Winmost Enterprises Ltd v. Chinlink International Holdings Ltd and Others

HCA 2541/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2541 OF 2005

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J U D G M E N T

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1.The plaintiff trades in, manufactures and supplies furniture for international hotels and resorts. The 1^st defendant is a company whose shares are listed in Hong Kong. The 2^nd defendant is a wholly-owned subsidiary of the 1^st defendant and, like the plaintiff, trades in the supply of furniture and decoration materials to international hotels and resorts. The 3^rd defendant (“Wong”) is a director of the 1^st and 2^nd defendants (together referred to as “Decca”).

2.At the material time in September 2005, the plaintiff and the 2^nd  defendant were both appointed suppliers of custom-made furniture to the Four Seasons Hotel in Hong Kong (“Hotel”).  The plaintiff was responsible for supplying custom-made furniture for the serviced apartments of the Hotel, whereas the 2^nd defendant was responsible for supplying custom-made furniture to the guest rooms and public area of the Hotel.  In addition, the plaintiff was also responsible for supplying  fabric to the 2^nd defendant, for part of the upholstery furniture to be manufactured and supplied by the 2^nd defendant for use in the guest rooms of the Hotel.

3.It is common ground that a company known as Central Waterfront Property Project Management Company Limited (“Waterfront”) was at the material time responsible for overseeing and managing the IFC development in Hong Kong including the Hotel (“Project”), and responsible for sourcing furniture for supply to the Hotel.  Mr Johnson So (“Johnson”) and Mr Keith Kung (“Keith”) were at the material time respectively the Senior Project Manager and Project Manager of Waterfront. 

4.On 4 September 2005, an article was published in the Oriental Daily News (“Newspaper”), a local Chinese newspaper, with the title “廸士尼酒店木材貨不對辨”(Disneyland Hotel Wood Supplies - Goods Not Corresponding To Samples) (“Article”).  The plaintiff claims (by paragraph 7 of the Amended Statement of Claim (“SOC”)) that the Article is defamatory of it, in that it suggested: that the plaintiff had supplied to Disneyland furniture made of substandard timber; that it attempted to “pass off fish eyes for pearls” by using cheaper white lotus timber to masquerade as maple wood; that the plaintiff’s action resulted in serious problems of woodborers at Disneyland; that the plaintiff made a secret profit of $800,000 by deceiving Disneyland; that the plaintiff had committed a wrongful or criminal act which should be investigated by the Hong Kong Government or the ICAC; that the plaintiff’s act amounted to the criminal act of obtaining public funds by deception; and that the plaintiff was unethical, dishonest, unreliable and irresponsible.

5.The plaintiff claims that the contents of the Article are false and untrue, and that the defendants knew or ought to have known that the plaintiff was not the supplier of the substandard furniture mentioned in the Article.

6.The plaintiff’s claim is that on 7 September 2005, and on other dates unknown to the plaintiff, Wong published the Article by sending it to customers in the furniture trade.  The plaintiff relies on an email dated 7 September 2005 sent by Wong at 11:09 am to Johnson of Waterfront, in which email Wong asked Johnson to read the Article.  The plaintiff claims that at all material times, Wong was an employee and agent of Decca, and acting on Decca’s behalf in the publication of the Article.

7.The plaintiff further complains that Wong sent the Article to Keith by a 2^nd email dispatched at 4:31 pm on 7 September 2005.

8.Wong’s dispatch of the Article to Johnson and Keith is not disputed.

9.The plaintiff alleges that there was further dissemination of the Article (“Dissemination”) by the defendants.  The plaintiff claims that the defendants had sent the Article to design consultants and furniture sourcing agents in Hong Kong, including but not limited to:

(1)   the consultants and/or agents of MGM Grand Paradise (HK) Limited, including Cairncross Martin Pty Limited;

(2)   the agents and/or consultants of Mandarin Oriental Hong Kong Limited, including Purchasing Associates; and

(3)   K Wah Real Estate Co Limited, the owner of Galaxy StarWorld Hotel in Macau.

10.The Dissemination is denied by the defendants.

