HOERMANN (HONG KONG) LTD v. VICA FIRESEALS (H.K.) CO LTD AND ANOTHER

HCA 1550/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1550 OF 2014

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ASSESSMENT OF DAMAGES

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1. The Plaintiff commenced this action for defamation committed by the 2^nd Defendant in sending an email (‘Offending Email”) on 9^th July 2014 to several parties whose email addresses are set out in the Statement of Claim.  The 1^st Defendant was sued on the basis that the 2^nd Defendant was the employee and or agent of the 1^st Defendant and so the Plaintiff’s claim against the 1^st Defendant is for its vicarious liability for the defamation of the 2^nd Defendant.

2. As between the Plaintiff and the 1^st Defendant, settlement was reached in November 2014 and recorded in an order made pursuant to a Consent Summons.  Under the terms of this Order, the 1^st Defendant was to pay the sum of HK$165,000.00 to the Plaintiff.  Ms Lau, appearing on behalf of the Plaintiff, agrees that credit should be given for this sum against the damages to be awarded as payable by the 2^nd Defendant.

3. By a final and interlocutory judgment entered in favour of the Plaintiff on 5^th March 2015, a number of reliefs were granted to the Plaintiff against the 2^nd Defendant, including an injunction that restrains the 2^nd Defendant from publishing or causing to be published the offending words in the Offending Email or any other words to the same or similar effect defamatory of the Plaintiff.  It was also ordered that the 2^nd Defendant do pay the Plaintiff damages to be assessed.

4. The hearing on assessment of damages took place before me on 18 January and 14 July 2016.  Evidence adduced took the form of a witness statement and the oral testimony of Hung Cho Fai (“Hung”), the Chairman and Director of the Plaintiff.  In his witness statement, Hung confirmed and adopted the Plaintiff’s Statement of Claim, the 1^st Affirmation of Li Fuk Kwong dated 28 January 2015 (“Li Affirmation”) and his own Affirmation dated 15 May 2015 (“Hung Affirmation”).

5. Hung answered questions in a straightforward fashion and he would make admissions even to the disadvantage of the Plaintiff.  On some occasions, he took time to consider how to answer the questions put to him, but it was for him to gather his thoughts on how to explain the position in greater detail.  I find him to be a credible witness.

6. The case of the Plaintiff against the 2^nd Defendant, as disclosed from the Statement of Claim and the evidence adduced, is set out below.  It is important to point out here at the outset that only one defamatory act has been pleaded by the Plaintiff; that is the issue of the Offending Email by the 2^nd Defendant.  No other defamatory acts by the 1^st or 2^nd Defendant or further dissemination by the recipients of the Offending Email have been mentioned in the pleadings of the Plaintiff.

7. The Plaintiff is and was at all material times a company incorporated in Hong Kong and a subsidiary of Hörmann Beteiligungs GmbH which is part of the Hoermann Group of companies.  The business of the Hoermann Group is to provide gates, doors, frames and operators in the market for construction components carrying the Hoermann name, being Europe’s leading provider of such products.

8. The Hoermann Group was founded in 1935 and is Europe’s leading supplier of doors and produces high quality doors, hinged doors, frames, and operators for use in private and commercial properties. Products of the Hoermann Group are not only world renowned and have substantial goodwill/reputation in the world market, they have also become the major player and enjoy substantial goodwill/reputation in the Hong Kong market since 1999. According to Hung, the global turnover of the Hoermann Group exceeds one billion Euro.  The Group also sponsors football clubs in Germany like the Bayern Munich Football Club and carried out a lot of advertising activities in Europe.  Hence, architects educated in Europe may know about the Hoermann Group.

9. In 1998, Hörmann Beteiligungs GmbH decided to open up the China market, with the establishment of the Plaintiff as part of this long term strategy.  The Plaintiff was formed as part of the business of the Hoermann Group in 1999, responsible mainly for the Hong Kong and Macau markets. Langtech Building Products Ltd, a company of which Hung is the majority shareholder, holds 85% of the shares in the Plaintiff while the remaining 15% is held by Hörmann Beteiligungs GmbH.  Since the incorporation of the Plaintiff, Hung has been its chairman, with sales and marketing delegated to a sales team from 2011 onwards.

10. In terms of its positioning in the market, most of the doors of the Plaintiff are high end products.  Further, only one or two companies can supply doors that meet the particular standards required by Macau casinos which are mainly USA investments.  One such competitor of the Plaintiff is an USA company but, unlike the Plaintiff, it does not offer after sales services.  Another competitor is a German company which is more involved in the supply of industrial doors like those required for the Maxim Project referred to in paragraph 17 below.

11. The 2^nd Defendant was the Senior Sales Manager of the Plaintiff during the periods between 4^th July 2011 to 24^th August 2012 and between 5^th November 2012 to 28^th February 2014.  His role and responsibility were primarily to contact potential customers, to market Hoermann’s products, to negotiate the terms and price of the contracts, and to follow up on after‑sales services to customers and to promote the Plaintiff’s goodwill.

