RE: CHOW YUEN MAN and EX PARTE: CMG ASIA LTD.

HCB 753/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 753 OF 2001

____________

_______________

J U D G M E N T

_______________

1. This is a petition brought by CMG Asia Limited, formerly known as CMG Asia Life Assurance Limited, against an insurance agent whose appointment had been terminated by notice. The total debt on which the petition is founded, as stated in the statutory demand dated 18 December 2000, is HK$154,824.54. This is made up of the outstanding sum due in respect of a loan being HK$8,956.25 and the outstanding sum in respect of "guaranteed income" being HK$145,868.29. The outstanding sums for both items included accrued interest calculated up to 14 November 2000. It is alleged by the petitioner that the aforesaid sums were due and payable on the date of the demand pursuant to the letter of appointment of the debtor Madam Chow Yuen Man, the agency agreement, the manager's agreement and the guaranteed income agreement all dated 4 August 1999 entered into between the petitioner and the debtor. The petition was presented on 8 February 2001.

2. The debtor has opposed the petition on the ground that the amount allegedly owing as guaranteed income was and is not due. She has not disputed the debt due in respect of the loan which is less than the bankruptcy threshold of HK$10,000.00 with interest calculated up to 14 November 2000.

3. The background facts and matters may be given as follows.

The agreements

4. The debtor signed the letter of appointment dated 4 August 1999 by which she was appointed a senior unit manager of the petitioner. The letter provided inter alia as follows:

(1) Upon receipt of the signed duplicate of the letter, the petitioner would apply to the Insurance Agents Registration Board ("the Board") of the Hong Kong Federation of Insurers ("HKFI") to register the debtor as an insurance agent of the petitioner;

(2) Before the debtor was to receive from the petitioner the written confirmation that her registration as an insurance agent of the petitioner had been confirmed by the HKFI ("the Registration Confirmation"), she would not hold herself out as an insurance agent of the petitioner;

(3) The commencement date of the debtor's appointment would be deemed to be:

(i) if the date on which she was successfully registered as an insurance agent of the petitioner as evidenced by the Registration Confirmation should fall between the 1st and 15th of a month, the first day of that month; or

(ii) if the date on which she was successfully registered should fall between the 16th and the end of a month, the first day of the next following month;

(4) Upon the debtor signing the duplicate of the letter, she would be deemed to have signed the agency agreement, the manager's agreement and the guaranteed income agreement and be bound by the terms and conditions of these agreements. All these agreements would be deemed to be effective from the commencement date of the debtor's appointment;

(5) The petitioner agreed to pay the debtor HK$19,800.00 per month as the guaranteed income referred to in the guaranteed income agreement for a period of 24 months from the commencement date ("the guaranteed income period") and to grant her an interest free loan of HK$47,520.00.

5. The commencement date or effective date of the debtor's appointment, according to a summary report enclosed to the letter of the petitioner to the debtor dated 26 July 2000, was 1 October 1999.

6. In the agency agreement, it was provided that the petitioner or the debtor might terminate their contractual relationship at any time and without giving any reason for so doing by giving seven days' notice in writing to the other party. It was further provided that on termination, the debtor should repay to the petitioner any indebtedness the debtor might owe to the petitioner under any agreement made under her letter of appointment.

7. In the manager's agreement, it was stated that the debtor was an independent contractor of the petitioner and that it was agreed that she was not an employee.

8. By the guaranteed income agreement, the petitioner agreed to pay the debtor the net guaranteed income every month during the guaranteed income period irrespective of the actual amount of earnings she was entitled to receive in that month. The net guaranteed income was the guaranteed income per month (being HK$19,800.00) less the monthly instalment payment of the interest free loan of HK$47,520.00 (being 12 instalments of HK$3960.00 each). It was provided that when the debtor ceased to be an appointed agent of the petitioner, the balance of the interest free loan that remained outstanding should be repaid to the petitioner immediately and in default of repayment, this would attract interest at 4% per annum above the prevailing prime rate as determined by the petitioner. As for the repayment of the guaranteed income, this was provided for in clause 6.1 and the actual terms were as follows:

"If [the debtor] joins another insurance company in Hong Kong within 12 months after [the debtor] ceases to be an Appointed Insurance Agent of [the petitioner] during the Guaranteed Income Period, [the debtor] shall immediately repay to [the petitioner] the amount of the Guaranteed Income which [the petitioner] has paid and would have paid to [the debtor] had he not taken out a loan pursuant to Clause 4, in excess of all the Earnings..."

