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Assessing the damage: what new defamation law means for startups

Written by Adam Pescod on Thursday, 05 June 2014. Posted in Regulation, Legal

With reputation such a powerful force in business, it’s little wonder a recent change to defamation law has caught the eye of entrepreneurs. But how has it really affected the business owner's ability to defend their company's good name?

Assessing the damage: what new defamation law means for startups

Defending one’s reputation to the hilt is undoubtedly a core part of many entrepreneurs’ DNA. And should one ever feel their reputation, or indeed their company’s, is taking a battering through no fault of their own, defamation law provides some fairly handy protection. 

However, the legislation governing personal and corporate reputation has recently had a facelift or – as some people may argue – fairly minor surgery. It ultimately depends what side of the fence you sit on. Whilst the media has broadly welcomed the Defamation Act 2013 for its rebalancing of freedom of expression with the right (of claimants) to a good reputation, it has had a significant bearing on the challenge that claimants – business owners included – now have in bringing a successful defamation claim. 

The headline amendment is the new ‘serious harm threshold’. It outlines that “a statement is not defamatory unless its publication has caused or is likely to cause serious harm to the reputation of the claimant.” And when it comes to companies, the new Act states that “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.” It’s relatively easy to appreciate the reason for these sweeping changes: to avoid trivial claims in regard of statements that don’t actually cause any reputational damage and waste precious court time in the process.

The challenge as far as a business owner is concerned is how one goes about proving that ‘serious financial loss’ has occurred, or is likely to occur, as a result of an alleged defamatory statement. Indeed, there isn’t even a solid definition in place yet, thus making the task all the more taxing. “As far as I am aware, there isn’t any case law yet to determine what constitutes serious financial loss,” says Jeremy Clarke-Williams, senior principal lawyer for commercial litigation, media libel & defamation at Slater & Gordon, the law firm. “One would assume that the courts will want to look at any loss of custom or sales, and possibly goodwill. You can imagine that the goodwill associated to the name of, for example, Mars or Heinz would be of huge value. If that suffers as a result of defamatory publication, it would clearly have a financial impact.”

Clarke-Williams adds, however, that most business owners will generally have money on their mind in circumstances of defamatory publication. In that regard, the Defamation Act 2013 doesn’t signify a fundamental shifting of the status quo. “I don’t think it will make much difference to the position of business owners because I don’t think many business owners or companies would have pursued a claim unless they felt that what had been published was going to cause them serious financial loss.” 

Naturally, a defamatory claim against a company may also hit the reputation of the founder or senior figures in the business, and vice versa. Yet aside from the serious financial loss threshold in the case of corporate claims, there are similar considerations to be made before taking legal action. “You always start with the basics,” says Clarke-Williams. “You look at the words complained of, what they mean, you assess what damage they have caused or are likely to have caused, and then you look at the merits and prospects of success of bringing a claim. That’s not just the legal prospects of success, but the commercial prospects of success. Is it such a serious libel that, even though the person responsible has got no money, you still need to do something about it?”

Of course, it’s not just broadcast or written words that can cause damage but libel cases are understandably more common than those for slander. “I would be very reluctant to bring a slander claim,” Clarke-Williams adds. “You need witnesses who overheard the defamatory allegations being made, who are able to remember, as closely as possible, what was said and then are also prepared to be witnesses in a court case, which may ultimately result in them having to stand up and be cross-examined at a trial.” He adds that any damages awarded may also be very modest if only a small number of people were privy to the allegation.

A welcome and timely addition to the Defamation Act 2013 is a section covering online content. It states that website operators cannot be held liable for content posted by external users, provided users are easily identifiable and the operator follows a procedure allowing a complainant to make direct contact with the user or author. Whilst this will probably bring a sigh of relief for businesses in the publishing and marketing spaces, the internet remains a rather complex beast for companies whose name may have been dragged through the mud in a high-profile publication. 

News has never travelled faster than it does now and Clarke-Williams believes this limits how far a business owner can really push things for the purposes of defending the good name of their enterprise. “You have to be realistic. You are not going to be able to clean the internet of everything you don’t like so you have to concentrate on the targets that are actually going to do damage to your business or to you as an individual.”

Social media has also come under scrutiny of late but the judgment in the much-publicised case involving Sally Bercow and Lord McAlpine made it clear that defamation law does extend to Twitter, Facebook et al. Businesses would therefore be wise to keep a close eye on what’s being tweeted or posted under their name, just in case it could be construed as an attempt to unlawfully discredit a competitor.

And whilst juries have more or less now been removed from libel cases – technically making the legal process shorter and cheaper for all involved – Clarke-Williams advises businesses, especially those with smaller pockets, to give things due consideration before going in all guns blazing.

“A libel claim is quite a big thing,” he concludes. “It occupies quite a lot of headspace for the people involved, it can get expensive if it doesn’t settle quickly, it can be time-consuming, so if you’re going to get involved, you need to make sure that it’s over an issue that’s pretty fundamental. As a business owner, you just have to be vigilant and you have got to pick your battles very carefully.” 

About the Author

Adam Pescod

Adam Pescod

EB's former editor, Pescod was tasked with ensuring these hallowed pages are rich with excellent, engaging and error-free stories, all written with the entrepreneur in mind. Pescod previously plied his trade penning pieces about pubs and pints. He is also a sucker for alliteration. 

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