11.The plaintiff further claims that Keith had, upon receiving  the Article from Wong, republished it to other people in the furniture trading, furniture sourcing, design consultants, project and hotel management communities in Hong Kong.  The plaintiff complains that in sending the Article to Johnson, Keith and others, the defendants had intended the Article to be republished, or had known (or ought to have known) that republication would be likely.

12.According to the plaintiff, Decca were direct competitors and trade rivals of the plaintiff in Hong Kong, and they had directly competed with each other for the supply of furniture to various hotels in Hong Kong, including the Hotel, the Disneyland Hotel, the Mandarin Hotel, and the MGM and Galaxy Hotels in Macau.  The plaintiff claims that the defendants’ republication of the Article was actuated by malice, with the intention that the Article or its contents would be further published by its recipients, and alternatively, that the defendants knew or ought to have known that such republication was likely. As evidence of this, the plaintiff relies on Johnson’s forwarding the Article to the Project Director (Eric Tung) and Deputy Project Director (Alain Chung) of Waterfront (paragraph 3A (1), SOC), and Keith’s forwarding the Article to other individuals within Waterfront, and to individuals carrying on interior decoration, design, furniture sourcing and project management businesses (paragraph 3A (2) SOC).

13.It is further claimed that as the plaintiff’s trade rivals, the defendants had published the Article with the knowledge that it was untrue, or was reckless as to its truth or falsity.  The plaintiff claims that the defendants had never attempted to seek the plaintiff’s confirmation or comment on the Article before publishing it, as it was the defendants’ calculated and dominant intention or motive to hurt, disparage and damage the plaintiff’s trade and business reputation, thereby to gain an unfair advantage over the plaintiff in ongoing and future tenders or business, and to drive the plaintiff out of the furniture trade in Hong Kong to the defendants’ benefit.

14.On 29 September 2005, an apology was published by Oriental Daily Publisher Limited (“Apology”), whereby the Article was withdrawn with the acknowledgment that the contents of the Article were false and untrue.  On 19 November 2005, the Apology was drawn to the attention of the defendants by the plaintiff’s solicitors.  Despite that and the plaintiff’s demand for a public retraction and apology, the defendants refused to apologize.  The plaintiff claims this is further evidence of the defendants’ malice.

15.By the time of the trial, the defendants no longer dispute that the Article is referable to and defamatory of the plaintiff.  They only deny that they had republished the Article to anyone, apart from Wong’s dispatch of the email and the Article to Johnson and Keith.  The defendants rely on qualified privilege by way of defence, and deny that they were actuated by malice in the republication of the Article.

Whether further publication of the Article

16.There is no evidence whatsoever that the defendants had published the Article to any third party, other than Wong’s dispatch of the email with the Article to Johnson and Keith.  The claim made by Mr Leung Sau Shing of the plaintiff (“Leung”) that the defendants had sent the Article to design consultants, furniture agents and hotel owners (paragraph 3 (3) SOC) remains speculation, a bare assertion which was unsubstantiated by any evidence at trial.  Bearing in mind that the Newspaper has a wide circulation, it cannot be inferred that any person in the furniture business or hotel industry, who had acquired knowledge of the contents of the Article, must have obtained such knowledge from the defendants, or been notified or given a copy of the Article by none other than the defendants.

17.Vivien Lim of Purchasing Associates denied having seen, or receiving the Article from anyone.  There is no reason to disbelieve her independent evidence. Peter Norman was not called to testify, and whatever he said in his statement neither made any reference to the defendants, nor was of any probative value. The anonymous email is totally unreliable and can be ignored.  None of the other emails show that the defendants had published the Article.

18.It can also be stated at this early stage that there is no evidence at all of the 1^st defendant’s role in or liability for publishing or authorizing the publication of the Article.  It is only the holding company of the 2^nd defendant.

19.The plaintiff claims that after receiving the Article from Wong, Johnson and Keith had forwarded Wong’s email and the Article to their colleagues within Waterfront, to the owner of an email address [email protected], and to individuals of a company in Hong Kong carrying on business of interior decoration, furniture supply and project management (para 3A(2)SOC).  It is claimed that the defendants had either intended that the Article would be so republished by Johnson and Keith, or that such republication by Johnson and Keith was foreseen, or ought reasonably to have been foreseen, by the defendants.  According to the plaintiff’s counsel, the question of whether the republication of the Article by Johnson and Keith was foreseen or reasonably foreseeable is only relevant to the issue of the damages payable by the plaintiff, should its claim of defamation be established.  This issue will accordingly be dealt with under damages, if necessary.

