NCM v. FLICBL

HCSD 55/2024

[2025] HKCFI 2476

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO. 55 OF 2024

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DECISION

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Introduction

1.  By an application dated 16 December 2024, the Applicant seeks to set aside the statutory demand dated 3 October 2024 issued by the Respondent.

Material Background

2.  The Respondent is an insurance company.

3.  The Applicant is an insurance agent. He worked for the Respondent from 2015 to January 2017.

4.  On 15 May 2017, the Respondent commenced HCA 1130/2017 against the Applicant in respect of (i) a “clawback” sum of HK$3,701,599; and (ii) a further sum of HK$269,496.67 due by a downline agent in respect of which the Applicant was a guarantor.

5.  As the Applicant did not file an acknowledgement of service, on 6 July 2017, the Respondent entered default judgment against the Applicant (the “Default Judgment”).

6.  It transpired that in January 2019, the Applicant worked for the Respondent again.

7.  It is not in dispute that the Applicant had signed a letter of offer (the “Letter of Offer”) issued by the Respondent on 8 January 2019.

8.  For present purposes, the following terms of the Letter of Offer are pertinent:-

“Having considered that you agree to re-join [the Respondent], we will withhold from enforcing the [Default Judgment] against you subject to the terms and conditions.

….

(A) Monthly Special Bonus

(i) A Monthly Special Bonus (“MSB”) for the first 12 contractual months in the aggregate sum of HK$756,616 (“Aggregate MSB”) will be paid to you on condition that you can achieve the Contract-to-date Production Credit (“PC”) Requirement (the “Contract-to-date PC Requirement”) set out in Appendix 1at/before the 12^th contractual month. The Aggregate MSB will be paid to you in the month that follows the contractual month in which you have achieved the Contract-to-date PC Requirement, but in no event shall the payment be made earlier than the 6^th contractual month.

On condition that you can achieve the Contract-to-date PC Requirement at/before the 12^th contractual month and are entitled to the Aggregate MSB set out in (i) above, a sum of HK$730,000 will be paid to you at the same time (not earlier than the 6^th contractual month) when the Aggregate MSB is paid. In the event that you cannot achieve the Contract-to-date PC Requirement at /before the 12^th contractual month, the said sum of HK$730,000 will be paid to you at the 19^th contractual month without any validation requirement provided that your IAA is still in force or is not terminated at the time of the payment.

(ii)   If you can achieve the MSB validation requirements set out in (i) above, we agree to waive our right to recover the Judgment Sum and enforce the [Default Judgment] against you.”

(emphasis added)

9.  The Applicant says that:-

(1)  Acting in reliance on clause A(ii) of the Letter of Offer (hereinafter the “Waiver Clause”), he resumed working for the Respondent and strived hard to meet the requisite Contract-to-date PC Requirement.

(2)  He did fulfil the Contract-to-date PC Requirement (ie HK$995,339) by the 12^th contractual month. Accordingly, the Respondent paid him an aggregate sum of HK$1,486,616 pursuant to the terms of the Letter of Offer.                         

10.  However, the Respondent contends that the Applicant did not fulfil the Contract-to-date PC Requirement.

11.  The Respondent’s case is as follows:-

(1)  Mr Cheung and Mr Lee were the Applicant’s downline agents.

(2)  Ms Li is the wife of Mr Cheung. She subscribed three policies (the “Disputed Policies”) via Mr Lee.

(3)  On 10 June 2020, Ms Li filed a complaint to the Respondent. She alleged that she had not signed the Disputed Policies and had not paid the premium in respect thereof.

(4)  According to the Respondent’s investigation, Mr Cheung simply signed the Disputed Policies, the contents of which were not explained to and approved by Ms Li at all.

(5)  These assertions are reflected by the minutes in respect of the interviews that took place on 22 June 2020 (the “Interview Minutes”). The same were signed by Mr Cheung and Mr Lee.

12.  On 8 July 2020, Ms Li wrote to the Respondent indicating that she withdrew her enquiry or complaint on 10 June 2020.

13.  Nevertheless, the Respondent took the view that the Disputed Policies were still liable to be rescinded.

14.  Accordingly, the Respondent contended that there was no PC (ie production credit) arising from the Disputed Policies. In light of the deduction in respect thereof, the Applicant had not fulfilled the Contract-to-date PC Requirement[1] under the Letter of Offer. Thus, the condition for waiving the Default Judgment under the Letter of Offer was not fulfilled. It follows that the Respondent is still entitled to enforce the Default Judgment against the Applicant.

15.  In the premises, based on the indebtedness under the Default Judgment, the Respondent issued the Statutory Demand dated 3 October 2024.

16.  The Applicant disputed the Respondent’s suggestion that he had failed to fulfil the Contract-to-date PC Requirement under the Letter of Offer.

