JOTRON AS(FORMERLY KNOWN AS JOTRON ELECTRONICS AS) v. STANLEY CHANG t/a HONG KONG INSTECH TRADING CO.

HCA 378/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 378 OF 2010

(Transferred from DCCJ No 3369 of 2009)

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J U D G M E N T

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Introduction

1.  These proceedings began as a claim brought by the plaintiff (“Jotron”) in the District Court against the defendant (“Mr Chang”) for the price of goods sold and delivered.  Following the commencement of the action, Mr Chang advanced a counterclaim against Jotron for libel.  The proceedings were transferred to the High Court after judgment on admission was entered on Jotron’s claim.  The matter that remains which was tried before me is Mr Chang’s counterclaim.

2.  The alleged libel comprises of an email attaching a letter that Mr Arne Berdal, a director and Area Sales Manager of Jotron, sent to a number of persons on two occasions in March and April 2009 respectively.  It is not in dispute that the documents suggested that Mr Chang failed to pay his debts, and that he was responsible for producing a forged agreement between himself and Jotron and was therefore dishonest.  Nor is it disputed that Jotron is responsible for the acts of Mr Berdal.  There is thus no real issue that Jotron published written words defamatory of Mr Chang.  The questions in dispute are: whether the defamatory statements are true, whether the publication is protected by qualified privilege, and, if Jotron is liable, what is the quantum of damages that should be awarded.  The critical question of fact that arises is whether Mr Chang forged the agreement concerned.  Before turning to that question it is necessary to set out the relevant facts.

Background

3.  Jotron is a company incorporated in Norway that specialises in the manufacture of navigation and aviation radar equipment.  It has a few subsidiaries that are responsible for distribution of its products including Jotron Asia Pte Ltd in Singapore (“Jotron Singapore”).

4.  Mr Chang carried on a business of trading in electronic communication equipment for civil aviation as a sole proprietor under the trade name of “Hong Kong Instech Trading Co” (“Instech”).  He would buy equipment from overseas manufacturers and sell it to purchasers in Mainland China.  He was also the beneficial owner of a Mainland company called Zhuhai Digital Communications Technology Co Ltd (“Zhuhai Digital”), of which his younger brother, Mr Zhang Hongbo, was the legal person’s representative and the registered owner.  Because of rules applicable in the Mainland, after Mr Chang had secured the business of the sale of equipment in the Mainland, he would procure that Zhuhai Digital, instead of Instech, enter into a sale contract with the Mainland purchaser.  Zhuhai Digital was simply used as the vehicle to enter into written contracts with Mr Chang’s customers and had no separate business of its own. 

5.  Instech first purchased electronic communication equipment from Jotron in 2001 for resale in Mainland China.  Between 2001 and 2004 the sales were sporadic and the volume of trade was modest (from NOK 45,000 in 2001 to NOK 117,200 in 2004).

6.  In November 2004 Mr Berdal and Mr Chang had their first meeting in Hong Kong.  The meeting was arranged so that Jotron could get to know Instech better.  This was followed by another meeting in February 2005.  It is clear from the notes of the meetings and from the email correspondence at the time that Mr Chang wished to become the exclusive distributor of Jotron’s products for the Mainland market.  Mr Chang complained that Jotron’s agent in Beijing, a company called Beijing CAS Technology (“Beijing CAS”) run by a person called Mr Zhang Shun, was selling Jotron’s products too cheaply.

7.  Following these meetings Jotron agreed to give some credit to Instech in their trading transactions.  Jotron would sell equipment to Instech on terms that required payment of 50% of the price prior to delivery and the remaining 50% within 45 days after delivery.  Jotron’s sales volume to Instech increased substantially, to NOK 698,320 in 2005 and NOK 930,610 in 2006.  By October 2006, however, considerable amounts were overdue from Instech for goods sold and delivered.

8.  In March 2007, Mr Chang asked Jotron to send him a “guarantee letter” that Jotron would not supply its products to two competitors, namely, Zhuhai Comverst Technology Co Ltd (“Zhuhai Comverst”) and Shenzhen Hudson Company Ltd (“Shenzhen Hudson”).  He took the view that Mr Berdal had promised him that Jotron would protect Instech in the civil aviation market provided Instech stayed out of the market of supplies to military establishments in the Mainland.  Mr Chang asked Jotron to issue the guarantee letter before he would make payment of the outstanding invoices to Jotron.  By May 2007, the outstanding amount due from Instech exceeded NOK 300,000.

9.  In January 2008, Mr Chang complained that Beijing CAS was competing with him and holding itself out as the sole agent of Jotron in China.  He complained to Jotron that Beijing CAS had supplied Jotron’s products to Zhuhai Comverst and Shenzhen Hudson.  He told Jotron that these two companies were able to quote low prices to their customers because they evaded tax in the Mainland.  He asked Jotron to tell Shenzhen Hudson to buy from Instech and also asked Jotron to increase the sale price to Beijing CAS by 20% or 30% so that it could not help Zhuhai Comverst and Shenzhen Hudson to compete.

10.  On 27 February 2008, Mr Berdal had a meeting with Mr Chang in Hong Kong.  Mr Berdal said that the outstanding payments (by then totalling NOK 186,741.50) were the foremost concern for Jotron.  Mr Chang said he expected to be able to settle them within one week.  He mentioned a possible purchase from Jotron of certain radio sets for sale to Air China for use at the Tianjin Airport.  He continued to complain to Jotron about Beijing CAS’s cooperation with Zhuhai Comverst and Shenzhen Hudson.

11.  Mr Chang did manage to get the business of Air China as he expected.  On 5 March 2008, Zhuhai Digital entered into a contract for the supply of certain equipment to Air China, Tianjin Branch, consisting principally of two VHF radios and their accessories including in particular a VHF (3 dB) aerial (antenna) system.  The contract specified the manufacturer of the equipment to be Jotron.  Delivery and installation had to be completed by 10 April 2008.  Zhuhai Digital agreed to provide free maintenance and repair for two years after the purchaser’s acceptance of the goods.  Air China agreed to pay 30% of the price within 5 days after signing the contract, 65% upon inspection and acceptance of the goods, and the remaining 5% upon expiry of the 2-year warranty period.  Mr Chang signed the contract on behalf of Zhuhai Digital and one Mr Feng Gang signed on behalf of Air China.

12.  Mr Chang then ordered the equipment from Jotron, in the name of Instech.  The amount of the order was NOK 389,266, later revised to NOK 431,600 with the addition of further products.  Mr Berdal informed Mr Chang that the order could not be accepted unless all the existing unsettled amounts were paid, and that the goods ordered would be delivered once the outstanding amounts and the price of the new order were paid.