9. Further, interest was expressed to accrue on a daily basis at 4% per annum above the prevailing prime rate determined by the petitioner and it was also provided that the debtor's obligation to repay the excess guaranteed income as set out in clause 6 should survive the termination of the agreement.

The events after the debtor's resignation

10. The debtor tendered her resignation by a letter dated 13 July 2000 and the petitioner confirmed her cessation of appointment on 20 July 2000. The effective termination date, as stated in the summary report the petitioner sent the debtor when the petitioner wrote to her on 26 July 2000, was 20 July 2000. In the petitioner's letter of 20 July 2000, the petitioner demanded payment of the outstanding balance of the interest free loan in the sum of HK$11,880.00 within 15 days of the letter. Further, the petitioner reminded the debtor of the relevant clause in the guaranteed income agreement that she would have an obligation to repay the excess guaranteed income if she should join another insurance company within 12 months after her termination. The amount of the excess guaranteed income, being HK$140,552.58, was also set out in the enclosed summary report.

11. The debtor made a partial repayment of the outstanding balance of the loan by a cheque dated 10 August 2000 in the sum of HK$3,283.00.

12. On 18 August 2000, the petitioner's staff conducted a search of the debtor on the website of the HKFI, and learned that she was registered as an insurance agent in life insurance of Aetna Life Insurance Co. (Bermuda) Ltd ("Aetna") on 31 July 2000. Accordingly, the petitioner sent a letter to the debtor dated 22 August 2000 enclosing a copy of the website search and demanded payment of the excess guaranteed income within 15 days.

13. On or about 20 September 2000, the petitioner received from the debtor four cheques in the total sum of HK$11,888.00 to settle the outstanding loan, notwithstanding that the outstanding sum at the time was only HK$8,597.00 as she had already made part payment of HK$3,283.00 by the cheque dated 10 August 2000. The debtor's cheques dated 15 September 2000, 15 October 2000 and 15 November 2000, each in the sum of HK$2,972.00, were all dishonoured. The debtor did not make any payment in respect of the excess guaranteed income.

14. After the presentation of the petition, and on 13 June 2001, the petitioner again made a search of the debtor on the website of the HKFI and discovered that she had registered with Pacific Century Insurance Co. Ltd ("Pacific Century") as a life insurance agent and with the Ming An Insurance Co. (HK) Ltd ("Ming An") as a general insurance agent on 15 May 2001. Her registration with these companies was still within the 12-month period from her termination of appointment with the petitioner. I understand from the debtor that because of an agreement between Pacific Century and Ming An, once an agent is appointed and registered as a life insurance agent of Pacific Century, he would automatically be appointed and registered as a general insurance agent of Ming An. The petitioner has not disputed this.

15. It is alleged by the petitioner that the registration of the debtor on the website of the HKFI is clear evidence that she had joined other insurance company or companies during the 12-month period after she had ceased to be an appointed insurance agent of the petitioner and so is liable to repay the excess guaranteed income by virtue of clause 6.1. There would appear to be no dispute as to how this amount was calculated. The total amount of guaranteed income paid to the debtor from October 1999 to June 2000 was HK$178,200.00. The debtor's total actual earnings during that period were HK$37,647.42. The amount claimed in the sum of HK$154,824.54 represented the difference between the two figures aforesaid plus interest of HK$5,315.71 calculated up to 14 November 2000.

