louise_nagli_phMuch has been written about the Defamation Act 2013, which came into force on 1 January 2014.  On the one hand it is a “boost for free speech“, on the other a “missed opportunity“.  The government’s line is that the new Act “rebalances the law on defamation to provide more effective protection for freedom of speech while at the same time ensuring that people who have been defamed are able to protect their reputation“. 

One of the areas which has been the subject of much debate, both in Parliament and in the media, is the requirement under subsection 1(2) of the Act for corporate claimants (“bodies trading for profit“) to demonstrate that the allegation concerned “has caused or is likely to cause […] serious financial loss“.  This was a last minute addition to the Bill which preceded the Act, initially rejected by the House of Commons but eventually pushed through when the Government introduced a compromise in the House of Lords.

It is not clear yet exactly what evidence will be required to demonstrate “serious financial loss“, but this is likely to include evidence of loss of custom, loss of sales or a general decline in business.  It may also include injury to goodwill (in an accounting rather than reputational sense) or expenses incurred in mitigation of damage.  In this context, it should also be noted that likelihood of financial loss (as opposed to actual loss) is sufficient for the purposes of subsection 1(2).

The requirement for “serious financial loss” also raises interesting issues about the timing of claims.  Should a corporate claimant issue proceedings early to nip the problem in the bud, but at the same time risking that it might be more difficult to show likely financial loss?  A claimant who issues proceedings later on will have more time to gather evidence of financial loss, but vindication may be delayed and the lack of any serious financial damage in practice (perhaps in part due to mitigating steps taken) may undermine the argument that financial damage was likely at the time of publication.

There is then the question of whether “serious financial loss” will be judged relative to the claimant’s means.  Some commentators have argued that it will be: for example, a drop in sales of £1,000 will hit a local greengrocer much harder than it will hit Tesco.  But this raises difficult questions as to where the boundaries of seriousness lie.

The better view may be that the effect of subsection 1(2) in relation to corporate claimants is simply to exclude what may be regarded as trivial claims in financial terms and ensure that claims for defamation are limited to serious allegations.  Subsection 1(1) of the Act provides that a statement is not defamatory unless its publication “has caused or is likely to cause serious harm to the reputation of the claimant“.  This provision, which applies to individual and corporate claimants alike, is described in the Explanatory Notes to the Act as raising the bar for bringing a claim “so that only cases involving serious harm to the claimant’s reputation can be brought“. The Notes then go on to explain that subsection 1(2) reflects the fact that bodies trading for profit already in practice have to show actual or likely financial loss, the new requirement that such losses are serious being consistent with the new serious harm test.  On this analysis, it could be argued that subsection 1(2) does not in fact raise the bar any further for corporate claimants than the serious harm test in subsection 1(1).

While the courts grapple with these issues, now more than ever potential corporate claimants will need to consider carefully the full potential impact of a defamatory statement as defendants seek to rely on the absence of proven financial loss in order to try to defeat claims.

To ensure that the best possible case is presented, corporate claimants should consider the following:

  • At an early stage, be ready to gather evidence to determine the likelihood and degree of harm.  It will be important to ensure that the customer service team log any adverse comments and contract cancellations.  The likely damage should preferably be explained at the outset in the letter before action.  Emails or other comments from customers will be helpful, as well as any evidence of lost contracts or sales.  It may also be worth instructing forensic accountants to carry out some financial analysis.
  • Think about whether a claim for defamation may be brought by an individual (for example the Chief Executive as the public face of the company) as well as the company itself.  It is likely that less evidence of harm will be required for individuals and in some cases, where the allegations are extremely serious, the damage to the individual may be obvious when damage to the company is not.  In other cases, the individual may need to give evidence about the effect of the allegations on them, including how others may have changed the way they treat them.
  • In addition to defamation, consider including a claim for malicious falsehood.  The requirements for malicious falsehood are that the statement must be false and that it must have been published maliciously, i.e. without belief in the truth of the statement or being reckless as to its truth or falsity.  The advantages of a malicious falsehood claim are that there is no need to show damage to reputation and where the allegations relate to a trade or business carried on by the claimant, there is no requirement to prove damage.
  • Similarly, it may be possible to make a freestanding claim for breach of the claimant’s right to reputation under Article 8 of the European Convention of Human Rights or to make a regulatory complaint (albeit that the regulatory regime is currently somewhat uncertain).

Going beyond section 1, the new Act does also bring some positives for claimants which could benefit corporate and individual claimants alike.  The effective abolition of jury trials for defamation claims by section 11 of the Act potentially leaves the way open for more early rulings, for example on meaning or serious harm.  This means there will be more front-loading of cases which may result in increased costs for claimants at the outset, but there is also the possibility of earlier resolution and costs savings overall.  There will also be less uncertainty.

Where there is to be a preliminary ruling on meaning, there is the potential for staying service of the defence until this issue has been dealt with.  This may avoid a defence being served which contains damaging allegations that go to a lower meaning advanced by the defendant.

Another provision of the new Act which might benefit corporate claimants is section 12, which gives the court the power to order a summary of its judgment to be published.  There is already a similar procedure under section 8 of the Defamation Act 1996, but this is not widely used as it is available only on an application for summary judgment and where damages are less than £10,000.  Whilst the court will not have the power to order the defendant to apologise, it will have the power to make an order in relation to the wording, placement, prominence and timing of the summary.  The potential PR value to corporate claimants of the new section 12 remedy is clear.  Similar remedies have already been used successfully in other jurisdictions.  For example, inRadio France v France(2005) 40 EHRR 29, the defendant was ordered to broadcast a summary of the judgment every two hours.

The new Defamation Act is therefore not all bad news for corporate claimants.  Whilst it may become a little harder for companies to sue for defamation in respect of relatively trivial matters, they will continue to be able to sue and threaten to sue over serious allegations where financial damage is likely.  This may mean that routine take-down notices in respect of relatively harmless material on the internet will become more difficult and companies may need to resort to other forms of reputation management.  However, since companies only tend to issue proceedings for serious allegations in any event, we may not see any material difference in the number of claims which go to court.

Louise Lambert is a Senior Associate specialising in media disputes in the Commercial Litigation team at Olswang LLP

This post originally appeared on the Olswang website and is reproduced with permission and thanks