MANULIFE (INTERNATIONAL) LTD v. WONG CHOU, JOHNNY

HCA 1632/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1632 OF 2012

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JUDGMENT

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THIS ACTION

1.  In this action, Manulife (International) Limited (“Manulife”), a company carrying on business as an insurer, claims against Mr Wong Chou Johnny (“Mr Wong”), its former district director, a sum of HK$1,974,479.61[1] said to be due from Mr Wong to Manulife on termination of their relationship on 13 April 2011 by notice dated 29 March 2011 by Manulife.

2.  The figure of HK$1,974,479.61 represents the sum of various overrides and bonuses which Manulife claims it had overpaid Mr Wong and his direct reporting manager, one Wong Long Ki Joseph (“Joseph Wong”), in 2010 and 2011, after setting off certain allowances and deductions to which Mr Wong was entitled.

3.  The issue for determination is whether Manulife is entitled to claw back from Mr Wong such payments.

RELEVANT BACKGROUND

4.  The facts and circumstances from which Manulife’s claim herein arose can be summarised as follows.  Unless otherwise indicated, there is no or no material controversy that the events and matters set out under this heading occurred.

5.  Manulife engages agents to solicit contracts of insurance for it.  Such engagement, however, does not create between Manulife and the agent engaged a relationship of employer and employee.  Manulife’s agents are all self-employed.

6.  Manulife’s agents are organised into separate districts, each headed by a district director.  Within each district is a structure consisting of levels of district directors, branch managers and unit managers (in charge of different units into which agents of the district are grouped).  Groups of districts are overseen by an agency director.

Agreements between Manulife and Mr Wong and terms thereof

7.  By a Career Agent’s Agreement dated 2 April 2002 (“Agent’s Agreement”), Manulife engaged Mr Wong as an agent to, inter alia, solicit applications for life insurance for Manulife exclusively.  The Agent’s Agreement included the following express terms:

(1) Clause 7.1: that Mr Wong shall be entitled to commissions from policies effected through him, calculated in accordance with the “Schedules of Commission” as from time to time amended by Manulife and notified in writing to Mr Wong;

(2) Clause 7.3: that Manulife shall have the right to withhold or set off against commissions or other sums due to Mr Wong any debt, obligation or liability due or owing or likely to become due or owing by Mr Wong to Manulife;

(3) Clause 8: that Mr Wong shall be entitled to receive bonuses in accordance with the “Supplement for Additional Income” as from time to time amended by Manulife and notified in writing to Mr Wong; and

(4) Clause 9: that the Production Club Membership, Production Club Credit (“PC”), the year in which PC is given and the Production Club Year shall be determined by the then current Production Club Rules and Accounting Regulations adopted by Manulife.

8.  By an Agency Management Agreement dated 1 June 2003 (“Manager’s Agreement”), Manulife engaged Mr Wong as a manager to, inter alia, instruct, develop and supervise agents assigned by Manulife to Mr Wong.  The Manager’s Agreement included the following express terms:

(1) Clause 2.6: that Mr Wong must maintain his status as an agent of Manulife, as defined in the Agent’s Agreement;

(2) Clause 3.1: that Mr Wong shall be entitled to receive “Manager’s Override” in accordance with the “Manager’s Override Schedule” as from time to time amended by Manulife and notified in writing to Mr Wong; and

(3) Clause 3.2: that if a Supporting Manager was terminated, the calculation of the Manager’s Override shall be determined by Manulife; and

(4) Clause 3.4: that Manulife shall have the right to withhold or set off against the Manager’s Override or other sums due to Mr Wong any debt, obligation or liability due or owing or likely to become due or owing by Mr Wong to Manulife.

9.  Mr Wong was promoted to the position of District Director in January 2010.

Remunerations to which Mr Wong was entitled as manager and district director

Manager’s Override

10.  As stipulated in Clause 3.1 of the Manager’s Agreement (see paragraph 8(2) above), as manager, Mr Wong was entitled to receive Manager’s Override.  When an insurance agent solicits a policy, he earns commissions and other bonuses and accumulates PC.  At the same time, his up-line managers receive Manager’s Override based on the core PC generated by the policy.  There are two kinds of Manager’s Override:

(1) Agent Development Override (“ADOR”) which is paid to the agent’s direct up-line manager; and

(2) Management Development Override (“MDOR”) which is paid to the manager(s) above the agent’s direct up-line manager.

11.  We are not here concerned with the allocation or computation of Manager’s Override.  Rather, we are concerned with the charging back of Manager’s Override by Manulife.  More particularly, we are concerned with the charging back of Manager’s Override paid by Manulife on what is known as the “Matrix 25” policy[2] (from which the payments in dispute arose).

