SHEK KIN PONG AND OTHERS v. FTLIFE INSURANCE CO LTD (formerly known as AGEAS INSURANCE COMPANY (ASIA) LIMITED

HCA 739/2016

[2019] HKCFI 1781

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 739 OF 2016

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J U D G M E N T

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Background

1.  In this action, the Plaintiffs claim against the Defendant for sums which they say are due from the Defendant as remuneration under their agreements with the Defendant, which sums the Defendant claims it was entitled to deduct and set off against the amounts payable to the Plaintiffs, upon the Defendant’s termination of its agreements made with the Plaintiff. 

2.  Each of the Plaintiffs in these proceedings had entered into an agency agreement (“Contract”) with the Defendant (“Company”), whereby the Company appointed the Plaintiff to be its agent for selling insurance products of the Company.  The Plaintiffs agreed under their respective Contracts to act as agents of the Company, “for the purpose of soliciting applications for insurance and such other business as the Company may from time to time transact” during the continuance of the Contract, and “servicing the needs and requirements of the owners of policies issued by the Company as a result of such applications”.

3.  Each of the Plaintiffs also entered into a Side Agreement with the Company (“Side Agreement”), which provided for the terms of the remuneration payable by the Company to the Plaintiffs as agents.  The Side Agreement was expressed to form part of the Contract.

4.  Under the Side Agreement, each of the Plaintiffs was entitled to a monthly allowance (“Monthly Allowance”) during a maximum period of 18 months (“Financing Period”), as well as a special performance bonus (“Bonus”), should any individual achieve a stipulated level of performance or “production requirement” within the first 12 months of the Financing Period.

5.  Clause 10 of the Contract provides for termination.  Under clause 10.1:

“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.” (Emphases added)

6.  Clause 10.2 further provides for circumstances in which the Contract may be terminated by the Company forthwith, without any prior notice.  These circumstances include the agent’s breach of the terms of the Contract, its failure to observe any instructions of the Company, or the agent being (in the opinion of the Company) not suitable to act or continue as the Company’s agent, in the last mentioned case of which the Company shall not be obliged to provide the agent with the grounds or reasons relied upon by the Company in forming its opinion.

7.  Clause 10.8 of the Contract states:

“Notwithstanding any other provisions in this Agreement or any other agreement made between the Company and the Agent, 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 whether under this Agreement or any other agreement or arrangement of any kind between the Company and the Agent or otherwise and whether or not such sums have become due.” (Emphasis added)

8.  Section II of the Side Agreement makes provision for the Bonus payable to each of the Plaintiffs as agents of the Company, and the production requirement or target to be achieved before the Bonus is payable. Clause 3 of Section II states that the Company reserves the right to claw back the Allowance and the Bonus “whenever deemed appropriate” (“Clawback Clause”).

9.  Section III of the Side Agreement sets out general terms.  Clause 2 of Section III states:

“Effects of termination: Upon the termination of the Agent’s Contract and/or this Side Agreement for any reason by notice or otherwise, the arrangement in respect of the Monthly Allowance and Special Performance Bonus as set out in this Side Agreement shall terminate automatically. The Company’s obligation to pay any Monthly Allowance and Special Performance Bonus shall then cease.” (Emphasis added)

10.  Clause 3 of Section III further provides (“Duty to Repay Clause”):

“Agent’s Duty to Repay: Notwithstanding anything contained herein, or implied to the contrary, the Agent shall forthwith repay to the Company all the Monthly Allowance and Special Performance Bonus received by the Agent if:

(a) the Agent’s Contract is terminated for any reason during the Financial Period or within 18 months thereafter; or

(b) the Agent’s Contract is terminated for any reason during the Financial Period or within 42 months thereafter, and the Agent enters into an agreement with any other insurance company…” (Emphases added)

11.  Clause 4 provides for interest to be paid on demand at the absolute discretion of the Company.

12.  Before the expiry of 18 months after the Financial Period (and this is not disputed), the Company gave notice purporting to terminate each of the Plaintiffs’ Contracts.  The letters of termination issued to the Plaintiffs (apart from the 7^th Plaintiff) were dated 28 May 2014.  According to the Plaintiffs, the stamps on the envelopes showed that the letters were only received by the post office on 30 May 2014.  Each of these letters purported to give 30 days’ notice of termination pursuant to clause 10.1 of the Contracts, and states the termination to be effective from 27 June 2014.  The Plaintiffs claim that by the time they actually received the letters, the notice was less than the 30 days required.

