EXCEL CONCRETE LTD v. THE CONCRETE PRODUCERS ASSOCIATION OF HONG KONG LTD AND OTHERS

CACV 233/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 233 OF 2013

(ON APPEAL FROM HCA NO. 938 OF 2011)

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BETWEEN

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  In this action, the Plaintiff sued the Defendants for defamation in respect of 3 letters sent to the MTR Corporation and the Buildings Department. Though the action was commenced in 2011, it is still at the pleading stage. There have been substantial amendments of the pleadings and in this appeal we are concerned with some proposed re-amendments by the 1st, 2nd and 7th Defendants [“the defendants”].

2.  On 18 July 2013, Deputy Judge M Ng [“the Judge”] refused leave to re-amend their defence in terms of paragraphs 4 and 26(jb) of the draft attached to the summons of 22 October 2012.  The judge granted leave in respect of the other re-amendments.  This is an appeal against the refusal.

3.  The Judge also ordered the defendants to bear the costs of the re-amendments to para 24A on the basis that the Plaintiff dropped the opposition shortly after receiving clarification in answers to requests for particulars.  The defendants also appeal against this part of the costs order.

The re-amendments

4.  In order to understand the significance of the re-amendments, we must start with the Plaintiff’s case as shown on the pleadings. The re-amended Statement of Claim is a document of more than 40 pages.  Instead of going through it at length, we gratefully adopt the Judge’s summary of it at paras 11 to 15 of her decision of 18 July 2013:

“11. The plaintiff claims the 7^th, 8^th and 9^th defendants together with other companies (collectively, “Cartelists”), five of whom were members of D1, were active members of a cartel aimed at controlling the concrete products market in Hong Kong, driving the plaintiff and other potential competitors out of the concrete supply market in Hong Kong and/or preventing new entrants from entering the market (“Cartel”).  Other non-active members of the Cartel followed the Cartelists’ directions and guidance on prices and allocations of projects (“passive Cartelists”).

12. The plaintiff claims each of the Cartelists and/or each of the passive Cartelists was a competitor of the plaintiff, and the Cartelists’ combined share of the ready-mixed concrete market in Hong Kong amounted to about 80%.  It is averred that representatives of the Cartelists regularly attended meetings at which the operation of the Cartel was discussed and agreed upon, and that from time to time meetings took place among the plaintiff, cement manufacturers/traders and members of the quarry industry to agree on guidelines for the Cartel and how to deal with new market entrants such as the plaintiff. 

13. The plaintiff claims the Cartelists used D1 as a shield behind which to hide and a front to legitimise/facilitate the operation of the Cartel, and the Cartelists had a decisive influence on the steps taken by D1 because most of the Cartelists were members of D1 and/or due to the overlap of the Cartelists and D1’s management. The plaintiff is the first company in over 10 years to attempt to beat the Cartel and break into the Hong Kong concrete supply market.

14. The plaintiff claims:

(a) The 13/10/10 Letter (published to the MTRC) referred to and was understood to refer to the plaintiff. At that time, the plaintiff contracted to supply concrete produced by their KT Plant and, once ready, their Tin Wan Plant (“TW Plant”) in Aberdeen on project-specific basis for a MTRC project awarded to a joint venture.

(b) The 14/10/10 Letter (published to the Buildings Department and the Southern District Council) referred to and was understood to refer to the plaintiff.   At that time, the plaintiff was in the process of constructing the TW Plant and supplying concrete produced by the KT Plant for the construction of the raft foundation of the TW Plant.

(c) The 21/12/10 Letter (published to the MTRC) referred to and was understood to refer to the plaintiff.  Attached to such letter was a letter from the 1^st defendant to HKQAA dated 20 December 2010 which referred to the certification process for a newly built concrete batching plant, and at that time (to the knowledge of the recipients of the 21/12/10 Letter) a certification process for the KT Plant was pending with the HKQAA.