16. What is in dispute was whether the debtor had joined Aetna and Pacific Century as an insurance agent during the relevant period. Before I turn to the evidence given by the debtor and her witness Mr Chan Kam Wo, it is important to note some of the provisions relating to the registration of insurance agents in Part X of the Insurance Companies Ordinance, Cap. 41 governing insurance intermediaries and the Code of Practice for the administration of insurance agents ("the Code") issued by the HKFI with the approval of the Insurance Authority pursuant to section 67 of Cap. 41.

Provisions relating to the registration of insurance agents

17. It is provided in section 65(1) of Cap. 41 that a person shall not hold himself out as an insurance agent unless he is an "appointed insurance agent" and this term is defined in section 2(1) to mean "an insurance agent appointed by and registered with an insurer as an agent". Under section 66(1), an insurer is required to keep a register of "appointed insurance agents" and to record in the register details of insurance agents it has appointed. An insurer is required under section 66(3) to ensure that details of its register of "appointed insurance agents" are available to the public during normal office hours either at its registered office, its principal place of business or the office of its authorised representative or at a place the Insurance Authority approves. By section 66(4), an insurer is required to give the Insurance Authority details of the registration and removal of "appointed insurance agents" within seven days of the registration or removal and verified in the manner the Insurance Authority specifies. Section 67(4) provides that an insurer is required to comply with the Code. An insurer commits an offence under section 77(9) if he confirms the appointment of an insurance agent without the confirmation of the Board set up by the HKFI.

18. The Board was established by the HKFI to administer the Code. One of the functions of the Board is to keep and maintain a register of insurance agents whose appointments have been confirmed by the Board. The relevant provisions in the Code dealing with registration may be described as follows:

(1) A principal (i.e. an insurer) shall obtain the confirmation of the Board before confirming the appointment of any person as its insurance agent (clause 10);

(2) The Board, on behalf of the relevant principal, shall register an insurance agent as soon as practicable after receiving the application for registration of such agent by that principal (clause 11);

(3) The registration of an insurance agent shall be cancelled upon the agent ceasing to be an agent of the relevant principal. The principal shall notify the Board within seven days of such cessation and provide such details as the Board may require. Upon such notification by the principal, the Board shall immediately remove the agent from that part of the register relating to that principal (clause 13);

(4) The Board shall give the Insurance Authority details of the registration and cancellation of registration of insurance agents within seven days of registration or cancellation (clause 14);

(5) The principal shall ensure that each of its insurance agents is confirmed by and registered with the Board in accordance with the Code and is appointed as an insurance agent in writing by an agency agreement (clause 18);

(6) The principal shall be responsible to submit the application for the confirmation of appointment and registration of an insurance agent in the prescribed form, the principal and the proposed agent shall provide to the Board such additional information as the Board may require, and the proposed agent shall satisfy the Board that he is fit and proper to act as such (clause 22);

(7) The principal is required to appoint an insurance agent under a written agency agreement that meets the minimum requirements of a model agency agreement adopted by the HKFI (clause 31).

19. The prescribed form for application for registration of an individual agent has seven parts to be completed. Part II requires the personal data of the applicant, i.e. the agent, to be provided. Part IV relates to the current registration status of the applicant and it has to be stated whether the applicant is or is not currently registered as an individual agent of any authorised insurer or any other insurance agent. Part VI is a declaration by the applicant containing an acknowledgment that the appointing insurer cannot appoint the applicant as its agent unless the applicant becomes and remains registered pursuant to the application and this part has to be signed by the applicant with a date to be filled in. Part VII is a declaration by the appointing insurer who confirms that "the afore-named Applicant is appointed to represent [the insurer] as Agent subject to [the Board's] confirmation" and it has to be signed by an authorised signatory of the insurer.

The debtor's case

20. According to the debtor, she was not actually engaged to work as an insurance agent by Aetna or Pacific Century and had not joined these companies notwithstanding that she was registered as their agent on the respective dates as described earlier. She claimed that the application for registration by Aetna and Pacific Century was a mistake on each occasion.