13.  For the 7^th Plaintiff, the letter of termination was dated 14 January 2015, with the termination stated to be effective on 13 February 2015.  Again, the 7^th Plaintiff claims that by the time of his receipt of the letter of termination, less than 30 days’ notice was actually given due to delay in the Company’s dispatch of the letter.

14.  The Plaintiffs accordingly claim (paragraph 14A of the Re-Amended Statement of Claim (“SOC”)) that the purported termination by the Company’s letters was wrongful, in that less than 30 days’ notice was given, as required under clause 10.1 of the Contract.

15.  Further, the Plaintiffs claim that since 28 May 2014 (and since 14 January 2015 for the 7^th Plaintiff), the Company had denied the Plaintiffs’ access to their email and the intranet system of the Company, and had further denied the Plaintiffs’ unrestricted access to the office of the Company.  They were further notified in their termination letters that they were not permitted to represent the Company in any way with immediate effect.  By reason of this, the Plaintiffs claim (in paragraph 14 of the SOC) that they were unable to perform the Contracts as from the date of the termination letters, and that their Contracts had been “actually or constructively terminated” by the Company without any prior notice, which was wrongful.

16.  The Plaintiffs claim that on the true construction of the Contract and the Side Agreement, the Company had no right to require each Plaintiff to repay the Allowance and the Bonus upon termination of the Contract under clause 10.1 of the Contract (“Clause 10.1”).  They further claim that there are implied terms in the Contract and the Side Agreement that the Clawback Clause could not be invoked if the Contract and Side Agreement were either terminated wrongfully, or pursuant to Clause 10.1.  The distinction was made between Clause 10.1 and Clause 10.2 of the Contract.  Counsel for the Plaintiffs argued that whereas the right of termination under Clause 10.1 could be exercised by either the Company or the Agent at any time, and without giving reason, on giving 30 days’ notice in writing, the right of termination under clause 10.2 could only be exercised by the Company, and such termination could be without prior notice, but only for the causes set out in clause 10.2.

17.  The Company denies that the termination under Clause 10.1 was wrongful.  It maintains that termination took effect either on the dates specified in the letters of termination, or alternatively, 30 days after the Plaintiffs’ receipt of the termination letters one week after the date of the termination letters, namely on 4 July 2014 for the Plaintiffs apart from the 7^th Plaintiff, and on 20 February 2015 for the 7^th Plaintiff.

18.  In its Reply, the Plaintiffs further claim (paragraph 3 (1) of the Reply) that the Contracts were subject to implied terms, that the Company shall not:

(1)   exercise its right to terminate under Clause 10.1, in order to seek repayment of the Allowance and Bonus earned and received by each Plaintiff;

(2)   act in a manner contrary to the implied term of mutual trust and confidence between a principal and agent, by exercising a power to terminate the Contract (i) unconscionably and without reasonable cause and contrary to the legitimate expectations of each Plaintiff; and/or (ii) to deprive or seek repayment from each Plaintiff of a contractual benefit earned, which results in the unreasonable forfeiture of such benefit.

19.  The Plaintiffs claim (paragraph 3A of the Reply) that the Company’s sole or dominant purpose to terminate each Plaintiff’s Contract was to seek repayment of the Allowance and/or Bonus earned and received by the Plaintiffs.

20.  Consequently, the Plaintiffs by these proceedings seek repayment of the amounts they had repaid to the Company as a result of the Company’s demand for repayment of the Allowances and Bonuses from each of the Plaintiffs upon termination of their Contracts, and further, payment of what each Plaintiff claims as the outstanding amounts of the remuneration payable under the Contract.

21.  In essence, the issues for determination at trial are:

(1)   whether the Company’s termination of the Contracts by the letters of termination issued to the Plaintiffs was valid under Clause 10.1;

(2)   whether the Company had actually or constructively terminated the Contracts without notice on 28 May 2014 and 14 January 2015 (for the 7^th Plaintiff), by denying them access to the Company’s intranet system, emails and office;

(3)   whether the Clawback Clause and Duty to Repay Clause could be invoked upon termination of the Contract under Clause 10.1;

(4)   whether the Contract was subject to the implied terms relied upon by the Plaintiffs; and

(5)   whether the Company is liable for the repayment of the Allowance and Bonus and/or for the outstanding remuneration claimed by the Plaintiffs.