15. The plaintiff claims the impugned statements in the 13/10/10, 14/10/10 and 21/12/10 Letters related to (a) complaints against the plaintiff about the unlawful erection/operation of the KT Plant with the aim of supplying concrete for MTRC projects, and (b) supply of inferior or substandard concrete, and were calculated to disparage the plaintiff in their business and commercial interests.  The plaintiff further claims the impugned statements were false, and the defendants knowing they were false or being reckless as to their truth, maliciously instructed, authorised, caused and/or procured such statements to be published with the intention of preventing the plaintiff from (i) supplying concrete to the MTRC for their projects, (ii) producing concrete at the KT Plant, (iii) constructing and operating the TW Plant, and (iv) supplying concrete produced at the KT and TW Plants.  The plaintiff therefore claims for, inter alia, damages and injunctive relief restraining the publication of similar statements.”

5.  In the Defence, various lines of defence were pleaded.  Since we are only concerned in this appeal with paras 4 and 26(jb) of the proposed re-amendments, we can focus on the defence of qualified privilege and the question of damages in light of the submissions of Mr Chan SC (appearing for the defendants in the appeal but not below).  The main thrust of paras 4 and 26(jb) is described as the Short Piling Scandal.  At para 13 of skeleton submissions, Mr Chan explained the relevance of the Short Piling Scandal as follows:

“The Short Piling Scandal is relevant to whether the publications complained of are protected by qualified privilege and (if they are) rebutting express malice, as material to damages as the contextual background in which the publication came to the made, P's claim to an enhanced reputation (and thereby damages), and also as rebutting the plea of exemplary damages. The pleas are therefore necessary for disposing fairly of the action and such amendments should have been allowed.”

Qualified privilege

6.  Though the main arguments in the court below focused on the damages aspect and a major part of the judgment below dealt with that question, in the appeal Mr Chan placed the defence of qualified privilege at the forefront of his submissions. In the present case, there are two sub-issues in the context of qualified privilege: (a) whether the letters were written on privileged occasions; (b) whether the privilege was negated by malice on the part of the defendants.  Mr Chan submitted that the Short Piling Scandal is relevant to both sub-issues.

7.  The test for determining whether the occasion is one giving rise to qualified privilege can be found in the judgment of Lord Atkinson in Adam v Ward [1917] AC 309 at p.334:

“A privileged occasion is, in reference to qualified privilege, an occasion where the person who makes the communication has an interest or a duty, legal, social or moral, to make it to the person to whom it is made, and the person to whom it is so made has a corresponding interest or duty to receive it.”

8.  Before the re-amendment, there had already been a plea of qualified privilege in the Amended Defence, see para 26 thereof.  In essence, the plea is that the 2^nd Defendant had a duty/interest in conveying information pertaining to the quality of concrete produced in Hong Kong to potential users and the MTRC, as one of such users, had a corresponding interest in receiving such information.  According to the pleading, the duty/interest of the 2^nd Defendant stemmed from the objects of the 2^nd Defendant as a trade organisation in the construction industry.

9.  By way of re-amendment, the defendants proposed to add this sub-paragraph (jb) to para 26:

“Further at all material times the 1^st 2^nd and 7^th Defendants were aware of the gist of the matters relating to the Short-Piling Scandal as pleaded above which provided additional grounds for concern.”

10.  The Short-Piling Scandal was pleaded in para 4 of the draft re-amendments with great details:

“In paragraphs 3 and 4 the Plaintiff asserts an immediate establishment of a good reputation following its incorporation in 2005 and claims a high and deserved reputation for professionalism and integrity throughout, implying that the Defendants had no good reason to be wary of the Plaintiffs integrity and reputation within the industry prior to publication. The 1^st 2^nd and 7^th Defendants deny this claim for the following reasons in addition to the matters set out in the pleas of justification below.

(1) The Plaintiff is and was at the time of all the publications complained of, through Mega Yield, indirectly controlled by Wai Kee, a company registered in Bermuda and listed in the Hong Kong Stock Exchange. As of 28 September 2012, Wai Kee has 94.05% shareholding in MegaYield.

(2) lncorporated in 1970, Wai Kee is and was at all material times a holding company of a number of business interests mainly in the construction and construction materials industry, headed and/or managed by inter alia, Mr. Derek Zen Wei Peu, Derek ("Mr. D. Zen") who has been working in the group for more than 30 years. Mr D. Zen's brother, William Zen Wei Pao ("Mr. W. Zen") is also a director of Wai Kee. Mr. D. Zen and Mr, W. Zen are hereinafter referred to as “the Zen Brothers”.