20.The claim of the defendants’ further publication to parties other than Johnson and Keith is not established.

Whether Article published on occasion of qualified privilege

21.The defendants rely upon the defence of qualified privilege.  They claim that the 2^nd defendant was appointed as the supplier of custom-made furniture for the guest rooms and the public area of the Hotel.  The plaintiff was appointed the supplier of the fabric for the furniture to be manufactured and supplied by the 2^nd defendant for the guestrooms of the Hotel.  The plaintiff was also the supplier of the custom-made furniture for the serviced apartments of the Hotel.  Waterfront was the joint venture set up by the developers of the International Finance Center in Hong Kong (“IFC”) including the Hotel. It was the company responsible for sourcing the supply of furniture for the Hotel, and Johnson and Keith were respectively the senior project manager and project manager of Waterfront.  They were the individuals responsible for sourcing the supply of furniture and of fabrics for the Hotel project.  Wong himself was the person responsible for dealing with Waterfront on the Hotel project.

22.Accordingly, the defendants claim that Wong and the 2^nd defendant on the one part, and Waterfront on the other part, had a common and corresponding interest in the quality and timely supply of furniture for the Hotel.  The Article referred to the defective quality of the goods and furniture supplied by the plaintiff to a reputable hotel in Hong Kong, and Wong and the 2^nd defendant claim that they had the social and moral duty to publish the Article and its contents to Waterfront, and that Johnson and Keith of Waterfront had the social and moral duty to receive the Article and its contents.

23.According to Wong, from early 2005 up to November 2005, Waterfront, its main contractor E Man Sanfield JV (“Sanfield”), the 2^nd defendant and the plaintiff had been in regular contact and had engaged in discussions in relation to the sampling, quantities, delivery time and the general supply of materials for the Hotel.  He was acting on behalf of the 2^nd defendant in its daily correspondence and communications with Waterfront and Sanfield.  Wong explained that the IFC development including the Hotel was a high-end project, such that the quality of the fabrics and furniture to be supplied for the Hotel had to be of a very high standard.  It was of particular concern to Waterfront that the materials used in terms of the fabric, timber and other accessories had to be of good quality.  Wong claims that all parties involved in the Project, including the plaintiff and the 2^nd defendant, had to do their utmost to ensure that the clients’ expectations on quality were met. 

24.According to Wong, when he came across the Article and the report on the plaintiff supplying sub-standard timber to the Disneyland Hotel, he felt obliged, and “under a moral duty as well as out of commercial interest” to notify Waterfront of the Article.  Wong referred to the fact that earlier in March 2005, Waterfront had not approved certain samples of fabric supplied by the plaintiff for some items of furniture for the Hotel, and had in fact changed the supplier of those fabrics to another company.  Rightly or wrongly, that was his subjective belief at the relevant time.  He was concerned that if the fabric to be supplied by the plaintiff to the 2^nd defendant for the furniture to be supplied to the Hotel had any defects or quality problem, the items of furniture affected would have to be redone, and there would be delay in delivery such that the 2^nd defendant might incur liability as a result.  Hence, when Wong had occasion to discuss with Johnson on 7 September 2005 in relation to certain variation orders for the furniture to be supplied by the 2^nd defendant for the Hotel, he asked Johnson whether he knew about the Article.  Johnson said no, and Wong informed Johnson that a newspaper article had been published, to the effect that the furniture supplied by the plaintiff to the Disneyland Hotel was of inferior quality.  Johnson expressed interest in reading the Article, since the plaintiff was one of the suppliers of furniture for the Hotel, and he asked Wong to send a copy of the Article to him.  As a result, Wong sent a copy of the Article to Johnson by email at 11:09 am on 7 September 2005, and then sent a further copy of the Article to Keith at around 4:41 pm the same day.  According to Wong, he believed at the time when the Article was sent to Johnson and Keith that the contents of the Article were true, since the Newspaper claimed to have obtained information from “insiders”. Wong claims that it did not occur to him to seek confirmation or comment from the plaintiff, since he would not normally communicate with the plaintiff directly in connection with the Project.  He would generally communicate with Waterfront only.  At the time when Wong sent the Article to Johnson, he considered that he had the duty to inform Waterfront and the Hotel, and Waterfront had the right and interest to receive the information contained in the Article, and that it was up to Waterfront to follow up and to deal with the plaintiff on the matter.