(1)     As noted in Manulife’s memorandum dated 17 November 2010 and captioned “Monthly Premium Test for Matrix 10 / 15 / 25 Policy” (“17.11.10 Memo”), the “chargeback” period and methods for Matrix 25 policies issued before 18 January 2010 were as follows:

PERIOD	CHARGEBACK METHOD
	PC Chargeback	Case Count Chargeback	Conservation Rate Reduction	MPB & Overrides Chargeback
1 – 12 months	Yes	Yes	Yes	Yes
13 month	No	No	Yes	Yes

In other words, a manager could retain the Manager’s Override paid to him on a Matrix 25 policy issued before 18 January 2010 if Manulife received premium under such policy for at least 13 months.

(2)     By paragraph 7 of Manulife’s memorandum dated 11 January 2010 and captioned “2010 Agency Rules and Qualification” (“First 11.1.10 Memo”), the “chargeback” period for Matrix 25 policies issued on or after 18 January 2010 was extended to 24 months as follows:

PERIOD	CHARGEBACK METHOD
	PC Chargeback	Case Count Chargeback	Conservation Rate Reduction	MPB & Overrides Chargeback
1 – 12 months	Yes	Yes	Yes	Yes
13 month	No	No	Yes	Yes
14 – 24 months	No	No	No	Yes

That is to say, a manager who received Manager’s Override for a Matrix 25 policy issued on or after 18 January 2010 could retain the same if Manulife received premium under such policy for at least 24 months.

12.  The policies from which the payments in dispute arose straddled 18 January 2010.  However, it does not matter which set of these “chargeback” provisions applied as payment of monthly premium under the material policies was invariably stopped after 2 instalments (see paragraph 27 below).

13.  It will be seen shortly that what assumes significance is the timing of what is called the “premium test”, which simply means checking if the premium under a policy has been paid or is overdue.

(1) As stated in the paragraph under the heading “Existing Premium Test” in the 17.11.10 Memo, prior to 29 November 2010, “the 1^st premium test for Matrix 10 / 15 / 25 policy (“Matrix”) is performed at the beginning of the 12^th policy month.  PC would be charged back with conservation and bonuses affected if premium is overdue for 2 months (i.e. the premium test failed for 3 consecutive months at the 14^th policy month” (“Old Premium Test Policy”). 

(2) The purpose of the 17.11.10 Memo was to announce the advancement of the premium test for Matrix 10 / 15 / 25 policies so that as stated in the paragraphs under the headings “New Monthly Premium Test” and “Charge Back Period and Method”, for policies issued on or after 29 November 2010, “a monthly premium test will be performed from the beginning of the 3^rd policy month” and if premium is overdue for 2 months (i.e. the premium test fails for 3 consecutive months), the charge back would be as set out in paragraph 11 above.

Year End Bonus

14.  As a district director, Mr Wong was further entitled to a Year End Bonus (“YEB”) upon satisfaction of certain conditions, which for the year of 2010 were:

(1) achievement of direct district production of 6,200,000 PC;

(2) direct district conservation rate of 88%; and

(3) direct district PC growth rate of not less than 5% over the adjusted direct district total PC for 2009.[3]

See Manulife’s memorandum dated 11 January 2010 and captioned “2010 Agency Manager Compensations and Rules for DD+” (“Second 11.1.10 Memo”), in particular, paragraph 3 and appendix III thereof.

15.  Manulife would make advance payments of the YEB twice at the end of each of the first and second quarters of the year if a district

director could achieve the minimum growth rate, as compared with the performance of his direct district for respectively the first quarter and for the whole year in the previous year. 

16.  YEB advance payments would be clawed back at the end of the year if the actual YEB for the year should turn out to be of a smaller amount.  See paragraph 5.3 of the Second 11.1.10 Memo.

Mr Wong’s direct and indirect reporting managers and agents

17.  One of Mr Wong’s direct reporting managers was Joseph Wong who became an agent of Manulife on 1 December 2003.

18.  It is common ground that as a result of an incident that occurred prior to November 2009 (the details of which are not agreed between the parties but which I need not resolve for present purpose), the actual management and supervision of Joseph Wong was transferred to Mr Harry Wong, then a District Director and Mr Wong’s direct supervisor.  Mr Wong ceased to have any supervision or control over Joseph Wong and the managers and agents operating under him from then onwards.  However, in order to preserve the financial benefits enjoyed by Mr Wong under the Manager’s Agreement, Joseph Wong was to remain in name Mr Wong’s direct reporting manager for the allocation of PC and MDOR arising from the production of Joseph Wong and the managers and agents operating under him.

19.  In this regard, through Joseph Wong:

(1) his fiancée, one Kung Wai Yin (“Kung”), whom Manulife engaged as an agent in Joseph Wong’s team on 5 October 2009, became in name Mr Wong’s indirect reporting manager;

(2) one Bok Tak Choi (“Bok”) and one Cheng Pok Man Rufus (“Cheng”) whom Manulife engaged as agents in Kung’s team on 2 November 2009[4] and 7 December 2009 respectively, also became in name Mr Wong’s indirect reporting agents.