(3) Mega Yield, is and was, at all material times, the sole shareholder of the Plaintiff. The Plaintiff is and was at the time of the publications complained of, held out as the construction materials arm of Wai Kee, while Zen Pacific Civil Contractors Limited ("Zen Pacific") were at all material times part of the construction business of Wai Kee.

(4) At all material times since February 1997, Zen Pacific was indirectly owned by Wai Kee. Wai Kee had acquired a 99.99% shareholding in Zen Pacific through a wholly owned subsidiary of Wai Kee (Zen Pacific Construction Limited ("ZPCL").

(5) By reason of the aforesaid, the Zen Brothers, through their respective shareholdings in Wai Kee, have and had at all material times indirect control of :-

(1) the Plaintiff; and

(2) Zen Pacific;

(6) As of 25 June 20l2 Mr. D. Zen was:-

(1) a director of the Plaintiff;

(2) a director of Wai Kee and an authorised representative of Wai Kee in Hong Kong:

(3) a director of Mega Yield; and

(4) a director of Zen Pacific.

(7) As of 24 June 20l2, Mr. W. Zen was:-

(1) a director of the Plaintiff;

(2) a director of Wai Kee; and

(3) a director of Mega Yield;

(8) The practice of Zen Pacific, of which Mr. D. Zen was a director, came into the limelight in an incident in December 1999 where two of the five multi-storey residential buildings at Yuen Chau Kok (the "Buildings") then being constructed for the Hong Kong Housing Authority ("HKHA") under the Home Ownership Scheme Development were found to have excessive settlement:

(a) The tender for the construction of foundations at the site of Yuen Chau Kok was awarded to Zen Pacifìc on 15 January 1998. The piling contract commenced on 10 February 1998; the piling works commenced in March 1998 by Hui Hon Contractors Limited ("Hui Hon"), the sub-contractor nominated by Zen Pacific responsible for the piling works of the Buildings.

(b) Zen Pacific owed HKHA the contractual duties, inter alia, to construct the piles in accordance with specifications, to properly supervise the works, to discover and to report any defect.

(c) The said piling works were completed between July and August 1998. Subsequent investigations of the Buildings by HKHA revealed that the foundations of the Buildings had serious defects due to faulty pilings. As a result, the Buildings had to be torn down (the “Short-Piling Scandal”).

(9) As a result of Short-Piling Scandal: -

(a) in August 2000, Zen Pacific was removed from the Housing Authority Lists of Large Diameter Bored Piling Contractors and Demolition Contractors and it was decided that it would never be given any HKHA projects in the future.

(b) Zen Pacific had later entered into arbitration with HKHA over the Short-Piling Scandal. In the arbitration, HKHA sought to establish that Zen Pacific had breached the contract in failing, inter alia, to construct the piles in accordance with specifications, to properly supervise the works, and to discover and report the defects. Furthermore, HKHA sought damages in the amount of HK$605 million, comprising HKHA's direct costs of HK$212 million (including wasted expenditure, demolition costs, investigation costs and abortive costs), compensation claimed by the superstructure contractor of the two demolished blocks (up to $65 million), as well as loss of asset value ($328 million).

(c) The arbitration was completed in August 2003. The arbitrator determined that there was a series of breaches of contract by Zen Pacific. In particular, Zen Pacific was found to have dishonestly subcontracted works to Hui Hon, which was not an approved contractor on the HKHA list, and they had not stationed a representative on site to supervise the construction works. When Zen Pacific took over the project from Hui Hon, they continued to employ the same Hui Hon staff team to manage the project, thus further covering up their malpractice.

(d) The arbitrator awarded to HKHA HK$199 million for its direct costs, full indemnity by Zen Pacific for any HKHA payment to the superstructure contractor, plus interests and legal costs.

(e) After the arbitrator’s award was made, HKHA entered into negotiations with Zen Pacific, at the latter’s request, for a settlement of the award. An agreement was subsequently reached. Under this agreement, Zen Pacific would pay HKHA $80 million in phases before the end of 2004 as full and final settlement of the arbitrator's award. Wai Kee would guarantee to pay HKHA any shortfall in the event that Zen Pacific defaulted in paying the settlement sum in whole or in part.