12. The 2^nd Defendant had had 20 years of experience in the field of construction materials before joining the Plaintiff and he was familiar with the potential clients of the Plaintiff.  During the first six months of the employment of the 2^nd Defendant, Hung went with the 2^nd Defendant to meetings with clients because the 2^nd Defendant was not then familiar with the products of the Plaintiff yet.  Having so worked together with the 2^nd Defendant, Hung was satisfied that that the 2^nd Defendant had the ability to introduce the products of the Hoermann Group and negotiate with clients.

13. All in all, the performance of the 2^nd Defendant in the first year of his employment was considered satisfactory.  Hence, when the 2^nd Defendant indicated an intention to leave the employment of the Plaintiff in mid 2012 because of family matters and possible emigration to another country, the Plaintiff agreed to let him go and rejoin after he had made up his mind.  This accounts for the interruption of the period of employment of the 2^nd Defendant from 25^th August 2012 to 4^th November 2012.  In Hung’s words, it was like letting the 2^nd Defendant have a long vacation.

14. Before 2011, the Plaintiff was using agents to help distribute its products.  Since such arrangement was found not to be very successful, the Plaintiff decided to take back control from the agents.  This the Plaintiff did by engaging the 2^nd Defendant as the first member of its sales team in 2011.  Thus, when the 2^nd Defendant started his employment with the Plaintiff, there were many projects that the Plaintiff was following at that time.

15. In 2012, the Plaintiff employed another person, the Li Fuk Kwong who made the Li Affirmation, to assist the 2^nd Defendant.  The 2^nd Defendant had all along shown a reluctance to work with others and he did not show team work spirit.  Problems with the work of the 2^nd Defendant began to surface after Li Fuk Kwong joined the Plaintiff.  The 2^nd Defendant eventually resigned and left the employment of the Plaintiff by end of February 2014.

16. The full text of the Offending Email is reproduced verbatim, with the original emphasis included, as follows:

“Anderson,

How are you? I am Eddie from Vica Engineering Co Ltd. Recently, we have been requested by several contractors for quotation re Maxims New Japanese Food Plant at 14 Dai Fu Street for all types of industrial doors and metal doors.

One thing I feel I ought to REMIND you is in your recommendation you put down Hoermann High Speed doors as one of the potential suppliers. SINCE I USED TO WORK AS THE SENIOR MANAGER at Hoermann for nearly 3 years (I left in Feb this year), I had to point out its bad and questionable quality that cause CONDENSATION and poor spare parts supply service. This is not because I am now promoting a competitor product, IKEMA and saying something bad about Hoermann.

In Nov, 2012 Café de Coral installed 5 sets of Hoermann insulated High Speed Doors. In less than 18 months, serious condensation was found on the door, ceiling and wall surface. This complaint was filed from its Food Manufacturing Manager, Mr. Thomas Lee. Please see the attached photos[1] as hard evidence. The water condensation caused electric breakdown of control box. They have to buy another 7 pieces of new circuit boards for replacement. Each cost nearly HKD5,000. The most annoying thing is Café de Coral has to wait 3‑4 weeks for new circuit board delivery. This meant those doors cannot be closed which affect the freshness of food and causes financial lost.

Also, Ikema high speed doors ar DOUBLE THICKER than Hoermann. Ikema is FIRE auto-EXTINGIUISHABLE. Hoermann is NOT. Please see the attached literature, IKEMA offers 2 year service warranty and door panel can be replaced in section/ piece. Hoermann CANNOT (clients have to buy a new door). These are all quoted directly from Mr. Thomas Lee from the new Café de Coral Plant.

This is one of the reason why I left Hoermann due to its slow and unreliable after sales service that cause complaints from lot os clients.

From the point of user/ owner, I strongly believe they have to know the truth and facts based on good quality and competitive offer.

Hoermann brings you more trouble in operation and maintenance.

Thanks very much for your attention.

Eddie Kwan
Sales Director
Vica Engineering Co Ltd.
Tel: 9682 1610”

17. According to the skeleton arguments of Ms Lau, the Plaintiff seeks the award of general damages, aggravated damages and exemplary damages.  In terms of general damages, the following specific heads of damages are relied on by the Plaintiff:

(1)  Claim of HK$256,524.60 for financial loss in a project for fitting out premises for the Maxim catering group (“Maxim Project”);

(2)  Claim of HK$3,226,569.68 for financial loss due to the loss of all the quotations prepared by the 2^nd Defendant while in the employ of the Plaintiff (Quotations”); and

(3)  Claim of HK$3 million as loss of goodwill of the Plaintiff.

18. There are some differences between the figures set out above from those detailed in the Li Affirmation, the Hung Affirmation and Hung’s witness statement.  Where and to the extent necessary, I will deal with them in the discussions below.

