it set out the figures as at the 12^th month of Ms Wong’s package. Cumulative MTB required in terms of NBC or EI was said to be $540,000; Ms Wong had achieved $198,077 in Approved NBC or EI, which was 35% of the cumulative MTB validation.

45.  On 13^th December 2018, Ms Sissy Tam sent an email to Ms Wong with the subject header “Reminder of Performance”. The email stated that Ms Wong had been unable to meet her MTB validation targets; based on the Defendants’ records as at October 2018, Ms Wong’s performance was unsatisfactory. The email reminded Ms Wong that EHP packaged bonuses were paid in good faith by the Defendants as an incentive to recruit and reward experienced producers under the mutual understanding that such producers would perform at a level reasonably comparable with past records. The email concluded that it was expected that Ms Wong’s performance would improve in the coming future.

46.  The email attached a reminder letter dated 11^th December 2018, again similar to the two earlier reminders. This time, it set out the figures as at the 26^th month of Ms Wong’s package. Cumulative MTB required in terms of NBC or EI was said to be $1,590,000; Ms Wong had achieved $587,223 in Approved NBC or EI, which was 36% of the cumulative MTB validation.

47.  On 31^st December 2018, Ms Jennifer Tam sent an email to Ms Wong with the subject header “Warning for poor performance”. The email stated that based on the Defendant’s records as at November 2018, Ms Wong’s production was unsatisfactory. The letter went on to state an expectation of significant improvement in performance, a requirement of meeting a business plan, and a warning that failure to achieve it would lead to termination of the Agent’s Contract, with clawback of MTB and other bonuses.

48.  The email attached a warning letter dated 31^st December 2018 (“the First Warning Letter”). Similar to the reminder letters, the letter set out figures, this time as at the 27^th month of Ms Wong’s package. Cumulative MTB required in terms of NBC or EI was said to be $1,665,000; Ms Wong had achieved $592,406 in Approved NBC or EI, which was 35% of the cumulative MTB validation. The letter went on to state (emphasis as in the original):

“It is expected that your performance will significantly improve in the coming future. During this time, your performance will be under strict observation and that you must meet the business plan as stated below:

●  During 1 January to 28 February 2019, you are required to achieve a minimum of HK$150,000 Eligible Income

Failure to validate the said performance will be leading to termination of your Agent’s Contract, and you would be subject to clawback of a portion of the amount of Monthly Transition Bonus, Performance Bonus and HnP Bonus as stipulated in your [M3 Agreement].

We agreed to accede to the business plan if we receive your confirmation to the above requirements or before 8 January 2019. If we do not receive your confirmation within the specified timeframe, the business plan will not be accepted by us and we reserve our right to have your Agent’s Contract and/or Manager’s Contract terminated.”

49.  The letter had a space for Ms Wong to sign to confirm her agreement to its terms. There was a discussion between Ms Jennifer Tam and Ms Wong about it. Ms Wong refused to sign the letter. Ms Tam says that Ms Wong requested to proceed with immediate termination. Ms Wong says that Ms Tam had asked her whether she wanted immediate termination, to which she had answered no, and that it was for the company to decide whether to proceed to termination.

50.  On 4^th February 2019, Ms Jennifer Tam sent an email to Ms Wong, with the subject header “Warning Letter – Business Quality (Unit level)”. The email stated that there had been a review of the business produced by Ms Wong in the 13^th to 48^th months, and that there were concerns about her unit’s business quality. The lapse rate of the business produced within the period was significantly higher than the company benchmark. The Defendants reserved the right to take further action, including termination of the Agent’s Contract. The email attached a formal warning letter of the same date which made essentially the same points (“the Second Warning Letter”).

51.  On 13^th February 2019, Ms Sissy Tam sent an email to Ms Wong, setting out her EI earned as at 31^st January 2019 and the outstanding EI as required by the business plan in the First Warning Letter.

52.  On 25^th February 2019, Ms Jennifer Tam sent an email to Ms Wong, reminding her about the requirement to achieve a minimum of $150,000 EI during January and February 2019, and warning her that failure to achieve this would lead to termination of the Agent’s Contract and clawback of the MTB and various bonuses.

B10. The catch-up payment for Program Year 2

53.  In December 2018, Ms Wong received a catch-up payment of $459,940.72. This was in respect of Program Year 2.

54.  On 28^th February 2019, Ms Wong sent an email to Ms Jennifer Tam, saying that following on from her Whatsapp enquiry of the previous Friday, she still did not have a report from SHR (presumably a reference to the human resources staff), and wanted to verify the payment of the $459,940.72.

55.  On 1^st March 2019, Ms Jennifer Tam replied to Ms Wong, attaching an EI catch up report. She said “You do not validate the catch up MTB based validation by EI, the bonus is paid based on validation by PVI which has been communicated earlier”, and then she set out the way in which the $459,940.72 had been calculated through Ms Wong’s PVI of $22,670,277. Ms Tam’s unchallenged explanation in her witness statement was that this email explained to Ms Wong that she had been able to validate her MTB catch-up for Program Year 2 based on Ms Wong’s team’s PVI, but not based on her personal EI, and based on such performance data, Ms Wong was entitled to a sum of $459,940.72.

B11. Termination of the Agent’s Contract and Manager’s Contract

56.  On 8^th March 2019, the Defendants issued a letter of termination to Ms Wong, purporting to terminate the Agent’s Contract pursuant to cl.18.2(i) thereof, and to terminate the Manager’s Contract pursuant to cl.20.2(i) thereof, with immediate effect. It reminded Ms Wong that any finance or allowance granted were to be repaid in accordance with the terms of the relevant agreements (“the Termination Letter”).

B12. The Defendants’ demand letters; Ms Wong’s payments

57.  On 20^th March 2019, the Defendants issued a demand letter to Ms Wong, seeking repayment of $3,038,774.54. There is no dispute that arithmetically, this sum was comprised of:

The part of the advances made to Ms Wong under the M3 Agreement repayable on termination	$210,600.00
MTB catch-up payment made to Ms Wong for Program Year 2	$459,940.72
Advance made to Ms Wong under the PB Special Advance Agreement	$1,080,000.00
Advance made to Ms Wong under the SPB Special Advance Agreement	$600,000.00
Amount under the Deed of Guarantee in respect of Mr Chan’s debts to the Defendants	$688,233.82

58.  On or about 4^th April 2019, Ms Wong paid a sum of $40,000 to the Defendants. The Defendants say that this was in partial repayment of her debt to them. Ms Wong’s pleaded case is that it was paid for the purpose of an amicable settlement.

59.  On 7^th April 2019, Ms Wong sent an email to the Defendants, saying “For my outstanding debt of $3,038,774.54, $40,000 has been credited to AXA HSBC account. (Bank in slip attached). Tai Ping Insurance Company will issue a cheque of $960,000 on my behalf by early May. The remaining amount will be repaid by 36 instalments.” As Ms Wong acknowledged in cross-examination, the wording of her email did not refer to any settlement at all.

60.  On 28^th May 2019, the Defendants issued a further demand letter to Ms Wong, seeking repayment of $3,909,274.54. The amount had increased because of two additional amounts demanded from Ms Wong. The two additional amounts were as follows; again, the dispute is as to liability rather than the figures themselves.