(f) Subsequently, two ex-directors of Hui Hon were sentenced to 12 years imprisonment on conviction of conspiracy of defraud over the Short-Piling Scandal in the cases of HCCC 219/2001 and HCCC 259/2001.

(10) In or around March 2001, Mr. D. Zen, then Vice Chairman of Wai Kee, his brother, Mr. W. Zen, chairman of Wai Kee, a serving executive director, two members of staff and one former employee of Wai Kee were arrested by the Independent Commission Against Corruption ("ICAC") on suspicion of involvement over an alleged project-fee inflation scam in a Private Sector Participation Scheme residential development in Hunghom which was awarded to Wai Kee's subsidiary, First Start Development. The arrests resulted in a suspension of trading of Wai Kee's securities in the Hong Kong Stock Exchange. Within a week, the stock price of Wai Kee fell from the closing price of HK$0.40 on 21 March 2001 immediately before the arrests were reported to the closing price of HK$0.27 on 27 March 2002. On 14^th March 2002 they were granted unconditional release from bail by the ICAC.

(11) The Short-Piling Scandal aroused serious public concern on the building quality of public housing, calling for detailed investigation into the circumstances surrounding these incidents. On 7 February 2001, the Legislative Council, having considered that previous investigations by other public bodies were insufficient to reveal a complete picture of the causes of the scandal, resolved to appoint a select committee ("the Select Committee") to inquire into the building problems in the production of public housing units having regard to the Short-Piling Scandal.

(12) The Select Committee’s report of its investigation picked out Zen Pacific for criticism, stating that it could not find any evidence that Zen Pacific carried out its contractor's role in a responsible manner and the Select Committee regretted that Zen Pacific adopted such an irresponsible approach.

(13) In its conclusion, the Select Committee considered that with the spate of building problems in public housing projects discovered in the late 1990's, it was clear that if the potential risks involved in the construction of buildings were ignored, the prestige and reputation which the construction industry had all along enjoyed might be seriously impaired.

(14) In view of:-

(a) the involvement of the entities managed and/or owned by the Zen Brothers and/or Wai Kee, including Zen Pacifìc, in the Short-Piling Scandal and/or the matters particularised in this paragraph 4;

(b) the cavalier practices of the entities managed by and/or Wai Kee, including Zen Pacific, as they were revealed in the Short-Piling Scandal and/or the matters particularised in this paragraph 4;

(c) the threat to public safety such cavalier practices had caused; and

(d) the impairment of the prestige and reputation of the construction industry caused by the Short-Piling Scandal and/or the matters particularised in this paragraph 4:

the 1^st and 2^nd Defendants, in performing their duties set out in their respective Memoranda and Articles of Associations particularized hereinbelow, had become more mindful of the activities and/or practices of the members of the construction industry, and in particular entities managed and/or controlled by the Zen Brothers and/or Wai Kee and their potential impact on public safety and/or the prestige and reputation of the construction industry such that potentially damaging incidents such as the Short-Piling Scandal could be prevented in the future.

(15) As a result, the 1st and 2nd Defendants had become active in receiving and following up reports of suspicious activities and/or practices of the members of construction industry and when appropriate, investigate such suspicious activities and/or practices and bring them to the attention of the authorities and/or interested parties.”

11.  As is clear from the structure of the draft re-amended Defence as a whole, and indeed as stated at the beginning of this long “paragraph”, the primary purpose of this plea relating to the Short-Piling Scandal is to answer paragraphs 3 and 4 of the Amended Statement of Claim which pleaded the building up of its reputation by the Plaintiff.  We shall discuss later the relevance or irrelevance of such a plea in that context.  However, in the context of the qualified privilege, the defendants only pleaded at para 26(jb) that they were aware of “the gist of the Short Piling Scandal” which enhanced their concerns.

12.  As a general observation, we must say that this piece of pleading has gone beyond what is required under Order 18 Rule 7(1), which reads:

“…every pleading must contain, and contain only, a statement in a summary form of the material facts on which the party pleading relies for his claim or defence, as the case may be, but not the evidence by which those facts are to be proved, and the statement must be as brief as the nature of the case admits.”

