Libel law reform: focus on corporate defamation

The ability of corporations to sue for defamation has been under particular scrutiny in recent years. The nature and implementation of any reform now obviously depends on the agenda set by the new government, but from recent developments, including a new private member’s Defamation Bill, it would appear that companies may soon be facing substantially greater hurdles in bringing defamation claims.

Alan Watts, Anna Bateman and Cathy-Ann Davies, Herbert Smith LLP

The ability of corporations to sue for defamation has been under particular scrutiny in recent years. Freedom of speech proponents are highly critical of the “unequal legal contest” that often arises when a company sues individual critics for defamation, and argue that this mitigates against freedom of expression, particularly in relation to investigative journalism and lobbying by non-governmental organisations (NGOs) and campaigners.

The previous government made it clear that defamation reform would be progressed and that a draft Libel Reform Bill would be introduced in the next Parliament. Before the election of the coalition government, there were various proposals for reform of our libel laws, including three consultations by the Ministry of Justice, a pro-freedom of expression critique by interest groups and proposals made by Lord Justice Jackson (see News brief "Libel in the news: changes ahead (www.practicallaw.com/5-501-7823)").

The nature and implementation of any reform now obviously depends on the agenda set by the new government, but from recent developments, including a new private member’s Defamation Bill, it would appear that companies may soon be facing substantially greater hurdles in bringing defamation claims.

Current law

The current law recognises that trading corporations and companies have reputations which could be ruined by defamatory statements (South Hetton Coal Co v N.E. News [1894] 1 QB 133; D&L Caterers Ltd v D’Ajou [1945] KB 364 CA). Companies can, therefore, sue for defamation and recover damages. In recognition of the fact that a company has no “feelings” to be hurt, the damages awarded to companies tend to be less than those awarded to individuals.

However, certain bodies, including local authorities and unincorporated bodies, cannot bring a defamation claim (Derbyshire County Council v Times Newspaper Ltd [1993] AC 534; EEPTU v The Times Newspapers [1980] QB 585).

House of Commons Committee report

In February 2010, the House of Commons Culture, Media and Sport Committee (the Committee) published a report on press standards, privacy and libel (the report) (www.practicallaw.com/5-501-7823).

The report identified an imbalance between corporate claimants and non-corporate defendants, and stated that a mismatch of resources in a libel action has already led to a stifling effect on freedom of expression (for example, between a large corporate, for which money may be no object, and a small newspaper or NGO). The report cited Steel & Anor v McDonald’s Corporation & Anor as an example of a case where the resources of the claimant, McDonalds, were far larger than those of the individuals being sued ([1999] EWCA Civ 1144).

The Committee suggested that one way of addressing the issue would be the creation of a new tort of corporate defamation, which would require a company to prove actual damage to its business before an action could be brought. Alternatively, companies could be forced to rely on the existing tort of malicious falsehood, the malice element of which is notoriously difficult to prove (see box "Malicious falsehood").

The Committee also considered that the current burden of proof in defamation actions should remain on the defendant for claims brought by individuals, but proposed that it should be reversed for corporate claimants.

Proposed legislation

Legislation “to restore freedoms and civil liberties” was promised in the Queen’s Speech on 25 May 2010; according to the government, this was a reference to a Freedom (Great Repeal) Bill (the Freedom Bill), one of the purposes of which will apparently be the reform of libel laws to protect freedom of speech.

While the Freedom Bill is yet to be published, a clue as to the kind of libel reform measures we might expect can be found in Lord Lester’s private member’s Defamation Bill (the Defamation Bill), which was published and launched in the House of Lords on 26 May 2010, and is scheduled for a second reading on 9 July 2010. The Defamation Bill proposes a number of key changes, including the introduction of a statutory defence of responsible publication on matters of public interest and the abolition of the multiple publication rule (which provides that each publication of defamatory material gives rise to a separate cause of action).

Section 11 of the Defamation Bill is of particular importance to companies. It provides that: “A body corporate which seeks to pursue an action for defamation must show that the publication of the words or matters complained of has caused, or is likely to cause, substantial financial loss to the body corporate”. This requirement is a significant change and one which, if the Defamation Bill is passed, will have a real impact on the ability of companies to protect their reputations.