Whether the Company’s termination of the Contracts by the letters of termination issued to the Plaintiffs was valid under clause 10.1

22.  It is not disputed that the Company’s letters of termination dated 28 May 2014 and 14 January 2015 (for the 7^th Plaintiff) were posted to the Plaintiffs.  The letters were stated to serve as “formal notice” to inform each of the Plaintiffs that the Contracts including the Side Agreements between the Plaintiffs and the Company “shall be terminated” with effect from 27 June 2014 and (for the 7^th Plaintiff) 13 February 2015, in accordance with Clause 10.1 of the Contract. 

23.  Clause 10 itself is silent as to how a notice of termination should be served, and when such notice becomes effective.  Clause 14.7 of the Contract provides for notices being deemed to be duly notified to the agent by posting or sending a copy of such notice on the notice board or to the email account of the agent.  It has not been argued that any of the letters of termination were posted on the notice board or sent by email to the Plaintiffs to make clause 14.7 applicable.

24.  The language of Clause 10.1 seems clear.  Either the Company or the agent may terminate the Contract at any time, without giving any reason for so doing, and by “giving” thirty days’ notice to the other in writing.  Termination is effected, or the right to terminate is exercised by the giving of notice. 

25.  It is not the Plaintiffs’ case that the notice of termination had not been received by them.  On their own pleaded case, the letters of termination reached them about one week after the date stated in the letters (paragraph 14A SOC).  The date of receipt is relevant to and is at most evidence of the effective date of the 30 days’ purported notice of termination served.  On the Plaintiffs’ case, the effective date of the notice of termination would be 4 July 2014 for the Plaintiffs excepting the 7^th Plaintiff, and for the 7^th Plaintiff, the effective date of the notice of termination would be 20 February 2015.

26.  As the Court of Appeal pointed out in So Sheung Hin Ben v Chubb Life Insurance Company Ltd CACV 204/2017, unreported, 20 April 2018, the purpose of a notice of termination is to inform the recipient that the sender intends to terminate the agreement on an ascertainable date.  A reasonable recipient of a notice of termination which clearly stated 7 days’ notice was being given, with knowledge of the agreement and its provisions, must have realized that the sender of the notice was exercising its right to terminate on notice, by giving the minimum period of notice required.  In So Sheung Hin, the trial judge found that the date specified in the notice of termination as being the allegedly effective date was irrelevant, as it was the date of the actual receipt of the notice which was important as the effective date of termination.  The Court of Appeal affirmed such decision.

27.  By the same reasoning, each of the Plaintiffs in this case, on receiving the letter of termination, which was said to be issued as formal notice in accordance with Clause 10.1 of the Contract, must have realized that the Company was exercising its right to terminate on notice by giving the minimum period of notice required, namely 30 days from the date the notice was given.  Even if, by the time of the Plaintiffs’ alleged receipt of the letters a few days after the date of the letters (of 28 May 2014, or 14 January 2015 for the 7^th Plaintiff), and the effective date of termination (of 27 June 2014, or 13 February 2015 for the 7^th Plaintiff) stated in the letters may by then be less than 30 days, that does not invalidate or nullify the termination of the Contracts by notice, as there can scarcely be any doubt in the Plaintiffs’ mind that the Company was exercising its right of termination under Clause 10.1.  The 4^th, 5^th and 11^th Plaintiffs in fact returned to the office of the Company on 29 May 2014 to pack, and left with their belongings.  The effective date of the termination may be postponed, but the termination by 30 days’ notice does not become invalidated.

28.  I find that the Company had properly and effectively terminated the Contracts with the Plaintiffs under Clause 10.1.