13.  Mr Chang, however, told Jotron that he had only received about NOK 325,737.50 (approximately HK$462,000) from his customers and asked Jotron to agree to ship the new order, promising to pay the balance of NOK 250,000 within 45 days and explaining that otherwise Instech would not be able to fulfil the contract with Air China.  In the end, Mr Berdal agreed to proceed on this basis.

14.  On 10 April 2008, Instech remitted NOK 295,580 to Jotron.  The amount remitted was less than NOK 325,737.50 because, Mr Chang explained in an email, Instech had kept the funds in Hong Kong dollars but the exchange rate had gone against Instech in the meantime.

15.  After the equipment was delivered by Jotron to Hong Kong and in turn by Instech to Tianjin, there were problems with its installation.  At Mr Chang’s request, Jotron provided some technical assistance, free of charge, though the problems were not immediately resolved.  Unfortunately at one point Jotron’s technician provided an incorrect drawing to Mr Chang. He complained repeatedly to Mr Berdal, who retorted that Jotron was merely a seller and the responsibilities for engineering and project design rested on Instech.

16.  The problems with installation had still not been solved by late June 2008, with Air China becoming more and more anxious as the Beijing Olympics approached.  Mr Berdal discussed with one Miss Diane Tan of Jotron Singapore, as a result of which she arranged for Mr Zhang Shun of Beijing CAS to help with the installation of the Jotron equipment that Air China had purchased.  Mr Zhang managed to produce a temporary solution that enabled the system to operate.

17.  In August 2008, Diane Tan spoke to Feng Gang of Air China, and reported to Mr Berdal that Mr Feng was very displeased with Instech but was impressed by Beijing CAS, and that Mr Feng asked if future orders for Jotron products could go through Beijing CAS instead.  Jotron realised that it would be difficult for Instech to collect the balance of the price from Air China for the equipment supplied and hoped to obtain payment direct from Air China, with any surplus to be paid to Instech as commission.

18.  Meanwhile Mr Chang continued to blame Jotron for the incorrect drawing supplied by its technician, and refused to bear any responsibility for compensating Air China for the delay in installation of the equipment.

19.  On 10 November 2008 Mr Chang wrote the following email to Mr Berdal:

“… According the payment from Airchina Tianjin Branch, I also contacted Mr. Fenggang few times and he said they hope Beijing CAS Mr. Zhang Shun can responsible for the maintenance for their TR-7550 in the future because Mr. Zhang Shun can response so quickly and he also have very good skills in the repair. I also agree Mr. Fenggang's opinion and I agree that we will pay the money to Mr. Zhang Shun if he go to Tianjin to repair these radios within 2 years because we have signed the contract with them for two years warranty period and Airchina Tianjin Branch will pay money to Mr. Zhang Shun if he go to Tianjin to repair these radios after 2 years later. Please contact Mr. Zhang Shun and ask his opinions about such arrangement. You can tell him that every time he go to Tianjin to repair these radios he not only need'nt to pay any money but also can earned some money which paid from Hong Kong Instech or AirChina Tianjin Branch. If Mr. Zhang Shun can accept this arrangement, I will put Mr. Fenggang to pay our money quickly and we also will T/T all our ballance to you.” (sic)

20.  In an email dated 10 November 2008, Mr Berdal asked for Diane Tan’s views on this proposed arrangement:

“Dear Diane,

Please read below reply from Stanley Chang, probably due to that I sent him a reminder. My e-mail is dated August 29th.

1) Do you believe that the intended arrangement for Airchina Tianjin Branch can work?

Please advise as you also have this dialog with Beijing Cas.

2) I do not intend to change my mind regarding the pending payment and possible future business.

All the arguments and accusation he is writing, are in line with what I only could expect from his side. I have no trust or confidence with him anymore.

Please comment, before I respond.”

She took a negative view and stated in her reply:

“I do not think that this intended arrangement between Beijing CAS and HK Instech regarding the warranty support will work out well.

Main reason being the trust between both parties is not mutual.

There will also be a lot of involvement for Jotron as we will then have to play the middleman role.

I am still trying to work out the outstanding payment issue with Air China Tianjin.”

21.  On 29 November 2008, Mr Berdal sent a statement of account to Mr Chang showing that the amount due from Instech as at November 2008 was NOK 302,877.  On 5 December 2008, Mr Chang replied that after making various deductions he considered appropriate, the correct amount owed to Jotron should be NOK 236,932.28 instead.  He stated: “If you agree this arrangement, [we] will T/T NOK 236,932.28 to you when we have received the money from Airchina Tianjin Branch” (sic).

22.  Upon being chased by Mr Berdal for payment, Mr Chang wrote again to Mr Berdal on 5 December 2008, stating:

“Now we are discussing the payment with Airchina Tianjin Branch and maybe can received their money in this two weeks.” (sic)

23.  The document that Mr Chang is alleged to have fabricated came into the picture at around this time.  On 12 December 2008, Diane Tan received a blank email from the address of “casint@china.com” attaching a faxed copy of a document with a Jotron logo and the title “Service Agreement”.  Mr Berdal accepted in his evidence that this address belonged to Beijing CAS.  This Service Agreement, which is the document that Mr Berdal subsequently accused Mr Chang of fabricating, read as follows:

“Service Agreement

We, Jotron Electronics a.s. Kirkestien 1, 3280 Tjodalyng, Norway, has make a Service Agreement about the Jotron VHF Radio in the AirChina TianJin Branch with the company:

HongKong Instech Trading Company Ltd., (富华洋行)

Rm 1501, International Trading Centre, 11 Sha Tsui Road, Tsuen Wan, Hong Kong

We all agreed that Beijing CAS will take the service responsibility for the Jotron VHF Radio which installed in the Airchina Tianjin Branch and Beijing CAS will charge all service fares from Hong Kong Instech Trading Co Ltd if these radioes want to repair within two years warranty period. After two years warranty period, Airchina Tianjin Branch will pay all service fares to Beijing CAS if they provided any service for these Jotron VHF Radio.

Larvik the 10^th of December 2008

Signed and chopped        Arne Berdal Sales Departmart Manager Norway Jotron Electronics A.S.

Signed and chopped           Stanley Chang General Manager Hong Kong Instech Trading Co Ltd.” (sic)

24.  A few hours later, Diane Tan sent an email to Mr Berdal, attaching the document, as follows:

“Kindly have a look at the service agreement sent out by HK Instech to Air China Tianjin.

Stanley Chang has mentioned that the service agreement is agreed upon and signed by Jotron AS.”

