Out of harm's way
A claimant cannot have an actionable defamation claim unless the allegedly defamatory statement has caused or is likely to cause serious harm to the reputation of that claimant. For bodies trading for profit, harm to the reputation of the claimant cannot be serious harm unless it has caused or is likely to cause serious financial loss to that claimant. This doctrine, known as the “serious harm requirement”, has been debated at length in a number of well-known cases. The Supreme Court’s decision in Lachaux v Independent Print Ltd & Anor  UKSC 27 would appear to settle that debate, at least for now.
The Defamation Act 2013
A statement is defamatory if “the words tend to lower the plaintiff in the estimation of right-thinking members of society generally” (Lord Atkin in Sim v Stretch  2 All ER 1237, 1240). Historically at common law it was presumed that, in libel claims, harm had been caused to a claimant's reputation if a defamatory statement was made. Amid criticism that this insufficiently protected freedom of speech, the requirement that such a statement must surpass a threshold level of seriousness was subsequently developed by case law (notably in Jameel (Yousef) v Dow Jones & Co Inc  QB 946 and in Thornton v Telegraph Media Group Ltd  1 WLR 1985).
The Defamation Act 2013 (the Act) introduced a number of significant changes to remedy the “surprisingly low hurdle” (according to the Joint Committee on the Draft Defamation Bill in October 2011) to actionable defamation claims, including the “serious harm requirement”:
1 Serious Harm
(1) A statement is not defamatory unless its publication has caused or is likely to cause serious harm to the reputation of the claimant.
(2) 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.
Section 1(2) was introduced into the Defamation Bill at a very late stage, as an amendment in the House of Lords, two days before Royal Assent. As can be seen from the explanatory notes to section 1 of the Act, the draftsmen were aware that bodies trading for profit were already, in practice, likely to have to show actual or likely financial loss. The requirement that this loss be serious is consistent with the serious harm test in section 1(1).
It was accepted by those drafting that there would be a period of litigation in which the precise meanings of the terms were thrashed out, in the interests of creating a better balance between free speech and reputation. Lachaux arguably sets the high water mark in this debate.
Mr Lachaux was a French aerospace engineer who had been living in the United Arab Emirates with his British wife and their young son before commencing divorce proceedings in the UAE courts. The publishers (Independent Print Ltd and Evening Standard Ltd) produced articles reporting allegations about his alleged violent conduct towards his ex-wife. He commenced libel proceedings, following which the publishers argued that the articles had not caused, nor were likely to cause serious harm to Mr Lachaux. At first instance, the High Court found in favour of Mr Lachaux, and held that the articles caused serious harm. The publishers appealed first to the Court of Appeal, which upheld the High Court’s finding, and then to the Supreme Court.
While the Supreme Court in Lachaux was not directly concerned with the interpretation of section 1(2) of the Act, it considered its application and interpretation, particularly with reference to the serious harm requirement. Its decision will be of interest to bodies trading for profit when deciding whether to bring a claim for defamation.
The Supreme Court held that section 1(1) is to be read in accordance with section 1(2) in that it requires its application to be determined by reference to the actual facts about its impact and not just to the meaning of the words. The financial loss incurred by a body trading for profit is the “measure of the harm and must exceed the threshold of seriousness”. Whilst traditionally at common law libel was actionable per se, this statutory amendment means that an investigation is required into the actual financial impact of the defamatory statement. Financial loss cannot be ascertained only by reference to the inherent tendency of the words; rather, when establishing “serious harm”, claimants must show that they have investigated the actual financial impact of the defamatory statement.
In welcome news for companies, Lachaux confirms that “serious financial harm” is not the same concept as special damage and should be treated differently. This is important since special damage is much harder to prove and quantify than serious financial loss and often requires extensive (and expensive) expert reports. Whilst a claimant can seek to recover special damage in addition to the general damages for libel at common law, it requires evidence of pecuniary loss caused by the publication of the defamatory statement. A claim that might overcome the serious harm threshold could fail to show special damage on the basis that the allegations are too vague and are not supported by sufficient evidence.
Serious Financial Loss
In the context of section 1(2) “serious” is to be read as an ordinary English word, to be given its ordinary meaning (as set out by the High Court in Lachaux v Independent Print Limited  EWHC 2242 (QB)). This ordinary meaning of “serious” is something that is significant or substantial in terms of quality. Parliament, in the drafting of the Act, has left it to the judges to apply the serious harm requirement on the basis that “serious” is an ordinary word in common usage. Evidently, the interpretation of this section requires a common-sense approach.