LOSS RELATING TO THE MAXIM PROJECT

19. In paragraph 22 of the Li Affirmation, the Plaintiff has set out a summary of the actual loss it claims to have been caused by the Offending Email.  There are eight items (items i to viii) in the summary.  Items i, ii, iii, iv, v and vii are directly related to the Maxim Project and their sub-total is in the amount of HK$256,524.60.[2] Each of these items will be addressed separately below.

20. The Offending Email was sent to 5 email addressees and according to the Statement of Claim, two of these are architects of David S.K. Au & Associates (“Architects”), two others are people of the Maxim group and the fifth person is the managing director of the 1^st Defendant.  It is the Plaintiff’s case that it was on the suppliers’ list of the Maxim Project and the Architects were in charge of the tendering of the Maxim Project.

21. The Offending Email was sent by the 2^nd Defendant at the time when the Maxim Project was approaching its final stage.  It caused the Architects to seek an explanation from the Plaintiff as to the quality of the doors to be provided by it.  When the Statement of Claim was issued, the Plaintiff considered there to be a real foreseeable possibility that the Plaintiff might fail in the tendering of the Maxim Project and a claim for the loss of the business from the Maxim Project was set out.  By the time the Li Affirmation was filed in January 2015, it turned out that the Plaintiff was chosen as one of the designated suppliers in the tender list of the Maxim Project by the Architects.

22. The Li Affirmation gives details about the extra costs the Plaintiff had to incur in order to have itself so chosen as one of the designated suppliers.  Where relevant, the differences from the usual scenario are also set out in the Li Affirmation.

Extra Discount

23. It was deposed in the Li Affirmation that the Plaintiff was forced to give a bigger discount from a usual 2% to 3% to some 8% out of the original bid price of some HK$600,000 (HK$680,000 according to paragraph 13 of the Statement of Claim).  The sales contract for the Maxim Project (“Sales Contract”) can be found in Exhibit “EL‑3” of the affirmation.  The discount given is shown to be 7% of the contract price of HK$585,500, which amounts to HK$40,985, the figure now claimed by the Plaintiff.

24. When asked whether the 2^nd Defendant should be given credit for the usual discount of 2% to 3%, Hung explained that the discussions with the Architects were undertaken by Li and it was the understanding of Hung that the 7% indicated in the sales contract was in addition to the usual discount.  Working on the basis that the original bid price being HK$680,000, the reduction of the price to HK$585,500 would mean a discount of about 14% already.  The 7% noted in the Sales Contract would indeed be an additional discount and so the amount of HK$40,985 should be allowed as damages.

Costs of Meeting

25. The Plaintiff also claims the costs of attending an urgent meeting at the request of the Architects to give a full account of the alleged serious condensation problem to them and the representatives of Maxim.  A breakdown showing the labour costs and the documentation costs can be found in the Li Affirmation.  It is the uncontroverted evidence of the Plaintiff that the costs for this meeting amount to HK$26,000.  I award the sum of HK$26,000 as damages for costs of this meeting.

Extra Freight and Delivery Costs

26. The need for explanation and clarification caused delay and urgent delivery has to be arranged to catch up for meeting the deadline for completion of the project.  For this reason, the Plaintiff had to arrange for air freight instead of the usual sea freight.  For delivery by air freight, special arrangement has to be made with each High Speed Door placed into an individual wooden box and the box can then be placed on board the plane.  The sum of HK$84,981.30 is claimed for air freight charges and the sum of HK$31,668.00 is claimed for the wood crates.  Invoices showing these two amounts claimed have been exhibited to the Li Affirmation in support.

27. With the invoice of the air freight, the number of pieces of items shipped does not tally with the Sales Contract.  The Sales Contract records the supply of 10 sets of doors, but the air freight invoice relates to the delivery of 12 pieces of articles.  There is nothing from the Plaintiff to explain how the two extra pieces of articles can be regarded as part of the Maxim Project.

28. There is a charge item in the air freight invoice which does not seem to be levied at a uniform rate in respect of all the shipped items.  In the absence of additional information, it is not possible to work out the air freight that would apply specifically to the 10 sets of doors supplied for the Maxim Project.  Averaging out such costs, only 10/12 of the billed amount of HK$84,981.30, that is HK$70,817.75, should in any event be taken into account.

29. The damages to be awarded for extra freight and delivery charges should thus be calculated by adding HK$70,817.75 to the amount of HK$31,668.00.  The sum is HK$102,485.75.

Prolonged Warranty Period

30. In addition to the above, to counter the loss of confidence in their products caused by the Offending Email and at the request of the Architects and Maxim, the Plaintiff agreed to prolong the warranty period from the usual 1 year to 2 years.  The Plaintiff claims HK$10,890.39 as the extra costs for the warranty.

