On debt recovery, defamation, and damages: part 1.

Mr Chan was the sole director and majority / sole shareholder of 2 related companies (the "Companies"). Ms Tang was the finance manager of the Companies.

The Companies ran into cashflow difficulties, and Mr Chan requested loans from Ms Tang. Ms Tang eventually loaned a total of $120,000.

The loans were not repaid, despite Ms Tang's requests. Ms Tang's employment with the Companies was eventually terminated.

Ms Tang engaged a debt collection company to recover the loans. The debt collection company:
(a) sent a letter addressed to Mr Chan to the Companies' address¹;
(b) turned up at the Companies' premises and handed a letter (the "1st Letter") to an employee;
(c) turned up at Mr Chan's home twice, and left a copy of the 1st Letter with Mr Chan's domestic helper during the 1st visit;
(d) loitered outside the workplace of Mr Chan's wife and daughter, then slipped another letter (the "2nd Letter") under the door of the premises; and
(e) turned up at Mr Chan's home again, and left a copy of the 2nd Letter with Mr Chan's domestic helper.

So what did Mr Chan do? Did he...
(a) pay up?
(b) contact Ms Tang to work out a debt repayment plan?
(c) go into hiding?

Why, he sued Ms Tang and the debt collection company for defamation, of course.

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The Court² held that:
(a) Ms Tang was liable for the debt collection company's defamatory acts because it was acting as her agent; and
(b) the allegations in the 1st Letter and the 2nd Letter (collectively, the "Letters") were defamatory of Mr Chan, because they indicated that Mr Chan was unable or unwilling to pay his debts.³

Now, at this point in time, some of you might be thinking:

"Hold on! I remember that my lawyer friend / a business law 101 lecturer / this random LinkedIn commentator⁴ once told me that truth is a defence to defamation. So since the Letters were true, why did Ms Tang and the debt collection agency get into trouble?"

Broadly speaking, you'd be right.

But as it turned out, the Court held that the contents of the Letters were not true.

And that's because the Letters indicated that it was Mr Chan who was liable for the debts...

...but the loans had been extended to the Companies, and not Mr Chan in his personal capacity.⁵

Ms Tang and the debt collection company were therefore unable to rely on the defence of justification.

The Court held that they were liable for defamation, since defamatory statements were communicated - via the Letters - to 5 people: an employee of the Companies, Mr Chan's domestic helper, Mr Chan's daughter, and 2 of Mr Chan's daughter's colleagues.

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In part 2, I'll discuss the consequences that flow from the Court's decision.