The company perspective

The requirement for a company to prove actual damage as a result of what has been published about it would be likely to pose numerous problems. It would undoubtedly discourage companies from bringing claims about even the most defamatory of statements, and might even rule out the possibility altogether.

Balance sheet impact. Establishing an unbroken chain of causation between the defamatory statement and a subsequent loss of income would be a high hurdle to overcome in many cases. Even if it were possible to track the damage through to a direct impact on the balance sheet, the damage to a company’s reputation might not be limited simply to financial loss. The impact on the intangible asset of goodwill is virtually impossible to quantify. One knock-on effect would be an increase in legal costs, as accountancy experts would need to be instructed to assist with the damages claim.

Value or market share impact. An alternative is for a company to attempt to show that its value or market share has suffered as a result of the statements which have been made. However, this type of claim is fraught with difficulty. In Collins Stewart Ltd & Another v Financial Times Ltd, a company and its parent company (P) both claimed damages calculated by reference to the fall in P’s share price, involving complex calculations of market capitalisation ([2004] EWHC 2337 QBD; www.practicallaw.com/9-103-2473). The High Court struck out the particulars of damage, holding that share price was not a suitable guide to the claimants’ loss due to its inherent uncertainty and the number of unrelated factors that could affect it.

While the general trend seems to be in favour of making defamation claims harder for corporations, the courts have historically recognised the importance of allowing a company to protect its trading reputation. The House of Lords considered the issues of corporate reputation and the entitlement of a trading company to sue and recover damages without pleading or proving special damage in Jameel v Wall Street Journal Europe SPRL ([2006] UKHL 44; see feature article "Defamation: an overview (www.practicallaw.com/8-205-5341)").

Jameel restated the principle that damage should be presumed, even in the case of companies. The majority of the House of Lords showed a clear appreciation of the importance of a company’s reputation. Lord Bingham acknowledged that, “the good name of a company, as that of an individual, is a thing of value,” and pointed out that a prompt claim for defamation could, in fact, lessen the chances of actual financial loss accruing. Lord Scott of Foscote discussed the practical and causation problems which would be presented by having to prove damage.

 

Practical considerations

The authors have not seen much statistical analysis of the number of defamation claims brought by corporate, as opposed to individual, claimants. Out of the 36 cases listed in the section on damages awards in Gatley on Libel and Slander, only six were brought by corporate claimants (parts 1 and 2, Appendix 3, 11th Edition, 2008).

If this selection is representative, it suggests that less than 17% of cases which make it to trial involve corporate claimants. This could be because a corporate claimant is perhaps more likely to accept a sensible offer of settlement rather than proceed to full trial, but could also indicate that the problem of large companies bullying impecunious defendants with expensive litigation is perhaps not as widespread as the report suggests.

The report recommends that statistics relating to jurisdictional matters be collated. It would be very interesting to see the collection and proper analysis of such data on the proportion of claims brought by corporate entities.

It is clear that the proposals to change the law on defamation for companies are beset with difficulties. Instead of making it harder for a company to protect its reputation, these changes could eliminate any corporate defamation claims altogether, which, in the authors’ view, cannot be in the interests of justice.

The would-be reformers appear to forget that the point of a defamation claim is not simply to obtain compensation: a company should be entitled to the vindication of its reputation if untrue defamatory statements are made about it. It may be that the issue of corporate defamation claims is really an extension of the debate and concerns over costs and imbalance of resources generally in libel cases: if so, it should be addressed as such.

Alan Watts is a partner, Anna Bateman is Of Counsel and Cathy-Ann Davies is an associate at Herbert Smith LLP.

 

Malicious falsehood

A claimant in an action for malicious falsehood must show that:

  • The statement is false.

  • The statement was published maliciously about the individual or his business: negligence is not sufficient (Shapiro v La Morta [1923] 40 TLR 201).

  • Special damage has directly and naturally resulted from the publication.


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