25.  According to Mr Berdal, he did not sign a document like this and the purported signature of his on it was forged.  Soon after receiving the document from Diane Tan, he wrote her an email:

“This is no good. A false document and a false signature. I am speechless.”

26.  Meanwhile, Mr Chang was negotiating a supplemental agreement with Air China in relation to the sale and purchase of the Jotron equipment.  On his own case, a draft written supplemental agreement had been prepared by him by about 3 December 2008. 

27.  Despite Diane Tan’s negative view as expressed in her email of 10 November 2008 (see paragraph 20 above), Jotron decided at some point prior to 18 December 2008 that after all they would agree to be responsible directly to Air China for the maintenance of the equipment and to provide such maintenance service via Mr Zhang Shun.  Thus, on 18 December 2008, Mr Berdal, at the request of Danny Neo, his colleague in Jotron Singapore, signed a maintenance warranty in favour of Air China (“the Genuine Maintenance Warranty”) which was written in Chinese and provided (as freely translated):

“In respect of the Maintenance Service of JOTRON TR-7550 VHF High Frequency Radio and related equipment (hereafter “that equipment”) sold to your Company via the authorized agent Zhuhai Digital Communication Technology Co. Ltd. (hereafter “the Seller”) by our Company (Jotron AS Norway) our Company hereby undertake:

1) As the Seller does not have the capacity to provide acceptable maintenance service for that equipment, our Company hereby guarantees our Company will directly provide free maintenance service to your Company in accordance with the sales contract, the maintenance period being from 1^st January 2009 to 31^st December 2010.

2) Should there be any disorder in that equipment within the aforesaid maintenance period, our Company guarantees to provide qualified technician within 4 hours of telephone notification and resolve any problem of a general nature within 48 hours; if it is necessary to transport the equipment to our Company for repair, our Company guarantees to restore the normal use of the equipment within 3 weeks of receiving your Company’s telephone notification.

Our Company’s 24-hour maintenance hotline is: 1063853752

Person-in-charge for Maintenance: Zhang Shun

3) All costs arising relating to maintenance service during the maintenance period wi11 be calculated (計算) by the Seller to our Company, and your Company will be not responsible for any costs.

4) Our Company agrees that disputes relating to this Maintenance Warranty will be in the jurisdiction of the People’s Court where your Company is located and governed by the laws of the People’s Republic of China.”

It appears that Mr Chang signed this document on 19 December 2008.

28.  At the request of Air China, the Genuine Maintenance Warranty was subsequently amended slightly in that in the third paragraph, the Chinese characters 計算 (calculated) was changed to 結算 (settled).  Mr Berdal was asked by Danny Neo on 22 December 2009 to sign the amended version but he did not do so until 7 January 2009.

29.  On 19 December 2008, having signed the Genuine Maintenance Warranty, Mr Berdal wrote to Diane Tan:

“Please advise how you think we now should deal with Stanley Chang. As the service/warranty contract now is signed by both sides, I assume Hong Hong Instech will get paid. But how can we encourage Stanley Chang to pay Jotron? Should we tell him about the new original contract now establish and show that we also have his false contract made by him?

Or just wait and do nothing? I am frankly a little inpatient but will not take any initiative, unless you advise so.” (sic)

30.  On 22 December 2008, Diane Tan responded as follows:

“Stanley Chang knows about this new contract regarding the warranty coverage.

I would suggest that now with this contract signed, we can advise him to make payment to Jotron since now Air China got their guarantee and that Air China will release payment to him.

We can make known to him that Jotron knows Air China plan to make payment and close the case before year end. Thus Stanley Chang should not hold up our payment any longer.

However we should keep the false contract case silent first as I would like to use this as a negotiation in case he drag the payment further.” (sic)

31.  On or about 22 December 2008, Mr Chang, in the name of Zhuhai Digital, signed the supplemental agreement with Air China in respect of which he had been negotiating with Air China since early December. The supplemental agreement stipulated, inter alia, that:

(1) Zhuhai Digital would provide certification documents for the aerial system in conformity with the contract specifications. 

(2) Zhuhai Digital would be responsible for liaising with Jotron to procure the latter directly to provide repair and maintenance service to Air China free of charge for two years from 1 January 2009 to 31 December 2010. 

(3) In that connection Zhuhai Digital had to provide Air China, within 3 days of the supplemental agreement, with a maintenance warranty signed and stamped by Jotron setting out the contents and duration of the service.

(4) Air China would pay Zhuhai Digital the second tranche (65%) of the price less various deductions totalling RMB 90,000, in the sum of RMB 155,050 after Zhuhai Digital had provided the certification documents for the aerial system and the maintenance warranty.

32.  On 29 December 2008, Mr Berdal asked Mr Chang “to proceed and pay the money which has been pending for long time”.  In reply, Mr Chang assured Mr Berdal:

“I have told you many times that when we received [Air China’s] money [we] will T/T all our balance to you at once.”

33.  Having settled the question of equipment maintenance, Diane Tan went to visit Beijing CAS.  She subsequently made a report of the trip to Mr Berdal, in which she stated that on 14 January 2009, she called Air China and was shown a signed letter with what looked like Jotron’s logo (“Letter of Certification”) which read as follows:

“We, Jotron Electronics a.s., Kirkestien 1, 3280 Tjodalyng, Norway, has certified that the company:

HongKong Instech Trading Company Ltd., (富华洋行)

Rm 1501, International Trading Centre, 11 Sha Tsui Road, Tsuen Wan, Hong Kong

Has bought an CXL5-ILW Omnidirectional Antenna from us and unstalled it in the Airchina Tianjin Branch.

Larvik the 1^st of December 2008

For and behalf of Jotron Electronics a.s

_______________________________

Arne Berdal

Sales Departmart Manager” (sic)

34.  In her report, Diane Tan wrote:

“A call with Air China Tianjin reveals another trickery action by HK Instech. We were shown a letter by HK Instech for certifying antenna sold to Air China was from Jotron with a forged signature of Arne. Basically with his actions of forging documents, Stanley Chang from HK Instech has breach the business ethics and also betrayed the trust from both Air China and Jotron. He is fully aware that the antennas were not supplied by Jotron and that he is now having problems accounting to Air China because of the poor quality of the local made antennas supplied. Thus he is trying his luck to wriggle his way through by thinking that Jotron will not know about this forging for certification of the antennas.”

In these proceedings, Mr Berdal’s evidence is that the Letter of Certification was neither authorised by Jotron nor signed by him.  It is common ground that the antenna sold to Air China was not manufactured by Jotron.