Payments sought to be recovered by Manulife

20.  The payments that Manulife seeks to recover from Mr Wong are ADOR / MDOR and YEB advances that had been paid by Manulife as a result of thirty[5] Matrix 25 policies concluded by Kung, Bok and Cheng from November 2009 to May 2010 (“Policies” collectively and “Policy 1” to “Policy 30” individually).

Manager’s Override

21.  The Policies and the commissions, bonuses and overrides paid out by Manulife on them are set out in the schedule attached to this judgment (“Schedule”).  To illustrate the difference between ADOR and MDOR and the computation of MDOR payable to each level of up-line manager, let us look at the policies effected by Bok (after he was transferred to Kung’s supervision) and by Cheng.  It can be seen that Kung as Bok and Cheng’s direct up-line reporting manager was paid ADOR whereas Joseph Wong, Mr Wong and Harry Wong as Bok and Cheng’s indirect up-line reporting managers were paid MDOR.  Further, in accordance with Heading I of the Schedule of Manager’s Overrides (effective from 1 January 2010) at page 397 of Trial Bundle C1, the amounts of MDOR paid to Joseph Wong were 50% of the amounts of ADOR received by Kung; Mr Wong received MDOR at 50% of what Joseph Wong was paid; and that Harry Wong received MDOR at 50% of what Mr Wong was paid.

22.  Focusing on the MDOR shown in column 13 of the Schedule, although Mr Wong has only admitted in paragraph 8 of the Amended Defence that he “may have received advance payments of Manager’s Overrides which were generated from various kinds of insurance policies including but not limited to Matrix Policies”, the monthly PTM[6] statements issued by Manulife to Mr Wong from November 2009 to June 2010 at pages 418 – 440 of Trial Bundle C1 do show payment to Mr Wong of MDOR at 50% of the ADOR / MDOR earned by Joseph Wong.  In any event, Mr Wong has accepted in his closing submissions that he did receive sums totalling $751,095 by way of MDOR as a result of the Policies.  What he questions is Manulife’s rights to claw back the MDOR that he had earned or to look to him for recovery of the ADOR / MDOR received by other (notional) members of his team (see paragraphs 46 and 47 below).

23.  Manulife paid out the commissions, bonuses and overrides set out in the Schedule upon receipt of only 2 instalments of premium under each of the Policies as shown in column 6.

2010 YEB advances

24.  In addition to the commissions, bonuses and overrides listed in columns 7 to 13 of the Schedule, the PC generated by those of the Policies that were issued in 2010 were credited to Mr Wong for 2010 with the result that he received $1,207,697 by two instalments of $691,062.20 and $516,634.80 on 14 April 2010 and 13 July 2010 respectively by way of advance YEB payments for 2010.  Such advance payments were made to Mr Wong on the basis that his direct district had achieved core production of 3,455,311 PC as at April 2010 and 6,038,485 PC as at June 2010.

25.  Even by September 2010, Mr Wong was issued with a Year End Bonus Report which stated that his direct district had achieved core production of 6,802,344 PC as at the second commission run of September 2010 and further projected a total district core production of 8,082,102 PC for the year which would have earned him YEB to the tune of $1,616,420.40.

Problems

26.  As stated in paragraph 23 above, Manulife distributed all the commissions, bonuses and overrides shown in the Schedule upon receipt of only 2 instalments of premium under each of the Policies.

27.  As it turned out, apart from the 2 instalments of premium shown as paid in column 6 of the Schedule, no further payment of premium was made under any of the Policies.

28.  According to Mr William Tam (“Mr Tam”) who was Assistant Vice President (Agency Operation Division) overseeing Mr Wong’s district until Mr Hillman Au (“Mr Au”) (also Assistant Vice President (Agency Operation Division)) took over the oversight of Mr Wong’s district in January 2011, senior members of Manulife’s Agency Operation Division directed their attention to the Policies sometime in 2010.  Mr Tam tried to set up meetings with Joseph Wong and the agents under him but they remained elusive.  Mr Tam only managed to get hold of Kung once but she was evasive and was trying to prevent Mr Tam from speaking with Bok and Cheng.  Before Mr Tam could speak to either Bok or Cheng, Cheng effectively resigned from Manulife on 26 June 2010, followed by Bok and Kung shortly on 10 July 2010.  By a letter dated 5 July 2010, Manulife terminated Joseph Wong’s agency with effect from 20 July 2010.  The four agents then simply disappeared.

29.  Nor could Manulife reach the owners of the Policies.  According to Mr Tam, although these persons seem to exist, the details about them that Manulife had on file were bogus.

30.  All the witnesses of Manulife have expressed doubts as to whether the Policies were genuine business or whether they were a scheme by which Joseph Wong, Kung, Bok and Cheng defrauded Manulife into paying them commissions, bonuses and overrides.  Apparently, the pattern of Kung, Bok and Cheng’s business and the scale of collapse of the Policies were highly unusual.