13.  Regrettably, there is a modern tendency for pleaders to include averments of an argumentative nature in pleadings.  The first sentence of paragraph 4 is an example of statement which is more in the nature of a submission than a pleading of material facts in summary form.  Litigators should understand the distinction between pleadings, witness statements and submissions.  The inclusion in pleadings of matters or statements which are in the nature of a witness statement or submissions is a misuse of pleadings.  Very often, such practice substantially increases the costs of litigation as it sets in motion a chain reaction generating voluminous and argumentative pleadings containing evidential matters in response.  In many instances, prolix and argumentative pleadings containing minute details (which are more in the nature of collateral evidence for the material facts) unfortunately distract pleaders and readers of the pleadings from the real issues in the case.  They do not advance the efficient and effective resolution of the dispute.  They also increase costs by expanding the scope of discovery and witness statements.  

14.  In terms of materiality in the context of the present case, even assuming that the Short Piling Scandal is arguably material for one reason or another, we do not see the need to plead the arbitration, the settlement of the arbitration award, the conviction of the directors of Hui Hon, the arrest of the Zen brothers and the inquiry by the Select Committee and their findings in the Defence.  Depending on the stance taken up by the Plaintiff in respect of the allegation of Short Piling Scandal, there may or may not be a case for referring to some of these matters by way of elaboration on the significance of the Short Piling Scandal in subsequent pleadings, the witness statements or other forms of evidence.  But at the Defence stage, it is excessive to refer to such matters as part of a statement in a summary form of the material facts.  The gist of the Short Piling Scandal was pleaded in sub-para (8) and the first sentence of sub-para (11) of para 4.  Those were the material facts and in our view, it is quite enough to plead those at the Defence stage, the rest are unnecessary elaboration, subordinate facts and supporting evidence.

15.  On the question of qualified privilege occasion, we do not think the Short Piling Scandal adds anything to the existence or non-existence of interest/duty between the defendants and the MTR which have already been pleaded in the rest of para 26.  If the primary premise for setting up a qualified privilege occasion cannot be established, bearing in mind what we shall say below in respect of the temporal factor and the lack of nexus between such events and the subject publications, we do not think the so-called enhancement obtained by the knowledge of the Short Piling Scandal on the part of the defendants can take the matter further.  On the other hand, if the primary premise is sufficient to raise the defence of qualified privilege, the knowledge does not add much to this particular aspect of the Defence.

16.  Mr Chan relied on the dictum of Lord Buckmaster in London Association for the Protection of Trade v Greenlands [1916] 2 AC 15 at p.22-23 which laid emphasis on the circumstances associated with the origin and publication of the defamatory matter and the possibility of new arrangements of business giving rise to privileged occasions.  With respect, given our analysis in the preceding paragraph, we do not find the dictum to be of much assistance to the defendants in the present context.

17.  However, we can see the possibility of there being a difference in the context of rebuttal of allegation of malice. Usually, malice would only be pleaded by a plaintiff in Reply in response to a Defence of qualified privilege.  In the present case, Mr Chan is able to say that the Plaintiff has anticipated the same by reference to the plea at paras 44A to 46B of the Re-amended Statement of Claim.  In those paragraphs, the Plaintiff pleaded that the 1^st Statement was published as a campaign by the Cartelists against the Plaintiff and with the intention to prevent the Plaintiff from supplying concrete to MTRC projects.

18.  The reason why the Plaintiff pleaded malice in the statement of claim as opposed to its Reply after the Defence had pleaded qualified privilege was that originally the Plaintiff advanced claims based on malicious falsehood.  Thus, malice was pleaded as an element for those claims. However, those causes of action were dropped in the Re-amended Statement of Claim.  But the pleas of malice were still retained.

19.  Though the defendants did not plead the Short Piling Scandal in the context of their Defence to paras 44A to 46B of the Re-amended Statement of Claim, the Judge also rejected the argument that such a plea could be relevant to the question of malice at para 78 of her judgment.  In light of that, the defendants would need to overturn that part of the judgment before they could put in further amendments pleading the Short Piling Scandal to rebut the Plaintiff’s allegation of malice.

