FTLIFE INSURANCE COMPANY LTD (formerly known as “AGEAS INSURANCE CO (ASIA) LTD”) v. HO SUK YUE

DCCJ 6452/2019

[2023] HKDC 363

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 6452 OF 2019

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BETWEEN

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JUDGMENT

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1.  This action concerns with a contractual dispute: the plaintiff, an insurance company, terminated the contract of the defendant, one of its insurance agents, by giving one month’s notice. The plaintiff is seeking a clawback of various performance bonuses advanced to the defendant. The defendant disputes her liability to repay.

Background

2.  It is not in dispute that the plaintiff is authorised in the business of providing and selling life insurance policies in Hong Kong. On 13 July 2012, the plaintiff and the defendant signed two contracts: an Agent’s Contract for Selling Long Term Insurance Business (“the Agent’s Contract”) and a Side Agreement (“the Side Agreement”) (collectively “the Agreements”).

3.  The Side Agreement, in essence, provides for various yearly bonus to be paid by the plaintiff to the defendant for the first 3 years of contract if certain performance targets were met (“the Performance Bonus”). It also provides for conditions and situations when the defendant would need to repay the plaintiff a certain percentage of such bonuses.

4.  The defendant has reached and/or exceed the respective performance targets for the first 3 years so she has received the full sums of the yearly Performance Bonus.

5.  By a letter dated 13 April 2016, the plaintiff gave notice to terminate the defendant’s appointment with effect from 13 May 2016 (“the Termination”).

6.  The plaintiff claims recovery of the various Performance Bonus advanced to the defendant upon the Termination pursuant to the expressed terms of the Agent’s Contract and the Side Agreement. The defendant disputes her liability to repay by way of an alleged breach of implied terms by the plaintiff (paragraphs 3(d) and 4 of the Re-re-amended Defence, Trial Bundle p 59-60) and further, by way of estoppel because of her reliance on alleged representations and/or promises made by various persons on two occasions (paragraphs 5-9 of the Re-re-amended Defence, Trial Bundle p 60-67)

The relevant terms in the Agent’s Contract

7.  Clause 10.1 provides for the right to termination for either party without reason: -

“The Company or the Agent may terminate this Agreement at any time and without giving any reason for so doing by giving thirty (30) days’ notice to the other in writing.”

8.  Clause 6.7 provides for the obligation to repay, inter alia, bonuses to which an agent is not entitled: -

“The Agent shall immediately on demand repay the Company the amount of commissions, bonuses, allowances or other remuneration received by him…which he is not entitled in accordance with the terms of this Agreement…this Clause 6.7 shall survive and remain in full force and effect notwithstanding the termination of this Agreement for whatever reason.”

9.  Clause 10.7 provides: -

“All decisions made by the Company on termination of this Agreement shall be final and conclusive…”

10.  Clause 10.8 provides: -

“…upon any notice of termination of this Agreement being given by either party, the Agent shall forthwith repay to the Company all indebtedness or other sums owed or payable by the Agent to the Company…”

The relevant terms in the Side Agreement

11.  The Side Agreement “is attached to and is intended to form part of the Agent’s Contract…” (see preamble of the Side Agreement, Trial Bundle p 368).

12.  Clause 1 of Section I provides the following definition: -

““AFYC” of an agent means the Annualized First Year Commission produced by that agent under his agent’s contract which shall have the meaning as is given to it in the Company’s agency manual, as may be amended by the Company from time to time.”

13.  Clause 2 of Section I specifies that: -

“Subject to the terms and conditions of the Agent’s Contract and this Side Agreement, for each of the first three Contract Years, the Company shall pay the Target Performance Bonus to the Agent if the Total AFYC Production of the Agent in that year reaches or exceeds the Validation Target of that year…

…

b. the Target Performance Bonus for each of the first three Contract Years and the corresponding Validation Targets shall be as follows:

	1st Contract Year	2nd Contract Year	3rd Contract Year	Total
Target Performance Bonus (HKD)	613,851	102,308	102,308	818,467
Validation Target (HKD)	409,234	102,308	102,308	613,850

14.  Clause 3 of Section II provides, inter alia: -

“Notwithstanding anything contained herein, or implied to the contrary,

…

b. at any time within the periods as set out in the following table, if (i) the Agent’s Contract is terminated for any reason … the Agent shall repay to the Company such percentages of the Performance Bonus that the Agent has received under this Side Agreement, as are set in the table below…

The time in which the event in paragraph (i) or (ii) above occurs	Percentage of 1st year Performance Bonus repayable	Percentage of 2nd year Performance Bonus repayable	Percentage of 3rd year Performance Bonus repayable
Before 24th contract month	100%	N/A	N/A
Between 25th and 36th contract month	75%	100%	N/A
Between 37th and 48th contract month	50%	67%	100%
Between 49th and 60th contract month	25%	33%	50%

c. The obligations of the Agent to repay the Performance Bonus under this Clause 3 of Section II shall survive termination of this Side Agreement or the Agent’s Contract.”

15.  Clause 4 of Section II provides for interest to be charged in the event of failure of repayment by the agent: -

“…In the event that the Agent fails to pay all or any part of the balance of such amounts on demand, interest shall be charged on such balance at a rate of prime rate…plus 3% per annum, or 7% per annum, whichever is higher, as from the date of demand…”

The plaintiff’s case

16.  The plaintiff’s case is that the Termination was made pursuant to Clause 10.1 of the Agent’s Contract, that is, a 30 days’ notice in writing served to the defendant without the need to give any reason. Nevertheless, the plaintiff’s decision to terminate the defendant was because the defendant had persistently failed to meet the performance target required by the plaintiff as set out in an annual memo for 2015 (“the 2015 Memo”) (amongst other company documents) despite a warning letter issued to the defendant on 2 November 2015 (the “Warning Letter”, Trial Bundle p 385).