31.  Taking the view that it had become entitled to claw back the PC and ADOR / MDOR associated with the Policies under the “chargeback” provisions set out in paragraph 11 above, in December 2010, January 2011 and February 2011, Manulife reversed the PC previously credited to Mr Wong, and debited Mr Wong’s account for the ADOR paid by Manulife to Joseph Wong / Kung, as a result of the issue of Policies 1 to 17 as follows:

Month	Overrides Deducted	PC	Amount
12.2010	ADOR paid to Joseph Wong under Policy 1	460,800	$ 184,320
1.2011	ADOR paid to Joseph Wong under Policy 2	72,000	$ 28,800
	ADOR paid to Joseph Wong under Policies 3 & 4	460,800	$ 184,320
2.2011	ADOR paid to Joseph Wong under Policies 5, 6, 7 & 9	817,920	$ 327,168
	ADOR paid to Kung under Policies 8 & 10	748,800	$ 299,520
	ADOR paid to Kung under Policies 11 – 17	437,760	$ 175,104
		2,998,080	$ 1,199,232

32.  In charging Mr Wong for the ADOR paid to Joseph Wong / Kung, Manulife asserts a company policy and practice since the 1980’s pursuant to which an up-line manager would be made responsible for repaying the ADOR that a down-line manager obtained if the down-line manager has left.  Such practice is said to be necessary for maintaining discipline within the agency. The up-line manager takes the benefit of his down-line agents’ production so he should at the same time bear responsibility for any lack of integrity on the part of his down-line agents.

33.  Further, by a Year End Bonus Report (as of December 2010), Manulife advised Mr Wong of the reversal of the 4,173,030 PC previously credited to him for the Policies.  This had the effects of bringing Mr Wong’s direct district core production for the year down to 4,054,091 PC which was significantly below the 6,200,000 PC required for eligibility for the 2010 YEB as well as producing a negative growth rate so that Mr Wong failed two out of the three requirements mentioned in paragraph 14 above.  In accordance with paragraph 5.3 of the Second 11.1.10 Memo (see paragraph 16 above), Mr Wong’s account was debited for the advance YEB payments that he had already received (which was $1,207,697) in the second commission run for January 2011.  See the statement of agent account dated 27 January 2011 at pages 535 – 536 of Trial Bundle C2.

34.  As a result of Manulife’s actions mentioned in paragraphs 31 and 33 above, not only did Mr Wong not receive from Manulife any of the monies he had made from the second commission run of December 2010 to the second commission run of February 2011, his account with Manulife ended up in considerable deficit.  According to Mr Wong, this put him in a very difficult situation.  The overrides and bonuses that he had earned in the past had already been expended on the development and maintenance of the agency under his charge.  The sudden disruption to his income rendered him unable to meet his financial obligations whether at home or at work.  He had to resort to borrowing from his family and friends.  And Chinese New Year was coming up with more expenditure expected (such as red packets to agents and staff, dinners in celebration of the end and the beginning of the years, year end bonuses and other financial incentives to agents working under him).

“Repayment Agreement” dated 11 March 2011

35.  It is common ground that meetings and discussions took place between Manulife (represented by, inter alia, Mr Emil Lee, Chief Distribution Officer, Ms Kareen Chow, Head of Agency Sales, and Mr Au) and Mr Wong beginning from early 2011 to discuss Mr Wong’s predicament caused by the collapse of the Policies.  While the parties have different recollections regarding such meetings and discussions, there is no dispute that they culminated in the signing by Mr Wong of a one-page document in the following terms (“Repayment Agreement”) in Mr Au’s office on 11 March 2011:

“ Below summarizes the mutual agreement regarding the conservation rate and the reverse of the manager overrides and the Year-end Bonus related to the production of Kung Wai Yin, Cathy (Agent Code: 340426), Bok Tak Choi (Agent Code: 34068) and Cheng Pok Man, Rufus (Agent Code 340795) paid to Wong Chou, Johnny (Agent Code: 330837).

1. Management Development Override (‘MDOR’)

The following MDOR will be reversed from Johnny Wong:-

• HK$376,704 MDOR on Cathy Kung’s personal production, which is equal to 20% of the personal production of Cathy in 2009 & 2010.

• HK$259,200 MDOR on Bok Tak Choi’s personal production, which is equal to 20% of the personal production of Bok Tak Choi in Dec 2009, AND 10% of the personal production of Bok Tak Choi in 2010.

• HK$115,191 MDOR on Rufus Cheng’s personal production, which is equal to 10% of the personal production of Rufus Cheng in 2010.

The reverse of the MDOR will be repaid by 30% earning of each commission run, starting from January 2^nd commission run, 2011 until the full amount is settled.