Whether the Company had actually or constructively terminated the Contracts without notice on 28 May 2014 and 14 January 2015 for the 7^th Plaintiff, by denying them access to the Company’s intranet system, emails and office

29.  The Company has highlighted the fact that under Clause 1.1 of the Contract, the Plaintiffs were appointed as agents of the Company, and that the Plaintiffs “will only begin soliciting applications for various class of insurance or other business at such dates as set by the Company at its sole discretion and notified to the Agent”.  Further, under Clause 2.2 of the Contract, the Company was entitled by notice to the Plaintiffs to discontinue, either permanently or for such period as it shall think fit, the acceptance of any new business or any class or classes introduced by the Plaintiffs as agents, and the Company may discontinue for such period as it thinks fit all or any business of the Plaintiffs as agent under the Contract.

30.  Whilst I accept the Plaintiffs’ submissions that Clause 1.1 may only be applicable at the commencement of the Contract, when the Company may at its sole discretion set the date for the Plaintiffs to “begin” soliciting applications for insurance and other business, the Company as principal is entitled at any time to limit even the actual authority of the agent, and further, to revoke the actual authority of the agent (para 10-024, Bowstead and Reynolds on Agency, 21^st edition).

31.  I also accept the Company’s argument, that it has the right and power under clause 2.2 of the Contract, by notice to the Plaintiffs, to discontinue the acceptance of any new business introduced by the Plaintiffs, and to discontinue all or any business of the agent under the Contract.  This will obviously extend to the power to discontinue the services of the Plaintiffs as the Company’s agents under the Contract.

32.  Since the Company is entitled to discontinue the Plaintiffs’ services and to revoke the Plaintiffs’ authority to use its email box, intranet system and its office, there is no basis to find that the Company had already or constructively terminated the Contract before the expiry of the 30 days’ notice period.  Nor is there sufficient evidence from the Plaintiffs that they were unable to continue to perform their duties under the Contract by virtue only of the fact that they could not unilaterally gain access to the Company’s office, intranet system or their email boxes.  If it was necessary for them to have access to any information concerning the Company’s insurance or other business, for the purpose of servicing their clients, they could have contacted the Company’s other employees, to seek the consent or necessary information or documents from the Company.  There is no such evidence that it was not possible for them to carry out any of their duties under the Contracts because they were not able unilaterally to gain access to the office, intranet system or their email boxes of the Company.

33.  Accordingly, I reject the Plaintiffs’ claim of the Company’s actual or constructive termination of the Contracts on 28 May 2014 and 14 January 2015.

34.  It was argued on behalf of the Plaintiffs that the Company’s issue of demand letters, seeking each of the Plaintiffs’ repayment of the Monthly Allowance and Bonus paid, is evidence of the Company’s treating the Contracts as having been terminated from the date of the letters of demand.  I reject such contention.  Under clause 10.8 of the Contract, each of the Plaintiffs as agent covenanted and agreed that “upon any notice of termination” of the Contract being given, the agent shall forthwith repay to the Company all indebtedness or other sums owed or payable by the agent to the Company.

35.  Clause 3 of Section II of the Side Agreement expressly provides for the Company’s right to clawback all Monthly Allowances and Bonuses paid, and whenever deemed appropriate.

36.  Further, under clause 6.7 of the Contract, each of the Plaintiffs covenanted and agreed to repay to the Company “on demand”, the amount of commissions, bonuses, allowances or other remuneration received. The Company also has the express right under clause 6.8 of the Contract, before, on or after the termination of the Contract, to set off any commission or sum due to the agent against, or deduct therefrom, the amount of any debt due by the agent to the Company.

37.  Since the Company has the express right under the Contract and the Side Agreement to seek repayment of the Monthly Allowance and Bonus paid to each of the Plaintiffs at any time, which the Plaintiffs are liable to pay on demand, it cannot be said that by issuing the letters of demand, the Company had treated the Contracts as terminated with immediate effect.  As Counsel for the Company argued, the Company was merely exercising its rights under the Contract and the Side Agreement.

38.  In any event, the contents of the letters of demand contradict the Plaintiffs’ contention.  In the letters, the Company expressly stated that it exercised its right in accordance with clauses 10.4 and 10.5 of the Contract, to declare the Contract to remain effective, to the intent that the Plaintiffs would not cease to be the Company’s insurance agents within the meaning or for the purpose of the Code of Practice for the Administration of Insurance Agents.

39.  Since I reject the claims of wrongful termination of the Contracts, the issue of whether the Clawback Clause and Duty to Repay Clause can be invoked in the event of a wrongful termination does not arise for decision.