Amount under the Deed of Guarantee in respect of Ms Chan’s debts to the Defendants	$665,000.00
Amount under the Deed of Guarantee in respect of Mr Choi’s debts to the Defendants	$205,500.00

61.  On or about 31^st May 2019, the Defendants received a payment of $960,000 from China Taiping Life Insurance (Hong Kong) Company Limited, paid on behalf of Ms Wong.

62.  On 28^th June 2019, Ms Wong sent an email to the Defendants, saying “attached pls find the bank in record of my repayment of $960,000”.

63.  On 5^th July 2019, Ms Wong sent an email to the Defendants, saying “After the repayment of $1m, the outstanding debt is $2,909,274.54. I here request to repay by 26 installments.” It will be noted that the figure of the “outstanding debt” was calculated by reference to the amount demanded by the Defendants on 28^th May 2019.

64.  On 3^rd May 2020, the Defendants issued a further demand letter to Ms Wong, seeking repayment of $4,491,274.54. Whilst the payment of $1,000,000 had been taken into account, the total amount demanded had increased because of additional amounts demanded from Ms Wong, as follows. Again, the dispute is as to liability rather than the figures themselves.

Amount under the Deeds of Guarantee in respect of Mr Sit’s debts to the Defendants

$1,582,000.00

65.  In these proceedings, the Defendants counterclaim for this amount of $4,491,274.54.

C.  THE ISSUES

66.  Prior to trial, the parties had agreed that the issues for my determination were as follows.

66.1  Did Mr Peter Lai make the Alleged Representations as pleaded in paragraph 10 of the Statement of Claim (“the SOC”), namely:

66.1.1  commissions and/or earnings at the Defendants would be calculated on the basis of PVI, a unique term used at the Defendants, which would be equivalent to the term, Annualised First Year Premium (“AFYP”), as commonly known or recognised in the insurance industry;

66.1.2  Ms Wong should not worry about the calculation of commissions and/or earnings at the Defendants as they would be calculated as previously known to or recognised by Ms Wong during her past employment with the Defendants and on the basis of AFYP as commonly known or recognised in the insurance industry?

66.2  If Mr Peter Lai did make the Alleged Representations,

66.2.1  was Ms Wong induced by, or did she act in reliance upon, the Alleged Representations in entering into the Offer Letter, the Agent’s Contract, the Manager’s Contract, the M3 Agreement, the PB Special Advance Agreement, the SPB Special Advance Agreement, the 2016 MTB Special Advance Agreement and the 2017 MTB Special Advance Agreement;

66.2.2  were the Alleged Representations false, and did the Defendants know them to be false, or not believe in their truth, or were they reckless as to whether they were true?

66.3  Had the following terms been agreed upon the appointment of Ms Wong as the Defendants’ agent by “adopting the common practice amongst the insurance industry”, and/or been implied into the Agent’s Contract and the Manager’s Contract to give business efficacy to them?

66.3.1  PVI or AFYP at the Defendants would be equivalent to AFYP as commonly known or recognised in the insurance industry.

66.3.2  The calculation and/or definition of PVI as recognised by the Defendants would be the same as previously known to or recognised by Ms Wong during her past employment with the Defendants’ affiliates.

66.3.3  PVI and/or AFYP would be the total expected premium payments over the first twelve months on new policies or new business.

66.3.4  Upon the termination of the Agent’s Contract and/or the Manager’s Contract, the Defendants would pay Ms Wong all those commissions, earnings, bonuses and/or remunerations to which she was entitled to receive during the effective period of the Agent’s Contract and/or the Manager’s Contract.

66.3.5  Upon the termination of the Agent’s Contract and/or the Manager’s Contract, without fault on the part of Ms Wong, the Defendants would indemnify Ms Wong against all liabilities to which she was or might become liable to pay on termination of any of the agreements she had made with the Defendants.

66.3.6  The power to terminate the Agent’s Contract and/or the Manager’s Contract by the Defendants would be exercised in good faith.

66.3.7  The power to terminate the Agent’s Contract and/or the Manager’s Contract by the Defendants would not be exercised for arbitrary, capricious, perverse or irrational reasons.

66.4  Did the Defendants wrongfully terminate the Agent’s Contract and the Manager’s Contract?

66.5  Have the Defendants wrongfully refused to pay various amounts, totaling $834,176.13, to Ms Wong?

66.6  Is Ms Wong liable to pay the Defendants the sum of $4,491,274.54 as counterclaimed by the Defendants?

67.  In her written opening submissions, Ms Wong had sought to raise a number of unpleaded complaints. In closing submissions, Ms Wong agreed that the issues for my determination were confined to the pleaded issues.

D.  MS WONG’S CLAIM OF FRAUDULENT MISREPRESENTATION

D1.  Ms Wong’s case

68.  Ms Wong’s case is that at the Recruitment Meeting, Mr Peter Lai made the Alleged Representations on behalf of the Defendants. To recap, the essence of the alleged misrepresentations was that:

68.1  commissions and/or earnings at the Defendants would be calculated on the basis of PVI, a unique term used at the Defendants, which would be equivalent to the term AFYP (Annualised First Year Premium), as commonly known or recognised in the insurance industry;

68.2  Ms Wong should not worry about the calculation of commissions and/or earnings at the Defendants as they would be calculated (in the way) as previously known to or recognised by Ms Wong during her past employment with the Defendants and on the basis of AFYP as commonly known or recognised in the insurance industry.

69.  Ms Wong’s allegation is that these representations were made fraudulently, with Mr Peter Lai knowing them to be false, without believing in their truth, nor being reckless as to whether they were true, in that:

69.1  PVI and AFYP were inconsistent;

69.2  the Defendants made unilateral changes to the meanings of PVI and AFYP;

69.3  PVI and AFYP at the Defendants were not equivalent to AFYP commonly known or recognised in the insurance industry;

69.4  the calculation or definition of PVI at the Defendants was different or had become different to what it previously had been during Ms Wong’s past employment at the Defendants;

69.5  PVI and AFYP at the Defendants were unilaterally adjusted to exclude new business with policy movements including lapsation, reinstatement, rider termination, premium increase or reduction, and term conversion;

69.6  when Ms Wong joined the Defendants, PVI and AFYP were calculated solely on the basis of the first twelve months of new business, but this was later unilaterally extended to take into account policy movements in the first thirteen months of new business.

70.  Ms Wong says that she relied on the Alleged Representations in entering into the Offer Letter, the Agent’s Contract, the Manager’s Contract, the M3 Agreement, the PB Special Advance Agreement, the SPB Special Advance Agreement, the 2016 MTB Special Advance Agreement and the 2017 MTB Special Advance Agreement.

D2.  Relevant principles

71.  Ms Wong did not take issue with the principles relied on by the Defendants, as follows.

72.  The burden of establishing fraudulent misrepresentation lies on the complainant. Whilst the burden is that of the balance of probabilities, it is to be borne in mind that the more serious an allegation is, the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it. This is because the inherent probability of an event is a matter to be taken into account when deciding whether it occurred. See In re H and others (minors) [1996] AC 563 at 586G (Lord Nicholls).

73.  The elements of a claim of fraud or deceit were set out in Haifa International Finance Co Ltd v Concord Strategic Investments Ltd [2009] 4 HKLRD 29 at [15], citing Winfield & Jolowicz on Tort, 17^th ed., at paragraph 11-3:

73.1  There must be a representation of fact made by words or conduct.

73.2  The representation must be made with knowledge that it is or may be false. It must be wilfully false, or at least made in the absence of any genuine belief that it is true.