21. In respect of Aetna, the debtor alleged in her second affirmation that when a branch manager of Aetna, Mr Dennis Keung, approached her in August 2000 (the date is obviously wrong as the date of registration for Aetna was 31 July 2000) to join, she had told him that she could only join after July 2001. Mr Keung asked the debtor to give him the information first and he would get in touch with her again in June 2001. However, in August 2000, she discovered that she was registered as Aetna's agent from the website of the HKFI. She immediately contacted Mr Keung who told her that he had given her information to his secretary by mistake when he placed her information with the information of two newly appointed insurance agents and his secretary had simply passed the information of all three to the agency administration department to apply for registration with the Board. When Mr Keung received the debtor's notification in August 2000, he had immediately applied to cancel her registration as the agent of Aetna. The debtor further explained that she had attempted to locate Mr Keung as her witness in July 2001 but was told by a staff of Aetna that both Mr Keung and his secretary had left Aetna.

22. As for the registration with Pacific Century, the debtor deposed in her second affirmation that in May 2001, her former colleague Mr Chan Kam Wo approached her to join Pacific Century and she had agreed to do so after July 2001. Mr Chan submitted the application for appointment of the debtor and provided the information she gave him to the agency administration department of Pacific Century to facilitate pre-approval of her appointment. Mr Chan, who is a sales manager of Pacific Century, gave a somewhat different account in his affirmation. He stated that he had approached the debtor to join in March 2001 and the debtor told him she could join only in July 2001. In May 2001, he wanted to help the debtor to apply for an allowance of Pacific Century available to insurance agents. Hence, he asked the debtor to give him her personal particulars and to complete an application form for him to submit to the administration department to approve the allowance. He had specifically told the administration department that the debtor's information should only be submitted to the Board for registration in July 2001 because the debtor could only join Pacific Century in July. A staff of that department, Mr Sam Leung, allegedly told Mr Chan that the registration would be done in July. However, two days later, Mr Chan was told by Mr Leung that another colleague had by mistake submitted the debtor's particulars to the Board for registration. Mr Chan further stated that up to the date of his affirmation being 1 August 2001, the debtor has not signed any agreement with Pacific Century and she has not reported for work.

23. The debtor and Mr Chan were cross-examined by the petitioner on their affirmations. There was no affirmation from Mr Sam Leung and he was not called to give evidence for the debtor.

Had the debtor joined Aetna

24. The first matter I have to resolve here is whether the account given by the debtor alleging mistake in registering her as an agent of Aetna in July 2000 when it was agreed between her and Mr Keung that she would only join after July 2001 should be accepted.

25. I do not find the debtor a satisfactory witness. She claimed she had signed documents on various occasions and did not read them properly because she was in a great hurry. She could not remember if she had received the two letters dated 26 July 2000 and 22 August 2000, which the petitioner sent to her residential address. If she had not received the letter dated 26 July 2000, it would seem strange that she should send the petitioner a cheque dated 10 August 2000 in partial repayment of the loan as, on the debtor's own account, she is not the sort of person who would remember to pay up without repeated requests or reminders. She could not remember if she had signed the declaration required to be signed by the agent in the form submitted by Aetna for her registration as its appointed insurance agent, notwithstanding that it would not have been possible for Aetna to register her successfully if she had not put her signature to that form and that this incident had happened only a year ago. All these are the hallmarks of an evasive witness. I find that the debtor did receive the letters the petitioner had sent her in July and August 2000 and that she had signed the application form submitted by Aetna.