Whether the Clawback Clause and Duty to Repay Clause could be invoked upon termination of the Contract under Clause 10.1

40.  On the Plaintiffs’ pleaded case, the Contract and Side Agreement are subject to implied terms, that the Company has no right to invoke the Clawback Clause if the Contract and Side Agreement were terminated by the Company under Clause 10.1. 

41.  A term cannot be implied if it contradicts an express term of the agreement (Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381, and the summary set out in Yifung Developments Limited v Liu Chi Keung Ricky HCA 1341/2014, unreported, 25^th of April 2016).  A term should not be implied into a detailed commercial contract merely because it appears fair (Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] 3 WLR 1843). 

42.  As the Company has highlighted, clause 3 (a) of Section III of the Side Agreement expressly provides as follows:

“Agent’s Duty to Repay: Notwithstanding anything contained herein, or implied to the contrary, the Agent shall forthwith repay to the Company all the Monthly Allowance and Special Performance Bonus received by the Agent if: –

(a)  the Agent’s contract is terminated for any reason during the Financing Period or within 18 months thereafter; …”

43.  On behalf of the Plaintiffs, it was argued that the Duty to Repay Clause does not apply when the Company seeks to terminate the Contract under Clause 10.1, under which the party seeking to terminate may do so “without giving any reason”.  By virtue of the reference in sub-clause (a) to the Contract being “terminated for any reason”, the Plaintiffs argued that it is only when the Company seeks to terminate the Agreement forthwith without notice, upon cause being shown, relying on the grounds (or reasons) set out in clause 10.2, that the Duty to Repay Clause applies.

44.  It is trite, that as a matter of construction of a legal document, the meaning of the document is what the parties using the words against the relevant background would reasonably have been understood to mean.  Words should be given their “natural and ordinary meaning” (Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] 1 WLR 896), but the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, who has all the background knowledge, would have understood the parties to have meant (Rainy Sky SA v Kookmin Bank [2011] UK SC 50).

45.  The decisions in Rainy Sky SA v Kookmin Bank and Arnold v Britton [2015] AC 1619 highlight the importance of the language used in the provision to be construed, notwithstanding the need to read such language in the proper factual and commercial context.  There is no basis for a court or tribunal to rewrite the contract for the parties after the event.

46.  In my view, the language used in the Duty to Repay Clause is clear on its plain reading.  It applies and is expressed to apply to the termination of the Contract “for any reason”, and that it applies notwithstanding anything contained in the Side Agreement or implied to the contrary.  It is not expressed to be confined to termination of the Contract by the Company only, as it refers simply to the Contract being “terminated for any reason”. 

47.  To construe the Duty to Repay Clause so as to exclude termination by the Company under Clause 10.1, as the Plaintiffs argued, will have the effect that notwithstanding the emphasis in the Duty to Repay Clause on termination for any reason and the apparent breadth of the scope this is expressed to convey, its application should nevertheless be confined to a termination for the reasons set out in clause 10.2 only, and to termination by the Company only, and excludes the wider ambit of Clause 10.1 - which covers termination by either the Company or the agent at any time, without giving any reason, by service of notice.  Quite contrary to what was contended by the Plaintiffs, to construe the Duty to Repay Clause so as to exclude termination under Clause 10.01 would, in my view, lead to a conclusion that flouts business common sense, as well as being against the express language used.

48.  As the Privy Council observed in the case of Reda v Flag Ltd [2002] UKPC 38 (referred to in paragraph 50 of TSG Building Services PLC v South Anglia Housing Limited [2013] EWHC 1151 (TCC) cited by Counsel for the Company), the very nature of a power to terminate a contract without cause is that its exercise does not have to be justified.  “A power to dismiss without cause is a power to dismiss for any cause or none”.  Reda v Flag Ltd was decided in the context of a contract of employment, but the observations made as to meaning of a “termination without cause” term is just as apposite to a termination without cause term in an agency contract.

49.  On construction of the Duty to Repay Clause, I find that it extends to termination under Clause 10.1.

50.  I further find that the implication of the term contended by the Plaintiffs, that the Clawback Clause should not be invoked if the Contract and Side Agreement were terminated by the Company under Clause 10.1, contradicts the express provisions of the Duty to Repay Clause, such that no such term should be implied.