17.  The Termination became effective on 13 May 2016, that is, between the 37^th and 48^th month from the commencing date of the Agreements (in other words, the event in bold and underlined in the table in paragraph 14 above). According to Clause 3(b)(B) of Section II of the Side Agreement, the defendant has to pay the following (paragraphs 10-14 of the Amended Statement of Claim, Trial Bundle p 8-9): -

(a) Repayment of 50% of the Performance Bonus for the 1^st Contract Year being HK$306,925.50;

(b) Repayment of 67% of the Performance Bonus for the 2^nd Contract Year being HK$68,546.36;

(c) Repayment of 100% of the Performance Bonus for the 3^rd Contract Year being HK$102,308.00, subject to a set-off in the sum of HK$256.36 being the defendant’s commission for the production month of April 2016; and

(d) Contractual interest on the sum of repayments totally HK$477,523.50 pursuant to Clause 4 of Section II of the Side Agreement, or alternatively statutory interest accrued thereon.

The defendant’s case

18.  The defendant basically raises two defence: -

(a) Implied Terms

It ought to be implied into the Agreements a term that the plaintiff shall not exercise its right under Clause 10.1 of the Agent’s Contract to terminate the Agreements:

(i) for the sole or dominant purpose of “clawing back” part of the Performance Bonus paid to the defendant;

(ii) unconscionably or in a manner that is not bona fide.

(b) Estoppel by Representation

(i) The defendant alleges that prior to the signing of the Agreements, Tam Wing Kiu (“Tam”) and Young Kwok Lun (“Young”) whom the defendant alleges to be representatives of the plaintiff, had represented to her that she would not need to repay the Performance Bonus provided that they would not resign from the plaintiff during the contractual period of 5 years, and the defendant had acted in reliance of such representations in entering into the Agreements (paragraphs 9, 12-15 of the defendant’s witness statement, Trial Bundles p 294-298)

(ii) The defendant further alleges that around February 2015, Tam, on behalf of the plaintiff, represented to her that the change of the plaintiff’s persistency metric from 13 to 19 months’ AFYC from 1 January 2015 would not apply to her old policies but only to new policies that she signed from 1 January 2015 (paragraphs 18-21 of the witness statement of the defendant, Trial Bundle p 298-300), thus the plaintiff is estopped from using the reason of the defendant’s failure to meet this target as a reason to terminate the Agreements.

19.  The defendant also disputes contractual interest as being unenforceable penalty clause, and alternatively, the plaintiff is not entitled to claim such interest because the defendant alleged that she did not have notice of the plaintiff’s demand for repayment dated 3 May 2016 because she had moved to another place of residence in about February or March 2016 (paragraph 20B of the Re-re-amended Defence, Trial Bundle p 72-74)

Implied terms

20.  There is no dispute between the parties of the well-established legal principles regarding implied terms: any term to be implied must comply with the following conditions: (1) it must be reasonable and equitable; (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; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract (Kensland Realty Ltd v Whale View Investment Ltd [2001] 4 HKCFAR 381, Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742)

21.  Mr Lee, counsel for the plaintiff, referred the court to the case of Shek Kin Pong & Ors v FTLife Insurance Co Ltd [2019] HKCFI 1781 (“the FTLife case”), which concerned a dispute in an agency agreement with provisions for termination identical to Clause 10.1 and 10.8 of the current case (see paragraphs 5 and 7 on p 4 and 5 of that judgment).

22.  The plaintiffs in the FTLife case also raised a similar argument that Clause 10.1 should be subject to an implied term that, inter alia, the defendant should not “terminate the contract…unconscionably and without reasonable cause” and/or “…to seek repayment of the allowance and bonuses earned and received by each plaintiff…” (see paragraph 18 on p 8 of that judgment)

23.  However, Mimmie Chan J firmly rejected this argument: -

“55. The right of termination under Clause 10.1 is expressed to be exercisable at any time, without the need to give reason. Clause 10.8 expressly provides that upon any notice of termination being given, the agent shall forthwith repay all indebtedness and other sums owed or payable. In particular, clause 3 of Section II (the Clawback Clause) expressly states that the Company has the right to clawback … The Duty to Repay Clause under Section III of the Side Agreement expressly provides that the … Bonus received by the plaintiffs shall be repayable forthwith if the Contract is terminated for any reason.

56. The implied terms contended by the plaintiffs, that the right of termination under Clause 10.1 should not be exercised in order to seek repayment of the … Bonus earned and received … are all directly contradictory to the express provisions of Clause 10.8 of the Contract, the Clawback Clause in Section II and the Duty to Repay Clause in Section III of the Side Agreement. For that reason, they should not be implied under the principles clearly stated in Kensland Realty Ltd v Whale View Investment Ltd (2001) …

…

58. Clause 10.1 gave both parties the contractual right to terminate the Contract by 30 days’ notice, as opposed to and distinct from a discretionary power. There is no reference in either the Contract or the Side Agreement to any duty of good faith on the parties, or to the parties’ duty to cooperate. In GDH Ltd. v Creditor Co Ltd [2008] 5 HKLRD 895, the Court stated that an overriding principle that in making and carrying out contracts, parties should act in good faith, or observe an obligation to act in the best interests and in good faith to other parties, is not an obligation recognised by Hong Kong law.

59. As the English Court held in TSG Building Services v South Anglia House Limited [2013] EWHC 1151, at paragraph 51:

“Even if there was some implied term of good faith, it would not and could not circumscribe or restrict what the parties had expressly agreed in Clause 12.3, which was in effect that either of them for no, good or bad reason could terminate at any time … That is the risk each voluntarily undertook when it entered into the Contract.”

24.  Similarly, the defendant here is arguing that there ought to be an implied term in the Agreements not only that: -

(a) there has to be a reason for termination; but that

(b) the reason must not solely or dominantly be for “clawing back” part of the Performance Bonus paid to the defendant or any other “bad faith” or “non bona fide” considerations.