73.3  The representation must be made with the intention that it should be acted upon by the claimant, or by a class of persons which includes the claimant, in the manner which resulted in damage to him.

73.4  It must be proved that the claimant has acted upon the false statement.

73.5  It must be proved that the claimant suffered damage by so doing.

74.  A representation will not be false simply because it is not entirely correct, provided that it is substantially correct, and the difference between what is represented and what is actually correct would not have been likely to induce a reasonable person in the position of the claimant to enter into the contract: China Alarm Holdings Acquisition LLC v Ing Alexander Yim Leung, unreported, HCA 503/2012, 24^th March 2016 at [76] (DHCJ Keith, citing Raiffeisen Zentralbank Osterreich AG v Bank of Scotland plc [2011] 1 Lloyd’s Rep 123 at [149]).

75.  The claimant must prove that it was the representation which induced him to act upon it. He does not have to prove that the representation was the sole reason why he acted on it, but he has to prove that the representation did something more than merely encourage him to act upon it. The misrepresentation has to have played a real and substantial part in inducing him to act upon it; it has to have been the effective cause of him acting upon it in the sense that but for the representation, he would not have acted upon it. See China Alarm Holdings Acquisition LLC at [134].

76.  For the mental element required to establish a claim in fraud, the Defendants cited the classic statement in Derry v Peek (1889) 14 App Cas 337 at 374 (Lord Herschell):

“…fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.”

D3.  Whether Mr Peter Lai made the Alleged Representations

77.  I agree with the submissions of counsel for the Defendants, Mr Norman Nip SC (leading Ms Kelly Shum), that Ms Wong has failed to prove that Mr Peter Lai made the alleged representations, given:

77.1  the changes in Ms Wong’s case as to what the representations actually were;

77.2  the lack of any contemporaneous documentary record of the Alleged Representations;

77.3  Ms Wong’s explanation of why she entered into the various agreements with the Defendants despite the fact that they failed to refer to the Alleged Representations;

77.4  the lack of complaint that the Defendants’ documents were inconsistent with Alleged Representations;

77.5  the lack of evidence as to (1) what the supposed commonly known or recognised definition of AFYP in the insurance industry was or (2) how commissions and earnings were calculated during Ms Wong’s past employment with the Defendants.

D3.1  The changes in Ms Wong’s case regarding the Alleged Representations

78.  There have been various changes in Ms Wong’s case regarding the Alleged Representations.

78.1  In the SOC, which was settled by counsel then acting for Ms Wong, it was alleged that commission and earnings at the Defendants would be calculated on the basis of PVI. However, the Schedule clearly provides for commission to be calculated as a percentage of premium received rather than on PVI, and Ms Wong accepted this to be “obvious” in cross-examination. Ms Wong then changed her case and said that in fact the representation only related to bonuses.

78.2  In the SOC, it was alleged that Mr Lai had said that PVI would be equivalent to AFYP. However, in Ms Wong’s written Opening, it was alleged that Mr Lai had said that the equivalence of PVI with AFYP would only apply to life insurance products, with a pro-rata calculation being applied to other products such as general insurance or MPF products. When asked about this, she said that Mr Peter Lai had said that PVI would be the same as what it had meant when she worked at the Defendants in 2006 to 2009, and during that time, PVI had only been equivalent to AFYP for life insurance products; she said that perhaps this not been very clearly pleaded. Furthermore, Ms Wong said that at the Recruitment Meeting, she had focused only on life insurance products. However, Ms Wong’s witness statement had also failed to explain her present claim that Mr Peter Lai had represented that PVI would be equivalent to AFYP for life insurance products only.

78.3  In Ms Wong’s written Opening, it was alleged that Mr Peter Lai had made a further misrepresentation at the Recruitment Meeting, guaranteeing that the Defendants would not unreasonably terminate agents’ contracts, or terminate contracts solely for insufficient business turnover or an unsatisfactory rate of policy renewal. As the facts set out earlier show, the Defendants had warned Ms Wong about her volume of business and lapsation rate, and ultimately terminated the Agent’s Contract and Manager’s Contract on the grounds of poor performance. One would therefore have thought that if this representation had been made by Mr Peter Lai, it would have featured in the SOC. However, it was not mentioned in either the SOC or Ms Wong’s witness statement.

79.  These changes call into question Ms Wong’s case that the Alleged Representations were made.

D3.2  Lack of contemporaneous record regarding the Alleged Representations

80.  There is no contemporaneous record of any kind supporting Ms Wong’s claim that the Alleged Representations were made at the Recruitment Meeting. This is significant particularly in light of the following.

80.1  Ms Wong acknowledged that in her earlier role as regional manager, she would have had experience of managing hundreds if not thousands of agents, and would have seen a vast number of agency contracts. She further acknowledged that in that role she would have appreciated the importance of written agency contracts and that governed the relationship between an insurance company and its agents. If the Alleged Representations had been as important to Ms Wong as she says, it is difficult to understand why she would not have at least asked for them to be reflected in the Agent’s Contract, Manager’s Contract and the M3 Agreement.

80.2  Ms Wong’s written Opening said that in early 2016, she and her team had had a concern about a rumour in the market at the time that the Defendants would, mid-contract, unreasonably request agents to increase their business turnover, or even unreasonably terminate contracts, to recover recruitment bonuses, and Mr Peter Lai had guaranteed that the Defendants would not unreasonably terminate contracts or terminate them solely for insufficient business turnover or an unsatisfactory rate of policy renewal. Yet Ms Wong did not ask for this guarantee to be specified in any of the contractual documents.

80.3  Even if one takes “contemporaneous” broadly to encompass the entire duration of the Agent’s Contract (and Manager’s contract), no written document supporting the making of the Alleged Representations was created during that time. For example, there was never any written complaint that the MTB under the M3 Agreement was to be calculated on the basis of EI rather than PVI (PVI was only provided for as an alternative to the use of EI in the case of catch-up payments).

D3.3  Ms Wong’s explanation of why she entered into the agreements

81.  Ms Wong’s explanation of why she entered into the various agreements with the Defendants despite the fact that they failed to refer to the Alleged Representations is quite telling.

81.1  In seeking to explain why she signed the Offer Letter although it did not refer to the Alleged Representations, Ms Wong said that it was merely an offer letter and she had not yet joined the Defendants formally; she would wait for the formal agreements referred to in the Offer Letter and she would sign those after reading them and being satisfied with them.

81.2  Then, when it was pointed out that the Agent’s Contract did not record the Alleged Representations either, Ms Wong said that she would have read the Agent’s Contract, the Manager’s Contract and the M3 Agreement together; cl.13 of the M3 Agreement mentioned the matters which were represented to her; accordingly, she believed the representations were contained in one of the three contracts. She then reiterated that she would have read the three agreements together, in one go, so whilst the Agent’s Contract did not contain the Alleged Representations, her point was that she was looking at all three documents together.

81.3  Then, when it was pointed out that she had signed the Agent’s Contract on 26^th July 2016, and she was asked again whether she had been reviewing the M3 Agreement (which, it will be recalled, was made on 6^th September 2016) at that time, Ms Wong changed her answer to one of “I can’t recall”. When reminded of her previous answer that she had said she reviewed the three agreements together, she said that what she meant is that she would have read all three before she joined the Defendants, not that she read them all on the same day.

