Business Law & Compliance

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Defamation Act 2013: How it could affect your business

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The Defamation Act 2013 came into force on 1st January 2014. Section 1(1) of the Act has introduced a new test of actual or likely serious harm. This is qualified further for claimants that trade for profit by section 1(2), in that harm to reputation is not serious unless it has caused, or is likely to cause, serious financial loss.

Actual or likely serious harm and serious financial loss

Pursuant to section 1(1): ‘A statement is not defamatory unless its publication has caused or is likely to cause serious harm to the reputation of the claimant.’

For a claimant to successfully sue a defendant for defamation, s1 has added a new layer to the existing law. 

A claimant will be required to demonstrate that the words complained of: (i) caused, or are likely to cause, serious harm to the claimant’s reputation; and (ii) tend to: (a) expose the claimant to hatred, contempt or ridicule, or; cause the claimant to be shunned and avoided by others; or (b) lowers the claimant in the estimation of ordinary right-thinking people. 

For claimants trading for profit, the serious harm requirement is subject to s1(2), which states: ‘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.’

This qualification is likely to mean that corporate claimants will need to specify in their particulars of claim: (i) that the statement complained of has caused or is likely to cause serious financial loss; (ii) particulars of the loss incurred, and how this has been caused by the defamatory statement(s); and (iii) why the loss incurred is serious

What does serious harm and serious financial loss mean?

At the core of the serious harm and serious financial loss test is the aim to discourage trivial and unmeritorious claims. 

In its Draft Defamation Bill consultation paper the Ministry of Justice recommended the inclusion of a substantial harm requirement, in that the statement complained of is not defamatory unless it caused substantial harm to the claimant’s reputation. 

According to the Lord Chancellor, the new test of serious harm ‘nudges up’ this threshold by a ‘modest extent’ and is drafted to allow the court to consider all the relevant circumstances of the case. 

Unfortunately, the Explanatory Notes are equally as vague with regard to serious financial loss, as is the Public Bill Committee’s Parliamentary Debate on the Defamation Bill.

Jonathan Djanogly was of the opinion that a fall in share price could demonstrate serious harm. To the contrary, during the debate, Paul Farrelly argued that loss of reputation can only emanate from a company’s profit, loss and sales, not variations in share value.

Issues with quantifying loss

The claimant will need to establish causation by demonstrating that the defamatory statement caused or is likely to cause the serious financial loss. This would not be an issue where, for example, there is one statement clearly linked to an immediate drop in revenue.

However, difficulty arises where a loss has been caused by a number of statements, only one of which is defamatory. In this example, in order to establish causation, the claimant would have to prove that this statement caused, or is likely to cause, ‘a’ serious financial loss. 

This is compounded by the difficulty of quantifying the loss caused, or likely to be caused, from that individual defamatory statement. Thus, it may prove impossible for a company to separate what loss is linked to the defamatory statement and what is linked to other, legitimate damage, to its reputation

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