2. Year-end Bonus (‘YE Bonus’)

The personal production of Cathy Kung, Bok Tak Choi and Rufus Cheng in 2010 (4,173,030 PC in total) will be excluded in the calculation of the YE Bonus for Johnny Wong with details as below:-

• For 2010 YE Bonus, 4,173,030 PC will be excluded from the Total PC of Direct District to determine the growth rate and the YE Bonus amount;

• For 2011, 2012 and 2013 YE Bonus, 4,173,030 PC will be excluded from the Adjusted Total PC of Direct District in previous year (i.e. the adjusted base) to determine the growth rate.

2010 Advance YE Bonus of amount HK$1,207,697 will be reversed and repaid by 30% earning of each commission run, starting from January 2^nd commission run, 2011 until the full amount is settled.

2011 Advance YE Bonus (if any) and 2011 YE Bonus (if any) will be used to offset the outstanding 2010 Advance YE Bonus and MDOR chargeback.

3. Conservation Rate

The personal production of Cathy Kung, Bok Tak Choi and Rufus Cheng in 2010 (4,173,030 PC in total) will be excluded in the calculation of the conservation rate for Johnny Wong’s YE Bonus.

4. Special Challenge

A special challenge will be offered with details as below:-

Challenge period Target PC Bonus Amount

Jan to June, 2011 3.1M PC HK$300,000

July to Dec, 2011 4.1M PC HK$300,000

The bonus (if any) will be used to offset the outstanding 2010 Advance YE Bonus and MDOR chargeback.

The MDOR and Year-end Growth Bonus are subject to change at any time and at the Company’s sole discretion.  Standard agency rules shall apply except specified above.”

36.  Upon the signing of the Repayment Agreement, Manulife released to Mr Wong a cheque for the sum of $294,026.47 which represented 70% of his earnings from the second commission run of December 2010 to the second commission run of February 2011 as set out in the table at page 635 of Trial Bundle C2.  Manulife withheld the remaining 30% of Mr Wong’s earnings pursuant to the Repayment Agreement.

37.  Further, as set out in paragraph 31 above, Manulife had prior to the Repayment Agreement already debited Mr Wong’s account for the total sum of $1,199,232 for the ADOR paid by Manulife to Joseph Wong / Kung on account of Policies 1 to 17.  It was a term of the Repayment Agreement that Mr Wong would have to repay only the MDOR that he himself had actually received on the Policies (i.e. $751,095), which means that Manulife had previously over-charged Mr Wong to the extent of $448,137 ($1,199,232 - $751,095).  Manulife refunded 70% of this difference (i.e. $313,695.90) to Mr Wong at the end of the first commission run of March 2011.  In so doing, Manulife apparently treated this refundable sum in the same way as other earnings of Mr Wong to which the 30% retention should apply.  This payment was reversed in Mr Wong’s account in April 2011 after Mr Wong’s departure from Manulife.  In this action, Manulife has treated this payment of $313,695.90 as a payment by mistake[7] that is liable to be returned by Mr Wong.  Whether this is so appears to me to depend on whether Mr Wong is in the first place liable for the ADOR received by Joseph Wong / Kung.

38.  As foreshadowed in paragraph 35 above, there is considerable disagreement between Manulife’s witnesses and Mr Wong regarding the circumstances leading to the signing of the Repayment Agreement and its purpose and propriety. 

(1) On one hand, from Manulife’s point of view, the terms of the Repayment Agreement [i.e. charging back just the MDOR that Mr Wong had actually earned (as opposed to the higher ADOR pocketed by Joseph Wong / Kung), allowing Mr Wong an extended period to make repayment of the charged back MDOR and YEB by monthly instalments out of his future earnings until full repayment and providing Mr Wong with various financial incentives such as the said special $600,000 bonus] were exceptionally favourable to Mr Wong.  They were intended to help Mr Wong mitigate the adverse consequences flowing from the reversal of the PC and MDOR associated with the Policies.  They had been discussed with Mr Wong in earlier meetings.  Indeed, Manulife considered such treatment of Mr Wong to be so exceptionally generous that it guarded against the same being leaked to others in Manulife.  To this end, the Repayment Agreement was printed on paper that did not bear Manulife’s letterhead.  Manulife was not identified by name in the document.  And Mr Wong was not permitted to keep a copy though he was free to inspect the agreement at Mr Au’s office.

(2) On the other hand, Mr Wong is very aggrieved by being presented with the Repayment Agreement.  Manulife had by then already made extensive negative adjustments to his account and withheld payment to him for months.  He was in dire financial circumstances.  According to him, he was presented with the Repayment Agreement and the said cheque for $294,026.47 at the same time.  His request for permission to take the Repayment Agreement away for a day or two to think about it and seek legal advice was turned down.  Mr Au told him to sign the Repayment Agreement there and then if he wanted to get paid.  Mr Wong felt that he was left with no choice but was compelled to sign the agreement.

39.  It is, however, unnecessary for me to resolve these differences about the Repayment Agreement.  This is so because, rightly or wrongly, neither party considers itself/himself bound by the same. 