25.  It is obvious that this argument is directly contradictory to the express provisions of Clauses 10.1 and 10.8 of the Agent’s Contract and Clause 3 of Section II of the Side Agreement which provided for “termination without reason”, let alone the requirement for termination with a “bona fides” reason. Clause 3 of Section II in particular specified that there was an obligation for repayment by the agent “notwithstanding anything…implied to the contrary”.

26.  On the other hand, Mr. Koo, counsel for the defendant, referred the court to the case of Tadjudin Sunny v Bank of America, National Association CACV 12/2015 (“the Tadjudin case”) and argued that, in some specific circumstances, for instance where a party to a contract is given an unequal contractual power or discretion, and there is a significant imbalance of power between the parties, the unqualified contractual power or discretion should generally be construed as being subject to some implied restrictions regarding the exercise of that power or discretion. Thus, the Court of Appeal in that case applied a legal principle that a “contractual discretion” must only be exercise in good faith, rationally and for a proper purpose.

27.  However, the circumstances of the Tadjudin case were very different from the current case.

28.  In the Tadjudin case, there was a provision in the contract that the employee was eligible to be considered for a bonus under the bank’s performance incentive program. The performance incentive program was for the purpose for competing for business and talent, and for the highest performers to receive the greatest rewards. Whilst the eligibility to be considered under the program was contractual, the bonus to be paid under the program was not (see paragraphs 7-11 of the judgment of that case). As such, the Court of Appeal upheld that there is an implied term that the bank “shall not exercise its right to terminate by giving one month’s notice … in order to avoid her being eligible for the performance incentive program”.

29.  In other words, the implied term was to prevent the bank from evading an existing obligation to properly exercise a discretion to award bonus. It is against this narrow set of circumstances particular to that case that the judgment has to be understood.

30.  As observed by Au-Yeung J in Cheung Li On v Sun Life Hong Kong Limited [2021] HKCFI 3784, under paragraph 119: -

“…the implied duty of good faith may apply to a power to terminate that may prevent a proper exercise of contractual discretion e.g. to confer a bonus…”

31.  Mr Koo, in his Closing Submission, urges the court not to adopt a mechanical process in considering the “5 conditions” (as stated in Kensland case etc.) but to construe the contract as a whole, to find what the contract actually means in the proper context of the background etc.

32.  In conducting this exercise, I find that in the Tadjudin case, in summary, there is a contractual obligation that the employee be eligible for the performance incentive program, but her employment was terminated in order to prevent her from being eligible for such.

33.  However, in the current case, the purpose of the Performance Bonus in the Agreements was to provide incentives to attract agents to work for the plaintiff. On the other hand, the purpose of the “repayment” or “claw back” provision was to encourage the agents to attain the specified performance not only in the first 3 years, but to maintain the performance after the first 3 years until the end of the contract period.

34.  Indeed, there was no dispute that this Performance Bonus offered by the plaintiff was “particularly higher” than all other insurance companies at the time. The defendant admitted that the high bonus and the relatively easier-to-achieve validation target was the reason why she was attracted to join the plaintiff (paragraphs 9 and 11 of the defendant’s witness statement, Trial Bundle p 294 and 295)

35.  This is entirely consistent with the evidence from Mr. Chau Kam Tim (“Chau”), the plaintiff’s witness, that the plaintiff was investing money into the agents and wanted them to work for the plaintiff for a longer duration. Indeed, Chau’s unchallenged evidence was that the benefit to the plaintiff in having an agent who could attain the specified performance in bringing in business throughout the contractual period was greater than early termination and for the plaintiff to “clawback” some of the Performance Bonus.

36.  This is the important distinction between this and the Tadjudin case: in that case, it was, of course, for the greater benefit of the bank to terminate the employee in order to prevent her from being eligible for the performance incentive program, a contractual discretion for bonus.

37.  Construing the contract as a whole, in the current case, the Agreements were such that the plaintiff would pay generous bonuses “upfront” in the first 3 years as an investment for its agents. This would make no commercial sense without the “clawback” provisions because the agents would otherwise be tempted just to achieve the target performance in the first 3 years, and, having pocketed the Performance Bonus, immediately exercise the termination-without-reason under Clause 10.1, thus taking advantage of the generous “investments” of the plaintiff.

38.  Further, even if one needs to consider whether there was “imbalance of power between the parties” in the context of the Agreements, I find that there was none: the plaintiff was clearly at a disadvantage in making a generous investment “upfront” on the agents and therefore sought protection in the “clawback” provisions.

39.  As such, any suggestion of an implied term that might “interfere” with this protection of the plaintiff’s side of the bargain could not have been the reasonable expectations of the parties or how a reasonable person would understand the contract to mean.

40.  Given the above considerations, the decision of Mimmie Chan J in the FTLife case should be followed by this court.

Estoppel by Representation

41.  The defendant raises two defences regarding estoppel: -

(i) Firstly, that the plaintiff is estopped from terminating the Agreements and claiming repayment of the Performance Bonus by reasons of various alleged representations raised by the defendant’s supervising managers, Tam and Young, before the defendant entered into the Agreements (“First Defence of Estoppel”).

(ii) Secondly, that the plaintiff is estopped from enforcing the 19 months’ AFYC persistency requirement or relying on this as a reason to terminate the Agreements by reason of alleged representations by Tam (“Second Defence of Estoppel”).

42.  The plaintiff disputes that no such representations were made by Tam or Young and further that, if any such representations were made, they were made without authorisation by the plaintiff. In any event, the Agreements contained “entire agreement clauses” which supersede any alleged representations or promises.