81.4  That being the case, why did Ms Wong not raise the absence of the Alleged Representations from the Agent’s Contract when she signed that document? Ms Wong’s answer was that the Agent’s Contract and Manager’s Contract only dealt with general terms and conditions, which she accepted, and it was the M3 Agreement which would address the matters which she was concerned with; she was not bound to join the Defendants until she signed the M3 Agreement. If the Alleged Representations were not dealt with in the M3 Agreement then she still had the right to refuse to sign it, and to refuse to join the Defendants.

81.5  However, Ms Wong then accepted that the M3 Agreement did not contain the representation that PVI was equivalent to AFYP. It was therefore difficult to understand why she felt satisfied after reading the M3 Agreement that it contained the Alleged Representations. Ms Wong’s explanation was that her concern was to see that PVI should be included as a measure of her bonuses, and since it was included, she therefore believed Mr Peter Lai’s representation that PVI was equivalent to AFYP, and that it would not take into account lapsation.

81.6  When given the opportunity to explain once more why she had supposedly felt reassured after reading the M3 Agreement that it contained the Alleged Representations, despite it not containing any representation that PVI equated to AFYP, Ms Wong said that all along, she had been concerned with two points, (1) the relationship between PVI and AFYP, and (2) (unreasonable) termination. She felt safe because there was a clause in the M3 Agreement that dealt with termination.

81.7  The clause in question was cl.13 of the M3 Agreement. This provided that “Notwithstanding anything herein contained to the contrary, where (a) [the Defendants] enforces any of its rights under this Agreement by reason of termination of the Agent’s Contract and (b) the termination is a direct result of [the Defendants’] decision to so terminate such a contract, then [the Defendants] shall only enforce such rights if the cause of the termination has been made known to [Ms Wong].” This clause clearly does not restrict the grounds on which the Defendants could terminate the Agent’s Contract; it simply provides that if the Defendants sought to enforce their rights by reason of termination, they had to tell Ms Wong of the grounds for termination.

82.  Ms Wong was therefore clearly aware that neither the Agent’s Contract nor the Manager’s Contract contained the Alleged Representations, yet she was content to sign them. As for the M3 Agreement, it is plain that cl.13 (or, indeed, the rest of the agreement) does not contain any of the Alleged Representations either. Ms Wong’s claim that she read the three agreements and felt satisfied that they reflected the Alleged Representations did not stand up to cross-examination. This seriously undermines the claim that the Alleged Representations were made at all.

D3.4  Lack of complaint that Defendants’ documents inconsistent with Alleged Representations

83.  As mentioned above, there was no contemporaneous record supporting Ms Wong’s claim that the Alleged Representations were made at the Recruitment Meeting.

84.  Even when the Defendants sent documents to Ms Wong which were clearly inconsistent with the Alleged Representations, Ms Wong did not make any complaint, or raise any query, about the same. First, there are the Agency Bulletins. The Agency Bulletin 1006 of October 2016, Agency Bulletin 1023 of March 2017, and Agency Bulletin 1100 of January 2018 all amended the definition of PVI, and it would have been apparent that PVI was not the same as AFYP. The first two bulletins also show that lapsation was to be included in the calculation of PVI. Ms Wong acknowledged that she received these Agency Bulletins. She would have realised that PVI was not equivalent to AFYP, and that it included lapsation; these matters would have been contrary to the Alleged Representations. However, she did not raise any query or complaint about this with Mr Peter Lai, the person who allegedly made the representations, nor with anyone else of the Defendants. Ms Wong did not have a good explanation as to why this was the case. She claims that she was busy after receiving the Agency Bulletin 1006 of October 2016 as it was shortly after she joined the Defendants. Yet she did not say anything after the Agency Bulletin 1023 of March 2017, and Agency Bulletin 1100 of January 2018 either.

85.  In fact, these three Agency Bulletins also showed that whilst for certain types of premium for life insurance products, PVI was to be calculated as “100% AFYP”, for other types of premium for life insurance products, PVI was to be calculated as “10% collected” (premium), rather than AFYP. In other words, even for life insurance products, PVI did not always equal AFYP. Had the Alleged Representations been made, this was surely another matter that would have caused Ms Wong to raise queries or make complaints.

86.  Second, there are the warning letters of 31^st December 2018 and 4^th February 2019. These letters specifically warned Ms Wong about her inadequate performance on the basis of EI rather than PVI, and the Defendants’ right to terminate Ms Wong’s Agent’s Contract. Even then, Ms Wong did not complain to anyone at the Defendants that this was contrary to the further Alleged Representations, or the alleged misrepresentation made by Mr Peter Lai that the Defendants would not terminate agents’ contracts for insufficient business turnover.

D3.5  Lack of evidence as to supposed commonly known or recognised definition of AFYP, or method of calculation of commissions and earnings during past employment

87.  The points discussed so far go towards the credibility of Ms Wong’s claim. Apart from that, there is a further point about the lack of evidence insofar as Ms Wong claimed that commissions and/or earnings at the Defendants would be calculated on the basis of the term AFYP “as commonly known or recognised in the insurance industry”, or that her commissions and earnings would be calculated as they had been during Ms Wong’s past employment with the Defendants. There is no evidence as to these two matters. On the contrary, the evidence of Mr Peter Lai and Ms Trace Lai was that there is no common practice in the insurance industry as to what AFYP means.

88.  Ms Wong’s explanation for the lack of evidence is that she had left the Defendants. There was no suggestion that any attempts had been made to obtain any evidence to substantiate the pleas in paragraph 17 of the SOC that:

“…the 1^st and/or 2^nd Defendants knew the [Alleged] Representations made to [Ms Wong] were false … And the particulars of misrepresentations are, inter alia, as follows:-

…

(c) PVI and/or AFYP recognised at AXA were not equivalent to, alternatively had become different to, AFYP as commonly known or recognised in the insurance industry.

(d) The calculation and/or definition of PVI as recognised by AXA were not the same, alternatively had become different to that, as previously known to or recognised by [Ms Wong] during her past employment with AXA.”

89.  I would at this point record my concern that counsel then acting for Ms Wong saw fit to plead a case of fraudulent misrepresentation, in the absence of any apparent basis to do so. As noted in the Hong Kong Civil Procedure 2025, vol.1, note 18/6/5, in the case of a plea of fraud, there is a heavier burden on the pleader in that fraud cannot and should not be pleaded unless the pleader has clear instructions to plead fraud and he has before him reasonably credible material which, as it stands, establishes a prima facie case of fraud.

D4.  Whether Ms Wong relied on the Alleged Representations

90.  Since I have found that the Alleged Representations were not made, the question of whether Ms Wong relied on them does not arise.

91.  However, I would go on to make this observation: on Ms Wong’s own evidence, she did not in fact rely on the Alleged Representations. As noted above, when asked why, on reading the Offer Letter of 10^th June 2016 and signing to indicate acceptance, she did not raise any query as to why the Alleged Representations were not recorded in writing, she said that it was because the letter was merely an offer letter and she had not yet joined the Defendants formally; she would wait for the formal agreements referred to in the Offer Letter and she would sign those after reading them and being satisfied with them. In other words, she relied on her own review of the Agent’s Contract, Manager’s Contract and M3 Agreement before deciding to sign them.