(1) As far as Manulife is concerned, in proposing such agreement, it was taking a long-term view of its relationship with Mr Wong and was proceeding on the understanding that Mr Wong would stay with Manulife.  It did not thereby waive any of its rights in respect of the payments dealt with by the Repayment Agreement.  It remains entitled to enforce such rights to the fullest extent following the termination of Mr Wong’s position in Manulife (see paragraph 40 below).

(2) As for Mr Wong, the evidence that he has given on the subject of the Repayment Agreement would have grounded a defence in economic duress had Manulife sought to enforce such agreement.

Termination of Mr Wong’s agency by Manulife

40.  Mr Wong’s grievances against Manulife did not subside after he signed the Repayment Agreement and obtained the aforesaid payments from Manulife.  He became desirous of leaving Manulife.  He made contacts with a rival insurance company.  He informed some of his down-line agents of his intended move.  Some expressed a wish to follow him.  Manulife soon got wind of Mr Wong’s plan to leave and possible attempts to poach some of its agents.  Manulife terminated Mr Wong’s agency with it in late March 2011.

41.  Then, by a letter dated 7 June 2011 to Mr Wong, Manulife demanded payment of a net sum of $1,916,131.61, after setting off various commissions etc against Manager’s Override of $1,437,266.66 and YEB of $1,207,697.

42.  This provoked a course of correspondence between the parties from June to November 2011 by which Mr Wong sought documents and explanations pertaining to the state of account between him and Manulife.  I need not go into any detail about these exchanges.  It is sufficient to say that Mr Wong was not satisfied and it remains his complaint in defending this action that he never consented to or understood the bases for the claw back of the payments in question and that Manulife has failed to provide any detail or breakdown of the amount claimed.

MANULIFE’S CLAIM IN THIS ACTION

43.  The components of Manulife’s claim herein that are in dispute are:

(1) the Manager’s Override in sums totalling $1,338,039 as shown shaded in the Schedule; and

(2) the YEB advance payments to Mr Wong in sums totalling $1,207,697.

44.  With regard to the claim for Manager’s Override, insofar as Policies 1 to 10 are concerned, Manulife is claiming the ADOR / MODR pocketed by Joseph Wong / Kung.  In so claiming, Manulife relies on the company policy and practice mentioned in paragraph 32 above, though it has not explained why it applies such policy and practice to Policies 1 to 10 only.

45.  Manulife has through its counsel, Mr Richard Leung, made it clear that it is not pursuing the alternative claim in restitution (though pleaded).  The only issue is whether Manulife is entitled to claw back the abovementioned payments as a matter of contract.

MR WONG’S GROUNDS OF DEFENCE

46.  In defence, Mr Wong denies any knowledge, and disputes the existence, of any or any binding company policy or practice obligating him to repay Manulife any monies that he had not actually received.

47.  As for the MDOR and YEB advances that Mr Wong had actually received as a result of the Policies, it appears from his cross-examination of Manulife’s witnesses and closing submissions that Mr Wong accepts the applicability to him of the First 11.1.10 Memo and the 17.11.10 Memo (paragraphs 11 and 13 above) and the “chargeback” provisions and premium test policies set out therein.  He, however, contends that:

(1) These payments could be clawed back from him only if the Policies should fail the premium test while he remained Manulife’s agent. 

(2) All the Policies were issued before 29 November 2010.  Manulife should have followed the Old Premium Test Policy and not started to “premium test” the Policies until after the expiry of 11 months from the inception of each of the Policies (see paragraph 13(1) above).  If Manulife had adhered to the correct premium test policy, most if not all of the Policies would have failed the premium test on dates that fell after Mr Wong’s departure from Manulife.  In short, Manulife “premium tested” the Policies prematurely.

(3) Any obligation that Mr Wong may have to repay Manager’s Override or YEB advances ceased upon the termination of his relationship with Manulife.

DISCUSSIONS

48.  As noted in paragraph 45 above, Manulife asserts a contractual right against Mr Wong to claw back the said Manager’s Override and YEB advance payments.

49.  In this connection, Manulife’s case rests on express terms.  Manulife has not pleaded any implied terms.  Mr Leung has made it clear that Manulife is not relying on any.

50.  That being the case, I can dispose of the claim for the ADOR / MDOR paid to Joseph Wong / Kung on Policies 1 to 10 (amounting to $874,368) shortly.

51.  I do not accept the bare assertions made by Manulife’s witnesses as to the existence of the company policy and practice mentioned in paragraph 32 above.

