AIA International Limited (formerly known as American International Assurance Company (Bermuda) Limited) v Lam Che Wah HC 780/2013 (CFI)


In a judgment dated 17 December 2015, Deputy High Court Judge Nicholas Conney SC held that AIA International Limited (“AIA”), upon termination of its contract with an insurance agent (the “Defendant”), is entitled to the refund of paid bonuses from the Defendant. The Judge pointed to the proper construction of the contract as a key reason behind the decision.


Pursuant to clause 1 of the Letter of Understanding between the parties dated 30 September 2010, the parties signed a Career Representative’s Contract (the “Contract”) on 1 November 2010. Over the course of the Defendant’s agency relationship with AIA, AIA paid the Defendant a signing fee and bonuses in accordance with the Letter of Understanding, which amount to a sum of HK$1,403,476.34 (the “Bonuses”).

On 5 April 2013, AIA gave the Defendant 15 days’ notice of termination in accordance with clause 23(b) of the Contract (the “Termination Clause”), which provides:

“Subject to sooner determination of this Agreement by the [Defendant] in accordance with Clause 25 of this Agreement, this Agreement may be terminated without any reason thereof:  (b) By either party upon 15 days’ notice in writing; …”

No reason was given in relation to the termination and AIA sought to recover 60% of the Bonuses from the Defendant, citing clause 12 of the Letter of Understanding (the “Refund Clause”):

“In the event that any of the Contracts is terminated for any reason by either the [Defendant] or [AIA] within the First (1st) to fifth (5th) year (hereafter called the ‘Guaranteed Period of Stay’) after the Commencement Date, the [Defendant] agrees to refund the whole or part of the Signing Fee, Monthly Bonus and Agency Production Challenge Bonus received to [AIA] immediately and unconditionally, in accordance with the terms as follows..” (emphasis added)

The Defendant refused payment and disputed the enforceability of the Refund Clause.

The Court of First Instance Decision

The Defendant raised two issues at trial:

(1) The Construction Issue

In essence, the Defendant’s argument is as follows:

  • Clause 4 of the Letter of Understanding provides that AIA could terminate the Contract or the Letter of Understanding if the Defendant (a) could not become an agent of AIA; or (b) could not meet the minimum standards of performance set out by AIA as stipulated by the Contract. (It is common ground that neither of those events occurred). By construction, the Refund Clause has to be read in light of clause 4, such that “for any reason” was limited to the two grounds for termination set out in clause 4;
  • The Termination Clause was not a reason which triggered the Refund Clause because the Contract was signed more than a month after the signing of the Letter of Understanding (1 November 2010), such that, upon the making of the Letter of Understanding, termination by AIA under the Letter of Understanding was only possible under clause 4; and
  • If the Defendant was liable to refund under the Refund Clause in circumstances in which termination is for a reason other than those set out in clause 4, such would deprive clause 4 of its effect.

The Judge disagrees with the Defendant’s reasoning.

The Judge applied Marble Holdings Ltd v Yatin Development Ltd (2008) 11 HKCFAR 222, and held that as the words of the Refund Clause are free from ambiguity and devoid of commercial absurdity, their natural and ordinary meaning will apply unless the relevant circumstances demonstrate otherwise. Hence, “for any reason” in the Refund Clause means what it says and includes termination under the Termination Clause.  Even though on one view, the construction of the Refund Clause might result in a bad bargain, that itself is not a reason for departing from the natural language of the Refund Clause.

The Judge concluded that clause 4 simply provides one more ground for termination in addition to the grounds set out in the Contract.  There is no conflict between clause 4 and the Termination Clause. Both are within the ambit of “for any reason” in the Refund Clause.

In addition, the Defendant argued that the term “Guaranteed Period of Stay” in the Refund Clause created an obligation on AIA to engage the Defendant for at least five years.  The Judge disagreed with such contention, noting that “Guaranteed Period of Stay” in the Refund Clause is no more than a definition to denote a period of time. Also, such an argument is inconsistent with the Termination Clause. 

(2) The Implied Term Issue

The Defendant further argued it should be implied that “for any reason” was limited to the two grounds for termination set out in clause 4, as:

  • Such implication is necessary to give effect to the reasonable expectation of the parties;
  • It was so obviously a stipulation in the Letter of Understanding that the parties must have intended it to form part of their contract; and/or
  • AIA should not do any act which would prevent the Defendant from fulfilling his obligation under the Letter of Understanding and at the same time be permitted to penalise the Defendant.

The Defendant’s argument was dismissed as there is nothing in the language of the Contract or its context which indicates any of the above expectations. The Judge emphasised that in any event, an implied term cannot contradict an express term of a contract, and to imply such a term as the Defendant contended would contradict the express terms in the Termination Clause and the Refund Clause.


This case demonstrates that as long as an agency contract is clearly drafted, the Court is willing to give its terms their natural meaning.  The fact that the clause might result in a bad bargain for an agent, without more, would not be construed as a reason for departing from such natural meaning or give rise to an implied term which contradict the contract’s express term. Such emphasis on clarity, commercial common sense and spirit of contract should be welcomed by insurers.