Whether the Contract was subject to the implied terms relied upon by the Plaintiffs

51.  The Plaintiffs further rely on terms being implied into the Contract and the Side Agreement: that Clause 10.1 should not be exercised by the Company in order to seek repayment of the Monthly Allowance and/or Bonus earned and received by each Plaintiff, and that the Company should not exercise its power to terminate unconscionably, without reasonable cause and contrary to the legitimate expectations of each Plaintiff, or so as to deprive each Plaintiff of the contractual benefit earned and which results in the unreasonable forfeiture of such benefit.

52.  First, there is no evidence adduced in this case that the Company’s alleged sole or dominant purpose, as pleaded in paragraph 3A of the Reply, in terminating the Contracts was in order to seek repayment of the Monthly Allowance and Bonus earned by the Plaintiffs.  Nor is there any factual evidence adduced to even suggest that the Company had exercised its power unconscionably, or in bad faith.

53.  The only fact alleged and shown is that the Company exercised its right to terminate the Contract in reliance upon Clause 10.1, and upon serving notice of termination, sought immediate repayment by the Plaintiffs of the Monthly Allowances and Bonuses earned and received by the Plaintiffs.

54.  Apart from this, the Plaintiffs further rely on the fact that the Monthly Allowance and the Bonus were monies paid under an incentive scheme, and formed a substantial part of each Plaintiff’s remuneration and taxable income.  The Plaintiffs argued that without the implied terms which they contend, the incentive scheme would become useless, and would further render the work devoted by the Plaintiffs and their expenses incurred for achieving the stipulated level of production required to earn the Bonuses totally futile and ineffective.  The Plaintiffs claim that the Monthly Allowance and the Bonus would in fact cause detriment to them if they had to pay tax thereon but are liable to repayment at high interest when demand is made for repayment by the Company upon termination of the Contract and Side Agreement.

55.  The right of termination under Clause 10.1 is expressed to be exercisable at any time, without the need to give any 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 Monthly Allowance and Bonus paid, whenever deemed appropriate.  The Duty to Repay Clause under Section III of the Side Agreement expressly provides that the Monthly Allowance and 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 Monthly Allowance and Bonus earned and received, and so as not to deprive the Plaintiffs of the benefits or result in their contractual benefits being forfeited, 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) 4 HKCFAR 381, and applied in Yifung Developments Limited v Liu Chi Keung Ricky HCA 1341/2014, unreported, 25^th of April 2016.

57.  In my view, arguments as to whether the Plaintiffs’ work to achieve the performance targets would be rendered futile, and whether it would be worthwhile for the Plaintiffs to do the work and incur the expenses to earn the Bonus or the Monthly Allowances, are commercial decisions which the Plaintiffs should have considered and weighed prior to entering into the Contracts and Side Agreements.  The time to consider the financial benefits, the quid pro quo and whether it was all worthwhile was before the Plaintiffs signed the Contracts and Side Agreements, when they were free to negotiate the terms of the bargain to be made with the Company, and not after the event, for raising arguments at trial.  The Contracts and Side Agreements were freely negotiated and entered into by the Plaintiffs, and the Court has no role to play in rewriting their agreements or in educating the parties on the pros and cons of the financial arrangements. 

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 of and in good faith to other parties, is not an obligation recognized by Hong Kong law.

59.  As the English Court held in TSG Building Services v South Anglia House Limited [2013] EWHC 1151, at para 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 before the term of 4 years was completed. That is the risk that each voluntarily undertook when it entered into the Contract.”

Put another way, any implied duty of good faith cannot override the express provisions of the contract.

60.  In any event, Counsel for the Company also highlighted the fact that apart from the Monthly Allowance and the Bonus, the Plaintiffs were entitled to other commissions which were not subject to the clawback provisions under the Contract and Side Agreement.  The Monthly Allowance was only available during the Financing Period, and the Bonus was only payable to an agent if the prescribed production requirement was achieved, as “icing on the cake” in the remuneration package.  The courts have in other cases rightly rejected similar arguments, to the effect that agents would be working for no reward, if bonuses or special allowances were repayable upon termination of the contract (eg Re: Lok Kwai Ying Louisa v Prudential Hong Kong Limited HCB 3145/2015,unreported, 5 April 2017 and Winterthur Life Insurance Company v Au Oi Fai HCB 1178/1999, unreported, 28 November 2000).