52.  Neither the Agent’s Agreement nor the Manager’s Agreement contained any term to such express effect.  Both Mr Au and Ms Amanda Chung (“Ms Chung”), a Senior Manager in the Contract & Benefit Section of the Agency Compensation Division in Manulife, point to Clause 3.2 of the Manager’s Agreement (see paragraph 8(3) above).  According to Ms Chung, the term “Supporting Manager” here means a down-line manager.  However, she agrees with my understanding of this clause, put to her in the course of her examination in chief, that it only allows Manulife to transfer the agents under a terminated down-line manager to the manager who is one grade above so that such up-line manager’s entitlement to Manager’s Override from the transferred agents’ business would be changed from MDOR to ADOR.  So Clause 3.2 does not assist Manulife.

53.  I am surprised that a company policy and practice of this nature and importance, said to have been in place since the 1980’s, is not contained in or evidenced by any document such as an internal memorandum or circular.  Manulife has not produced any. 

54.  Nor has Manulife shown any or any sufficient instances of application of such a policy or practice to establish its existence as a matter of policy or practice.  More importantly, there is no or no adequate objective evidence of Mr Wong’s knowledge or acceptance of the same.

55.  Hence, I find Mr Wong not liable for the ADOR / MDOR paid by Manulife to others on any of the Policies.  With regard to Policies 1 to 10 for which Manulife claims the ADOR / MDOR received by Joseph Wong / Kung, Mr Wong may at most be liable for the MDOR that he had actually received, to be discussed and dealt with in paragraphs 56 to 65 below.

56.  Turning then to the MDOR that Mr Wong had actually received in relation to the Policies, the issues arising are:

(1) whether Manulife applied the wrong premium test policy and “premium tested” the Policies prematurely;

(2) if so, whether Mr Wong’s obligation to repay such MDOR ceased upon the termination of his relationship with Manulife.

57.  In effect, the question is whether Manulife was bound not to “premium test” a policy issued before 29 November 2010 before the expiry of the 11^th month from the date of issue of the policy.

58.  In answering this question in the affirmative, Mr Wong refers to and relies on the paragraph under the heading “Existing Premium Test” in the 17.11.10 Memo, which has been quoted in paragraph 13(1) above.

59.  What is not at all clear is whether that paragraph was intended to merely state as a matter of fact when Manulife then “premium tested” a Matrix policy issued prior to 29 November 2010 or to obligate Manulife not to “premium test” a Matrix policy at any other times, as suggested by Mr Wong.

60.  Where a term of contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense: Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, per Lord Clarke at paras 21 and 30.

61.  To my mind, the construction contended for by Mr Wong does not make sense.

(1) Manulife distributed all the commissions, bonuses and overrides payable on the Policies upon collection of only 2 months’ worth of premium.

(2) As shown by the Schedule, the commissions, bonuses and overrides so paid by Manulife on the Policies far exceeded the amounts of premium then collected by Manulife.  Take Policy 1 as an example.  Manulife paid out $572,160 ($76,800 + $172,800 + $184,320 + $92,160 + $46,080)[8] to the various levels of agents concerned upon receipt of just $160,000 from the policyholder.

(3) In the case of a Matrix 25 policy (as were all the Policies), such payments (except commission) were made on the express basis that they could be retained only if Manulife received premium for at least 13 months for a policy issued prior to 18 January 2010 and 24 months for a policy issued on or after 18 January 2010 (see paragraph 11 above).

(4) In these circumstances, one would have thought that the sooner a default in the payment of premium, where it occurred within the first 13 or 24 months (as the case may be), was discovered, the better it was for every party concerned.

(5) From Manulife’s point of view, recovery of bonuses and overrides could be made in time from the receiving agents.

(6) Even from the agents’ point of view, the timely crystallisation of the obligation to repay Manulife may help prevent a change in position, as Mr Wong claims he had undergone with the MDOR and YEB advances that he had received.

(7) The present case provides a stark illustration. Default occurred under each of the Policies from the third month onwards, i.e. after payment of the minimum premium.  Manulife was, without doubt, entitled to claw back the bonuses and overrides that it had paid on these policies.  I see no or no commercial reason why Manulife, having somehow been made aware of the situation before the 12^th policy month, should nevertheless ignore the same and wait until the 12^th policy month to conduct the premium test as a matter of formality and then further wait another 3 months to see if the default would continue.

62.  I therefore disagree with Mr Wong that Manulife could not “premium test” the Policies at the times when it did.

63.  Even if I be wrong on the timing of the premium test, I am unable to accept Mr Wong’s other argument that once he left Manulife, he cannot be made to disgorge the MDOR that he had received on policies that failed the premium test after his departure.  The First 11.1.10 Memo did not so stipulate.  Nor do I see any basis for the inference of such a limitation of Manulife’s right.

64.  Indeed, it is ironic that Mr Wong should run such an argument given his criticism against Manulife for failing to go after Joseph Wong, Kung, Bok and Cheng to the full extent or at all.

65.  I find Mr Wong liable to repay Manulife for the MDOR paid to him on account of the Policies (i.e. $751,095).

66.  The same reasoning applies to the 2010 YEB advances.

67.  Apart from the overrides, the flexibility to “premium test” each of the Policies before the 12^th policy month also means that the PC previously credited to Mr Wong by virtue of such policies could be clawed back once it became certain that Manulife was not going to receive premium for at least 13 months (for those of the Policies issued before 18 January 2010) / 24 months (for those of Policies issued after 18 January 2010).

