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Reputation management: Lachaux must go on

Posted: 07/12/2017


The reputation of a business can be a crucial factor in its success. With the rise of social media, a reputation which has been built up over years can be destroyed in an instant: anyone and everyone can publish negative, even unfounded, material with the potential for it to ‘go viral’. It is, in this online age, increasingly important for businesses to ensure their reputations remain intact and to take immediate action when false allegations have been published.

What is defamatory?

Section 1 of the Defamation Act 2013 brought with it new challenges for claimants with the requirement 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 corporate claimants the hurdle is higher still, as section 1(2) states that where the claimant is a body that trades for profit, harm is not serious harm unless it has caused or is likely to cause the body serious financial loss. The rationale behind this new statutory test was to weed out trivial or frivolous claims.

It has since become clear that this statutory test is in addition to the common law test. In the case of Thornton v Telegraph Media Group Limited, Tugendhat J held that there was a threshold of seriousness, to exclude trivial claims, and that to be defamatory the words must substantially affect in an adverse manner the attitude of other people towards the claimant or have a tendency to do so.

Serious harm: individual claimants

Since the Act came into force, practitioners and judges alike have been wrestling with the question of what amounts to ’serious harm’ to a claimant's reputation. For individual claimants, the Court of Appeal has recently provided some helpful guidance in its judgment in Lachaux v Independent Print Ltd & Others. Lachaux clarified that the bar for claimants has been raised: the test is now a tendency to cause serious rather than substantial harm.

At paragraph 82, Davis LJ also helpfully confirmed that the cause of action accrues on the date of publication. This had been the common law position prior to the Act, but since serious harm might not be caused until a date later than publication it was suggested that this might no longer be the case. This in turn confirmed the position regarding limitation which had been thrown into confusion by the uncertainty about when the cause of action accrued. Davis LJ further held that section 1(1) did not alter the common law presumption as to damage in libel cases, as appeared to have been suggested in earlier post-Act cases, but he went on to clarify that “there is no presumption, at law, of serious damage”, and so a claimant will have to prove this. However, Davis LJ concluded that if the meaning is seriously defamatory, “it will ordinarily be proper to draw an inference of serious reputational harm”.

Serious harm: corporate claimants

Whilst the Court of Appeal judgment has been hailed as a victory for claimant individuals, it has not provided any guidance as to the position with regard to bodies trading for profit, save to say that it will be different ’in some respects’ and that it is clearly designed to operate in a rather different way to section 1(1) of the Act (paragraph 82(7)).

So, rather unsatisfactorily, the position remains relatively unclear for corporate claimants. There have been only two reported cases in which section 1(2) has been considered, both of which pre-date the Court of Appeal’s judgment in Lachaux. Nevertheless, limited guidance can be gleaned from these judgments.

‘Solicitors from Hell’?

The first case demonstrates that the courts may be willing to draw inferences from the circumstances of the claim in appropriate cases. Brett Wilson LLP v Persons Unknown involved a libel claim brought by a firm of solicitors against persons unknown who were responsible for the website ‘Solicitors from Hell’, a platform for people to publish allegations about solicitors.

Warby J observed that Brett Wilson LLP relied upon what could be criticised as statements of belief rather than fact, as well as that noting that the wording of section 1(2) refers to ’financial loss’ not ’financial harm’. However, he was satisfied that the statutory requirement had been met by the particulars of claim as a whole. The matters relied upon by Brett Wilson LLP included the fact that it was a boutique firm which had attracted a considerable amount of work from the internet; the prominence of the publication in the top five Google search results on its name for six months; and the fact that a number of prospective clients will have read (or would read) the publication and decided (or will decide) not to instruct the firm as a result. Brett Wilson LLP also relied on the fact that: a litigation opponent had raised the publication as evidence that Brett Wilson LLP was a disreputable firm, and  one prospective client had withdrawn instructions as a result of the publication. Brett Wilson LLP argued that there will have been a far greater number of instances where an individual has not notified the firm and simply went elsewhere; they further believed that there had been a noticeable drop in the conversion of enquiries from prospective clients to instructions over the previous six months.

The court’s approach to the requirement for serious financial loss in this case gave companies cause to be optimistic that the requirements would not be as stringently applied as had perhaps been feared, as it demonstrated that the court is willing to draw inferences of serious financial loss in appropriate cases where actual financial damage has not been proved.

It should, however, be noted that the defendant had played no part in the proceedings, a default judgment had been entered and the claim was then dealt with under the summary disposal procedure (set out in sections 8 and 9 of the Defamation Act 1996).

Warby J chose not to provide any guidance as to the meaning of ’serious’, instead stating that it is an ordinary English word. However he did make clear that whether a loss is serious must depend on the context. This tends to suggest that what might be considered as serious for a multinational company could be different to that for a small family business. 

‘Down to Earth’

The second case is believed to be more indicative of the approach which might normally be adopted. In Undre and Down to Earth London Ltd v London Borough of Harrow, the owner of a restaurant called ‘Down to Earth’ and the company which operated that restaurant brought a claim in respect of a news release published by the defendant on its website. A more forensic approach was taken to the requirement of section 1(2) of the Act and the court held that Down to Earth London Ltd had failed to prove it had suffered any relevant serious financial loss. Warby J took as a starting point the question of whether the company had proved its financial position had worsened after the publication compared with its previous position. Though the company had shown there was a decline in revenues, it had not put forward any profit and loss calculations of any kind nor any expert evidence, and as Warby J made clear a claimant can only recover damages for loss of profit or increased losses.

The business also failed to establish causation. It had been loss-making before publication and, though the republication of the news release in the press probably had an adverse financial impact on the business, the extent of that impact could not be assessed and it could likely be attributed to other factors.

Aside from the question of serious financial loss, Warby J had also held that the claimant company had failed to establish that the publication referred to it and that it bore a meaning defamatory of the business.

Conclusion

It remains to be seen if the courts will be willing to draw inferences of serious financial loss in appropriate cases, as it did in the Brett Wilson LLP case. As matters stand, with no further guidance since the Down to Earth case, it may be difficult for a claimant company to satisfy section 1(2), unless it can adduce cogent documentary evidence or expert evidence demonstrating a loss of profit. Without such evidence, a claimant company is at risk of failing to establish serious financial loss and thus will fail to establish a claim.

Two of the defendants in the Lachaux case have appealed to the Supreme Court, but since the case concerns an individual claimant and the Court of Appeal did not make any rulings on section 1(2), it seems unlikely that the Supreme Court will choose to do so. However, there may be some further guidance before too long, as it has been reported that, in an ex tempore judgment on 2 November 2017, Warby J ordered that there should be a trial of a preliminary issue on meaning and serious harm in the case of Hope Not Hate Ltd v Farage. Hopefully this will provide some much needed clarity to claimant companies as to how high the hurdle of serious financial loss is and the evidence that might be required in order to surmount that hurdle.

In the meantime, if damaging allegations are published about a business and it is unable to produce persuasive evidence of serious financial loss, it may be worthwhile considering to what extent those allegations could be said to harm the reputation of any of its directors or officers, who would only have to meet the lower hurdle set by the Court of Appeal in Lachaux.

This article was published in Commercial Litigation Journal in December 2017.


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