35.  In his evidence Mr Berdal referred to a third document that is allegedly fabricated by Mr Chang.  This is a maintenance warranty purporting to bear what looked like Jotron’s logo and to be signed by Mr Berdal on behalf of Jotron of one part and by Mr Chang and his brother on behalf of Zhuhai Digital of the other part (“the Questioned Maintenance Warranty”).  The terms of the Questioned Maintenance Warranty were substantially the same was the Genuine Maintenance Warranty as amended (see paragraph 27 above).

36.  Eventually Mr Chang was paid by Air China in early February 2009.  However, he did not pay Jotron the outstanding balance immediately.  Instead, he wrote to Mr Berdal on 6 February 2009 stating that he would remit NOK253,432.2 to Jotron provided Jotron issued two letters to confirm that it would not supply any goods to Zhuhai Comverst and Shenzhen Hudson.

37.  Upon learning this, on 9 February 2009 Diane Tan wrote to Mr Berdal as follows:

“It seems that Stanley is threatening us again that if we do not write the letter, he will not pay us the balance even though he has gotten the payment from Air China Tianjin.

I would think that if by this week we do receive the money from Stanley, then we can start to reveal to him the seriousness of his forgery on those letters and certificate.”

38.  Mr Berdal then drafted a letter (“the draft Warning Letter”) to be sent to third parties, in these terms:

“To whom it migth concern

Tjodalyng: 12.03.09

Any future business with this man and his companies should be avoided

We like to advertise that Mr. Stanley Chang and his company Hong Kong Instech Trading Co. Rm 1002B, Fortress Tower 250 King’s Road

[a photograph of Mr Chang appears here]

have no remaining trust with our company.

After several years of business, Mr Stanley Chang have mistreated our agreements.

- Our signature has been counterfeited.

- Service agreement to end user has been faked on our company letterhead.

- Pending payment has been left overdue since June 2008.

Jotron products and services will not be offered through this company anymore.

For any further enquires or information, please our contact Arne Berdal.” (sic)

39.  On 12 March 2009, Mr Berdal sent an email and a fax message to Mr Chang attaching the draft Warning Letter and stating that he intended to post it at Jotron’s website in addition to direct distribution to all business relations, adding:

“You have now 4 working days to settle your long overdue Jotron account if you want to avoid this.”

40.  It appears that Mr Berdal and Mr Chang had a telephone conversation following this email.  There is no documentary evidence recording what was said.  In his oral evidence Mr Chang claimed that he told Mr Berdal the Service Agreement had nothing to do with him and it was a trick played by Diane Tan.  I do not accept this evidence.  If this was what Mr Chang thought at the time there was no reason why he did not mention it in the correspondence.  Instead, it appears from the available documents that in the email exchanges Mr Chang simply reiterated his condition for making payment.

41.  On 13 March 2009, Mr Chang responded to Mr Berdal in writing by the following email:

“I have told you that very clearly if we received your two letters we will T/T all the ballance to you immediately. We have prepare NOK260,000.- in our account for a very long time.” (sic)

42.  On 14 March 2009, Mr Chang wrote to Mr Berdal as follows:

“Thank you for your E-mail. You should understanding that we want this two letters not only want to protect our business because we should compete with Mr. Shi Yong Lin every order and we almost lost all our profits on the Jotron Radio, but also want to defend Jotron’s reputation & image in China market. As your knowing,

Mr. Shi Yong Lin always told the customers he is the sole agent & China representative of Norway Jotron A.S, so all the customers think Jotron has been investigated by China Tax Bereau. If you don’t take some actions to defend Jotron’s reputation & image in China market, Jotron should be suffered very big lost in China market in the future.” (sic)

43.  After further emails from Mr Berdal on 16 and 17 March 2009 asking for payment, Mr Chang gave a response on 18 March 2009 as follows:

“Now a customer told me a message which can answer this question very well: The customer told me that Mr. Zhang Shun, the manager of Beijing CAS have told him that Jotron’s Area Sales Manager in their Singapore office will try her best to protect Beijing CAS to sell Jotron Radio in China and also will take any actions to prevent other companies to compete with Beijing CAS because Beijing CAS has promised to give some commissions to this Area Sales Manager when they put every order.

…

The staff of Airchina Tianjin Branch also told me that Miss Diane Tan tried her best to persuade them to resign a contract with Beijing CAS and T/T the 60°llance of this contract (about RMB200,000.-) to Beijing CAS. Although this contract was signed by Hong Kong Instech with Airchina Tianjin Branch, Miss Diane Tan discussed the arrangement of future payment with Airchina’s staff herself and refused to disclose any information to Hong Kong Instech. When she went to Tianjin to discuss this contract, I also was staying in Tianjin. But she refused to inform me to discuss this contract with Airchina Tianjin Branch together with her. She also told the staff of Airchina didn’t discloed the information of she was staying in Tianjin to me.

…

I will repeat it again we have prepared NOK260,000.- in our account for a very long time and we will T/T all the ballance to you when we received your letter.” (sic)

44.  On the same day, Mr Berdal replied to Mr Chang:

“Today is day 4, last day of the time I gave you last week for transferring to Jotron the long overdue payment.

I sincerely ask you again to instruct you bank to execute this payment today.

If I for any reason do not receive evidence of such action, the warning letter which you have seen about our business relation will be distributed from me tomorrow.”

45.  Two hours later, Mr Berdal sent another email to Mr Chang:

“So it is time to make an announcement as advised for our side. I am ready – but hope you still want to avoid it.

The decision is still all yours.”

46.  Not having received any payment from Instech, Mr Berdal distributed the following email on 19 March 2009:

“Dear friends and business associates,

For the first time in my 20 years, representing Jotron, I have decided to go public with an internal matter like this.

Jotron is known to be a reputable company serving the market with reliable products and service.

Company Hong Kong Instech and their manager Mr. Stanley Chang, has bought some products from Jotron over the years. Unfortunately now seen in hindsight, after some transactions I opened up for credit sales, which led to serious problems for us.

The enclosed warning letter (pdf) is hopefully speaking for itself.

I dislike to do this distribution, but the matter is important for me and the company Jotron. In addition I would like you to be warned about it too, so you can avoid the same situation.

I would appreciate if you could pass this information on to any of your business relations, which could be tempted to do business with Hong Kong Instech in the future. In order for them to be aware.

Thanks for your attention. I remain for your service.

Sincerely yours,

Arne Berdal

Sales Director,

Jotron AS

……”

The email attached the warning letter (“the Warning Letter”) in substantially the same terms as the draft set out in paragraph 38 above.