20.  We agree with Mr Chan that on the question of malice, the court is not primarily concerned with the objective relevance of the Short Piling Scandal.  The relevant inquiry is directed to the state of mind of the defendants when the statements were published.  For present purposes, we can take the relevant law on malice from the judgment of Lord Diplock in Horrocks v Lowe [1975] AC 135 at p.149F to H:

“So, the motive with which the defendant on a privileged occasion made a statement defamatory 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. …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 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 interest.”

21.  Further, Lord Diplock referred to the subjective element in the state of mind of the defendant at p.150C to E:

“The freedom of speech protected by the law of qualified privilege may be availed of by all sorts and conditions of men. In affording to them immunity from suit of 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 ascertained by a rigorous search for all available evidence and a judicious assessment of its 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 recognise the cogency of material which might cast doubt on the validity of the conclusions they reach. But despite this 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.”

22.  Hence, whilst the temporal factor and objective lack of nexus militate against the use of the Short Piling Scandal in the other limbs of the Defence, we do not think the defendants should be barred from advancing a case of honest belief based on the Short Piling Scandal to rebut malice as a matter of pleading. Whether the defendants did hold such honest belief is a question of fact.  With respect, we do not agree with the Judge that one can conclude at this stage that such a plea has no merit because of the temporal factor, lack of objective nexus and lack of references to the Short Piling Scandal in the letters in question.

23.  We are of the view that the Judge was wrong in holding that such plea could not be advanced (as a matter of pleadings) to rebut the plea of malice.

24.  Having said that, it does not mean that paras 4 and 26(jb) should be allowed.  First, as observed earlier, these paragraphs were not pleaded in the context of rebuttal of malice.  Second, a plea of honest belief based on the Short Piling Scandal in rebuttal of the allegation of malice should be much more circumscribed and para 4, for reasons already canvassed, is plainly excessive and not in accordance with Order 18 Rule 7(1). It is not the function of this court to formulate a proper plea of honest belief for the defendants.  All we need to say in this judgment is that our conclusion on the question of malice does not warrant us disturbing the Judge’s decision to disallow paras 4 and 26(jb).  If the defendants wish to advance a plea of honest belief to rebut malice in the context of qualified privilege, they should make a fresh application for leave to re-re-amend to the court below with a draft containing a proper plea (in light of our comments above) to that effect.

Pleas as to reputation and damages

25.  In respect of the relevance of para 4 to reputation and damages, the Judge applied the principles set out in Burstein v Times Newspapers [2001] 1 WLR 579 and Turner v News Group Newspapers [2006] 1 WLR 3469 and adopted the test of direct relevance to the contextual background in considering whether the matters pleaded in that paragraph were admissible to mitigate damages payable to a plaintiff by reason of his general bad reputation.

26.  In this appeal, Mr Chan submitted that the applicable test is not settled in view of the observations of Lord Radcliffe in Plato Films v Speidel [1961] 1 AC 1090 at p.1131 and Associated Newspaper Ltd v Dingle [1964] AC 371 at p.399-400 and the comment of Gatley on Libel and Slander, 12^th Edn para 33.32.  The latter, in the context of evidence of general bad reputation, identified the admissible evidence as follows:

“While ‘it is, no doubt, true that in practice it may be difficult to define exactly … the borderline between evidence of general bad reputation and that of specific conduct which has led to it’, it is settled that only evidence of general bad reputation is admissible. However, it has been held that conviction of a serious crime is evidence that the claimant has a bad reputation, and it may still be open to argument that evidence of the claimant’s involvement in a single notorious event is admissible as tending to prove general bad reputation.”

27.  The observations of Lord Radcliffe were discussed at footnote 119 of Gatley.  As the learned editors said, Lord Radcliffe’s view was not endorsed by other members of the Appellate Committee in Plato Films.

28.  It should be noted that Gatley also discussed the Burstein approach at paras 33.43 to 33.46, but under a different section with the heading “(b) facts relevant to the contextual background in which the defamatory publication was made”.      