92.  Furthermore, Ms Wong went on to say that she signed the Agent’s Contract and Manager’s Contract, she accepted them as setting out the general terms applicable to the Defendant’s agents and managers; it was the M3 Agreement which she expected to contain terms specific to her. This answer further confirms that at least for the Agent’s Contract and Manager’s Contract, she did not rely on the Alleged Representations in entering into them. She was aware that they did not reflect the Alleged Representations and she was content to enter into them, on the basis that she considered that the matters she was concerned with would be dealt with in the M3 Agreement.

93.  Still further, Ms Wong’s evidence is that she read through the agreements before signing them. She would therefore have been aware that her obligation was to comply with the rules and regulations of the Defendants in force from time to time (see cl.1.2 of the Agent’s Contract and cl.1.8 of the Manager’s Contract). There were clauses entitling the Defendants to amend the Schedule (pursuant to which Ms Wong was to be remunerated) from time to time without notice and at their absolute discretion (see cll.8.1, 9.1 of the Agent’s Contract and cll.10.1, 11.1 of the Manager’s Contract). The M3 Agreement (see cl.3g)(ii)) of the M3 Schedule) also expressly provided that the calculations for PVI were to be determined by the Defendants at their absolute discretion from time to time. In other words, the Defendants had the discretion to amend the definition of PVI from time to time without the need to consult Ms Wong or to ask for her consent. Given her lengthy experience in management positions, Ms Wong must have known that this was the effect of the clauses. Indeed, Ms Wong frankly acknowledged on the first day of the trial that the agreements provided for the Defendants’ power of amendment (and her complaint was that these amendments caused her downline agents to leave, which in turn affected her business performance, and therefore it was unreasonable for the Defendants to terminate her appointment). That being the case, it cannot be said that Ms Wong relied on any particular definition of PVI put forward by Mr Peter Lai in entering into the various agreements with the Defendants – she would have known that the Defendants could change this definition at any time.

94.  I therefore find that Ms Wong did not rely on the Alleged Representations as alleged.

D5.  Entire Agreement Clauses

95.  In any event, even if the Alleged Representations were made by Mr Peter Lai, they would have been overtaken by the Entire Agreement Clauses in the Agent’s Contract and the Manager’s Contract. These provided that the agreement represented the entire understanding and constituted the whole agreement in relation to its subject matter between Ms Wong and the Defendants and superseded any previous agreement or understanding in relation to its subject matter.

96.  I agree with Mr Nip that as a matter of law, no legal effect can be given to the Alleged Representations. As explained in Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep 611 Ch D at [7] (Lightman J):

“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 record or explain) on 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 opposed by the need which 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 negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar 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… It is to denude what would otherwise constitute a collateral warranty of legal effect.”

97.  Inntrepreneur Pub Co was applied by the Court of Appeal in Glory Gold Ltd v Star Play Development Ltd [2008] 2 HKLRD 416 at [16] (Cheung JA).

E.  MS WONG’S CLAIM OF IMPLIED TERMS

E1.  Ms Wong’s case

98.  Ms Wong’s case, as pleaded by counsel on her behalf, is that seven terms should be implied into the Agent’s Contract and/or the Manager’s Contract, “by adopting the common practice amongst the insurance industry” or by reason of necessity to give business efficacy to the agreements, as follows.

98.1  PVI or AFYP at the Defendants would be equivalent to AFYP as commonly known or recognised in the insurance industry (“Alleged Term 1”).

98.2  The calculation and/or definition of PVI as recognised by the Defendants would be the same as previously known to or recognised by Ms Wong during her past employment with AXA. (“Alleged Term 2”).

98.3  PVI and/or AFYP would be the total expected premium payments over the first twelve months on new policies or new business (“Alleged Term 3”).

98.4  Upon the termination of the Agent’s Contract and/or the Manager’s Contract, the Defendants would pay Ms Wong all those commissions, earnings, bonuses and/or remunerations to which she was entitled to receive during the effective period of the Agent’s Contract and/or the Manager’s Contract (“Alleged Term 4”).

98.5  Upon the termination of the Agent’s Contract and/or the Manager’s Contract, without fault on the part of Ms Wong, the Defendants would indemnify Ms Wong against all liabilities to which she was or might become liable to pay on termination of any of the agreements she had made with the Defendants (“Alleged Term 5”).

98.6  The power to terminate the Agent’s Contract and/or the Manager’s Contract by the Defendants would be exercised in good faith (“Alleged Term 6”).

98.7  The power to terminate the Agent’s Contract and/or the Manager’s Contract by the Defendants would not be exercised for arbitrary, capricious, perverse or irrational reasons (“Alleged Term 7”).

E2.  Relevant principles

99.  Ms Wong did not take issue with the principles relied on by the Defendants, as follows.

100.  As held by the Court of Final Appeal in Kensland Realty Ltd v Whale View Investment Ltd & another (2001) 4 HKCFAR 381 at [23] and [59], the following conditions must be satisfied in order for a term to be implied into a contract (citing Lord Simon’s summary in BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1977) 180 CLR 266:

100.1  it must be reasonable and equitable;

100.2  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;

100.3  it must be so obvious that “it goes without saying”;

100.4  it must be capable of clear expression; and

100.5  it must not contradict any express term of the contract.

101.  In Marks and Spencer plc v BNP Paribas Securities Trust Co (Jersey) Ltd and another [2016] AC 742, Lord Neuberger added six comments to Lord Simon’s summary, as follows.

101.1  The implication of a term was not critically dependent on proof of an actual intention of the parties when negotiating the contract. The question is what notional reasonable people, in the position of the parties at the time at which they were contracting, would have intended.

101.2  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.

101.3  It is questionable whether the requirement of reasonableness and equitableness will add anything: if a term satisfies the other requirements it is hard to think that it would not be reasonable and equitable.

101.4  Although Lord Simon’s five requirements are otherwise cumulative, business necessity and obviousness (the second and third requirements) can be alternatives in the sense that only one of them needs to be satisfied, although in practice it would be a rare case where only one is satisfied.

101.5  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.

101.6  Necessity for business efficacy involves a value judgment. The test is not one of absolute necessity. A more helpful way of putting the requirement may be that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.

102.  An apparently unqualified power or discretion given to a party to a contract should generally be construed as being subject to some implied restrictions regarding the exercise of that power or discretion: Tadjudin Sunny v Bank of America, unreported, CACV 12/2015, 20^th May 2016, at [46] (Kwan and Barma JJA, Chow J). At [55]:

“In all, a power or discretion given to a party to a contract which on its face is unqualified is generally to be read as being subject to an implied requirement that it can only be exercised in good faith, rationally and for a proper purpose, and not arbitrarily or capriciously or in a manner which is not bona fide. Such restrictions are implied in order to give effect to the reasonable expectations of the parties to the contract.”

103.  The burden of showing irrationality is a very high one. It is not sufficient to establish unreasonableness; a plaintiff would have to show that no reasonable defendant would have exercised his discretion in that way, or that the defendant acted irrationally: Sunny Tadjudin at [11], [163].

E3.  Alleged Terms 1, 2, 3

104.  I agree with Mr Nip that Alleged Terms 1, 2 and 3 cannot form part of the terms of the Agent’s Contract or the Manager’s Contract.

104.1  The terms are imprecise and not clearly expressed. For example, it is unclear what the calculation or definition of PVI “as previously known to or recognised by Ms Wong during her past employment with AXA” might be.