31. It is not the case that the Plaintiff invariably gives only 1 year warranty for its products.  According to Hung, the length of the warranty period depends on the contract requirements and would be factored into the pricing.  Having checked the terms and conditions in all the Quotations which have been exhibited in full, it can be seen that out of the 34 Quotations, a 1 year warranty was offered in all except 2.  In the Offending Email, the offer of 2 year service warranty was highlighted by the 2^nd Defendant as an advantage of the IKEMA doors over the Plaintiff’s product.  I therefore accept that the cost for the second year warranty should be recoverable from the 2^nd Defendant.

32. The breakdown in paragraph 22 of the Li Affirmation shows that the amount claimed is calculated as 2% of the value of the doors supplied.  In his testimony, Hung referred to cases of clients that only ask for a one year warranty under the supply contract.  He confirmed that, when such clients ask for a warranty contract after the expiry of the initial period, that would be the norm for charging them for the extra warranty period.  I award the sum of HK$10,890.39 as claimed.

Spare Motor

33. The Plaintiff was also required by Maxim to have one set of spare motor as standby as a contingency measure in case of a breakdown of the High Speed Doors it supplied.  The Plaintiff claims HK$30,000 as the value of the standby spare motor.  In his testimony, Hung explained that the worry of Maxim was really unjustified and that it would be highly unlikely to have this spare motor put to use at all.  I award HK$30,000 for this spare motor.

Labour Cost for Overtime Installation

34. One other item claimed by the Plaintiff as loss of profits from the Maxim Project is the labour cost for overtime installation in the sum of HK$32,000.  There were 10 doors to be installed and in view of the urgency, I see no ground to challenge it.  I award the amount as claimed.

35. In summary, the award for damages arising from the loss of the Maxim Project should be the sum of the amounts in paragraphs 24, 25, 29, 32, 33 and 34 above.  The total is HK$242,361.14.

LOSS OF QUOTATIONS PREPARED BY 2^ND DEFENDANT

36. A claim of HK$4,600,000 for loss of the Quotations is included as item viii in paragraph 22 of the Li Affirmation.  In paragraph 29 of the witness statement of Hung, a different amount is set out which ranges from HK$2,419,927.26 to HK$3,226,569.68.  In paragraph 66 of the skeleton submissions of Ms Lau, the sum of HK$3,226,569.68 is set out as the amount claimed under this head.  Hung admitted that he could not give an explanation for the different figure set out in the Li Affirmation and he confirmed that the Plaintiff would stick to the calculation set forth in his own witness statement.[3] 

37. According to the Plaintiff, the 2^nd Defendant had prepared Quotations of a worth of HK$23,046,926.30 in all during the periods of his employment with the Plaintiff.  This figure represents the total value of the 34 Quotations exhibited in “HCF‑6”.  The date of the earliest one is 17 January 2012 while the last one is dated 28 November 2013.  With the exception of a handful of such Quotations, the validity period of each of the Quotations was clearly specified, which is usually about 2‑3 months from the date of the Quotation in question.  

38. It is the Plaintiff’s case that its products are mainly used in construction and architectural projects which usually take one to three years to realize.  The quotations of the Plaintiff therefore would require one to three years to materialize into an order from potential clients.  Hung referred to two specific examples in “HCF‑6”, Quotation No. 12/027‑1 issued to Hip Hing Construction Co. Ltd. dated 21 March 2012 and Quotation No. 13/021‑1 issued to The Diary Farm Company Ltd dated 6 March 2013.  With Quotation No. 12/027‑1, Hung indicated that the contract would probably be concluded in a year’s time if the Plaintiff was successful.  In the case of Quotation No. 13/021‑1, the project would likely take about three years more before any contract would be signed.

39. Evidence of the Plaintiff shows the growth of its business since 2011, from a turnover of HK$738,000 in the year of 2011‑2012 to HK$4,400,000 in the year of 2012‑2013, and then to HK$9,800,000 in the year 2013‑2014.  In the year of 2014‑2015, the Plaintiff’s case is that the turnover was expected to reach HK$16,000,000 had the incident of the Offending Email not occurred, but the actual turnover for that year is HK$8,283,869.[4]  The financial statements of the Plaintiff for the years 2011‑2012, 2012‑2013, 2013‑2014 and 2014‑2015 can be found in Exhibit “HCF‑5” to the Hung Affirmation.

40. Adopting what the Plaintiff referred to as the usual estimate of its success rate of 30‑40%, the Plaintiff expects the turnover from all the Quotations to range from HK$6,914,077.89 (30% of HK$23,046,926.30) to HK$9,218,770.52 (40% of HK$23,046,926.30).  If this estimate turnover is added to the actual turnover for the year 2014‑2015 of HK$8,283,869, the turnover of the Plaintiff should have reached about HK$16,000,000 in that year.  Applying the gross profit rate of 35% to the above estimate turnover from the Quotations, the Plaintiff claims the sum of HK$2,419,927.26 to HK$3,226,569.68 as the loss of profits that would have been made from the Quotations had the Offending Email incident not occurred.