29.  The Judge did not rule out the possibility of a single notorious event as evidence of general bad reputation.  Her discussion of admissibility of para 4 by reference to the Burstein approach is premised upon her view as set out at para 66 of the judgment:

“…In my view, despite Mr Huggins SC’s skilful persuasion, the pleas as to the “Short-Piling Scandal” and the ICAC arrests in respect of the project-fee inflation scam are not averments of general bad character, but are allegations of particular acts of misconduct which fall outside the general exclusionary rule. Further, insofar as they relate to facts and matters in respect of the short-piling fiasco and the project-fee inflation scam (which pertain to construction works), it is doubtful whether they relate to the relevant sector of the plaintiff’s reputation (which pertain to the production and supply of concrete, i.e. construction material, which is a different line of business).”

30.  The last part of this paragraph is a matter of common sense and well-supported by authority.  In Plato Films, Lord Denning said at p.1140:

“When evidence of good or bad character is given, it should be directed to that sector of a man’s character which is relevant. Thus, if the libel imputes theft, the relevant sector is his character for honesty, not his character as a motorist. And so forth. It is for the judge to rule what is the relevant sector.”

31.  The Judge’s observation was made against the background that the Short Piling Scandal had come into the limelight 10 years before the publication of the alleged libel and more than 5 years before the incorporation of the Plaintiff. Even taking account of the involvement of the Zen brothers in the management of the Plaintiff, the general reputation of the Plaintiff in the concrete supplying business should generally be assessed by reference to how successful it had been since the business had started as opposed to what had happened 5 years before its incorporation to  some other companies in another sector in which the Zen brothers had played a part.  In other words, the plea cannot be sustained on the basis that it is arguable that the Plaintiff had a general bad reputation by reason of the Short Piling Scandal.

32.  And the pleader has not done so.  Having read paragraph 4 of the proposed re-amendment again, we cannot find any reason to fault the Judge’s conclusion that it is not a plea of general bad reputation in the relevant sector.  In the pleader’s own words, the reference to these events was to refute the case that “the Defendants had no good reason to be wary of the Plaintiff’s integrity and reputation within the industry prior to publication”.  And to explain why “the 1^st and 2^nd Defendants, in performing their duties … had become more mindful of the activities and/or practices of … entities managed and/or controlled by the Zen Brothers and/or Wai Kee …”.

33.  Under such circumstances, we do not think the Judge can be criticised for adopting the Burstein approach in deciding whether to allow the re-amendments at paragraph 4.

34.  Though the Judge alluded at para 77 of her judgment to the difference between the views of Lord Radcliffe and those of Lord Denning on single notorious event, it is clear from the last sentence in that paragraph that she decided the point by reference to the facts of the present case.  

35.  At paras 68 to 76 of her judgment, the Judge explained why she did not regard the matters pleaded in paragraph 4 as directly relevant contextual background for the publications of the letters.  Mr Chan’s challenge to the Judge’s application of the Burstein approach can be summarised as follows:

(a) The Judge was wrong in treating the misconduct of Zen Pacific and/or the Zen brothers as having no bearing on the Plaintiff’s reputation;

(b) The Judge was wrong in failing to consider the temporal factor against the scale and impact of the Short Piling Scandal; and

(c) The Judge was wrong in failing to appreciate that the bad reputation Zen brothers and/or Wai Kee in construction works impacted on the reputation of the Plaintiff in the supply of concrete.   

36.  We do not accept these as valid criticisms.  Contentions (a) and (c) can be considered together.  Obviously, the Judge had regard to these matters by reference to the facts of the present case as opposed to dealing with them in a vacuum, see last sentence at para 65 of her judgment.  What she actually said at para 71 of the judgment was as follows:

“… the “Short-Piling Scandal” that came into the limelight some 5 years before the plaintiff’s own incorporation directly concern Zen Pacific (another company within the Wai Kee Group) and/or the Zen Brothers (ie those behind Zen Pacific who happens also to control the plaintiff). But obviously any misconduct of Zen Pacific and/or the Zen Brothers in the “Short-Piling Scandal” and the project-fee inflation scam does not betoken misconduct or bad reputation on the part of the plaintiff which was not yet in existence at that time. So Mr Huggins SC is constrained to argue that the plaintiff’s reputation is likely to be affected by previous and unconnected acts/omissions by essentially third persons, i.e. those who control the plaintiff and/or other companies within the same group of companies. In my view, such tenuous connection cannot be directly relevant to the plaintiff’s general reputation.”