First Defence of Estoppel

43.  The defendant alleges that she entered into the Agreements on reliance on the representations or promises made by Tam and Young as follows: -

(i) In about June 2012 (as stated in the defendant’s witness statement and the Re-re-amended Defence but she corrected it to April 2012 during the hearing), Tam allegedly, whilst acting as the plaintiff’s representative, verbally represented to the defendant that by entering in the Agreements, the defendant would be entitled to all the Performance Bonus (amounting to a total sum of HK$818,467) with no requirement of repayment provided that the defendant achieved the Validation (or Performance) Targets and did not resign from the plaintiff for a period of 5 years. Tam also allegedly promised the defendant that the plaintiff would not terminate the Agreements for no reason (paragraphs 5(b) and 6(a) of the Re-re-amended Defence, Trial Bundle p 61, 63-64, paragraph 9 of the defendant’s witness statement, Trial Bundle p 294).

(ii) On 13 July 2012, at a meeting while the defendant and other insurance agents were presented with the Agent’s Contract for signature, Young allegedly, whilst acting as the plaintiff’s representative during the course of explaining the Agreements, failed to mention that the plaintiff could terminate the Agreements for no reason and to seek repayment of the Performance Bonus even if the defendant achieved the Validation (or Performance) Targets and did not resign from the plaintiff for a period of 5 years (paragraph 5(c) of the Re-re-amended Defence, Trial Bundle p 61-62, paragraph 13 of the defendant’s witness statement, Trial Bundle p 296-297).

(iii) At the same meeting on 13 July 2012, while the defendant and other insurance agents at the meeting were presented with the Side Agreement for signature, Tam allegedly, during her explanation to everyone regarding the terms of the Side Agreement, made the same representations to the defendant (and others) similar to her earlier representations to the defendant as stated in paragraph 43(i) above (paragraph 5(e) and 6(b) of the Re-re-amended Defence, Trial Bundle p 62-63 and 64 paragraph 15 of the defendant’s witness statement, Trial Bundle p 297-298).

44.  In her witness statement, the defendant provided more information regarding the situation on 13 July 2012 during the contract signing meeting: -

(a) There was a female staff from the plaintiff who was hurrying the defendant (and others present) to sign the Agent’s Contract. The contract was in English (and the defendant’s English test score in school was “not good” and her English ability had deteriorated since she left school: paragraph 1 of the defendant’s witness statement, Trial Bundle p 290) and there were many clauses and the writings were small. Despite all this, since she saw others signing so she also signed without knowing clearly all the contents of the contract, trusting what Tam told her before (paragraph 14 of the defendant’s witness statement, Trial Bundle p 297).

(b) Subsequently at the same meeting and after Tam had allegedly explained the Side Agreement (as stated in paragraph 43(iii) above), the defendant saw that other insurance agents immediately signed the Side Agreement without raising any question, and despite that the defendant’s English was not good and there was no one who understand English well explaining clearly every sentence and clause to her, the defendant signed the Side Agreement because she trusted what Tam had told her (paragraph 15 of the defendant’s witness statement, Trial Bundle p 297-298).

45.  Even before one considers the laws of estoppel and authority, the obvious problem with defendant’s case is that all these alleged representations were mere bare assertions.

46.  Indeed, as DHCJ Jin Pao SC observed in Leung Chin Sing, Rabo v Ko Chun Hay, Kelvin [2021] HKCFI 2242: -

“It is rare in modern commercial litigation to encounter a claim based on an agreement which is not only said to have been purely by word of mouth but of which there is no contemporaneous documentary record of any kind. The prevalence of e-mails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodies in writing, leave some form of electronic imprint…”

47.  In this case, according to the defendant, Tam had twice made a similar oral representation to her, the second time before the defendant as well as other insurance agents in a contract signing meeting. Yet the defendant has produced no email, text message and any other form of electronic communication between the defendant and Tam (or others) that even mention such oral representations either before or after the signing of the Agreements.

48.  Further, these oral representations were clearly contrary to the content of the Agreements, and yet no one in the meeting on 13 July 2012 (including the defendant) apparently raised any queries, seek amendments of the Agreements or confirmation in writing with Tam, Young or anyone from the plaintiff at the meeting.

49.  The defendant had been in the insurance business for more than 10 years and admitted, under cross-examination, that she was aware of the code of conduct of an insurance agent, including the importance of the need for good faith and proper explanation of the policy to the clients.

50.  Thus, it is clear that the defendant must understand the importance in making sure that one must understand all the terms in a contract before signing it and the legal consequence otherwise: she must have been dealing with explaining legal insurance contracts to clients as part of her daily work. Indeed, the defendant admitted that she understood that once signed, the client has to abide by the terms of the contract and that if the client said that the contractual terms was not entirely clear to him/her after the defendant’s explanations, she would ask the client not to sign the contract.

51.  Yet, her defence, in short, claims that the Agreements are in English but she is not good in English, and despite not understanding the terms well, she has signed them anyway because she trusted Tam etc.

52.  This meant that, for all those more than 10 years of being an insurance agent and being aware of the importance of fully understanding the terms of a contract before signing it, when it came to signing her own contracts (which also contained the wordings: “… confirms that [she] has fully read, understood and agreed to the terms … and has been advised and given sufficient time to seek independent legal advice … before signing …”), the defendant suddenly turned into that naïve, simple-minded and trusting novice, easily pressurised into signing contracts she did not really understand. This simply flies in the face of common sense.

53.  Even more baffling is: not only that the defendant has suddenly transformed into this “naïve novice” at the contract signing meeting, her fellow insurance agents (who signed similar contracts in the same meeting) must have all underwent such remarkable transformations, because they would have heard the same representations from Tam and yet, as the defendant claimed, signed their contracts immediately “without raising any questions”.

54.  Further, if the defendant has placed such amount of trust and reliance on Tam (and Young) on signing the Agreements, one would reasonably expect that, when it became known to her that those representations were wrong (eg when she was terminated by the plaintiff and repayment sought etc), she must have been extremely upset at such a “betrayal of trust”. It would be almost unimaginable that she would not raise any complaints to Tam (and Young), questioning why they represented and promised her as such.