41. In response to questions put to him on the basis for the adoption of this 35% as the gross profit rate and the expenses that should be given regard to, Hung indicated that with some contracts, the Plaintiff would have a bigger profit margin because it knew the price offered was attractive enough.  As for expenses, since the operational costs would not have changed whether the Plaintiff got the contracts, Hung considered the gross profit rate of the Plaintiff would not be affected.

42. It is notable from the financial statements of the Plaintiff that the gross profit rate has fluctuated within a rather wide range throughout the years, being 45.84%, 64.56%, 13.4%, 19.25% and 34.1% of the turnover for the year ending 2011, 2012, 2013, 2014 and 2015 respectively. Furthermore, the total outlay of selling and distribution costs, administrative expenses and other operating expenses noted in the financial accounts represents 200%, 131.53%, 49.77%, 25.79% and 29.83% respectively of the total turnover in the aforesaid years.  The actual figures of some of these expenses have increased quite significantly – from $111,603 in 2011 to HK$685,666 in 2015 in the case of selling and distribution costs, and from HK$659,192 in 2011 to HK$1,304,696 in 2015 in the case of administrative expenses.  It is difficult to see how these figures can support the adoption of the gross profit rate of 35% by the Plaintiff.

43. The adoption of 30‑40% as the success rate of the Quotations is also problematic.  The 2^nd Defendant was the first personnel employed by the Plaintiff after it decided in 2011 to switch from using agents for distribution to having its own sales team.  There is therefore no past experience to speak of to justify this estimate success rate.  Hung admitted to there being no scientific basis or past experience to support this percentage, but he suggested that it would be an accurate figure.  As the adoption of this percentage remains unexplained, the Plaintiff cannot be regarded as having discharged its onus of proof that the rate is indeed the “usual” estimate.

44. Another matter worth noting in respect of this head of claim is the time for the projects to come to a conclusion, as highlighted in paragraph 38 above.  Given that the projects covered by some Quotations could have been completed before the Offending Email was sent by the 2^nd Defendant, the causative link in holding the 2^nd Defendant responsible for the Plaintiff’s failure in getting all the contracts is in doubt. When this was put to Ms Lau, she merely indicated that the Plaintiff would waive its claim for loss from the Quotations prepared by the 2^nd Defendant in 2012 and would only claim for loss from those prepared by the 2^nd Defendant in 2013.  There are 18 such Quotations.

45. No justification for the adoption of this dividing line has been provided.  Of the 18 Quotations prepared by the 2^nd Defendant in 2013, 12 bear a date before 9 July 2013, one year before the Offending Email was sent to the various addressees.  Apart from Quotation No. 13/021‑1 referred to in paragraph 38 above, there is no evidence from the Plaintiff that the other 11 Quotations would be concluded more than a year later.  This means that a conclusion that the Offending Email could have an effect on the likelihood of success of all such 11 Quotations is not supported by evidence.

46. There is a yet more important reason for not accepting the Plaintiff’s case for this head of loss.  The Offending Email was sent only to the 5 addressees mentioned in paragraph 20 above and none of the Quotations was issued to the addressees of the Offending Email.  As such, the chain of causation for attaching liability to the 2^nd Defendant has not been demonstrated.

47. In the Li Affirmation, it was stated that the confidence of the other architects in Hong Kong in the products of the Hoermann Group had been weakened.  In his witness statement as well as in the course of giving his oral testimony, Hung referred to his speculation as to the reason why the 2^nd Defendant had underperformed so much despite his abilities, experience and trade records. Hung was of the view that the 2^nd Defendant had planned for his departure well in advance with the intention of taking advantage of the resources of the Plaintiff; and that it is reasonable to deduce that the 2^nd Defendant had been practicing the same approach in other previously quoted projects as a means to promote and sell his current products.

48. The Plaintiff even claims that unbeknown to the Plaintiff, the 2^nd Defendant had been defaming the Plaintiff’s products after he resigned from the Plaintiff.  The Offending Email was said to be just the tip of an iceberg of the defamatory deeds by the 2^nd Defendant, done unknown to the Plaintiff but proved from the unreasonably poor response of the Quotations. In particular, Hung has referred to the continuous deeds of defamatory and unjust criticism of the Plaintiff’s products amongst professional architects, resulting in huge damage to the Plaintiff’s business.

49. This is echoed and actually amplified by Ms Lau in her skeleton submissions.  She even attempted to lead evidence from Hung at the hearing on this point.  When asked about the basis for her doing so, Ms Lau suggested that the further dissemination of the defamatory statements could be inferred, but she failed to point to any part in the Statement of Claim from which such an inference can be drawn.

50. As pointed out in the outset, the only defamatory act pleaded in the Statement of Claim is the sending of the Offending Email by the 2^nd Defendant to the 5 addressees.  Using Hung’s metaphor of the Offending Email being the tip of an iceberg, what is clear is that there has been no pleading of any other part of the iceberg but the tip.  That being the case, how and whether the contents of the Offending Email have reached the recipients of the Quotations in question, as well as the extent of the loss that may be caused by such further dissemination, is not within the scope of this action.