47.  On 20 March 2009, Mr Chang, apparently unaware that Mr Berdal had already sent the Warning Letter, wrote to Mr Berdal:

“Before you doing so, you should consider what results which will be caused carefully. Maybe your good friend Miss. Diane Tan has told you some good idea come from her and let you lost your reason. But as your few years old friend, I have responsibility to analyse what results will be caused by your such behavour when you in a confused states:

…

2. If you doing so you should lost all the money whch keep in our account;

3. Jotron will only can rely on Beijing CAS to doing your radio business in the China Aviation Market. As your knowing, Mr. Zhang Shun’s sales ability is very low. He should rely on Mr. Shi Yong Lin & Mr. Micael Zhang to sale your Jotron Radio in China. How many business this two companies can given you I think you are very clear. Jotron’s reputation & image in China also will be destroy by this two companies because they always given artificial invoice to customers and will be investigated by China Tax Bereau again.

4. If you caused so much trouble for Jotron, you maybe lose your job and should leave the company which you have worked more than 20 years.

I suggest you show this e-mail to your wife and ask her my analyse is reasonable or not becuase she is in a normal states.  I think she will give you a good suggestion and this suggestion will be very different from the one which Miss Diane Tan given you before.”

48.  On 17 April 2009, Mr Berdal further sent the Warning Letter to Ji Wen Hua of China Southern Airlines Zhuhai Helicopter Branch after receiving an enquiry from him about two Jotron radio units previously supplied by Instech.

49.  By then, the parties’ relationship had completely broken down.  On 22 July 2009 Jotron brought a claim in the District Court of Hong Kong for the unpaid balance of the price of goods sold and delivered.  On 5 September 2009, Mr Chang amended his defence (filed originally on 12 August 2009) to counterclaim for damages for libel on the basis of the Warning Letter.  Judgment on admission was obtained by Jotron on its claim in the District Court on 16 November 2009, following which the proceedings were transferred to the High Court.

The issues

50.  On the basis of Jotron’s pleaded defences of justification and qualified privilege, two main issues arise on the question of liability: (i) whether Mr Chang was responsible for the production of the Service Agreement with the signature; and (ii) whether the publication was protected by qualified privilege.  I shall consider these defences in turn.

Justification

51.  It is a complete defence to a claim for libel if the defendant proves that the imputation that is being sued upon is substantially true.  Further, s 26 of the Defamation Ordinance (Cap 21) provides:

“In an action for libel or slander in respect of words containing 2 or more distinct charges against the plaintiff, a defence of justification shall not fail by reason only that the truth of every charge is not proved if the words not proved to be true do not materially injure the plaintiff's reputation having regard to the truth of the remaining charges.”

While the Warning Letter contained also the allegation that Mr Chang had failed to pay his debts, Jotron (rightly, in my view) does not contend that it is sufficient to negative liability in this case to justify only that part of the publication.  In order the succeed on the defence of justification Jotron has to prove, as it indeed seeks to do, that Mr Chang was responsible for the fabrication of the Service Agreement.  This may in turn be divided into two factual issues:

(1) whether the Service Agreement was a fabricated document bearing a forged signature purporting to be that of Mr Berdal; and

(2) if so, whether Mr Chang was the person responsible for its creation.

Was the Service Agreement a fabricated document?

52.  It is in my view clear that the Service Agreement is not a genuine document and that the signature on it not the real signature of Mr Berdal.  Mr Berdal has impressed me as an honest witness and I accept his evidence that the signature on that document was not his.  It did not even look like his signature.  His evidence is consistent with the contemporaneous comments he made to Diane Tan when he first saw a copy of the service agreement (see paragraphs 24 and 25 above).

53.  There is also unchallenged evidence that:

(1) the stamp purportedly affixed on the Service Agreement was not a genuine stamp of Jotron;

(2) the stamp did not show the correct name of Jotron at the time;

(3) Jotron’s name was incorrectly typed as “Norway Jotron Electronics AS” below the line for signature;

(4) Jotron’s logo on the Service Agreement was considerably larger than on Jotron’s real letterhead, and was not placed in the usual position;

(5) Mr Berdal’s position was wrongly described on the Service Agreement as “Sales Departmart Manager” (sic).  Jotron did not have a position with such a title or even “Sales Department Manager”;

(6) the Service Agreement contained grammatical and spelling errors indicating that it had been made by a person much less proficient with English than Mr Berdal.

54.  Mr Chang did not seriously contend that the Service Agreement was a genuine document, although he submitted there was a possibility that Mr Berdal had a part to play in creating it.  I reject that contention which seems to me to have no basis in fact.  I have no hesitation to find and I do find on the evidence that the Service Agreement is a fabricated document with a forged signature purporting to be that of Mr Berdal.

55.  For similar reasons I am also satisfied that the Letter of Certification and the Questioned Maintenance Warranty were forged documents.

Was Mr Chang the person responsible for the creation of the Service Agreement?

56.  Jotron has adduced no direct evidence that Mr Chang was responsible for the creation of the Service Agreement.  It has not called Feng Gang to testify as to who gave him or Air China the document.  Nor has it called Diane Tan to testify.  Mr Berdal, its only witness, has no direct personal knowledge of the provenance of the document.  Jotron therefore has to ask the court to make the necessary finding by inference from indirect evidence.

57.  I remind myself that the finding urged upon this court by Jotron is a serious allegation against Mr Chang.  As is well known, in In re H (Minors)(Sexual Abuse: Standard of Proof) [1996] AC 563, 586D-H, Lord Nicholls has given guidance on the standard of proof and the relevance of inherent probabilities:

“The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. A step-father is usually less likely to have repeatedly raped and had non-consensual oral sex with his under age stepdaughter than on some occasion to have lost his temper and slapped her. Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.

Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher.  It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred.  The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established.”

58.  In applying this guidance to a case such as the present, it is I think important to bear in mind the further explanation given in Re B (Children) (Care Proceedings: Standard of Proof) (CAFCASS intervening) [2009] 1 AC 11, where Lord Hoffmann said:

“14. Finally, I should say something about the notion of inherent probabilities.  Lord Nicholls said, in the passage I have already quoted, that —

‘the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability.’

15. I wish to lay some stress upon the words I have italicised.  Lord Nicholls was not laying down any rule of law.  There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not.  Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities.  If a child alleges sexual abuse by a parent, it is common sense to start with the assumption that most parents do not abuse their children.  But this assumption may be swiftly dispelled by other compelling evidence of the relationship between parent and child or parent and other children.  It would be absurd to suggest that the tribunal must in all cases assume that serious conduct is unlikely to have occurred.  In many cases, the other evidence will show that it was all too likely.  If, for example, it is clear that a child was assaulted by one or other of two people, it would make no sense to start one’s reasoning by saying that assaulting children is a serious matter and therefore neither of them is likely to have done so.  The fact is that one of them did and the question for the tribunal is simply whether it is more probable that one rather than the other was the perpetrator.”