55.  The defendant provides no evidence that she has ever raised such complaints and has produced no such evidence, not even one angry WhatsApp message to Tam or Young. So one must question why the defendant, having been so wronged by Tam and Young, prefers, as it seems, to suffer in silence.

56.  More importantly, if Tam and Young have truly made such representations to the defendant, one would also think that a reasonable person would at least contact them to investigate the matter further: eg who in the plaintiff (if any) have Tam and Young talked to regarding these alleged positions of the plaintiff on the Agreements? Are there any documentations, email, WhatsApp or records of any communication with this person? What is the name and position of this person in the plaintiff company? When and where did this person inform Tam and Young of such a position…etc. This would have been the first (and most obvious) line of investigation that any reasonable person would think of for a possible defence.

57.  Yet, when asked whether the defendant has ever contacted Tam or Young to investigate such matters, the defendant admitted that she had never done so. The defendant claimed that she did not know that she could call witnesses or produce evidence because she did not know legal procedures.

58.  This again flies in the face of logic and common sense: the defendant has legal representation all along and even if she has none, such line of investigation would have been obvious even to a layperson.

59.  There are more problems with the defendant’s case: the plaintiff has disclosed a “conditional offer” letter to the defendant in a letter dated 12 April 2012 (Trial Bundle p 146-148) and under Clause (f) of this letter, it was stated: -

“In the event that your Agent’s Contract is terminated for any reason within the period as listed below, the corresponding percentage of PB (Performance Bonus) paid to you will become immediate repayable by you to the Company…”

60.  The defendant’s evidence makes no mention of this letter, and of course, it would be rather strange that, as she originally alleged in the pleadings and witness statement, she was first approached by Tam in June 2012 inviting her to join the plaintiff when she had already received this “conditional offer” letter from the plaintiff two months before in April.

61.  The actual date is not important: the court would give the benefit of doubt to the defendant that she might have simply remembered the date wrong.

62.  The more important implication is that, by receiving this letter, the defendant must be aware of the “repayment of Performance Bonus on termination without reason” provision as early as April 2012, and if Tam and Young have actually given any representations to the contrary in April, June or any time before the signing of the Agreements, one would expect that the defendant would have questioned them.

63.  Indeed, the defendant could not use the “naïve novice under pressure” defence here: she did not sign the Agreements until 3 months later in July 2012, so there should be more than reasonable time for she to comprehend the terms in this letter even if she claims that her English is not good.

64.  When questioned, the defendant then raised a new factual account: she now claimed that she was aware of this provision and further, she did query Tam about it, but Tam had reassured her: -

“The conditional offer letter was only a pro-forma and must be written this way”.

65.  If this was true, it would have clearly supported the defendant’s case of misrepresentation by Tam, and this important piece of fact would not likely be left out in any pleadings and witness statement, only be told first time in court under cross-examination.

66.  Further, this scenario, if true, would have completely changed the defendant’s case.

67.  The defendant’s case, as pleaded, was that she did not understand the content of the Agreements and was the “naïve trusting novice under pressure” when signing the Agreements on 13 July 2012. So, in a nutshell, she was claiming that she was all along not aware of the “repayment of Performance Bonus on termination without reason” provision and she signed in the Agreements in total ignorance of such.

68.  However, the defendant now admitted that she was actually aware of this provision as early as April 2012. As such, the defendant has now deviated from her pleaded case.

69.  Furthermore, she now also claimed that she had queried Tam who told her that the provisions were there because the letter was a “pro-forma” and “must be written this way”.

70.  If so, when it came to the signing of the Agreements, one would expect a reasonable person to be alerted to raise query and seek confirmation with Tam: “You told me that those provisions were only in the pro-forma letter, so I take it that they are not in the Agreements?”; and would not have signed the Agreements without making sure under the circumstances. As stated before, it would be even more unlikely that the defendant, being an experienced insurance agent, would have failed to ask and simply signed the Agreements.

71.  Of course, the defendant never gave evidence that she had raised any such queries to seek confirmation from Tam.

72.  Clearly, the defendant’s new evidence attempts to advance an even more extreme case of the “naïve novice” defence and it is even more unbelievable.

73.  It also goes without saying that this would have been an even more serious case of “betrayal of trust” under the circumstances, and it would be even more mystifying that there was a total absence of any evidence of any complaint raised by the defendant against Tam.

74.  As such, I find the defendant not a credible witness at all. On balance of probability, there is no convincing evidence to support that there were such alleged representations and promises made by Tam (and alleged failure to explain by Young etc.) at all.

75.  With this factual finding, I need not proceed further. However, for the sake of completeness, I will proceed to consider whether Tam or Young had actual or apparent authority to make any alleged representations on behalf of the plaintiff, and as such, whether a defence of estoppel by representation could be raised.

76.  The undisputed background was that Tam was a Senior Agency Manager of the plaintiff and the defendant’s direct supervisor, or an “up-line” as known in the industry. The defendant told the court that she and Tam had a long-term working relationship in that Tam had been a direct supervisor of the defendant for over 14 years in the insurance industry, and Tam would bring the defendant along as her “down-line” as she switched insurance companies. At all material times, Young was the regional director of the plaintiff and the supervisor of Tam. Young did not have an “up-line” and would report to the Agency Development Department of the plaintiff.

77.  Importantly, it is not disputed that those working in the Agency Development Department of the plaintiff were the staff/employees of the plaintiff, but neither the defendant, Tam nor Young were staff/employees of the plaintiff: they work as a team of agents for the plaintiff.

78.  With regard to the legal principle in the issue of authority, In Re Wong Lo Fung (HCB 1864/2013, 29 August 2014). Ng J stated: -

“If (the alleged representor) is not shown to have authority to make the representation, the representation, even if made as alleged, would not bind the (principal).”