25.It is Wong’s evidence that he did not know about the publication of the Apology until he received a letter from the plaintiff’s solicitors in November 2005.  Since it was his understanding from the letter that the plaintiff had explained its position to Waterfront, and that the Newspaper had already published the Apology (as stated in the letter dated 19 November 2005 from the plaintiff’s solicitors), Wong did not consider that it was necessary for him or the defendants to make any further apology to the plaintiff, since he never had intended to defame the plaintiff.  Wong denies that he had acted with any intention to eliminate the plaintiff as a competitor.  He in fact denies that the plaintiff was a competitor of the 2^nd defendant.

26.Whether there is a duty for the purpose of qualified privilege is a question of law.  Occasions of qualified privilege include where one person has a duty (whether legal, social or moral) or an interest to make the statement, and the recipient of the statement has a corresponding interest or duty to receive it.

27.Legal duty can more readily be understood.  As explained in Stuart v Bell [1891] 2 QB 341, “moral or social duty” means a duty recognized by people “of ordinary intelligence and moral principle, but at the same time not a duty enforceable by legal proceedings, whether civil or criminal”.  The test for the existence of a moral or social duty is explained by Lindley LJ to be: “Would the great mass of right-minded men in the position of the defendant have considered it their duty under the circumstances to make the communication?”

28.It is common ground that Wong is the agent of, and acting for, the 2^nd defendant at the material time.  According to Wong’s testimony, he was concerned that any problem related to the plaintiff’s defective goods as reported in the Article would affect him and the 2^nd defendant.  As the 2^nd defendant was the supplier of furniture for the Hotel, I accept that the 2^nd defendant and Wong as its director dealing with the Project had the legal duty and interest to ensure that the furniture which the 2^nd defendant supplied or was to supply to the Hotel would be free from defects, would comply with the standards and quality dictated by Waterfront and the Hotel, and could be delivered on time in accordance with the contract made with Waterfront or the Hotel.  The defendants also had an interest to ensure that the 2^nd defendant would not incur any liability in respect of any delay or defect in the performance of its obligations under its contract with Waterfront and/or the Hotel.  Both the plaintiff and the 2^nd defendant were working on the Hotel and the Project, as suppliers.  If the fabric supplied or to be supplied by the plaintiff to the 2^nd defendant in respect of the furniture for the guest rooms of the Hotel was defective or inferior in quality, or not up to the prescribed contractual standards, it is conceivable that there would either be potential delay in the 2^nd defendant’s performance of its contractual obligations and in the delivery of the furniture to be supplied by the 2^nd defendant to the Hotel, or its reputation would be adversely affected in respect of any furniture already supplied.  There may also be potential liability for the 2^nd defendant if the fabric supplied by the plaintiff should affect the quality and standard of the furniture in question.   Even if the defect or quality problems should relate only to the furniture or materials supplied by the plaintiff, and would not affect the furniture to be supplied by the 2^nd defendant, I accept that the 2^nd defendant had an interest in ensuring that such problems should not delay the completion of the Project, and an interest that the overall standards of the furniture supplied to the Hotel should be high, so as not to affect the reputation of the Hotel, as well as the reputation of the 2^nd defendant as one of the suppliers of furniture to the Hotel as a high-end project.  Wong mentioned in his testimony the importance of gaining clients’ confidence by ensuring the quality of the products the 2^nd defendant supplies, and by its reputation and goodwill.

29.Counsel for the defendants highlighted the fact that even the plaintiff recognized that Johnson and Keith of Waterfront had the “moral and/or contractual duty” to convey the contents of the Article to their colleagues, superiors, business partners, principals and/or employers, once they had received and read the Article (paragraph 3A (5) (b) SOC).  The 2^nd defendant was a business partner of Waterfront at the relevant time, so if the plaintiff accepts that Johnson and Keith of Waterfront had the duty to convey the contents of the Article to their colleagues and business partners, the 2^nd defendant and Wong likewise would have the contractual and /or moral duty to receive, and to convey the contents of the Article to the 2^nd defendant’s business partner on the Project, ie Waterfront.