51. The judgment obtained by the Plaintiff against the 2^nd Defendant was for the claims set out in the Statement of Claim filed.  The assessment of damages against the 2^nd Defendant can thus only be based on the claims of the Plaintiff as pleaded.  There is thus no legal basis for awarding damages for the loss of the Quotations to the Plaintiff.

LOSS OF GOODWILL/OTHER GENERAL DAMAGES

52. Ms Lau has pointed to paragraph 9.4 of Gatley on Libel and Slander, 12^th Edition (“Gatley”) which states that the purpose of general damages is to compensate the claimant for the effects of the defamatory statement. That paragraph also sets out three functions served by an award of general damages: to act as a consolation to the claimant for the distress he suffers from the publication of the statement; to repair the harm to his reputation (including, where relevant, his business reputation); and as a vindication of his reputation.

53. Among the specific passages quoted by Ms Lau in her skeleton arguments is the following extract from the judgment of Windeyer J. in the case of Uren v John Fairfax & Sons Pty Ltd (1966) 117 C.L.R. 118 at 150:

“Compensatory damages…may include not only actual pecuniary loss and anticipated pecuniary loss or any social disadvantages which result, or may be thought likely to result, from the wrong which has been done. They may also include the natural injury to his feelings – the natural grief and distress which he may have felt at having been spoken of in defamatory terms, and if there has been any kind of high-handed, oppressive, insulting or contumelious behavior by the defendant which increases the mental pain and suffering caused by the defamation and may constitute injury to the plaintiff’s pride and self-confidence, these are proper elements to be taken into account in a case where the damages are at large.”

54. Actual pecuniary loss in the form of loss from the Maxim Project and anticipated pecuniary loss in respect of the unsuccessful Quotations have been dealt with in the above.  The court still has to consider whether further damages should be awarded to compensate the Plaintiff for the purpose of addressing the three functions referred to in paragraph 52 above. The Plaintiff is a corporate entity; so no damages will be awarded for hurt feelings.  That leaves the two other functions: to repair and to vindicate the business reputation of the Plaintiff.

55. The claim for loss of goodwill, being item vi in paragraph 22 of the Li Affirmation, is in the amount of HK$3 million.  There is no explanation in the affirmations and witness statement of the Plaintiff as to how this figure of HK$3 million was arrived at.  Nevertheless, Hung did try to give an account for this figure when he testified.

56. Hung confirmed that goodwill was not booked as an asset in the financial statements of the Plaintiff or assigned any value in the accounts of the Plaintiff.  When asked what was intended to be covered by such claim for loss of goodwill, Hung pointed to the efforts expended by the Plaintiff in promoting its business and the impact that the Offending Email has had on the Plaintiff and its products.

57. In terms of the advertising and promotion efforts of the Plaintiff, Hung described the business of the Plaintiff as being small and trivial in the whole scheme of things of the Hoermann Group.  The Plaintiff has therefore been spending a lot of money in promoting the image of the company, so that people would know about the company.  Hung expressed his opinion that the money spent by the Plaintiff for promotion far exceeded HK$3 million and one such email of the 2^nd Defendant would not destroy all its efforts.

58. As for the impact of the Offending Email, it is the Plaintiff’s case that its goodwill has been seriously damaged when its products were stood down and criticized by the 2^nd Defendant, who was its ex-employee holding a senior position.  Hung made a specific point about the products of the Plaintiff being most suitable for customers of the Architects as their customers are mainly companies that put their self-owned properties to industrial use like food warehouse and food processing factory.  Such customers are prepared to use high quality doors for their own properties.  Since the incident of the Offending Email, the relationship between the Plaintiff and the Architects has, in Hung’s description, become distant.  In other words, the Plaintiff considers its loss of goodwill has led to the Architects advising potential clients to give their business to other suppliers.

59. Based on an estimate that the Plaintiff would get one to two projects from the Architects each year had the incident of the Offending Email not occurred, Hung claimed that a conservative estimate of profit from contracts that could be awarded at the recommendation of the Architects would be HK$100,000 to HK$200,000 per year.  This extra HK$200,000 profit would, in Hung’s opinion, translate to an increase of HK$1 million to HK$2 million to the value of the Plaintiff, as 8 to 10 times the value of the EBIT (earnings before interest and tax) is the usual manner for computing the value of a company for sale.  Taking goodwill as the reputation of the company and its value, Hung came up with the figure of HK$3 million as a rough figure for computing same.

60. Hung’s testimony serves to show that the estimate of HK$3 million is no more, and indeed no less, than a wild guess on the part of Hung.  There is no evidence showing the number of projects handled by the Architects each year that may involve the supply of doors which the Plaintiff would be interested in, or the value of such contracts.  Equating damage to goodwill with the EBIT of a company for assessing such loss is also not supported by any authority that Ms Lau has drawn my attention to.