79.  There was clearly no actual authority from the plaintiff for Tam or Young to make such representations on behalf of the plaintiff. This was supported by the evidence from Chau (paragraph 25-28 of the witness statement of Chau, Trial Bundle p 135-136) and the plaintiff’s internal document titled “Authorisation Limits for Distribution Services and Support” (showing that neither Tam nor Young would have been designated authorised signatory of contract) (Trial bundle p 496-497).

80.  As for apparent authority, the law is well settled that it is “a legal relationship between the principle and the contractor created by a representation, made by the principle to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the apparent authority, so as to render the principal liable” (Thanakharn Kasikorn Thai Chamkat v Akai Holdings Ltd (2010) 13 HKCFAR 479).

81.  In this case, there is no evidence, and it is not pleaded by the defendant, that the plaintiff has ever made any expressed representation to the defendant that Tam and/or Young has such authority. Further, none of the contracts ever signed by Tam or Young were “for and on behalf of” the plaintiff. It is also clear that neither Tam or Young recruited the defendant for the plaintiff: the Application for Agent’s Contract of the defendant clearly stated that Tam only “recommend the Company to enter into agent’s contract with this applicant” (Trial Bundle p 152).

82.  Under cross-examination, the defendant maintained that she believed that Tam was not merely an insurance agent but became part of the management of that insurance company whenever she switched insurance company. This is clearly absurd.

83.  The defendant also claimed that Tam was part of the management of the plaintiff because her title contained the word “manager”. As such, it was asked that, since the defendant own title also contained the word “manager” (her title was “Unit Manager”), whether she would consider herself part of the management of the plaintiff and have the authority to recruit “down-line” agents for the plaintiff? This proposition was clearly absurd and the defendant finally admitted that the insurance agent could only recommend but not recruit other agents for the plaintiff.

84.  Therefore, even if Tam and Young have made the representations to the defendant as alleged, I find no evidence to support that they had any authority, expressed or apparent, to bind the plaintiff.

85.  In addition, Clause 14.3 of the Agent’s Contract and Clause 8 of the Section II of the Side Agreement were “entire agreement clauses” stating to the effect that the agreement constitutes “the entire agreement between the parties” and “supersedes all previous communications, agreements and understandings made by the parties in respect of the subject matter” etc. Both contracts in the Agreements also contain wordings confirming that the person signing has “fully read, understood and agreed to the terms … and given sufficient time to seek independent legal advice before signing” etc.

86.  As such, even if such alleged representations were made, it could not be said that the defendant could reasonably relied upon such alleged representations or promises by Tam and Young in signing the Agreements to her detriment. The classic requirement to establish estoppel by representation or promissory estoppel (as stated in Steria Ltd v Hutchinson [2007] ICR 445) cannot be established.

The Second Defence of Estoppel

87.  First of all, and most importantly, this defence of estoppel only applies if the defendant was terminated under Clause 10.2(h) of the Agent’s Contract, ie that the defendant was terminated because “the Agent does not meet the … persistency … in respect of the Agent’s operation which may be set by the Company from time to time.”

88.  However, all along, it was clear that the defendant was terminated under 10.1 (ie termination “without giving any reason for doing so”) so this defence was entirely irrelevant and not applicable.

89.  Nevertheless, for the sake of completeness, I will discuss this defence further.

90.  Clause 6.1(a)(i) and (ii) of the Agent’s Contract (Trial Bundle p 361) provides that “… the Agent shall be entitled to remuneration calculated in accordance with the agency manual applicable to the Agent from time to time … as amended from time to time …” and that “the Company reserves the right at any time to revoke, alter, add, amend or modify in its sole and absolute discretion the Agency Manual by notice in writing to the Agent …” There is also a similar term under Clause 3 of Section II of the Side Agreement (Trial Bundle p 370-371).

91.  As such, I found nothing improper when the plaintiff issued a memo on 23 December 2014 in respect of the change in the applicable metric for AFYC persistency of its agents (Trial Bundle p 495). This memo was issued by the plaintiff to all regional directors and managers (eg Young) by email and intended for the regional managers etc. to notify their “down-line” agents (“2014 Memo to Managers”).

92.  Further, I accept the evidence from Chau that there are memos issued each year (including the 2015 Memo) by the plaintiff concerning target performance for promotion, demotion and termination (Trial Bundle p 233-242 show such memos from 2012 to 2016) on the plaintiff’s internal network which are assessable for downloading by all agents in accordance with the requirement of Clause 16(a)(ii) of the Agent’s Contract.

93.  In particular, the 2015 Memo is at Trial Bundle p 239-240 which stated (as I translate): -

“The minimum requirement to maintain rank:

….

LIMR 19 months AFC persistency 70%

…

Failure to achieve the above requirement may be demoted or terminated by the company.”

94.  The Agency Compensation Manual was amended subsequently by the plaintiff in May 2015 (“2015 Manual”, Trial Bundle p 456-494) which set out the 19-month AFYC persistency (“19-m”) as a performance indicator (which was changed from the previous 13-month AFYC persistency (“13-m”)).

95.  As I understand, this means that the agent has to achieve a certain percentage of clients paying the premium for at least 19 months (instead of the previous 13 months) in order to hit the target performance required. And, as explained by Chau, this metric would measure the ability of the agent to match good potential clients to the insurance product so that they would persist to pay the monthly premium beyond a certain period of time. Of course, if that period of time was increased from 13 to 19 months, this would require the agent to match the product to the client even better.

96.  The 2015 Manual required the defendant to achieve a minimal of 70% of her clients persisting to pay monthly insurance premium for at least 19 months. I also accept that the 2015 Manual was also uploaded to the plaintiff’s internal network and was assessable for downloading by all agents in accordance with the requirement of Clause 16(a)(ii) of the Agent’s Contract.

97.  However, the defendant had all along failed to achieve this target since January 2015. In fact, by June 2015, her 19-m dropped to 0% and continued to be at this level.

