When the years of legal battle between BaWang and the Next Magazine (the “Magazine”) concluded recently, many have been left scratching their heads over the quantum of damages awarded by the Court of First Instance (the “Court”) to BaWang in its victory of the defamation claim against the Magazine.  This article explains the vast disparity between BaWang’s claim and the Court’s award.

Introduction

In Bawang International (Group) Holding Limited, etc. v Next Media Publishing Limited HCA1109/2010, BaWang, through two plaintiff companies, namely the ultimate holding company of the BaWang Group of companies and a wholly owned subsidiary of the BaWang Group in the Mainland, lodged a defamation claim against the Next Magazine (the “Magazine”) in respect of an investigative article (the “Article”) published by the Magazine in 2010.

It is alleged in the Article that, through normal and regular use, BaWang’s shampoo products would cause illnesses and even cancer to users.  BaWang claimed for defamation and malicious falsehood against the Magazine.  The quantum of BaWang’s claim amounted to about HK$600 million; however, with the success of its claim for defamation, BaWang only obtained an award of about HK$3 million.

The Liability

The Court found that the Magazine failed to establish the truthfulness of the content at issue (the defence of justification), the content at issue were not honest comments (the defence of honest comment) and the Magazine failed to meet the standard of responsible journalism (the defence of publication in the public interest); however, the Court did not find that the Magazine published the Article maliciously.  As a result, BaWang succeeded in its claim for defamation but not malicious falsehood.

The Quantum of BaWang’s Claim

In particular, BaWang claimed the following losses for defamation against the Next Magazine:-

1.        RMB¥448 million for the loss of business and profits suffered by BaWang in the Mainland and outside the Mainland (including Hong Kong);

2.        HK$58 million and RMB¥7 million for the public relation and advertising expenses in Hong Kong and the Mainland after the publication of the Article;

3.        HK$4,652.50 for the cost of issuing a public announcement as a result of the Article;

4.        damage to the reputation of BaWang; and

5.        exemplary damages.

Losing the Loss of Business and Profits Outside the Mainland

The Court dismissed BaWang’s claim of loss of business and profits outside the Mainland under the well-established no-reflective-loss principle, wherein a company who suffered a loss, instead of its parent company or shareholder, should sue for the loss.  The Court found that the loss of business and profits outside the Mainland was actually suffered by two Hong Kong companies, which were the 100% subsidiaries held by one of the plaintiff but were strangely not joined to this action.  As such, the Court held that BaWang could not, through the plaintiffs of this action, claim for the loss outside the Mainland.

Losing the Loss of Business and Profits in the Mainland

In regard to the loss of business and profits in the Mainland, the Court held that the Mainland law applied to the assessment of such loss under the conflicts of law principle, wherein the law with the most significant relationship with the occurrence and with the parties in relation to the loss sustained applies.

Applying the Mainland law, the Court held that BaWang was not entitled to claim for the loss in the Mainland.  Since the Magazine was not available for sale in the Mainland, the loss in the Mainland claimed by BaWang would only be caused by third party republications.  As the Court found that, under the law of the Mainland, an original publisher would not be liable for any loss or damages caused by republications, the Court held that BaWang could not claim for the loss in the Mainland from the Magazine.

Other Alleged Losses

The Court further dismissed BaWang’s claim of loss in relation to the public relation and advertising expenses, as the Court found that those expenses would have to be incurred in any event, and BaWang’s claim of exemplary damages, as BaWang did not succeed in its malicious falsehood claim.

As such, in summary, the Court only awarded to BaWang HK$4,652.50 for the cost of issuing a public announcement, which the Court found to be necessary as a result of the Article and HK$3 million for the injury to the reputation of the two plaintiff companies.

Conclusion

As the appeal to this case has been withdrawn, the Court’s judgment is final.  The present case demonstrates the importance of (1) understanding the law regarding recovery of damages of the jurisdiction where the loss occurred and (2) identifying and joining the parties who are entitled to recover damages from the alleged wrongdoing according to the law where the action is brought.  Regarding the first issue, a claimant should consider how courts in different jurisdictions would interpret the law of the jurisdiction where the loss occurred in deciding his choice of forum at the pre-action stage.  For the second issue, it appears to be more straightforward and easy to handle at the pre-action stage; as stated in the judgment, the Court found it difficult to understand why BaWang did not joined the two Hong Kong companies who actually suffered loss as additional plaintiffs to the present case (despite being alerted to the principle of reflective loss in the defence filed by the Magazine and joining the Mainland subsidiary as a plaintiff after considering such defence) – a decision which likely washed away millions of damages for BaWang.