61.  I agree with Counsel for the Company, that the case of Tadjundin Sunny v Bank of America, NA HCA 322/2008, unreported, 24 February 2014, upheld by the Court of Appeal in CACV 12/2015, unreported, 20 May 2016 is distinguishable.  Tadjundin Sunny concerns implied terms and limits on contractual discretions in a contract of employment between the plaintiff and the defendant.  The present case is an agency relationship between the Company and each of the Plaintiffs, and Clause 10.1 confers a contractual right of termination on the Company.  There was evidence before the Court in Tadjundin Sunny as to whether the discretion of the employer had been exercised unreasonably or capriciously or in bad faith (which is absent in the present case), and of course there was no provision in the contract by which the employee in Tadjundin Sunny agreed that the bonus was repayable in any circumstance.

62.  Even if I were to accept that the Company, as principal, owed any duty, not to conduct itself in a manner calculated or likely to destroy or seriously damage their relationship of confidence and trust (as the English court accepted in Stephen Gledhill v Bentley Designs (UK) Limited (2010) EWHC 1065 (QB)), there is no evidence at all presented by the Plaintiffs in this case that the Company had exercised its power to terminate their Contracts unconscionably, or for the sole or dominant purpose of seeking repayment of the Allowance and Bonus.  The pleading in paragraphs 3 (2) and 3A of the Reply is totally bare of the necessary particulars as to the alleged unconscionability or improper purpose on the part of the Company in the termination of the Contracts.  A bare averment of such in a pleading is not sufficient to raise any case to be answered by the Company, when what is sought to be alleged is, in substance, a serious claim of bad faith, or dishonesty (So Sheung Hin Ben v Chubb Life Insurance Company Limited; para 18/12/11 Hong Kong Civil Procedure 2019).  The mere exercise by the Company of an express right to terminate the Contract without the need to give any reason cannot, by itself and without more, be evidence of bad faith or unconsionability.

63.  On behalf of the Company, Counsel has referred to the passage of Ribeiro PJ’s judgment in Ming Shiu Chung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334 at paragraph 89, which I agree is relevant and applicable:

“… the courts have emphasized that the doctrine (of equitable intervention) does not involve some vague notion of unconscionability but requires the establishment of specific grounds for relief, with proof of the necessary elements.”

His Lordship then referred to Lord Radcliff’s judgment in Bridge v Campbell Discount Co Ltd [1962] AC 600:

“ ‘Unconscionable’ must not be taken to be a panacea for adjusting any contract between competent persons when it shows a rough edge to one side or the other… Since the courts of equity never undertook to serve as a general adjuster of men’s bargains, it was inevitable that they should in course of time evolve definite rules as to the circumstances in which, and the conditions under which, relief would be given… Even such masters of equity as Lord Eldon and Sir George Jessel, it must be remembered, were highly skeptical of the court’s duty to apply the epithet ‘unconscionable’ or its consequences to contracts made between persons of full age in circumstances that did not fall within the familiar categories of fraud, surprise, accident, etc, even though such contracts involved the payment of a larger sum of money on breach of an obligation to pay a smaller sum… ”

64.  As explained in Winterthur Life Insurance, the court is bound to enforce the terms of the contract which the parties have freely entered into, in the absence of any vitiating factor recognized in law being shown.  Bearing this in mind as well as the observations made in paragraph 57 above, I reject the claim that the Company’s termination of the Contract under Clause 10.1 can be said to be contrary to any legitimate expectation of the Plaintiffs.  Nor can the exercise of the express right of termination under Clause 10.1, without reason being given, be said to be without reasonable cause.

Conclusion

65.  In view of my findings on the issues, and on the evidence adduced, I find that the Company had properly exercised its contractual right to terminate the Contracts, and is entitled to seek the return of the Monthly Allowance and Bonus paid to the Plaintiffs.  The Plaintiffs’ claims for the allegedly outstanding amounts are all dismissed, with costs to the Company, with Certificate for Counsel.  The Company’s Counterclaim for the remaining balance of the Monthly Allowance and Bonus, and interest, is allowed (amounts of which are not disputed by the Plaintiffs).

66.  The order nisi is that the Plaintiffs should pay to the Company the costs of the action and the Counterclaim, with Certificate for Counsel.