37.  And para 73 is pertinent on (c):

“Thirdly, it is true that the plaintiff pleads it has a reputation for supplying quality ready-mixed concrete in the construction industry and amongst government departments in Hong Kong.  But it is difficult to see how the pleas as to the “Short-Piling Scandal” (which relate to defective building works in contra-distinction to the production and supply of construction materials) directly demonstrate that the plaintiff has courted an undesirable reputation in relation to the production and supply of construction materials.  Even more significantly, the arrest of the Zen Brothers in March 2001 and their subsequent release in connection with a project-fee inflation scam appears to be extraneous to the essence of the alleged libel.”

38.  Bearing in mind what we said at para 31 above, we do not think the Judge was wrong in her reasoning in these paragraphs.

39.  As far as contention (b) is concerned, we see no basis for suggesting that the Judge had overlooked the scale and impact of the Short Piling Scandal.  She referred to the events extensively at paras 24 to 28 of the judgment.  It is also clear from the judgment that the Judge did not rest her decision solely on the basis of the temporal factor.

40.  On the whole, we are of the view that the Judge was right in concluding that the matters pleaded in paragraph 4 cannot be part of the directly relevant contextual background for the publication of the letters.

Exemplary damages

41.  Mr Chan submitted that the same analysis on malice should be applicable to the defendants’ plea in response to exemplary damages. 

42.  The Plaintiff did advance a plea of malice in the claim of exemplary damages, see paras 47 and 48 of the Amended Statement of Claim.  However, in the draft Re-amended Defence, the defendants did not refer to the matters in paragraph 4 of the Short Piling Scandal in their specific answer to the claim for exemplary damage.  It is also not clear if the relevance of the Short Piling Scandal was argued in the context of exemplary damages at the court below.  There is no discussion in such context in the judgment below.  Thus, though there may be force in Mr Chan’s submission, we do not propose to say more than what we have said above in the context of malice. By the same token, we would not disturb the judge’s decision on disallowing paras 4 and 26(jb) because of the potential relevance of the Short Piling Scandal in the context of exemplary damages.

43.  As in the context of qualified privilege, the disposition of this appeal should not prejudice the defendants’ formulation of a proper plea of lack of malice by reference to the Short Piling Scandal in the context of exemplary damages in a fresh application to re-re-amend their defence if they are so advised.

Appeal on costs re para 24A

44.  This is a discrete issue.  The judge held that it was not unreasonable for the defendants to bear the costs of the re-amendment as the Plaintiff had promptly dropped the opposition to this re-amendment after clarification was given by the defendants in their answers to requests for further and better particulars.

45.  Mr Chan submitted that the particulars did not add anything to what had been set out at para 24A(2) of the proposed re-amendments.

46.  Though there is some force in that contention, we do not think that is enough to persuade us that a different costs order should be made.  Normally, the party applying for amendment should bear the costs of the amendment.  Though there is a discretion on the court to order costs of the hearing of the application separately when an application is opposed unsuccessfully, it is not suggested in the present case that there is a separate dealing with the re-amendment of para 24A or that costs have substantially been increased by reason of the opposition to para 24A. Actually, it seems to us that the costs pertaining to para 24A represent a very small portion of the overall costs of the opposition to the re-amendments as a whole.  It is, with respect, rather disproportionate for an appeal to be brought on such question.

47.  In such circumstances, we would not disturb the order for costs made by the judge.

Disposition

48.  For the above reasons, we dismiss the appeal. But as indicated above, such dismissal is without prejudice to the defendants’ fresh application (if so advised) for re-re-amendments to plead a proper case of lack of malice by reference to the Short Piling Scandal.

49.  We also make a costs order nisi that the defendants shall pay 75% of the costs of the appeal to the Plaintiff, such costs are to be taxed if not agreed.  The reduction is on account of our overturning of the judge’s reasoning in respect of malice.

50.  Lastly, we wish to invite the parties to consider making an application to the Civil Listing Judge for the case be docketed to a single judge for all interlocutory applications and trial in view of the complexity of the case.