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No Limits on Ltds: Defending the Right of Corporations to Sue in Defamation

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About The Author

James Smith (Regular Writer)

James is a Law student at the University of Warwick, with a particular interest in civil and commercial law. He is Careers Officer of Warwick Law Society, and is currently undertaking mini-pupillages with a view to becoming a barrister. 

©Nick Youngson

Corporations have neither bodies to be punished, nor souls to be condemned

Lord Chancellor Edward Thurlow

Since the 18th Century, when Chancellor Thurlow made his famous proclamation, English law has witnessed breath-taking strides in the development of corporate personhood. One of major steps forward has rendered it possible for corporations to be able to sue under the tort of defamation to protect their reputations from unjustifiable harm.

This article considers the changes brought about to corporate defamation law by the Defamation Act 2013 (DA 2013), contending that corporations have valuable reputations which they should be able to protect from unjustifiable harm using the tort of defamation. In addition, it offers a counterargument to the claim that the ‘disparity of arms’ between powerful companies and individuals – and the resulting ‘chilling effect’ on free speech – should negate corporate right to sue in defamation, and concludes by rejecting the Australian model of corporate defamation as uncertain, imprecise, and vague.

The Law of Defamation

The tort of defamation is concerned primarily with protecting the reputations of claimants. An incorrect factual statement harming an individual’s reputation is itself unfair. This is the moral element of defamation law. However, such statements may also lead to the individual being unfairly ostracised from a part of society to which they belong. For instance, the actor Tom Cruise – a well-known member of the Church of Scientology – successfully brought an action in defamation following allegations that a gay affair was responsible for his divorce from the actress Nicole Kidman. The tort of defamation therefore also has a social aspect.

The Original Case Law

Under the common law rules that applied prior to the DA 2013, in order for a defendant to be liable for defamation they must have made a statement which would, in the words of Lord Atkin in Sim v Stretch [1936] 2 All ER 1237:

[T]end to lower the [claimant] in the estimation of right-thinking members of society generally.

The statement must also – as outlined in Morgan v Odhams Press Ltd [1971] 1 WLR 1239 – identify the claimant and – per Pullman v Walter Hill & Co Ltd [1891] 1 QB 524 – be communicated to someone else. Alternatively, even if a statement would not cause right-thinking members of society to think less of the claimant, it was held in Youssoupoff v Metro-Goldwyn-Mayer Pictures Ltd [1934] 50 TLR 581 that it was sufficient that the statement did in fact:

[E]xpose the claimant to hatred, contempt, or ridicule, or be shunned or avoided by others.

The Defamation Act 2013

In 2014, the Government introduced the DA 2013 with the aim of reforming the law of defamation. The Lord Chancellor, Ken Clarke MP, had criticised the old common law regime as ‘out of date, costly and over-complicated,’ and argued that the DA 2013 would make English defamation law less claimant-friendly, thereby reversing the so-called ‘chilling effect’ on freedom of speech. The DA 2013 also aimed to quell forum shopping or ‘libel tourism’, whereby non-UK citizens would bring actions in English courts in order to take advantage of the ease of suit in English law.

The major substantive changes that were brought about can be seen in Section 1 of the DA 2013, which 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.
  • For the purposes of this section, harm to the reputation of a body that trades for profit is not ‘serious harm’ unless it has caused or is likely to cause the body serious financial loss.

Consequently, a ‘body that trades for profit’ will need to prove three things for their action in defamation to succeed: firstly, what the loss is; secondly, why that loss amounts to serious harm; and thirdly, that the claimant’s defamatory statement caused that loss.

Several points require clarification. For instance, ‘serious loss’ is at no point defined in the DA 2013. This causes problems of interpretation. Even for monetary loss - which has the advantage of being precise and objective, rather than being as deeply subjective as reputational loss – that should be theoretically easy to demonstrate, there is no guidance that aids determining when financial loss is so severe as to be ‘serious’.

It is possible, however, to take some pointers from civil procedure. For example, it was held in Dow Jones v Jameel [2005] that an abuse of process occurs when the cost of legal proceedings is disproportionate to the benefit attainable by the claimant. Perhaps, then, if a company spends more on legal proceedings than it loses from the defamatory statement, the loss would not be considered serious.

Another area of uncertainty concerns  whether a decline in a corporation’s share price could constitute serious loss. In Lewis v Daily Telegraph Ltd [1963] 1 QB 340, Holroyd Pearce LJ considered that ‘evidence could be called to show that the shares in the stock market had declined.’ On the other hand, the value of share price is a vague metric, and a kaleidoscopic array of factors may affect a company’s share valuation, making it difficult to prove causation. It could also be argued that financial loss is not ‘serious’ unless it causes lower profits, rather than merely lower share prices.

What constitutes a corporation is also unclear. It is unlikely that courts will construe ‘bodies that trade for profit’ to include all bodies that raise more capital as income than they expend, such as charities. In Goodman v Dolphin Square Trust Ltd (1979) 38 P&CR 257, Buckley LJ defined ‘trading for profit’ as carrying out trade ‘with the object of making a profit which he can use and enjoy for his own purposes outside his trading activities.’ It seems reasonable that this case law interpretation should be imported into the new statute-governed regime.

Commentary

Stepping back momentarily, an obvious controversy arises: should corporations actually be able to sue in defamation at all? That a wrong occurs when an individual’s reputation is unjustly besmirched seems clear; it seems less obvious that for-profit corporations have a “reputation” as an integral part of their identity in the same as human beings. Indeed, in his dissenting judgement in Jameel [2005], Lord Hoffman argued that the reputations of individuals and the reputations of corporations were materially different:

In the case of an individual, his reputation is a part of his personality, the “immortal part” of himself and it is right that he should be entitled to vindicate his reputation and receive compensation for a slur upon it without proof of financial loss. But a commercial company has no soul and its reputation is no more than a commercial asset, something attached to its trading name which brings in customers.