59.  In the same vein, Baroness Hale said in that case:

“72. As to the seriousness of the allegation, there is no logical or necessary connection between seriousness and probability. Some seriously harmful behaviour, such as murder, is sufficiently rare to be inherently improbable in most circumstances. Even then there are circumstances, such as a body with its throat cut and no weapon to hand, where it is not at all improbable. Other seriously harmful behaviour, such as alcohol or drug abuse, is regrettably all too common and not at all improbable. Nor are serious allegations made in a vacuum. Consider the famous example of the animal seen in Regent’s Park. If it is seen outside the zoo on a stretch of greensward regularly used for walking dogs, then of course it is more likely to be a dog than a lion. If it is seen in the zoo next to the lions’ enclosure when the door is open, then it may well be more likely to be a lion than a dog.

73.  In the context of care proceedings, this point applies with particular force to the identification of the perpetrator.  It may be unlikely that any person looking after a baby would take him by the wrist and swing him against the wall, causing multiple fractures and other injuries.  But once the evidence is clear that that is indeed what has happened to the child, it ceases to be improbable.  Someone looking after the child at the relevant time must have done it.  The inherent improbability of the event has no relevance to deciding who that was.  The simple balance of probabilities test should be applied.”

60.  In approaching the question of fact under consideration, therefore, I bear in mind that there is no doubt, as I have found, that the Service Agreement was a fabricated document.  The question is: who did it?  Jotron says it is Mr Chang.  Mr Chang says it is Mr Berdal, Diane Tan or Zhang Shun or a combination of them.  No one has suggested that Feng Gang or anyone in Air China was responsible.  To succeed in its defence it is for Jotron to demonstrate that, more likely than not, Mr Chang did it.

61.  Having considered all the relevant evidence I am satisfied on the balance of probabilities that Mr Chang was the person responsible for the creation of the Service Agreement.

62.  First, it seems to me that Mr Chang has a clear motive to create the Service Agreement.  In early December 2008, Air China was upset with Mr Chang because of the problems encountered in the installation of the radio equipment but was impressed by Beijing CAS and Zhang Shun.  It is clear that Air China wanted Beijing CAS to take over responsibility for servicing the Jotron radios supplied by Zhuhai Digital.  Mr Chang was still awaiting payment of 65% of the price by Air China.  As shown by his email of 10 November 2008, he hoped that Beijing CAS would be willing to take over maintenance responsibility whereupon Air China would, he expected, pay Zhuhai Digital, and Instech could then settle the outstanding amounts owed to Jotron.  Mr Chang was negotiating with Air China in early December 2008 in relation to the supplemental agreement.  One of the provisions of that agreement, as eventually signed, was that Zhuhai Digital would be responsible to procure Jotron to provide maintenance service to Air China (see paragraph 31(2) above).

63.  It seems to me that the Service Agreement, which stated that Jotron and Instech had agreed that Beijing CAS would take over the responsibility for servicing the Jotron radio installed in Air China, was precisely what Feng Gang was looking for and precisely what Mr Chang knew would facilitate payment of the balance of the price to Zhuhai Digital.  Mr Chang therefore had every incentive to produce the document in order to assuage Air China in the hope of getting payment.

64.  Secondly, the absence of any specific denial by Mr Chang when the draft Warning Letter was sent to him in my view supports the conclusion that he was in fact responsible for the creation of the Service Agreement.  Mr Chang could clearly see that the draft Warning Letter accused him of fabricating a service agreement and forging Mr Berdal’s signature.  Mr Chang himself said that the Service Agreement was attached to one of Mr Berdal’s emails to him at the time (though this cannot be seen from the emails themselves).  Yet, as the correspondence in March 2009 quoted extensively above demonstrates, contrary to what one would expect if Mr Chang did not create the document, he never once denied he forged any signature or any service agreement. 

65.  Mr Chang explained in his oral evidence that he thought Mr Berdal was joking when he threatened to issue the Warning Letter and therefore did not take him seriously and did not make any denial.  I do not accept this explanation.  None of Mr Chang’s responses at the time suggests that he thought Mr Berdal was acting in jest.  All of them were serious responses.  In fact Mr Chang did try to dissuade Mr Berdal from distributing the Warning Letter, though not by saying that it was false.  A simple and most effective way of stopping the intended distribution would be to tell Mr Berdal the contents of the letter were not true.  The absence of such response is in my view a significant pointer that Mr Chang did produce the Service Agreement.

66.  Thirdly, it seems to me that the Letter of Certification was also created by Mr Chang.  It was a document called for by the supplemental agreement discussed and signed between Zhuhai Digital and Air China (see paragraph 31(1) above).  The antenna sold to Air China was in fact not supplied by Jotron.  Mr Chang had a clear motive in creating that document in order to fulfil the condition in the supplemental agreement.  The purported signature of Mr Berdal on the Letter of Certification closely resembled that on the Service Agreement.

67.  Mr Chang argues that he had no reason to create the Letter of Certification because what Air China wanted Zhuhai Digital to certify was that the antenna supplied was a 3dB aerial system (see paragraph 11 above), not that it was manufactured by Jotron.  I reject this contention, which seems to me contrary to the plain meaning of the supplemental agreement.  Further, Mr Chang has failed to disclose in these proceedings any other certificate that Zhuhai Digital issued to Air China in relation to the aerial system which met the condition set by the supplemental agreement for Zhuhai Digital to receive payment from Air China.

68.  Fourthly, it seems to me that the Questioned Maintenance Warranty was also created by Mr Chang.  It would fit the requirement of Air China, as evidenced by the supplemental agreement (see paragraph 31(3) above).  It bore the signatures of Mr Chang and his brother which, as admitted by Mr Chang, looked very much like their genuine signatures.  Indeed Mr Chang admitted that he could not tell if they were genuine signatures or not.  It seems to me inherently unlikely that a forger or forgers other than Mr Chang would have been able to produce such signatures.  Rather, it seems to me more likely that Mr Chang signed his own signature on this document and procured his brother to put his signature on it.  The purported signature of Mr Berdal on it (albeit misspelt) is similar to that on the Service Agreement and the Letter of Certification, which suggests that all three signatures were by the same hand.  All three documents bore the same round stamp purporting to be the stamp of Jotron.

