News //
Insurance Law Alert - June 2017
Submitted by // K Bowers, Partner; M Withington, Partner
16 June 2017

Clawback Provisions in Insurance Agency Contracts Upheld

Re Lo Kwai Ying Louisa [2017] HKCU 880


A recent Court of First Instance decision is of particular relevance to insurers which seek to claw back payments previously made to their ex-agents, in instances where the agent no longer represents the insurer and/or subsequently joins a competing insurer.


The decision related to bankruptcy proceedings. The creditor was an insurance company, and the debtor Ms. Lo, was an agent of the insurer. Ms. Lo resigned in March 2011 and within a month joined another insurer as its agent. Pursuant to a service agreement and an agency agreement between the insurance company and Ms. Lo ("Service Agreement" and "Agency Agreement" respectively, and "Agreements" collectively) the insurance company claimed that Ms. Lo owed it. (1) monthly finance payments ("MF Payments"), and (2) training costs ("Training Costs Fee").

Pursuant to the Service Agreement, Ms. Lo was required to repay the insurance company the MF Payments if she joined another insurer within 48 months from the commencement date of the Agency Agreement.

Furthermore, the Agency Agreement provided that (1) Ms. Lo would repay the insurance company any outstanding loan advanced by it to her if she ceased to be an agent for the insurance company, and (2) Ms. Lo would repay the cost of training provided by the insurance company if she joined another insurer within 36 months from the commencing date of the Agency Agreement.

Ms. Lo had terminated her Agency Agreement within 24 months of the date of commencement of the Agreements and registered with another insurer 1 month after the Agreements were terminated. The insurance company therefore claimed the full cost of both the MF Payments and the Training Costs Fee.

A statutory demand dated 10 December 2014 was duly served on Ms. Lo. No application was made to set aside the statutory demand. The insurance company then commenced bankruptcy proceedings against Ms. Lo.

Ms. Lo's Argument

Ms. Lo's argument was that (1) the MF Payments were 'commissions' and not 'loans' (because she would otherwise be working for 'no reward') (2) the terms of the Agreements were "unreasonable" and "unfair" (3) no one explained the terms of the Agreements to her (4) she was misled by the insurance company into signing the Agreements, and (5) the amount stated in the statutory demand and bankruptcy petition was overstated.

Court's Decision

The principles of opposing a bankruptcy petition are well-established in that a debtor must show a bona fide dispute on substantial grounds. The Court held that Ms. Lo had failed to demonstrate that she had a bona fide dispute for the following reasons:

1. It was clear from the Agreement that the MF Payments and Training Costs Fee were repayable upon Ms. Lo joining a competing insurer. Ms. Lo was paid basic commission, overriding commission, etc. which was dependent on her performance (in other words, she was not working for 'no reward'). The Court added that whether MP Payments were in substance not "loans" but her "commission" was irrelevant to the real question in dispute. It is important to note that in this case, the Judge also held that the Agency Agreement did not involve an employment. As such, the loan could not be considered as employee remuneration.

2. There was no allegation that Ms. Lo was induced by any representations made by the insurance company.

3. The insurance company owed no duty to explain the Agreements to Ms Lo. The Court quoted Shiu Chung v Ming Shiu Sum
[1] in which Riberio PJ cited an earlier Court of Final Appeal decision that "generally speaking, when a person signs a legal document, he or she is bound by the act of signature: As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood".

4. An overstatement is not fatal to a bankruptcy petition, so long as it does not cause any prejudice. In this case, the overstatement was negligible compared to the size of the debt. Further, there was no suggestion that Ms. Lo would have settled the debt if the correct amount had been stated.

The Court therefore made the usual bankruptcy order with costs against Ms. Lo.


These kinds of clawback provisions are commonplace in agency and service agreements in the insurance industry. This case demonstrates that the Courts are prepared to enforce these kinds of provisions by the application of general contract law principles. Bankruptcy proceedings should therefore be appropriate where agents fail to repay amounts due. However, clawback provisions should be carefully drafted in order to ensure that they are valid and enforceable. In addition, clawback provisions in employment contracts may not be so readily enforced.
[1] [2006] 9 HKCFAR 334

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