61. In addition, it should be pointed out that, in the affirmations and witness statement filed on behalf of the Plaintiff, the claim for loss of goodwill is set out in conjunction with the claim for loss resulting from the unsuccessful Quotations.  It is claimed that the damage caused by the 2^nd Defendant is long lasting and amplified amongst the professional architects.  The drop in the turnover of the Plaintiff for the year 2014‑2015, the zero success rate of the Quotations, the failure to meet the estimate level of profits as well as the suspicion of the 2^nd Defendant practicing the same approach in other projects are factors that are as much relied on by the Plaintiff for the claim for loss of goodwill as for the claim for loss of business from the Quotations. 

62. This is understandable because of the similar nature of the two claims; but the possible overlap of the two heads of claims is also apparent.  Despite Hung’s attempts to rationalize the figure of HK$3 million now claimed, there is a real risk that the figure has also taken into account the Plaintiff’s estimate of the effect of the further dissemination of the Offending Email on professional bodies other than the Architects and potential clients other than the Maxim group.

63. It is natural for the Plaintiff to suspect that the Offending Email is not an isolated incident and that the 2^nd Defendant might have sent similar statements to other parties as well.  There is however not one single shred of evidence to show that that was what had happened.  On the other hand, further dissemination of the defamatory statement in the Offending Email by the direct and indirect recipients, whether within the firm of the Architects or to outside parties, including other architects and potential clients, cannot be ruled out.

64. The drawing of the inference suggested by the Plaintiff that it was definitely the act of the 2^nd Defendant which led to the loss of business claimed cannot therefore be justified.  The additional requirement, if further dissemination is said to have been done by parties other than the 2^nd Defendant, that the Plaintiff has to satisfy the court why the 2^nd Defendant should be held responsible for the intervening acts of such parties is also not met. 

65. There is of course the unresolved problem of there being no pleading of any other defamatory act, whether of the 2^nd Defendant, the recipients of the Offending Email or other parties, in the Statement of Claim.  As in the case with the loss of the business from the unsuccessful Quotations, the damage to be assessed cannot go beyond the effect of the publication of the Offending Email to the 5 addressees.  Any award for general damages can only relate to the effect the Offending Email has on the Architects and the Maxim group.

66. Vindication is also a relevant factor.  Reference to another part of paragraph 9.4 of Gatley is made in the skeleton arguments of Ms Lau:

“…the claimant is entitled to look to an award of damages sufficient to vindicate his reputation according to the seriousness of defamation, the range of its publication and the extent to which the defendant has persisted with the charge.”

67. I am mindful of the seriousness of the defamatory statement made by the 2^nd Defendant which was made maliciously with a view to divert the Plaintiff’s business to its new employer.  The Architects and the Maxim group are customers or potential customers and their relationship with the Plaintiff has been adversely affected.  As noted by Tugendhat J in Downtex v Flatley [2004] EWHC 333QB, at paragraph 26:

“Publication to a relatively small number of persons who are already in a business or professional relationship with a claimant may be as serious or worse than a wider publication to person who are not, and are unlikely to contemplate being, in such a relationship.”

68. Although the Plaintiff did manage to get the Maxim Project, which means that the Plaintiff has the opportunity to dispel the effect of the Offending Email, at least to some extent, through the user’s firsthand experience with the quality of the doors that it eventually supplied to Maxim, the adverse impression left by the defamatory statement may last for a while.

69. Ms Lau has also pointed me to paragraph 9.5 of Gatley which sets forth the matters the court will take into account in considering the level of award of general damages.  They include the conduct of the claimant, his credibility, his position and standing and the subjective impact that the libel has had on him, the nature of the libel, its gravity and the mode and extent of its publication, the absence or refusal of any retraction or apology, and the conduct of the defendant from the time when the libel was published down to the verdict. 

70. Having considered all relevant factors and in addition to the amount awarded for the loss from the Maxim Project, I award the sum of HK$500,000 as general damages.

AGGRAVATED DAMAGES

71. According to the skeleton arguments of Ms Lau, the Plaintiff seeks aggravated damages on the ground that the malicious motive and misdeeds of the 2^nd Defendant had aggravated the injury done to the Plaintiff, causing actual pecuniary loss in the Maxim Project and anticipated pecuniary loss of the Plaintiff in other projects which were handled by the 2^nd Defendant during his employment with the Plaintiff.  An award of aggravated damages is considered justified for the actual and anticipated pecuniary loss the Plaintiff has suffered because of the defamation of the Plaintiff’s products by the 2^nd Defendant. Reference is made to paragraphs 9.18‑9.21 of Gatley.

72. In paragraph 9.18 of Gatley, a number of the matters which had been relied on in different cases to justify the award of aggravated damages are set forth.  These include malevolence or spite or the manner of committing the wrong in such manner as to injure the claimant’s proper feelings of dignity and pride; a failure to make any or any sufficient apology and withdrawal; a repetition of the libel; conduct calculated to deter the claimant from proceeding etc.  Parts of this paragraph are quoted in the skeleton arguments of Ms Lau.