98.  On 2 November 2015, the plaintiff issued the Warning Letter (Trial Bundle p 243) which gave her a: -

“last chance to turn this situation around … to … (1) improve … 19m AFYC persistency to … 60% by the end of December 2015 and… (2) improve to … 70% by the end of March 2016 … Failure to achieve … (1) will result in your immediate demotion to Senior Business Development Executive … from 1 January 2016 and failure to achieve … (2) will result in termination of your contract on 1 April 2016 without further notice.”

99.  Despite this warning, the defendant still failed to improve as required: her 19-m remained at 0% so she was demoted to Senior Business Development Executive in January 2016.

100.  In fact, her 19-m remained at 0% from then to March 2016. She was given a notice of termination by the plaintiff on 13 April 2016 (Trial Bundle p 386) and so the Termination was effective on 13 May 2016.

101.  Against this background, the defendant claimed that the plaintiff was estopped in terminating the Agreements because she alleged that: -

(a) Tam, on behalf of the plaintiff, told her that the 19-m did not apply to her (but only to those who become plaintiff’s agents after March 2013) and in any case the 19-m only applied to new insurance contracts signed after January 2015, and for her insurance contracts signed before this date, the old 13-m still applied (paragraph 19 of the defendant’s witness statement, Trial Bundle p 299);

(b) When the defendant discovered that the plaintiff computer system showed both the 13-m and 19-m and also showed the defendant’s 19-m very low, she asked Tam who explained that the 19 months’ rate was premature for the defendant and she could ignore the figures for the time being, so the defendant ignored the 19-m figure from then onwards (paragraph 21 of the defendant’s witness statement, Trial Bundle p 299-300);

(c) In November 2015, Young informed the defendant she should pay attention to her low 19-m. The defendant replied that this was only 11 months from January 2015 so the figure was premature. The defendant claimed that Young did not comment on or dispute her reply (paragraph 23 of the defendant’s witness statement, Trial Bundle p 300-301).

102.  The defendant also claimed that she did not receive or seen the 2015 Memo or the Warning Letter (paragraph 24 of the defendant’s witness statement, Trial Bundle p 301). Further, under paragraph 2 of her Supplemental Witness Statement, the defendant also denies receiving or seeing the 2015 Manual.

103.  Again, such a defence suffers the same problems as the defendant’s First Defence by Estoppel: firstly, they are bare assertions without support by any documentations of communications etc, and secondly, that Tam and Young did not have the authority, expressed or apparent, to act on behalf of the plaintiff.

104.  Further, this defence is also problematic.

105.  Under cross-examination, when asked why she thought that Young represented the plaintiff, the defendant answered that Young represented the plaintiff by passing her the Warning Letter.

106.  This was entirely inconsistent with paragraph 24 of her witness statement when she claimed she did not receive or seen the Warning Letter (until February 2019 when she received court documents in a bankruptcy action). When asked further, the defendant quickly changed her story and said that Young did not pass her the Warning Letter after all, but had only spoken to her.

107.  This is entirely unconvincing: if it was true that the defendant has never received or seen the Warning Letter, it would be hard to imagine why she would suddenly blurt out in court that “Young passed me the Warning Letter”. Although she tried (unconvincingly) to correct herself when questioned on this inconsistency, I would think that, on balance, the truth must be that Young did pass her the Warning Letter and had a conversation with her about the content eg that she should pay attention to her low 19-m. Further, the date of the Warning Letter was 2 November 2015 which coincided with the defendant’s own evidence that the conversation took place in November 2015.

108.  Further, I do not accept the defendant’s claim that she has not received or seen the 2015 Memo and 2015 Manual at the relevant time would support her defence even if it was true.

109.  It was stated under Clause 14.7 of the Agent’s Contract that:-

“… the Agent acknowledges that the notice board(s) or system(s), either physically…and/or implemented by the Company in such electronic form(s), and such email account as specified by the Company from time to time are effective means of communication by the Company to its agents generally or to the Agent specifically in relation to the Company or its business or operation and any notice posted … shall be deemed to be duly served on the Agent on the date of posting…”

110.  As such, it was clearly the duty of the defendant to keep herself updated with all the plaintiff’s communications, and failure to do so would be entirely her own fault.

111.  The defendant also attempted to make a case that there were some ambiguities in the 2014 Memo to Managers. Such alleged ambiguities concerned whether it was stated clearly that the 19-m should apply across the board to all insurance contracts or just to insurance contracts signed after 1 January 2015. Even if this was true, the same memo stated (as I translate): -

“Regarding the details of requirements for business targets and promotion criteria for all ranks, please pay attention to the release of (2015 Manual) at a later stage.”

112.  If the defendant’s case was that she was aware of the content of the 2014 Memo to Managers (which, as stated above, was sent by the plaintiff via email to Young and other managers for notification of all his “down-line” agents), she was already put on notice of the 2015 Manual. So if she really found the 2014 Memo to Managers unclear, she would reasonably be expected to pay particular attention to look out for the 2015 Manual to seek confirmation, and if she really could not locate it in the plaintiff’s “notice board(s) or system(s)” by any means, she could have simply asked her colleagues like Tam and Young to show it to her. The last thing one would reasonably expect her to do was to do nothing about it.

113.  Of course, the 2015 Manual did clearly state that starting from 1 January 2015, 19-m applied across the board to all insurance contracts (and not just for insurance contracts signed after 1 January 2015) (Trial Bundle, p 268).

114.  With regards to Tam’s two alleged representations as stated in paragraph 101(a) and (b) above, the defendant was asked if she ever thought of asking Tam if she had any communication or documentations with the plaintiff to support such alleged policies, and the defendant answered: -

“I have never thought of that.”

115.  This, again, is illogical. I would think that the most likely reason why the defendant did not contact Tam to investigate the matter and to look for possible evidence to support her defence was that she knew all along that Tam never made those representations in the first place.