69.  Mr Chang argues that it is unlikely that he produced the Questioned Maintenance Warranty.  His argument runs as follows: (i) the wording of the Questioned Maintenance Warranty was the same as the amended version of the Genuine Maintenance Warranty; (ii) it must therefore have been created after 22 December 2008 when Danny Neo asked Mr Berdal to sign the amended version of the Genuine Maintenance Warranty (see paragraph 28 above); (iii) Mr Chang was not involved in or privy to the correspondence between Danny Neo and Mr Berdal; (iv) there was no need for Mr Chang to fabricate the Questioned Maintenance Warranty.  I am unable to accept this argument.  One does not have all the relevant correspondence at the time to show the entire communications between Mr Chang and Air China.  On the materials available, I cannot deduce from the mere fact that the Questioned Maintenance Warranty used the characters “結算” (settled) rather than “計算” (calculated) that it was created after Mr Berdal signed the Genuine Maintenance Warranty.  If it was indeed created after 18 December 2008, it would have filled an interim need because Mr Berdal did not sign the amended version of the Genuine Maintenance Warranty as required by Air China until 7 January 2009.

70.  In support of its contention that the Service Agreement was forged by Mr Chang, Jotron relies on the fact that it never described itself as “Norway Jotron Electronics AS” and that Mr Chang had used this name to refer to Jotron.  However, it is possible that Mainland users and traders of the equipment generally refer to Jotron as “Norway Jotron” or “Norway Jotron Electronics AS”.  I find this pointer too tenuous to be given any weight.

71.  In contrast to Jotron’s case, Mr Chang contends that Diane Tan (possibly acting in concert with Zhang Shun) was responsible for fabricating the documents.  He says that her motive was to destroy the relationship between Jotron and Mr Berdal on the one hand and Mr Chang on the other.  I find this suggestion wholly improbable.  First, it is clear from the documentary evidence that even before December 2008, Diane Tan knew that Mr Berdal had “no trust or confidence [in Mr Chang] anymore”: see his email of 10 November 2008 to Diane Tan.  There was simply no need to forge documents and attribute the forgery to Mr Chang in order to damage Mr Berdal’s impression of him.  It was already so poor that there was no prospect of future business between the two.  Secondly, Diane Tan could have been exposed as the forger if and when Mr Berdal confronted Mr Chang with the forged documents and he denied it or made enquiries with Air China.  It would make no sense at all for Diane Tan to take such a risky and unnecessary course as, first, to forge the documents and, secondly, to make a fraudulent accusation against Mr Chang.

72.  Mr Chang has denied that he created the Service Agreement or the other two documents whose authenticity is disputed.  His evidence is however self-serving and for the reasons I have already given I do not accept it in relevant respects.

73.  In my view, the evidence of Mr Zhang Hongbo, Mr Chang’s younger brother, has to be approached with caution.  He came across as being pre-disposed to say what would be favourable to the defendant’s case. When he was first shown the Genuine Maintenance Warranty during cross-examination, even before being asked, he said the signature on it was not his.  He later changed his evidence to say that it was his signature.  This suggests to my mind that he had a pre-conception that it would benefit the defendant if he were to deny the authenticity of what appears to be his signature on the maintenance warranty.

74.  When he was shown the Questioned Maintenance Warranty, he insisted he was certain the signature on it was not his, even though he accepted it looks very similar to his usual signature and he could not recall what documents he signed or did not sign in 2008.  In contrast, Mr Chang accepted he could not tell whether the signatures were genuine or not.

75.  As I have noted above, neither Feng Gang nor Diane Tan was available to give evidence.  There was apparently an attempt by Jotron to obtain evidence including the original Service Agreement from Air China but the evidence of Mr Berdal which I accept is that Mr Feng had a bad experience with the installation of the equipment and was unwilling to cooperate.  As to Diane Tan, she left Jotron on good terms in September 2009 and is unwilling to come to Hong Kong to testify.  Zhang Shun died in 2011.  In these circumstances while it is unfortunate that the individuals with more direct knowledge of the provenance of the documents in question have not been called to give evidence, I do not think that any adverse inference can be drawn against Jotron from their absence.

76.  Jotron has engaged a handwriting expert Mr Robert W. Radley who has produced reports for use in these proceedings. However, in circumstances where Jotron has decided not to call him to give evidence I do not consider it necessary or appropriate to admit into evidence or rely on any of the reports.  Jotron’s summons dated 24 December 2013 for leave to adduce a supplemental report dated 18 December 2013 is therefore dismissed.

77.  For the reasons above, I have come to the conclusion that it is more probable than not that Mr Chang was the person responsible for the creation of the Service Agreement.  Accordingly the defence of justification succeeds.  Mr Chang’s claim for libel must therefore fail. For completeness and in case I am wrong in reaching this conclusion, I  go on to deal with the other two issues albeit briefly.

Qualified privilege

78.  The second defence relied upon by Jotron is qualified privilege.  A statement is covered by such privilege if the maker of the statement “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.  This reciprocity is essential”: Adam v Ward [1917] AC 309 at 334; Gatley on Libel and Slander (12^th ed.) at p 550, para 14.9.

79.  In the present case, Mr Berdal sent the Warning Letter to over 60 email addresses in 13 companies or offices.  Many were business associates of Mr Berdal some of whom he had come to regard as “friends”.  Some recipients were Jotron’s actual or potential customers.  At least one recipient, namely Becker Avionics Beijing Office (“Becker”), was Jotron’s competitor.

80.  To establish the defence of qualified privilege Jotron must prove it had an interest in sending the Warning Letter to each recipient who had a corresponding interest in receiving the same.  Jotron does not allege that it had a duty to make the communication.  Inasmuch as the recipients were in the same industry and might therefore have potential dealings with Instech or Zhuhai Digital, I accept that they had an interest in receiving Mr Berdal’s communication about Mr Chang’s integrity and creditworthiness.  The question remains, however, whether Jotron had a recognisable interest in making that communication in the first place.

81.  Mr Berdal’s evidence was that his intention in publishing the Warning Letter was “to put likely business associates on notice of the lack of integrity and dishonest behaviour” of Mr Chang.  He did not want them to end up in the same position as Jotron, ie being owed the price of goods sold on credit to Instech.  He also said that in giving various warnings to Mr Chang prior to the publication his intention “was purely to recover the sums outstanding”.  Although he believed what Mr Chang did amounted to a criminal act he did not report to the police in Hong Kong or elsewhere.

82.  In my view, Jotron did not have any recognisable interest in making the publication to the recipients as it did.  Jotron was already determined not to have any further dealings with Mr Chang.  Neither Instech nor Zhuhai Digital could act any further as a seller or distributor of Jotron’s products.  There is no suggestion that Mr Chang had any stock of Jotron’s products which might enable him to hold himself out as Jotron’s distributor.  In any event, on Mr Berdal’s own evidence, the intention was to protect the recipients, not Jotron.