26. As for the reasons she gave when she was cross-examined as to why she had provided her details and personal data when she had agreed with Mr Keung that she would only join Aetna after July 2001 and not before, I find her reasons incredible. According to her, she knew when she left the petitioner in July 2000 that she would have to repay the excess guaranteed income if she should join another insurance company within a year of her leaving. She alleged she was in no hurry to give her personal particulars to Mr Keung but he was eager to get hold of her data because he had to meet a recruitment target each year and insurance agents were much in demand in the industry. Hence, she gave her information to Mr Keung who was to keep her data for one year in order to meet his recruitment target for the following year. It was one thing for Mr Keung to obtain the debtor's information for recruitment purpose even though he might not be able to utilise the data immediately. It was another matter why he should ask her to sign documents for joining Aetna one year in advance and why she should agree to do so in these circumstances. There was of course no explanation why she had signed the application form, which was not to be submitted for a year, and which she could not remember signing. I fail to see any cogent reason why Mr Keung should arrange to have the debtor sign all the required documents for the appointment of an agent, which came in a pile according to the debtor, if it was their clear understanding that she would join after a year.

27. Furthermore, this account she gave regarding her alleged understanding with Mr Keung and the mistake in registering her is at odds with the explanation she gave in the very first document she submitted to oppose the petition, i.e. her letter to the Official Receiver dated 10 May 2001. According to that letter, she had asked Aetna to cancel her registration once she realised from the letter of appointment that she would be liable to repay the excess guaranteed income if she joined another insurance company within a year of her leaving the petitioner. Thus, from that letter, it would appear that she only realised she had the obligation of repayment after she had been registered as Aetna's agent, and not before, as she has subsequently asserted in her second affirmation and in her oral evidence. This cannot be true either as she must have realised from the petitioner's letter to her dated 26 July 2000 that she had the obligation to repay in such an event. What is significant about her letter to the Official Receiver is that there was no mention of any alleged mistake of Aetna in applying to have her registered, which is of material importance to her case as she admitted in evidence. I reject her explanation that she did not mention mistake in her letter to the Official Receiver because she was asked by the staff at the Official Receiver's Office to state her grounds of opposition briefly. I find that the alleged mistake of Aetna is a recent fabrication of the debtor.

28. I reject the debtor's evidence that she had agreed with Mr Keung she would only join in July 2001 or that the application form was submitted by mistake. I find that the debtor became aware that the petitioner had learned of her registration when she received the petitioner's letter of demand dated 22 August 2000 enclosing a copy of the website search and that was why she took action in August 2000. I am inclined to accept what she claimed in her letter to the Official Receiver in May 2001, her second affirmation in July 2001 and in her oral evidence, namely, that she had asked Mr Keung to cancel her registration in August 2000, that he had done so immediately, that she did not report for duty at any time or serve Aetna at all or bring in any business. I accept her evidence that she was working in an advertising company from September 2000 and that she was assigned to work in Wuhan, China. The petitioner has not disputed that the debtor's registration with Aetna was cancelled.

29. I would still need to consider whether, in these circumstances, the debtor had "joined" Aetna so that she was caught by clause 6.1 in the guaranteed income agreement.

30. It was submitted by Mr Maurellet on behalf of the petitioner that once an agent is registered by the Board as an insurance agent for an insurance company, he must be taken to have joined that company for the purpose of clause 6.1. I do not agree with this. In my view, much clearer language would be required if that was the intent of the provision in clause 6.1. Take for instance an agent appointed by the petitioner. According to the provisions of the debtor's appointment letter, the agent is not permitted to hold himself out as an insurance agent of the petitioner until the petitioner has sent the agent written confirmation that his registration had been confirmed by the HKFI. This is in accordance with section 65(1) of Cap. 41 and clause 10 of the Code. Further, the commencement date of the agent's appointment would be deemed to fall on the first day of a particular month or on the first day of the next succeeding month depending on the date on which the agent was successfully registered as the petitioner's agent. Thus, the mere fact that the Board has registered an agent as the petitioner's agent is but a piece of evidence indicating that he has joined the petitioner. This evidence is not determinative and one must look at all the circumstances before a finding can be made if an agent has joined an insurance company at a particular time.