All the Law Lords in Jamee[ [2005] held that corporate reputation was, to some extent, valuable on the grounds that it helped companies to attract custom. However, as Gary Chan points out:

[W]hat remains controversial is the nature and extent of the value and the concomitant level of protection we should accord to corporations in defamation.

It is submitted that corporate defamation may be justified if ‘reputation’ is correctly conceptualised. Gary Chan points to Professor Robert Post’s work, in which he argues that there are three concepts of reputation: dignity, honour, and property. When applying this to corporations, the law can rapidly dispense with corporate reputation as dignity: Lord Hoffman’s argument from Jameel [2005] – that corporate reputations are distinct from human ones – illustrate that English law would eschew such an approach.

However, corporate reputation may be rightly conceptualised as honour – defined as upholding normative commitments in society. It seems understandable that a corporation would suffer serious financial loss as a result of being considered dishonourable. It may also be correct to conceptualise corporate reputation as property. When a company is defamed, it loses out financially through a loss of goodwill. It may also lose talented employees – whether actual or potential – or valuable commercial relationships.

So, it follows that the corporate right to sue in defamation may be justified on the grounds that, when defamation causes a company to unjustly suffer serious financial loss, their honour or property are also harmed.

A compelling argument against corporations’ right to sue in defamation is disparity of arms. Claimant commercial enterprises may be able to afford effective legal counsel; on the other hand, the capacity of defendants to defend themselves against legal proceedings may be comparatively limited. They may only be able to instruct a less effective legal team. Their resources may run out before their appeals are exhausted. It is alleged that this leads to a ‘chilling effect’ on freedom of speech.

The famous ‘McLibel’ case – otherwise known as Steel and Morris v UK [2005] – illustrates this point. The defendant activists had handed out leaflets alleging that McDonald’s was responsible for, inter alia, misleading advertising, exploiting workers, and cruelty to animals. The European Court of Human Rights (ECtHR) held that the denial of Legal Aid to defendants was a breach of their right to a fair trial under Article 6 of the European Convention of Human Rights (ECHR), and their right to freedom of expression under Article 10 of the ECHR.

It could be argued that the disparity of arms between corporations and individuals – and the consequent smothering of free speech – means that corporations should not be able to sue in defamation at all. It could further be argued that large corporations are politically and financially powerful, so criticism of them should not be fettered by defamation law. English law could expand the principle in Derbyshire County Council v Times Newspapers [1993] – that public authorities cannot sue in defamation so as not to inhibit democratic debate – to corporations.

However, such an argument is flawed: it collapses the distinction between civil procedure and civil law – and flaws in the former do not imply flaws in the latter. It seems unfair to deprive a corporation of its right to a remedy if its reputation has been seriously harmed, simply due to its size. Indeed, the ECtHR in Steel and Morris [2005] also considered it detrimental to deprive large multinational companies of their right to defend themselves against alleged defamatory statements. Disparity of arms is a procedural matter, not an issue of substantive tort law.

Options for Reform

This article has sought to demonstrate that for-profit corporations – regardless of their size, power, or wealth – should have the right in law to sue for defamation where they have suffered serious financial harm. The most powerful counterargument against this thesis is the ‘disparity of arms’ claim; namely, that powerful corporations use defamation law to silence criticism, leading to a chilling effect on freedom of expression.

There are possible options for reform to the law that may mitigate this problem that charts a middle path be charted between these opposing claims. For example, during debates in the House of Commons on the then-Defamation Bill, David Davis MP suggested that the:

Measure of serious harm for a corporation or large profit-making body should be very different from that for a small company or less well-off individual, and that as a result the provision should act as a deterrent against big companies using libel laws as a bullying mechanism.

Perhaps small corporations should be allowed to sue in defamation to protect their fledgling reputation, whilst large corporations are prevented from doing so in the interests of free speech. Such an approach would be markedly similar to that adopted by Australia in Section 8 of the Defamation Act 2006.

However, it is submitted that this approach would be undesirable. There is no principled way of separating large corporations from small ones. At precisely what point does the plucky start-up company with a delicate reputation evolve into the brutish, bullying corporation, using defamation law to suppress criticism? The Australian model would drag the courts into an impossible line-drawing exercise, rendering corporate defamation law intolerably vague. For instance, the Australian statute defines small corporations as those employing fewer than ten people. Different industries may require workforces of different sizes, so the ten employee provision seems completely arbitrary. Furthermore, as the judgment in Born Brands v Nine Network Australia [2013] shows, Australian courts have had difficulty defining what constitutes ‘employment’.

Such uncertainty and arbitratireness would be an undesirable change to English law. As Pill LJ noted in McDonald’s Corporation v Steel and Morris [1999] EWCA Civ 1144:

[It is not open] to this court to invent a category of commercial corporations which, as an exception to the state of law binding on us, should not be able to maintain an action for libel. Some corporations may be very powerful commercially and in homely terms well able to look after themselves. But we consider there is no principled basis upon which a line may be drawn between strong corporations and weaker corporations such as is required by the applicant’s submissions.

Conclusion

The long march towards developed corporate personhood in English law means that corporations may be burdened by more obligations, or benefit from more rights. One such right is to sue in defamation for harm done to their reputation. Although there are procedural issues of ‘disparity of arms’ between large corporations and individuals, this is not relevant to substantive tort law. Corporations increasingly have distinct reputations. Unjustifiable harm to that reputation should be prevented in tort – regardless of that corporation’s size, power, or wealth.

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Tagged: Commercial Law, Company Law, Defamation, Litigation

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