30.Hence, I accept that Wong and the 2^nd defendant had a legal, social or moral duty and interest to publish the Article and to send it to Johnson and Keith of Waterfront, they being the project managers responsible for the supply of furniture to the Hotel.  Likewise, Johnson and Keith had the duty and interest, as the managers of Waterfront (which was responsible for overseeing and managing the Project) and in charge of sourcing furniture for the Hotel, to receive the Article which contained information on the quality of goods supplied by the plaintiff, a company appointed as the supplier of furniture and fabric for the Hotel.  If the goods supplied by the plaintiff to the Disneyland Hotel were inferior, or not in accordance with contractual specifications, Waterfront and its responsible officers had the duty to ascertain whether the furniture and fabric supplied or to be supplied by the plaintiff for the Hotel would have similar quality problems, and would be up to the high standard dictated for the Hotel.

Whether there was malice

31.The plaintiff placed huge reliance on the fact that the 2^nd defendant is a competitor and business rival of the plaintiff, such that (it was argued) the defendants had the motive or intention to drive the plaintiff out of the market, by painting a picture that the plaintiff was a dishonest supplier of goods of an inferior quality, as the Article so depicted.

32.I am prepared to accept that the plaintiff and the 2^nd defendant had common trade interests in the furniture and hotel business, to be business rivals in the widest sense of the word.  However, in order to defeat the defence of qualified privilege, what the plaintiff is required to do is to establish, on a balance of probabilities, that there was malice on the part of Wong and the 2^nd defendant.  The burden is plainly on the plaintiff to prove this.

33.As Lord Diplock explained in the leading authority on qualified privilege, Horrocks v Lowe [1975] AC 135:

“… For in all cases of qualified privilege there is some special reason of public policy why the law accords immunity from suit - the existence of some public or private duty, whether legal or moral, on the part of the maker of the defamatory statement which justifies his communicating it or of some interest of his own which he is entitled to protect by doing so. If he uses the occasion for some other reason he loses the protection of the privilege.

So, the motive with which the defendant on a privileged occasion made a defamatory statement of the plaintiff becomes crucial. The protection might, however, be illusory if the onus lay on him to prove that he was actuated solely by a sense of the relevant duty or a desire to protect the relevant interest. So he is entitled to be protected by the privilege unless some other dominant and improper motive on his part is proved. “Express malice” is the term of art descriptive of such a motive. Broadly speaking, it means malice in the popular sense of a desire to injure the person who is defamed and this is generally the motive with which the plaintiff sets out to prove. But to destroy the privilege the desire to injure must be the dominant motive for the defamatory publication; knowledge that it will have that effect is not enough if the defendant is nevertheless acting in accordance with a sense of duty or in bona fide protection of his own legitimate interests.”

34.Wong claims that when he read the Article, he believed that the contents of the Article were true as the Newspaper claimed to have obtained the information from “insiders”.  The plaintiff itself claims that the Newspaper is “established and widely circulated”, and that readers of the Article would be ready to accept the allegations contained in the Article to be credible (paragraph 3A (5)(e) SOC).  The plaintiff’s own case on the credibility of the Newspaper would appear to lend support to Wong’s claim of belief in the contents of the Article. 

35.There is no evidence to otherwise contradict Wong’s claim of honest belief.  It is recognized that malice is difficult to prove and in Horrocks v Lowe, it was pointed out that the court should be slow to draw an inference of malice against an honest defendant.  As in any area of the law, inferences can only be drawn from facts which are sufficiently and clearly proved, and if they can be said to be the only or necessary inferences to be drawn from such facts as proved.

36.In the illuminating words of Lord Diplock in Horrocks v Lowe:

“The motive with which a person published defamatory matter can only be inferred from what he did or said or knew. If it be proved that he did not believe what he published was true this is generally conclusive evidence of express malice, for no sense of duty or desire to protect his own legitimate interests can justify a man in telling deliberate and injurious falsehoods about another, save in the exceptional case where a person may be under a duty to pass on, without endorsing, defamatory reports made by some other person.

