Royal Skandia, the Isle of Man-based investment manager and insurance firm, and a local insurance broker from Hong Kong, have won a High Court case over a powerful Hong Kong-based executive, coming as a landmark ruling for insurance brokers. 

The case, which hinged on commission disclosure, was brought by Jeremy Paul Egerton Hobbins. According to the court documents, Hobbins is an “extremely successful businessman” and a senior executive with Li & Fung Group, a large Hong Kong firm. He has held directorships on 50 Hong Kong companies. 

Hobbins lost money in the Royal Skandia Investment-Linked Assurance Scheme products that he purchased through the broker, Clearwater International, starting from March 2006.

The essential allegation was that in recommending Royal Skandia products, Clearwater was not acting in Hobbins’ best interests, but selling products which would earn it more commission and fees paid by Skandia and other insurers.

The nub of the case was that Hobbins wanted an order that Clearwater return to him the commissions and fees which it earned from insurers for transacting business on his behalf. This was on the grounds that Clearwater had failed to inform him “precisely how much commission it would be earning on each ILAS product [he] purchased”, which he said violated Hong Kong’s Prevention of Bribery Ordinance.

The main issue, said Hon Justice A Reyes, is whether as a matter of law, an insurance broker is obliged to disclose how much commission one earns on any particular transaction brokered for a client.

Reyes ruled against him, noting that  “common law has long accepted the practice of an insurance broker receiving commission from an insurer, provided (as here) those commissions do not exceed the usual market rate”.

"That principle must be the starting point of any analysis in the circumstances of this case," he added.

If a client, such as Hobbins, having been "alerted by such disclosure as was made here" wished "further and better particulars of the commission to be received", he could "readily ask the insurance broker (such as Clearwater)... and then decide accordingly whether to proceed with a transaction".

Royal Skandia said in a statement that it also welcomed the court's ruling, which it noted confirmed that it “did not act inappropriately in the case of Mr Hobbins”. 

“The judgement is clear that all claims have been dismissed, and that certain claims should never have been made against Royal Skandia in the first place,” Royal Skandia said. 

“Royal Skandia’s charges and product terms are clearly outlined and agreed to by customers, including Mr Hobbins, at the point of sale."