68.  Likewise, I do not accept Mr Wong’s submission that the obligation to repay the YEB advances ceased upon the end of his relationship with Manulife.

69.  I find that Mr Wong should return the 2010 YEB advances ($1,207,697) to Manulife.

RE-CALCULATION OF MANULIFE’S CLAIM

70.  Unfortunately, it is not a simple matter of just adding up the repayable MDOR and YEB advances.

71.  First, Manulife has withheld from Mr Wong various commissions, bonuses, overrides, allowances and other sums (although there is no dispute that Mr Wong is entitled to be credited for these items).

72.  Second, the computation that Manulife has submitted was prepared on the basis that it was entitled to be repaid the ADOR / MDOR received by Joseph Wong under some of the Policies.  This is wrong.

73.  To further complicate matters, Manulife took account of the adjustments that it had made to Mr Wong’s account from December 2010 to April 2011 (see paragraphs 31, 33, 36 and 37 above), some on erroneous bases in view of my above findings.

74.  Manulife should revise the calculation of its claim on the bases of my findings in paragraphs 55, 65 and 69 above.  The revised calculation should be lodged with the court and served on Mr Wong within 28 days from the date of this judgment.  Mr Wong should be given an opportunity to file with the court and serve on Manulife’s solicitors, Messrs Stephenson Harwood (“SH”), his written comments on Manulife’s revised calculation (if any) within 28 days thereafter.  Manulife should respond to Mr Wong’s comments (if any) within 14 days thereafter.

75.  I shall reserve costs pending sight of Manulife’s revised calculations.

REASONS FOR REFUSING MR WONG’S APPLICATION FOR ADJOURNMENT OF THIS TRIAL

76.  At the beginning of this trial on 17 August 2015 (the first day), Mr Wong applied for an adjournment to a date to be fixed. 

77.  This application was anticipated by a request to refix the trial made by a letter dated 3 August 2015 from Mr Wong’s former solicitors, Messrs Li, Wong, Lam & W I Cheung (“LWL”), to SH.  The reason given was that Mr Wong’s intended trial counsel was very ill and was unable to prepare for and attend the trial as scheduled.  This request was turned down by Manulife.  On 5 August 2015, LWL came off the record and Mr Wong began to act in person.  On the same day, Mr Wong took out a summons applying for an adjournment.

78.  On the first day of trial, Mr Wong made the application, initially unsupported by any affidavit evidence.  He only orally informed the court and Manulife from the Bar table, without giving any or any sufficient particulars, that his intended trial counsel had fallen seriously ill and that he had been unable to find new counsel within the time available.  Such ground, if properly made out on evidence, would have justified an adjournment.  I stood the matter down for the morning to enable Mr Wong to put in evidence and for inquiry to be made with the Legal Aid Department as Mr Wong also claimed to have applied for legal aid.  With regard to the latter matter, it transpired that Mr Wong had only obtained the form for application for legal aid on the preceding Friday.

79.  Mr Wong returned in the afternoon with an affirmation made by the solicitor who formerly handled this case for Mr Wong. Unfortunately, that deposition did not add materially to what Mr Wong had told the court in the morning, which was not much. 

80.  The court does not lightly grant an open adjournment of a trial on the first day.  As I said earlier, the sudden illness of counsel for a party close to the beginning of the trial and the party’s inability to replace counsel within a short time, if substantiated, may ground an adjournment.  However, the court must be supplied with adequate particulars and supporting materials to properly assess whether such ground has been made out or not.  The evidence adduced by Mr Wong fell somewhat short.

SCHEDULE

THE POLICIES

[1] Manulife originally claimed HK$1,974,529.01, which was revised to HK$1,974,479.61 in paragraph 4 of the Amended Reply.

[2] The Matrix 25 policy is an investment-linked insurance policies issued by Manulife.  Manulife would invest the premium it receives from the policyholder in funds and assets linked to the policyholder’s investment choice(s).  The value of the policy would be calculated based on the performance of the underlying funds and assets.

[3] Higher growth rates would attract progressively higher bonus rates up to 20% for growth rate of 50% or above.

[4] Bok was originally assigned to Joseph Wong’s team.  He was transferred to report to Kung with effect from 1 January 2010.

[5] Both Manulife and Mr Wong refer to thirty-one such policies.  However, I note that the particulars of Policy 18 (numbered 7219567) are split into and presented in two rows in the schedule at page 629 of Trial Bundle C2.

[6] Standing for “Payment to Manager”.

[7] In that the whole sum of $448,137 should have been used to set off against the then negative balance of Mr Wong’s account.

[8] Not counting the PCB which seems to be referable to Policy 2 as well.