Apart from those exceptional circumstances, what is required on the part of the defamer to entitle him to the protection of the privilege is positive belief in the truth of what he published or, as it is generally thought tautologously termed, “honest belief”. If he publishes untrue defamatory matter recklessly, without considering or caring whether it be true or not, he is in this, as in other branches of the law, treated as if he knew it to be false. But indifference to the truth of what he publishes is not to be equated with carelessness, impulsiveness or irrationality in arriving at a positive belief that it is true. The freedom of speech protected by the law of qualified privilege may be availed of by all sorts and conditions of men. In according to them immunity from suit if they have acted in good faith in compliance with a legal or moral duty or in protection of a legitimate interest the law must take them as it finds them. In ordinary life it is rare indeed for people to form their beliefs by a process of logical deduction from facts ascertainable by a rigorous search for all available evidence and a judicious assessment of their probative value. In greater or in less degree according to their temperaments, their training, their intelligence, they are swayed by prejudice, rely on intuition instead of reasoning, leap to conclusions on inadequate evidence and fail to recognize the cogency of material which might cast doubt on the validity of the conclusions they reach. But despite the imperfection of the mental process by which the belief is arrived at it may still be “honest”, that is, a positive belief that the conclusions they have reached are true. The law demands no more.” (Emphasis added)

37.Bearing in mind that what is required of a defendant is simply a positive belief in the truth of what he published, and that to destroy the privilege, there must be a dominant motive on the part of the defendants which is improper or unrelated to the privilege, I am unable to find sufficient evidence to show, or to support the inevitable inference, that when Wong sent the Article to Johnson and Keith, he was driven by the dominant motive or desire either to damage the plaintiff, or to destroy the plaintiff as a competitor, and drive the plaintiff out of business.  As a competitor of the plaintiff (as the plaintiff claims), Wong may have been swayed by prejudice in his belief that the Article referred to the plaintiff, and that the contents of the Article are true.  He may even have impulsively, carelessly, or unreasonably arrived at the conclusion that the contents of the Article were true in their references to the plaintiff and its goods.  So long as Wong positively believed in his conclusions, however, and there is no evidence to disprove his claim that he did, the defendants are entitled to maintain their defence of qualified privilege. 

38.Nor can I infer from the available evidence that the 2^nd defendant’s duties and interests in the Project and under its contract with Waterfront or the Hotel (as particularized in paragraph 28 above), including the defendants’ interests in ensuring that the goods supplied or to be supplied by the 2^nd defendant to the Hotel would not be affected by the quality of the fabric and furniture supplied or to be supplied by the plaintiff, played no part in inducing Wong to inform Johnson of the Article.  I accept on the evidence that the 2^nd defendant’s contractual interests and duties under its agreement for the supply of high quality furniture to the Hotel played a significant role in causing Wong to inform Johnson of the Article and to send a copy of the Article to him.  The protection of the 2^nd defendant’s own commercial and legal interests under its contract with the Hotel or Waterfront is just as probable a motive for Wong’s publication of the Article, as some desire on his part to injure the plaintiff.  I do not consider that the plaintiff has proved a dominant improper motive, as required.   

39.As for the plaintiff’s reliance on the defendants’ failure and refusal to give an apology, I accept that this cannot per se be taken as evidence of malice (Broadway Approvals Ltd v Oldhams Limited (No 2) [1965] 1 WLR 805, 814).  Wong explained that he considered that he had not defamed the plaintiff, as all he did was to send the Article to Johnson and Keith.  He honestly believed that he had done nothing wrong.

40.In conclusion, I do not accept that malice is established in this case so as to defeat the defence of qualified privilege.

Damages and injunction

41.Since I find that there is no evidence of the 1^st defendant’s publication or authorisation of the publication of the Article, and that the 2^nd and 3^rd defendants can rely on the defence of qualified privilege, there is no need to consider further the question of quantum of damages, or the necessity of an injunction.

Orders

42.The plaintiff’s claims against the defendants are dismissed, with costs including certificate for counsel.

Mr Kenneth Lam, instructed by Ho Tse Wai, Philip Li & Partners, for the plaintiff

Mr Walker Sham and Ms Kinsey Kang, instructed by Mayer Brown JSM, for the defendants