Whether the loss is serious must depend on the context (as held in Brett Wilson LLP V Person(s) Unknown, Responsible for the Operation and Publication of the Website www.solicitorsfromhelluk.com  EWHC 2628 (QB)). When assessing the seriousness of the defamatory statement, it is important to bear in mind a claimant company’s particular circumstances. A particular statement may cause greater or lesser financial loss to a company, depending on their circumstances and the reaction of those to whom it is published. For example, the loss of a single client to a small firm of solicitors could be serious (as in Brett Wilson), as could the loss of a single client from a dating agency (as the High Court held in Tereza Burki v Seventy Thirty Ltd  EWHC 2151 (QB)).
Proving Serious Financial Loss
Serious financial loss should be capable of inference from the evidence, similar to other forms of serious harm. By way of the example used by the Court of Appeal in EuroEco Fuels (Poland) Ltd & Ors v Szczecin and Swinoujscie Seaports Authority SA & Ors  EWCA Civ 1932, a loss to investors is not automatically to be viewed as a loss to the company (in the company accounts, for example). However, it can make borrowing more expensive, and the raising of equity more difficult. This would, in turn, likely result in serious financial loss. A further example offered in the same case is where suppliers would no longer offer a company as competitive rates as previously offered, evidencing a serious financial loss of another kind.
The test of financial loss should focus on whether there has been, or is likely to be, a serious loss of custom directly caused by defamatory statements. The most obvious example of this would be where the publication of the statement has led to a material reduction in customer numbers, or turnover generally.
Injury to goodwill is not sufficiently actionable for a company to bring a libel claim, nor is any expense incurred in the mitigation of damage by a company (for example, spending money on advertising campaigns to counter the impact of a defamatory statement).
A company is not entitled to rely on a fall in share price, since this loss is suffered by the shareholders, rather than the company itself. If a business trading for profit can prove a general downturn in business as a consequence of a defamatory statement, even if it cannot prove the loss of specific customers/contracts, this would suffice as a form of actual loss (albeit unquantified).
Impact on Potential Claimants
Ultimately, Lachaux is not so much a revolution of the law of defamation as an affirmation of Parliament’s intentions. Whilst some may argue that the balance has swung away from claimants in favour of defendants, particularly in relation to claims brought by individuals, for bodies trading for profit it remains business as usual. It is implicit that, in order to have an actionable claim, claimants must demonstrate harm. For bodies trading for profit, this requires demonstrating actual or likely financial loss.
This of course places a burden on the claimant to undertake an evidence-gathering exercise, thereby front-loading costs – something that has been widely criticised by claimant law firms. However, as with most forms of litigation, it is beneficial for a claimant to understand and prepare its case fully from the outset. Further, the Supreme Court has left open to claimants the type of evidence that can be used, affording claimants some flexibility in this regard.
This interpretation is in line with the Joint Committee’s intentions. The Committee acknowledged that companies might find it difficult to prove actual financial loss, so it favoured requiring proof of the likelihood of such loss. This would often be a matter of legitimate inference from the nature of the allegation and the extent of publication.
The Supreme Court expressly held that although claimants may provide witness evidence about the impact of a defamatory statement, there is no requirement to do so and cases will not necessarily fail if such evidence is lacking. Where relevant “impact” evidence is adduced, it could be as simple as an email passing comment on the article.
Points to Remember
The introduction of the new Pre-Action Protocol for Media and Communications Claims in October 2019 means that any claimant should include how or why the claimant says that the statement complained of has caused or is likely to cause serious harm. In the case of companies trading for profit, a claimant should demonstrate any details available of the nature and value of the serious financial loss that has been caused (or is likely to be caused) as a result of the publication. If a special damages claim is going to be made, full details of this must be set out in the letter of claim.
The most important thing for claimants to remember is to ensure some supporting evidence can be provided for the claim. Whilst this can be a high threshold to overcome, the burden is eased somewhat by the possibility for companies to demonstrate the likelihood of serious financial loss, rather than the actual loss. However, it is of course more helpful if claimants can point to evidence of actual harm done.
The decision in Lachaux demonstrates that this is a matter of not only ascertaining the meaning of the words, but the impact that these words have had (by way of financial loss). The seriousness of the financial loss will depend on the claimant’s circumstances and tends to be proportionate to the size of a company. Whilst the loss of one client could be extremely significant for one company, it would not even be a drop in the ocean for a larger company and resources may be best spent elsewhere, for example in the mitigation of a defamatory statement.
Claimants should also bear in mind however that the award of damages in cases such as these is often significantly lower than the costs of taking a defamation claim through to trial. When undertaking a cost-benefit analysis, claimants should consider whether to settle claims at an early stage, particularly if an apology is offered or a retraction published.
Whilst there are likely to be further tests to the meaning of “serious financial loss” and how to demonstrate this, for now the dust appears to have settled owing to some much-needed clarity from the Supreme Court.
This article was first published by the Commercial Litigation Journal.
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