Should companies be able to sue for libel?

7 09 2010

The argument that companies should not be able to sue for libel appears to be an attractive one.   Libel reformers draw attention to the actions brought by large corporations against campaigners and NGOs, apparently designed to stifle proper public debate about matters of public interest.  Several of the best known actions complained about by scientists and science writers have been brought by corporations against individual scientists or science writers who often face the risk of severe financial hardship in defending the actions. 

Matters of this kind led to the authors of the report “Free Speech is not for Sale” to recommend that

“Exempt large and medium-sized corporate bodies and associations from libel law unless they can prove malicious falsehood

Lord Lester’s Defamation Bill does not go so far.  Clause 11 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”

In an interesting “Guardian” article entitled “Why should companies be allowed to sue for libel?”, Libel Reform campaigner David Allen Green (the blogger formerly known as “Jack of Kent“) goes further, suggesting that

the right of companies to sue for libel should be severely limited, if not abolished altogether“.

He rightly points out that companies – by which he means trading companies – “already have a wide range of legal means to protect their brand and to prevent unfair competition” and draws attention to the notorious cases in which companies have brought (and, importantly, threatened) libel actions against individuals: the McLibel litigation, British Chiropractic Association v Singh, General Electric Healthcare v Professor Henrik Thomsen and the still ongoing case of NMT v Dr Peter Wilmshurst.

As we have said, these are attractive arguments but we do not think that they are compelling.  Mr Green anticipates that “the conventionally minded English lawyer” will protest against his arguments on the basis that companies are undoubtedly “legal persons” but this does not seem to us to be significant.  After all, statutory corporations such as local authorities are “legal persons” and cannot sue for libel (see Derbyshire County Council v Times Newspapers [1993] AC 534).

It seems to us that the issue is somewhat different.  The problem is not that companies are “legal persons” but that they have reputations which are a vital aspect of their ability to carry out their activities.  False allegations damage reputations and impair the ability to operate normally.

The activities of corporations can be put into two general categories: non-trading and trading.  The first category is important and is often forgotten in libel reform debates.  There are many “non-trading” corporations – including bodies such as NGOs and charities.  They are not in business to make money and false statements will not necessarily cause them financial loss.  A false accusation against an adoption agency, might, for example mean that people would no longer use its services and it would not longer be able to do its job but it is not aiming to make profits and will not lose any if it is libelled.  How is such a corporation to protect its reputation?

The second category, trading corporations, obviously contains some very large and powerful bodies who can, and do, misuse the libel laws.  But – as “Free Speech is Not for Sale” appears to recognise by confining its proposed reform to large and medium corporate bodies – trading corporations are not all large.  An accusation of selling infected food may be made against a multi national supermarket but might also be made against the small company which runs the local organic farm.   What remedy should such a company have when a false accusation is made?

The Libel Reform Campaign has suggested that sufficient protection is given by the action in malicious falsehood.  This is entirely unrealistic.   In order to succeed in an action for malicious falsehood the corporation has to show that the person who made the allegation was acting maliciously – this usually involves proving that the publisher knew that the allegation was false or was reckless as to its truth and falsity.  This is extremely difficult to do and successful malicious falsehood actions are very rare indeed.   A false allegation is no less damaging if it is made in good faith.   A newspaper might report an allegation from an apparently reliable source, believing it to be true.   In practice, demonstrating malice in such a situation is impossible.   Is the victim of such an allegation to be left entirely without remedy?

The solution proposed by Lord Lester’s Bill does deal with this point – at least in relation to trading corporations it preserves the possibility of a claim in defamation if a damaging false allegation is made.  However, the Lester proposal gives rise to other issues.   It will often be very difficult to show that a defamatory allegation has caused or is likely to cause substantial financial loss.  Successful claims for “special damages” in libel actions are extremely rare – because financial losses always have a variety of causes and it is usually impossible to isolate the libel from all the others.  Nevertheless, as Professor Mullis and Dr Scott have argued

the good name of a company, as that of an individual, is a thing of value. A damaging libel could lower its standing in the eyes of its customers, employees and shareholders making it less attractive for investors to invest in, employees to work for and customers to deal with“. (Lord Lester’s Defamation Bill 2010, A distorted view of the public interest?” para 66)

In short, we suggest that the complete abolition of the right of companies to sue for libel is not the best way forward.   Any reform proposal must recognize the special position of non-trading corporations and the need for corporations of all kinds to be able to vindicate their reputations in the face of false allegations which damage their ability to carry out their activities.  If the right of large corporations to claim damages for defamation is to be restricted, it should be replaced by the right, in appropriate cases, to seek declarations of falsity – to provide vindication in the face of false allegations.   Such an approach would, we suggest, provide a proper balance between expression and reputation.


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