104.2  They contradict the express provision in the Schedule to the M3 Agreement where PVI was defined as “the promotion & validation index which is counted upon paid and approved new business and is calculated based on the different calculations for different product lines as determined by the [Defendants] at its absolute discretion from time to time”.

104.3  The terms are neither necessary to give business efficacy to the agreements nor obvious. There is no evidence as to the commonly known or recognised concept of AFYP alleged.

105.  In any event, it is difficult to understand the implications of the plea. Having pleaded Alleged Terms 1, 2 and 3, it does not appear that any breach of the terms was alleged.

Alleged Terms 4, 5

106.  I agree with Mr Nip that Alleged Terms 4 and 5 similarly cannot form part of the terms of the Agent’s Contract or the Manager’s Contract.

106.1  The terms are inconsistent with cll.18.4 and 18.5 of the Agent’s Contract and cll.20.4 and 20.5 of the Manager’s Contract, which provide for the cessation or limitation of payments to Ms Wong upon termination of the agreements. In other words, the agreements already provide for the calculation of commission, earnings, bonuses and/or remuneration payable upon termination.

106.2  The terms are neither necessary to give business efficacy to the agreements nor obvious. There is no evidence as to any common practice in the insurance industry as alleged.

Alleged Terms 6, 7

107.  I agree with Mr Nip that Alleged Terms 6 and 7 do not form part of the terms of the Agent’s Contract all the Manager’s Contract.

107.1  The terms are inconsistent with cl.18.1 of the Agent’s Contract and cl.20.1 of the Manager’s Contract, which expressly provide for either party to terminate the agreements at any time and without giving any reason for so doing on the giving of one month’s written notice. In other words, both parties were given the power to terminate the agreements for reasons which might be irrational, or even in bad faith.

107.2  The terms are neither necessary to give business efficacy to the agreements nor obvious. There is no evidence as to any common practice in the insurance industry as alleged.

108.  In any event, as I set out in the next section, Ms Wong fails to establish that the termination of the Agent’s Contract and the Manager’s Contract were exercised otherwise than in good faith, or for arbitrary, capricious, perverse or irrational reasons.

F.  MS WONG’S CLAIM OF WRONGFUL TERMINATION

109.  The Termination Letter stated that termination of the Agent’s Contract was made pursuant to cl.18.2(i) thereof, and that termination of the Manager’s Contract was made pursuant to cl.20.2(i) thereof. Those provisions entitled the Defendants to terminate the agreements immediately with notice in circumstances where Ms Wong did not meet training, production, persistency or other requirements in respect of her appointment, which requirements might be set by the Defendants from time to time.

110.  The Defendants say that Ms Wong did not meet these requirements. In particular, they say that Ms Wong failed to meet her MTB validation requirements and that the lapse rate of her business unit was high.

F1.  The relevant facts

111.  I first recap some of the relevant background and set out my further findings of fact relevant to this issue.

F1.1  The MTB validation requirements and Ms Wong’s failure to meet them

112.  As earlier noted, the terms of the Agent’s Contract and the Manager’s Contract provided for Ms Wong to comply with the Defendants’ instructions and key performance indicators.

113.  The MTB validation requirements were set out in the M3 Schedule, the main points of which have been set out above. Ms Wong was to be entitled to be advanced up to $60,000 per month during the sixty months of the five-year program if she could meet the necessary production validation requirements as set out in the table to cl.3c) of the M3 Schedule. Even if Ms Wong could not meet these requirements, she could still receive a pro rata amount of MTB advance for a month if she could generate at least 60% of the MTB required EI in that month.

114.  These requirements had been set based on Ms Wong’s business performance prior to joining the Defendants. It will be recalled that Ms Wong was appointed under the Experienced Hire Program. Under the Offer Letter, Ms Wong had to provide income proof to justify setting the Base Amount of $1.2m for calculating the advances in the M3 Agreement, and in turn, the monthly MTB advances. As Mr Peter Lai explained in cross-examination (as reflected in the Offer Letter), the formula for calculating the MTB advances was based on 300% of Ms Wong’s past income, spread out over 60 months; in the Defendants’ experience, experienced hire candidates would earn more than their previous income. Ms Jennifer Tam’s unchallenged evidence was that agents were expected to achieve 100% of their validation requirements, thereby becoming entitled to all of the bonuses in their financing packages, although even if they did not, they would be able to earn pro-rata percentages of their bonuses if they reached 60% of their validation requirements.

115.  The reminder letters of 19^th June 2017, 21^st September 2017, and 11^th December 2018, the contents of which were made known to Ms Wong (whether through Mr David Tam or by reason of Ms Wong having received the letters directly), stated that Ms Wong’s performance was unsatisfactory as her cumulative MTB validation was below 50% of the requirement. In her oral opening, Ms Wong claimed that at a meeting which took place after she received became aware of the first and second reminder letters, Mr Peter Lai had told her that it was not necessary to pay attention to the letters, which were automatically generated by the system, because apart from using EI for validation, Ms Wong could also use a whole year’s PVI. I do not accept this evidence.

115.1  In her witness statement, Ms Wong had merely said that Mr Peter Lai told her not to worry about this kind of reminder and had not suggested that Mr Peter Lai had mentioned anything about ignoring the letters because they were merely automatically generated documents calculated on the basis of EI whereas Ms Wong’s performance was to be validated by PVI. Ms Wong could not satisfactorily explain such an important omission from her witness statement which was prepared with the assistance of legal representatives.

115.2  Nor did she call any of the other senior directors of the agency which she claimed to have been present at the meeting with Mr Peter Lai to corroborate her claim.

115.3  Nor did she challenge Mr Peter Lai’s in his witness statement that in his experience the Defendants only issued reminder letters and warning letters to agents if their performance was unsatisfactory; he would not have told Ms Wong that the reminder letters and warning letters were merely conventional procedures.

116.  As regards the third letter of 11^th December 2018 and the First Warning Letter of 31^st December 2018, Ms Wong claimed in cross-examination that she had raised concerns about these with Ms Jennifer Tam as she was supposed to be able to validate her performance through PVI. I do not accept this evidence.

116.1  In her witness statement, Ms Wong had originally said that she had asked Mr Peter Lai about these matters at the time, and Mr Peter Lai had told her that they were merely conventional procedures and she did not need to worry about them as the business performance of her and her team was satisfactory.

116.2  However, Mr Peter Lai explained in his witness statement that he had left the Defendants by the time the First Warning Letter had been issued. It was only afterwards that Ms Wong changed her case to say that she in fact discussed the matter with Ms Jennifer Tam. She was unable to say what Ms Jennifer Tam’s response was when cross-examined.

116.3  Mr Peter Lai’s evidence was that he had signed the reminder letter of 11^th December 2018, so he knew that Ms Wong’s performance was far from satisfactory, and he would not have suggested otherwise to her.

117.  Ms Wong had worked in the insurance industry for many years, with substantial experience in managerial roles. I find it hard to believe that Ms Wong merely considered the reminder letters or the First Warning Letter were merely pieces of paper generated automatically by the Defendants’ system which could just be ignored. I further note that she never sought to put on record at the time any disagreement with the calculations made in the letters, or the Defendants’ dissatisfaction at her failure to achieve 50% of the cumulative MTB validation requirements.