17.  Whilst the Applicant took issue in respect of the reliability of the alleged investigation carried out by the Respondent, he sought to rely on the email/letter[2] dated 17 September 2020 from Mr Cheung and Ms Li. In this email/letter, Ms Li confirmed that:

(1)  She was aware of the details of the Disputed Policies.

(2)  She authorized his husband, namely Mr Cheung, to handle and sign the Disputed Policies.

18.  The Applicant further contended that none of the terms contained in the Letter of Offer and the agency agreements that he signed on 17 January 2019[3] empowered the Respondent to reverse the PC (ie production credit) that had been given to him.

Legal Principles on Setting Aside a Statutory Demand

19.  The applicant bears the burden of satisfying the court that there is a valid reason that the demand ought to be set aside: DCKD v JPWL [2022] HKCFI 1059 at para 22 (per Linda Chan J).

20.  When considering an application to set aside, the Court is only undertaking a limited exercise and will only be concerned with whether the creditor is able to pursue bankruptcy proceedings founded on the statutory demand: see Budge v AF Budge (Contractors) Ltd [1997] BPIR 366, 372A-D, per Peter Gibson LJ).

21.  As Kwan J (as she then was) explained in Re Choy Wai Bor (HCB 8565/2001, 28 May 2002)  at para 22:

“[T]he mechanism to set aside a statutory demand is intended to be a filtering process to protect the debtor against a petition being presented based on a statutory demand that is demonstrably unjustified.”

22.  In DCKD v JPWL (supra) at para 24, Linda Chan J stated:-

“For the purpose of demonstrating that the debt is disputed on substantial grounds within rule 48(5)(b), the Applicants must establish by sufficiently precise factual evidence which is believable that they have a defence of substance, not just a fair probability of one (Chan Ping Lam Waymond v Noble Art Ltd, CACV 270/2012, 30 September 2013, §8, per Fok JA (as he then was)). The Court will consider the case being put forward with a reasonably critical eye, testing the case against the other background facts and circumstances (Lai Kar Yee v The Prudential Assurance Company Limited, CACV 233/2014, 9 June 2017, §12, per Barma JA).”

Deliberation

23.  Bankruptcy proceedings are not the avenue for resolving genuine factual disputes. This court should not usurp the function of a civil court in resolving disputes that ought to be resolved at trial: see Re Leung Cherng Jiunn [2016] 1 HKLRD 850 at para 20 (per Kwan JA, as she then was).

24.  In my view, the Applicant has raised a bona fide dispute on substantial grounds as to (i) whether the Respondent was entitled to revoke and/or cancel the PC (ie production credit) arising from the Disputed Policies; and (ii) whether the Applicant had fulfilled the Contract-to-date PC Requirement of HK$995,339 before the contractual deadline (ie December 2019).

25.  In light of the email/letter dated 17 September 2020 from Mr Cheung and Ms Li, there is plainly a genuine factual dispute as to whether Ms Li had authorized Mr Michael Cheung (who is her husband) to handle the Disputed Policies and to sign and/or subscribe the same on her behalf.

26.  If the answer to the question lies in the affirmative, it is, to say the least, highly arguable that the Disputed Policies should be treated as valid for present purposes. Thus, the Respondent should not deduct the Applicant’s PC (ie production credit) arising from the Disputed Policies. It follows that the Applicant had fulfilled the conditions (ie the Contract-to-date PC Requirement of HK$995,339) under the Letter of Offer. As such, the Respondent is contractually barred from enforcing the Default Judgment.

27.  On the evidence, I am not in a position to reject the assertions contained in the said email/letter dated 17 September 2020 summarily on affidavit.

28.  It appears to me that the contents of said email/letter are consistent with Ms Li’s act of withdrawing her complaint or enquiry on 8 July 2020 (which is admitted by the Respondent).

29.  Moreover, it does not appear that Ms Li, who signed her name on the said letter, has an interest in the outcome of the dispute between the Applicant and the Respondent. It is uncertain as to why Ms Li would have conjured up some false assertions out of the blue.

30.  I am unable to conclude that Ms Li’s assertions are false; nor am I in a position to find that the signature on the letter did not belong to Ms Li. These are matters for trial.

31.  I am of the view that the dispute between the parties should be resolved at trial in a civil action. The Respondent should not have sought to invoke bankruptcy proceedings as a means for resolving its dispute with the Applicant.

Conclusion and Disposition

32.  Accordingly, I allow the Applicant’s application herein and order that the Statutory Demand be set aside.

33.  There is no reason why costs should not follow the event.

34.  I order the Respondent to pay the Applicant’s costs in this matter forthwith, summarily assessed at HK$130,000.

35.  I thank Mr Kin Lau and Mr Stony Chan for their assistance.