10 July 2013

Defamation and the undead

Should every legal person get protection under defamation law?

'Corporate defamation: reputation, rights and remedies' by Gary KY Chan in (2013) 33(12) Legal Studies 264–288 comments that
Under English common law, a corporation is generally entitled to sue for defamatory attacks on its reputation and may recover substantial damages without proof of special damage. While a trading corporation could pursue a defamation action for an attack on its trading or business reputation, a non-trading corporation is entitled to do so when the defamatory statement targets its governing reputation.  In South Hetton Coal v NE News, where the defendant newspaper published a libel alleging that the claimant company failed to provide sanitary and proper premises for its workers, the English Court of Appeal held the libel to be actionable without the need to prove special damage. In 2006, the House of Lords in Jameel v Wall Street Journal Europe Sprl was confronted with a challenge against the continued applicability of presumed damages vis-à-vis corporations but the doctrine survived intact. The claimants, comprising a Saudi Arabian businessman and a company incorporated in Saudi Arabia, sued the defendants for publishing an allegedly defamatory article linking the claimants to the funding of terrorist activities. By a majority of 3:2, the House of Lords took the position that the company should be allowed to sue for damages without having to prove special damage. 
The current position in Australia is significantly different. Prior to the statutory developments in Australia, corporations were entitled to sue in defamation and the doctrine of presumed damages in defamation applied to corporations. In 2003, the Committee Report on the Reform to the Law of Defamation in Western Australia recommended that leave of court be obtained by a corporation (not including a non-profit corporation) before bringing proceedings in defamation. It was proposed that the court, in considering whether to grant leave, should take into account factors such as the number of employees, whether the corporation has suffered ‘identifiable economic loss as a result of the defamation’ and the adequacy of other remedies. In 2004, a contrary recommendation was made by the Commonwealth Attorney General that corporations should be permitted to sue for defamation. Notwithstanding the recommendation, Australia later enacted statutes which overrode the common law position. The National Uniform Defamation Laws (‘NUDL’) in Australia came into force in 2006 restricting the corporations’ right to sue in defamation, with exceptions for non-profit and small trading corporations (ie corporations which employ fewer than ten persons and are not related to other corporations). In effect, Australia has statutorily abolished the common law right of large trading corporations to sue in defamation.
In the UK, post-Jameel, the English PEN and Index on Censorship have campaigned for large and medium-sized corporations to be exempt from suing in defamation  unless they can prove malicious falsehood. This is similar to the Australian approach. However, this is not a view commonly adopted by the UK legal institutions. The House of Commons Culture Media and Sport Committee, for instance, did not provide a definitive opinion on the various measures to make it more difficult for corporations to claim for damages or the alternative method of compelling corporations to rely instead on malicious falsehood. Lord Lester’s Private Member’s Bill, on the other hand, focused on requiring corporations to show that the publication of the words or matters complained of had caused, or was likely to cause them substantial financial loss. The UK Ministry of Justice, in a consultation paper on the draft Defamation Bill, has also resisted abolishing the corporate right to sue in defamation but noted the potential problem of inequality of arms in defamation actions brought by a trading corporation against an individual or a nongovernmental organisation in order to stifle criticism of the corporation. It took the position that the requirement for corporations to prove financial loss would likely result in corporate claimants frontloading costs and consequent delays in bringing proceedings. Moreover, the alternative cause of action in malicious falsehood (ie requiring proof of malice) would render the claim difficult for the corporations and thus would not adequately protect their interests.
In view of the vastly different positions adopted in England and Australia, respectively, it is unsurprising that the rationales proffered in support of either camp are no less disparate and divisive. The current English position conferring on a corporation the right to sue in defamation and to recover presumed damages has been criticised on a number of grounds: large multinational corporations today have the upper hand in pursuing defamation actions against financially strapped defendants, the chilling effect on defendants arising from potential awards of substantial damages and costs, undue restrictions on the democratic freedom to criticise and protest against multinational corporations, circumvention of the tort of malicious falsehood due to the relative ease of pursuing a defamation action, and insufficient attention paid to the fact that corporate reputation, unlike individual reputation, is a mere commercial asset for which presumed damages should not be applicable. On the other hand, strong arguments have been made to maintain the status quo, highlighting the significant value of corporate reputation that is worthy of protection, the need to allow the recovery of presumed damages in order to vindicate corporate reputation, the difficulties of proving special damage in defamation cases and that the (perceived) inequality of arms between the multinational corporations and defendants is illusory or at least exaggerated.
Amid this clash of ideas, values and perceptions, this paper attempts to seriously examine and weigh each of the opposing arguments. To that end, it will consider the following questions: What is corporate reputation? Should we preserve the existing right of corporations in England to sue in defamation or adopt the contrasting Australian position? Is the current basis in England for allowing presumed damages without proof of special damage sustainable? Are there alternative remedies we should consider for corporate claimants? Insofar as the claims for damages or remedies are concerned, how should we treat defamatory attacks on the business and non-business reputations of trading and non-trading corporations, respectively? The resolution and clarifications of these issues would clearly be important given the prevalence of modern corporations and corporate defamation today.A conscious effort will be made to maintain conceptual coherence within the tort of defamation and, at the same time, take into account the practical realities of the corporate world with a view to proposing sound viable solutions.
Chan concludes
The right of corporations to sue in defamation should continue to be preserved in England. Corporations should be allowed to protect its reputation as property, which is an important aspect of corporate reputation. One valid exception is where the corporations fall into the category of government entities exercising governmental functions in accordance with Derbyshire. The distinct treatment between corporations and such government entities for the purpose of determining the right to sue in defamation is sufficiently justified by policy reasons relating to the significance of democratic political debate, the use of the political process by government entities to respond to criticisms and the prohibition against the use of public funds by government entities to initiate defamation suits.
Two reforms to corporate defamation are proposed. First, corporations, whether trading or non-trading, should be entitled to vindicate their reputations via declarations of falsity in order to reflect the baselessness of the defamatory charges. Further, corporations should continue to be entitled to the recovery of special damages in a particular case provided there is sufficient proof of such damages. Declarations of falsity are preferred to an award of presumed damages for vindication of corporate reputation. This is because the declarations constitute authoritative judicial statements to the public that the allegations are false, the potential ‘chilling’ effect of a substantial award of presumed damages that is not amenable to proof, the inappropriateness and difficulty of ascertaining the quantum of monetary damages to reflect the baselessness of the charges and the more expeditious defamation proceedings in seeking judicial declarations as compared with the claim for damages.
Secondly, insofar as proof of special damage is concerned, the current distinction between trading and non-trading corporations should be re-examined. In the event of a defamatory attack on the business reputation of a trading corporation, a claim for special damage (such as loss of customers or goodwill) must be proven. It is suggested that the trading corporation should also be allowed to recover special damage arising from a defamatory attack against the non-business reputation of the trading corporation, provided it can prove actual pecuniary losses (such as the loss of charitable donations). This fulfils the objective of an award of damages as reparation of damage to corporate reputation.
A non-trading corporation does not suffer loss of goodwill or custom, unlike for trading corporations. However, defamatory attacks on the governing reputation of a non-trading corporation may impair its capacity to fulfil the social objects for which it is established. Thus, it should normally be entitled to claim special damage such as loss of donations or membership subscriptions provided they are proven. Finally, it is proposed that where the defamatory allegations attack the business reputation of a non-trading corporation, it should also be able to recover special damage subject to proof.
This proposed flexibility in allowing the recovery of special damages for both trading and non-trading corporations serves to accommodate the various evolving forms of corporate enterprise and purposes, and reflects social realities concerning the diverse activities undertaken by modern corporations.