31. The burden is on the petitioner to establish that the debtor had joined Aetna for however brief a period and so is caught by clause 6.1. In the circumstances here, I am unable to find on the available evidence that the petitioner has discharged that onus. The registration was made on 31 July 2000 and the debtor had remained registered as such three weeks later when the petitioner conducted the search on the website on 22 August 2000. I do not consider this to be such a lengthy period that I could safely infer that any further steps that might have been required for the debtor to join Aetna officially would probably have been taken and it is not unlikely that there would be such further steps, as in the case of an agent joining the petitioner as stated earlier. I cannot rule out the possibility that such steps had not been taken when the debtor notified Mr Keung in August 2000 to cancel her registration as Aetna's agent and he had done so immediately. The petitioner has not adduced evidence of any inspection of the register kept by Aetna of its appointed agents in, say, August 2000 notwithstanding that such a register is open to public inspection as provided in section 66(3) of Cap. 41.

Had the debtor joined Pacific Century

32. As stated earlier, the debtor claimed that her registration by Pacific Century as its agent on 15 May 2001 was also a mistake and her witness Mr Chan supported her evidence. She remained registered as such when the petitioner searched the website on 13 June 2001.

33. It is not of particular importance whether the debtor's application to be registered (and she did remember she had signed this application form) was submitted in May 2001 by mistake or otherwise. It is thus not necessary for me to make any finding one way or the other. Unlike the situation of Aetna, there is cogent evidence on which I could find that the debtor had joined Pacific Century, by 10 June 2001 at the latest, notwithstanding that she had not signed an agency agreement with that company. This evidence came from Mr Chan who recruited the debtor. The package he offered her included an allowance of HK$4,000.00, which would be payable when she had joined the company as an insurance agent. The debtor was not required to repay Pacific Century this sum when her appointment as its agent was terminated automatically two months after her registration and her registration was cancelled, as she had not brought in any business for the company during that time. According to Mr Chan, when the HK$4,000.00 was paid to the debtor, the debtor had fulfilled all the requirements of the company to be its agent and she was considered its agent. The debtor received a payment of HK$4,000.00 on 10 June 2001. I find that she had joined that company on 10 June 2001 at the latest.

34. This however does not help the petitioner in these proceedings. The petition was brought on the basis that the debtor had failed to comply with the statutory demand served on the debtor on 19 December 2000 for a debt payable immediately. The demand for the excess guaranteed income was made on the basis that this sum was payable because the debtor was caught by clause 6.1 as she had joined Aetna in July and August 2000. As I am not satisfied on the evidence that the debtor had joined Aetna at the material time, the debt for the excess guaranteed income was not payable when the statutory demand was made. The fact that the debtor may have come under an obligation to pay this debt after the statutory demand was issued and after the petition was presented would not have availed the petitioner in the present petition. The petition brought on the basis of the statutory demand in December 2000 fails. As I have pointed out earlier, the undisputed part of the petition debt, which relates to the outstanding balance of the loan with interest calculated up to November 2000, is below the bankruptcy threshold.

The debtor's tax returns

35. The only other ground put forward by the debtor for opposing the petition can be dealt with shortly. During her period of service with the petitioner, the petitioner had submitted returns relating to the debtor to the Inland Revenue Department in which her income including payment of the guaranteed income was described as commission, not as an advance to be repaid which the petitioner now alleges, and she had been assessed for tax on the basis of remuneration received. She would appear to suggest that the petitioner is not entitled to seek repayment having declared to the Inland Revenue that the sums were paid to her as commission.

36. Under the guaranteed income agreement, the debtor had agreed with the petitioner that the amount received as guaranteed income would be repayable in the situation provided in clause 6.1. The petitioner has deposed that it has operated a policy that upon recovery of the guaranteed income, it would make a further declaration with the Inland Revenue that the guaranteed income has been converted into a debt under the guaranteed income agreement and such amount is not liable to salaries tax. In due course, the Inland Revenue would make the necessary adjustment in the assessment and if necessary issue payment of excessive tax previously levied. There is no merit in this ground of opposition.

Conclusion

37. For the reasons given above, the petition is dismissed. I make an order nisi that the debtor is to have her costs of these proceedings and that her costs are to be assessed on a gross sum basis in the sum of HK$2,000.00.