73. Ms. Lau has not however quoted, from paragraph 9.20 of Gatley, the following passage extracted from the judgment of Gray J. in the case of Collins Stewart Ltd v The Financial Times (No.2) [2005] EWHC 262 where he concluded that aggravated damages could not be recovered by a corporate claimant:

“the defining characteristic of an award of aggravated damages is that its function is to provide a claimant with compensation (‘solatium’) for injury to his or her feelings caused by some conduct on the part of the defendant or for which the defendant is responsible. The concept of injury to feelings runs through the cases, whether caused by the high-handed or insulting behavior of the defendant either before or after publication or by repetition of the libel, or by persistence in a plea of justification or by a failure to apologise. It seems to be that the essence of an award of aggravated damages in libel is not making good damage to the claimant’s reputation as such but rather compensating the claimant for the extra injury to his or her feelings.”

74. There is mention in paragraph 9.20 of Gatley of the contrary conclusion of Caulfield J. in the case of Messenger Newspapers Ltd v National Graphical Association [1984] I.R.L.R. 397.  Nonetheless, it is observed in Gatley that the additional damages awarded by the judge in the Messenger Newspapers Ltd case was considered by Gray J. in Collins Stewart Ltd v The Financial Times (No.2)[5] to be in truth “what would nowadays be labelled exemplary damages”. 

75. Ms Lau has referred to the case of Yorkview Company Limited v Lo Ying Kit Henry and others DCCJ 5136/2009 (unreported, 28 July 2011). In that case, an award for $200,000 as aggravated and/exemplary damages was made in favour of the corporate claimant.  The point about whether aggravated damages could be recovered by a corporate claimant did not seem to have been considered by the learned judge in the case and the award made was in fact one with aggravated damages and exemplary damages lumped together. 

76. In the circumstances, I agree with the opinion of the learned authors of Gatley that the more convincing view is that a corporate claimant cannot recover aggravated damages in a defamation action. 

EXEMPLARY DAMAGES

77. As stated in paragraph 9.25 of Gatley, exemplary damages are intended to punish the defendant for the wilful commission of a tort or to teach him that tort does not pay.  The case of a defendant’s tortuous act being done with guilty knowledge, for the motive that the chances of economic advantage outweigh the chances of economic, or perhaps physical penalty is given as a situation where aggravated damages are available.

78. In paragraph 21 of the Statement of Claim, it is pleaded that despite the gravity of the allegations made by the 1^st Defendant and the 2^nd Defendant, they published the defamatory statements in the Offending Email with no honest belief that they were true, and without making an attempt to verify the allegations contained therein with the Plaintiff or afford the Plaintiff an opportunity to comment on such publication of the defamatory statements in the Offending Email before publication.

79. The setting of this case is one of rivalry between commercial competitors.  The Offending Email was published with intention to harm the business of the Plaintiff and to divert potential profits to the 1^st Defendant.  Exemplary damages should be awarded to reflect the readiness of the court to punish such wilful misconduct.

80. As to quantum, the discussions in paragraph 9.31 of Gatley are illustrative:

“The sum awarded by way of exemplary damages should be the minimum necessary to punish the defendant, to show that tort does not pay and to deter others… The amount of the profit actually made by the defendant is a relevant consideration but it is not determinative, for an award may be made even when no profit is attributable to the libel provided the defendant acted from mercenary motives. Although it will not necessarily be impossible in a case of libel to show what profit is attributable to the tort, it will in practice be a rare case where this can be done with anything approaching precision…

An award of exemplary damages may properly exceed the award of compensatory damages by a large margin but there should be some proportion between the two.”

81. There is no information about the profit actually made, if any, by the 2^nd Defendant, or the 1^st Defendant for that matter.  The Plaintiff was eventually successful in the Maxim Project and it is thus more likely than not that the Defendants did not manage to make any profit out of the sending of the Offending Email. That is no bar to an award of exemplary damages and with a view of maintaining some proportion between the compensatory damages awarded, I award the sum of HK$300,000 as exemplary damages.

82. The damages assessed as being payable by the 2^nd Defendant to the Plaintiff is therefore HK$1,042,361.14 (the sum of damages awarded under paragraphs 35, 70 and 81).  After giving credit to the sum of HK$165,000.00, being the payment made by the 1^st Defendant to the Plaintiff, the amount to be paid by the 2^nd Defendant to the Plaintiff is HK$877,361.14.

83. I award interest on the sum of HK$877,361.14 at 5% per annum from the date of Writto date of judgment and thereafter at judgment rate until full payment.

84. Costs of the hearing on 18 January 2016 have been waived by Ms Lau and the solicitors acting for the Plaintiff because of the poor preparation of the case by the legal representatives.  It was for this reason that the hearing had to be adjourned.  Subject to the aforesaid, costs of the assessment, including all costs reserved, shall be paid by the 2^nd Defendant to the Plaintiff, to be taxed if not agreed.