118.  I therefore accept that by the three reminder letters, Ms Wong did become aware that the Defendants required her to achieve at least 50% of the cumulative MTB validation requirements in order to be considered as performing satisfactorily, even though the figure of 50% was not stated in the M3 Schedule, and the 60% figure in the M3 Schedule was expressed as a requirement for the entitlement to MTB advances rather than as a measure of satisfactory performance as such. This is because both the Agent’s Contract and the Manager’s Contract required Ms Wong to meet key performance indicators including production and persistency (which would include the 60% figure and other MTB validation requirements in the M3 Schedule, which after all had been set based on Ms Wong’s past business performance – as the reminder letters pointed out, Ms Wong was recruited on the mutual understanding that she would perform at a level reasonably comparable with her past records), and because in any event, it was open to the Defendants to revise the production requirements and issue further instructions from time to time, so that they could have required Ms Wong to achieve at least 50% of the MTB validation requirements through the reminder letters, even if the M3 Schedule made no mention of this. I also accept Ms Jennifer Tam’s unchallenged evidence that the Defendants would generally consider that an agent’s performance was unsatisfactory if he failed to reach 50% of his cumulative EI requirement, and issue reminder letters accordingly.

119.  As set out above, Ms Wong failed to meet the MTB validation requirements for most of her thirty months as the Defendants’ agent. The reminder letters and the First Warning Letter recorded that her cumulative MTB validation was 40% as at 19^th June 2017; 36% as at 21^st September 2017, 36% as at 12^th December 2018, and 35% as at 31^st December 2018. Ms Wong consistently failed to meet the 50% cumulative MTB validation required by the Defendants.

120.  The First Warning Letter of 31^st December 2018 stipulated that Ms Wong had to achieve an EI of $150,000 in the two months of January to February 2019. The amount tallied with the requirements in the M3 Schedule for her 28^th and 29^th month (if Ms Wong was to obtain the full amount of the MTB advances for those months). Ms Wong was reminded of the requirement by emails of 13^th and 25^th February 2019. She failed to meet the requirement.

F1.2  The lapse rate requirements and Ms Wong’s failure to meet them

121.  In the quarterly Agent Scorecards issued to Ms Wong, there was a table which set out the lapse rates of Ms Wong and the agents in her team. The notation above the table contained a box in red with the caption “Lapse rate > 30%”, indicating that where any lapse rate in the table exceeded 30%, this would be highlighted in red. I accept Mr Nip’s submission that this was a sufficient indication that a lapse rate exceeding 30% was unacceptable to the Defendants.

122.  Ms Wong’s lapse rate for the first quarter of 2018 was just 8%. However, it jumped to 46% for the second quarter of 2018, and 55% in the third quarter of 2018. Ms Wong challenged the calculation of 55% on the grounds that took into account lapsed policies from departed agents of her team; had it been calculated “normally” then the lapse rate would not be so high. However, and as acknowledged by Ms Wong, under the Agent’s Contract and the Manager’s Contract, the Defendants had the right to assign clients to Ms Wong, and Ms Wong had the obligation to serve such clients.

123.  The Second Warning Letter of 4^th February 2019 warned that the lapse rate of the business produced by the agents of Ms Wong’s business unit from October was significantly higher than the Defendants’ benchmark. Ms Wong submitted that this failed to identify the period for which the lapse rate was poor, and that she did not know how poor the lapse rate was. The letter did in fact refer to the lapse rate “within the past 13^th month to 48^th month (October 2014 to December 2017”. This was presumably a reference to the scorecards which used the time frame of policies issued within the “Past 13-48 Months”, that is, between one to four years prior to the scorecard date, to calculate the lapse rate. Details of the lapse rate within that period, calculated on a quarterly basis, would have been available from the Agent Scorecards.

F2.  Ms Wong’s arguments

124.  Ms Wong submitted that she did not fail to fulfil the MTB validation requirements, as she was allowed to use PVI to fulfil the requirements; furthermore, when using PVI to assess whether the validation requirements had been met, she was entitled to a whole program year to achieve her catch up. She pointed to the fact that she was able to use PVI through the “catch-up” route (pursuant to cl.3g) of the M3 Schedule) to obtain a catch-up payment for Program Year 2. Termination of her appointment part way through the (next) year was therefore wrong as she could have achieved the catch-up later.

125.  The Defendants argued that (and Ms Jennifer Tam’s evidence was that) the primary means of achieving validation was by achieving the MTB Required EI stipulated in cl.3c) of the M3 Schedule, and that the provisions for catch-up were simply to enable an agent to obtain some form of payment even if he was unable to achieve the MTB Required EI.

126.  It seems to me that the short answer to Ms Wong’s point is that the Defendants were entitled to require Ms Wong to achieve 50% cumulative MTB validation in order to constitute satisfactory performance, that Ms Wong was informed of this through the reminder letters, and that she failed to do so. Similarly, the Defendants were subsequently entitled to require Ms Wong to achieve the level of EI in the specified business plan in the First Warning Letter, Ms Wong was informed of this through the First Warning Letter, and she failed to do so. This is irrespective of what her entitlements to claim MTB advances under the M3 Agreement may have been, whether by achieving the MTB Required EI, or by way of catch-up calculated using PVI. It was not Ms Wong’s pleaded case that, for example, the Defendants were contractually obliged to defer the assessment of whether Ms Wong performed satisfactorily until the end of each Program Year. Ms Wong’s case seeks to equate the issue of whether she performed satisfactorily with whether she was entitled to various advances under the M3 Agreement. Whilst factually, there is some overlap between the two issues, as a matter of analysis they are distinct: there is nothing in the agreements which directly equates the two, and the pleaded case for Ms Wong does not seek to do so either.

127.  I do have some sympathy for Ms Wong’s complaint that it was not entirely clear to her what performance was expected of her. The M3 Agreement (and M3 Schedule) did not say so in so many terms; rather, it addressed the conditions for the payment of MTB advances to Ms Wong, which, as I have said, is a different matter. Mr Peter Lai’s evidence was that reminder letters should have been issued every three months, but only three such letters were before the court, so that the Defendants can only point to these three as evidence that Ms Wong was aware of the requirement to achieve 50% cumulative MTB validation in order to be considered a satisfactory performer. Nevertheless, Ms Wong did receive these letters or was told about their contents at the time. She also received the monthly Commission Reports which would have showed when the lapse rate for her team started falling below the Defendants’ benchmark.

128.  Ms Wong then argued that there were various matters which showed that the Defendants did not consider her performance to be unsatisfactory, for example, their willingness to enter into the 2017 MTB Special Advance Agreement, at a time when two reminder letters had already been issued to her, or her lack of demotion. As to the first matter, Mr Peter Lai could not recall the reason for advancing the loan, but he thought that the Defendants were trying to help Ms Wong. It seems to me that neither matter precludes the Defendants from an assessment that Ms Wong’s performance was unsatisfactory.

129.  Ms Wong then argued that her poor performance was caused by the Defendants’ implementation of business quality control measures. In December 2017, the Defendants announced that various business quality control measures would be implemented. In particular, if a manager left the Defendants, his direct manager would take over the resulting “orphan” policies of the leaving manager. The direct manager would be entitled to earn commission in relation to the policies, and at the same time, the policies would be counted in the manager’s persistency rate. Ms Wong complained that the departure of her downline agents adversely affected her lapse rate and persistency rate. However, I do not see how Ms Wong can complain about the introduction of the policies.