83.  Even so, it seems to me the Warning Letter was published not so much to protect the recipients as to carry out the threat made to Mr Chang and to discredit him for not paying Jotron.  Mr Berdal had concluded the Service Agreement was a forgery as early as in December 2008.  He did not notify any business associate then.  The emails between him and Diane Tan (see paragraphs 29 and 30 above) show that they decided instead to use the forgery allegation for leverage in recovering the sums due from Instech.  In the event the Warning Letter was not sent until 19 March 2009 and then only because Mr Chang failed to pay up as demanded.  As Mr Berdal frankly admitted in his evidence, if Mr Chang had paid Jotron he would not have distributed the Warning Letter.  Having received no reply from Mr Chang, he sent the Warning Letter to business associates to carry out the threatened act.  In doing so it seems to me Mr Berdal was acting in accordance with his avowed plan because Mr Chang failed to make payment.  

84.  This is reinforced by the content of Mr Berdal’s email dated 19 March 2009, in which Mr Berdal encouraged all recipients to distribute the Warning Letter further to “any of [their] business relations which could be tempted to do business with Hong Kong Instech in the future”.  Further, prior to the publication Mr Berdal asked Diane Tan:

“Any particular person you like to receive this? Any more?”

He also wrote to Zhang Shun of Beijing CAS on 17 March 2009, attaching the Warning Letter:

“… I would like to make you aware that the enclosed letter might be distributed to all my business relations in China by end of this week.

If you want any particular company or person to receive this in addition, please advise me with their e-mail address or contact details so we can include them into our distribution list.

If you like us to prepare a letter also in Chinese language or if you have any comments to the above, I would very much appreciate to receive your reply.” 

85.  The Warning Letter was also distributed to Becker, which was a supplier of radio equipment competing with Jotron.  Clearly it was not a company who might be expected to buy and use Jotron’s products at all.  Nor was the addressee in Becker a person previously known to Mr Berdal. Instead, he found the name and email address on Becker’s website.

86.  All these show that the target recipients were existing or potential business contacts of Mr Chang, rather than potential purchasers or users of Jotron’s products.  The publication was intended to discredit Mr Chang rather than to advance Jotron’s interests.  In my opinion, the notion of protecting Jotron’s interests – like the plea of qualified privilege itself which was only introduced by way of re-re-amendment in September 2013 – is an afterthought.  I would reject the defence of qualified privilege.

Damages

87.  If I am wrong in my conclusion on liability, I would have assessed general damages in favour of Mr Chang in a substantial sum, and not merely a nominal sum as Mr Wright urges upon the court.  It was a serious libel involving a charge of forgery and dishonesty.

88.  As stated in Cheung Ng Sheong Steven v Eastweek Publisher Ltd [1995] 3 HKC 601, at p 613D-F:

“… damages for libel must provide for several disparate elements, not only damage to esteem and reputation. They also ‘must be sufficient to publicly and demonstratively and absolutely vindicate the plaintiff and to compensate for seriously injured feelings’ (Yu Kwong Chu v Consolidated Newspapers Ltd (A258/86, unreported) at p 30 not only caused by the original libel but all the subsequent aggravation thereof down to the verdict, which would restore the plaintiff’s ‘pride and confidence’ (McCarey v Associated Newspapers Ltd (No 2) [1964] 3 All ER 947 at 958). They must enable the plaintiff ‘to convince a bystander the baselessness of the charge’ if ‘the libel driven underground, emerges from its lurking place at some future date’ (Cassell & Co v Broome [1972] 1 All ER 801). …”

89.  General compensatory damages serve three functions: to console the plaintiff for hurt and distress suffered, to repair the harm that has been done to his reputation and to vindicate his reputation: Chu Siu Kuk Yuen v Apple Daily Ltd [2002] 1 HKLRD 1 at 14A.

90.  In assessing damages I would also take into account the conduct of Jotron in advancing a plea of justification which ex hypothesi had failed, as well as the fact that the Warning Letter was widely distributed within the industry and contained an encouragement to distribute it further.  I have not located any precedent that is sufficiently similar to the present case for the award there to be used as a reference point.  In all the circumstances, if I had ruled in favour of Mr Chang on liability I would have awarded him general damages in the sum of HK$300,000.

91.  Mr Chang also claims special damages in the form of loss of profits resulting from the libel.  He refers to the audited financial statements of Zhuhai Digital and claims that the loss of profits after March 2009 exceeded RMB 1 million per year.  There are, however, serious and in my view insuperable problems with Mr Chang’s claim as such.  First, the accounts relied upon are those of Zhuhai Digital.  Granted that Mr Chang is the beneficial owner of Zhuhai Digital, still it is a separate legal person and its loss cannot be equated to Mr Chang’s loss.  Nor can damages be given to Mr Chang for what Zhuhai Digital has suffered.  Secondly, there is no concrete evidence why Zhuhai Digital has lost business.  For all one knows, it could well have lost business because of the imputation in the Warning Letter that Mr Chang had not paid his overdue debts to Jotron, which was substantially true.  It is for Mr Chang as plaintiff by counterclaim to prove his loss caused by the actionable libel.  There is simply no evidential basis to infer here that the reduced turnover of Zhuhai Digital was caused by the imputation in that part of the Warning Letter which Jotron had ex hypothesi failed to justify.  Thirdly, a substantial part of the business of Zhuhai Digital prior to 2009 was accounted for by the trading in Jotron’s products.  Irrespective of the libel, Jotron was of course free to choose whether or not to supply further products to Instech or Zhuhai Digital. In fact the evidence shows that even if Mr Berdal had not sent the Warning Letter, Jotron would not have done any further business with Mr Chang.  Any loss of business relating to Jotron’s products cannot therefore be recovered as damages.  Accordingly even if Jotron were liable for libel I would not have awarded any special damages to Mr Chang for lost profits.

Conclusion

92.  For the reasons above, Mr Chang’s counterclaim fails and is dismissed.

93.  As far as costs is concerned there will be an order nisi that Mr Chang is to pay Jotron such costs of the action as have been reserved, as well as the costs of the counterclaim, which however shall not include (i) the costs relating to the opinion evidence of Mr Radley, who was eventually not called by Jotron to give evidence; (ii) the costs relating to the witness statement of Zhang Bao who was eventually not called by Jotron; (iii) any such costs relating to Jotron’s summons dated 19 July 2013 and amended summons dated 10 September 2013 as have not already been dealt with; (iv) the costs relating to the discovery summons dated 11 December 2013 which came very late; and (v) the costs relating to Jotron’s summons dated 24 December 2013 for an unless order which was eventually not pursued.