116.  As for Young’s alleged representation or conduct under paragraph 101(c) above, as I stated above, I find that, on balance, on that occasion in November 2015, Young was showing the defendant the Warning Letter and was telling her, amongst others, that she should pay attention to her low 19-m.

117.  As such, it is highly unlikely that, when the defendant argued otherwise as she alleged, Young would not “comment or dispute with” her reply. If the defendant had actually raised any objections, Young could simply show her the 2015 Manual.

118.  In any case, if it was true that the plaintiff would only apply 19-m to insurance contracts signed after 1 January 2015, why would Young had this conversation with the defendant in November 2015? This was only 11 months into this new policy. Surely, at that date, everyone in the company (including Tam and Young) would have a 19-m of 0% and no review of performance could be done until July 2016, ie 19 months after 1 January 2015.

119.  As such, the case advanced by the defendant is simply illogical and it is hard to imagine why the defendant would not think at that time, “Oh dear! Maybe my belief is wrong!” (even assuming that she actually held that belief).

120.  And then, of course, when the defendant got demoted from Unit Manager to Senior Business Development Executive on 1 January 2016, it would be even more unbelievable that she would not question her (alleged) belief.

121.  Incredibly, when questioned, the defendant claimed that she was not aware of her demotion at all. When it was pointed out to her that the monthly payment statement from the plaintiff to her clearly showed the change in her “Consultant Position” from the December 2015 statement to the January 2016 statement, (Trial Bundle p 221-222), the defendant claimed that she had not paid any attention, and thus she had never questioned her belief!

122.  Further, under cross-examination, the defendant admitted that, even after receiving the termination letter, she had never made any complaints to the plaintiff even though she believed that she had no problem with her target performance.

123.  All this shows again that the defendant is not a credible witness at all.

124.  As such, the defendant was only putting up pure lies and fabrications to attempt to establish this defence, which in itself is not applicable and irrelevant in the first place.

Contractual Interests

125.  The defendant argued that upon a proper contraction of the Agreements, the clauses concerning interest constitute an unenforceable penalty clause and should be voided.

126.  In addition, the defendant claimed that she did not receive or have notice of the plaintiff’s letter demanding repayment dated 3 May 2016 (the “Demand Letter”, Trial Bundle p 387) until September 2018 when the defendant was served with a copy of the Statutory Demand etc.

127.  The defendant admitted that the address on the Demand Letter was the address she gave to the plaintiff but she had moved away in March 2016 without updating the plaintiff. I therefore would not see that as any ground of defence.

128.  As for the laws regarding applicability of penalty clause, Lok J summarised the modern approach under paragraphs 43 and 47 in Ng Yan Kit Alfred v Ever Honest Industries Ltd [2022] 3 HKLRD 174: -

“43. First, the court has to construe the relevant clause in the contract to determine whether it is a contractually agreed method of lawful termination of the contract, or whether the sum stipulated is in the nature of damages for breach of contract. In the case of the former, it is a primary obligation to pay rather than a secondary obligation arising upon the breach of a primary obligation of performance which is the case for the latter.

…

47. Second, in the event the payment is a secondary obligation arising upon the breach of a primary obligation of performance, the next step requires the court to identify the legitimate interest of the innocent party that is being protected by the clause, and then assess whether the clause is out of proportion to such legitimate interest by considering the circumstances in which the contract was made.”

129.  In addition, Lok J cited the classic principles as laid down by Lord Dunedin in Dunlop Pneumatic Tyre v New Garage [1915] AC 79 but commented that the penalty rule is an interference with freedom of contract, and some authorities after the case Dunlop sort to constraint the application: -

“the court has to be careful not to set too stringent a standard and bear in mind that what the parties have agreed should normally be upheld. Any other approach will lead to undesirable uncertainty especially in commercial contracts.” (Philips Hong Kong Ltd v A-G of Hong Kong [1993] 1 HKLR 269)

130.  In the current case, Clause 4 of Section II of the Side Agreement (Trial Bundle p 371) charges interest at a contractually agreed rate: prime rate + 3% per annum or 7% per annum whichever is higher.

131.  The defendant argues that this is higher than interest rate of prime plus 1.5% provided in clause 3.3 of the “Advance” Agreement dated 13 July 2012 (Trial Bundle p 170) and is thus unreasonable.

132.  I am of the view that the “Advance” Agreement, which concerned an agreement to make advance payment of bonus to the defendant, also stated in the same clause: -

“the Company, subject to applicable laws, have the right to charge a higher interest rate by giving a written notice to the Agent.”

133.  The Demand Letter must be deemed such written notice and it states: -

“…interest on the outstanding balance of PB at the rate of P+3% or 7% p.a., whichever is higher, from the date of demand, i.e. 3 May 2016 until full payment…”

134.  In applying the test in the Ng case, I find that the circumstances of this case is that the plaintiff has made particularly generous performance bonuses early on as an investment on the defendant. As such, the plaintiff’s legitimate interest is to seek protection in the Agreements for repayment of (all or part of) the Performance Bonus. Thus, charging a higher rate of interests when there was failure of repayment is part of this protection.

135.  Therefore, I do not consider this rate of interest to be so out of proportion that it constitutes an unenforceable penalty clause. This is what the parties have agreed to and should not be disturbed under the circumstances.

Order

136.  I would therefore allow the plaintiff’s claim against the defendant for the sum of HK$477,523.50 plus interest on the said sum at prime rate (as quoted by The Hongkong and Shanghai Banking Corporation Limited) plus 3% per annum, or 7% per annum, whichever is higher, from 13 May 2016 until the date of this judgment, and thereafter the interest be at judgment rate until payment.

137.  As for costs, there be a costs order nisi that the costs of the action be to the plaintiff to be taxed if not agreed, with certificate for counsel, and the defendant’s own costs be taxed in accordance with the Legal Aid Regulations.