129.1  The Defendants were all along entitled to assign orphan policies to Ms Wong under the express terms of the Agent’s Contract and the Manager’s Contract (see cll.1.7 and 2.1(b) of the former and cll.1.10 and 4.1(b) of the latter).

129.2  There was some suggestion that the policies were introduced to target Ms Wong and her downline agents. I accept Ms Jennifer Tam’s evidence that the policies were applied to all agents, and her and Mr Peter Lai’s evidence that they were introduced to maintain business quality, as they would incentivise upline managers to be more involved in the policies procured by their downline agents.

130.  I therefore do not agree that the Defendants wrongfully terminated the Agent’s Contract and the Manager’s Contract.

G.  MS WONG’S CLAIM THAT AMOUNTS WRONGFULLY WITHHELD

131.  Paragraph 35 of the SOC pleaded that various sums were wrongfully deducted from Ms Wong’s payroll for the months of December 2018, January 2019 and March 2019, totaling $834,176.13.

132.  The Defendants say that they were entitled to make the deductions pursuant to the express rights of set-off provided for in cll.8.8 and 9.2 of the Agent’s Contract and cll.10.8 and 11.2 of the Manager’s Contract. The deductions fell broadly into three categories:

132.1  instalment payments due by Ms Wong under the deed of guarantee signed in respect of Mr Chan. As was demonstrated in cross-examination, Ms Wong was informed by emails of 5^th September 2018 and 19^th December 2018 of her liability under the deed of guarantee and that the relevant amount would be deducted by way of instalments from her payroll, which she did not complain about either at the time or after her termination;

132.2  commissions deducted due to the internal replacement of various insurance policies produced by Mr Chow Pak Fai, a downline agent of Ms Wong at the material time, as calculated pursuant to Agency Bulletin 1079-1. Ms Wong wrote an email of 28^th February 2019 to Ms Tam and 16^th April 2019 to the human resources team querying the deductions on the basis that the policies were not produced by her and had been assigned to her only because of the departure of the producing agent. However, as already addressed above, the Defendants were entitled to make such assignments;

132.3  repayment of Ms Wong’s first year commission to which she was no longer entitled by reason of termination of the Agent’s Contract and the Manager’s Contract, pursuant to cl.18.4 of the Agent’s Contract and cl.20.4 of the Manager’s Contract.

133.  The Defendants tabulated the deductions made and the reasons therefore, with references to the relevant witness statement and documentary evidence in Appendix 3 to their closing submissions. There was no real dispute about these matters.

134.  Ms Wong was unable to advance any real basis to complain that the sums had been wrongfully withheld.

H.  THE DEFENDANTS’ COUNTERCLAIM

135.  As earlier set out, the Defendants counterclaim an amount of $4,491,274.54, comprising the following

Item	Description	Amount
1.	The part of the advances made to Ms Wong under the M3 Agreement repayable on termination	$210,600.00
2.	MTB catch-up payment made to Ms Wong for Program Year 2	$459,940.72
3.	Advance made to Ms Wong under the PB Special Advance Agreement	$1,080,000.00
4.	Advance made to Ms Wong under the SPB Special Advance Agreement	$600,000.00
5.	Amount under the Deed of Guarantee in respect of Mr Chan’s debts to the Defendants	$688,233.82
6.	Amount under the Deed of Guarantee in respect of Ms Chan’s debts to the Defendants	$665,000.00
7.	Amount under the Deed of Guarantee in respect of Mr Choi’s debts to the Defendants	$205,500.00
8.	Amount under the Deeds of Guarantee in respect of Mr Sit’s debts to the Defendants	$1,582,000.00
	Total, giving credit for the $1,000,000 already paid by Ms Wong	$4,491,274.54

H1.  Advances and MTB catch-up payment

136.  Under cl.6 of the M3 Agreement, if the Agent’s Contract was terminated for any reason within 48 months from the month in which the MTB was advanced to Ms Wong, a specified portion of each of the MTBs advanced (which would include any MTB catch-up payments) was to be immediately repayable to the Defendants.

137.  Under cl.4 of each of the PB Special Advance Agreement and the SPB Special Advance Agreement, advances made thereunder were to become immediately due and payable if Ms Wong ceased to be the Defendants’ agent.

138.  Given my finding that the Agent’s Contract and the Manager’s Contract were not wrongfully terminated, it must follow that Ms Wong is liable to repay items 1 to 4 above.

H2.  Amounts due under the deeds of guarantee

139.  At the trial, Ms Wong confirmed that she no longer took the stance that she thought that the various deeds of guarantee were mere formalities.

140.  Ms Wong had also pleaded a defence that her downline agents would not have been terminated had the Defendants not implemented the business quality control measures. I have already earlier addressed the suggestion that the measures were targeted at her and her downline agents. In any event, Ms Wong was unable to adduce any evidence to establish that there was any causal linkage between the implementation of the measures and the termination of the downline agents.

141.  Finally, Ms Wong complained that the Defendants had not provided her with the underlying special advance agreements entered into between the Defendants and the downline agents in question.[3] However, as Mr Nip submitted, there is no general duty on the part of a creditor to disclose material facts to a surety, in particular any circumstances which would make the surety’s position more hazardous; the creditor’s duty is simply not to mislead; it is the surety who has the obligation to make all necessary enquiries. (Where there are facts of which the surety is unaware and which he could not, in the circumstances be expected to know, but which materially affect his liability or potential liability, it is then incumbent on the creditor to disclose such facts to the surety. However, this qualification of the general position has no application in the present case.) See Bank of China (Hong Kong) Ltd v Wong King Sing & others [2002] 1 HKLRD 358 at [27] to [28] (Recorder Ma SC, as he then was).

142.  There is no defence to the counterclaim under the deeds of guarantee.

H3.  Interest

143.  On the second day of the trial, Mr Nip helpfully provided to the court and to Ms Wong a table setting out the amounts of interest claimed on the sums comprised within the counterclaim, and the basis for such claims, up to the date of the last day of trial. This gave Ms Wong the opportunity to consider the Defendants’ calculations of the interest claimed. In closing submissions, Ms Wong confirmed that she did not take issue with the calculations in the event that she was found liable to pay interest. In essence, the interest accrued up to the last day of the trial amounted to $1,654,434.09.

144.  Interest on the outstanding advances and the MTB catch-up payment was agreed to be payable at the rate of 3% over HSBC’s Best Lending Rate: see cl.8 of the M3 Agreement and cl.2.1 of each of the PB Special Advance Agreement and the SPB Special Advance Agreement.

145.  The amounts due under the deeds of guarantee were due on demand. The Defendants claimed interest at 1% above prime rate (citing Lo Yuk Sui v Fubon Bank (Hong Kong) Limited [2017] 2 HKLRD 477 at [18]) and adopted HSBC’s Best Lending Rate as the prime rate in their calculations.

146.  I see no reason why pre-judgment interest should not be awarded as claimed by the Defendants.

I.  DISPOSITION

147.  I dismiss Ms Wong’s claims.

148.  I give judgment to the Defendants on their counterclaim for $4,491,274.54 together with pre-contractual interest in the amount of $1,654,434.09. Interest from judgment will run at judgment rate.

149.  I further make a costs order nisi that Ms Wong is to pay to the Defendants the costs of and occasioned by the action (including the counterclaim) on an indemnity basis,[4] with certificate for two counsel, to be taxed if not agreed.