Protecting corporate reputation

April 2019 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

financierworldwide.com

The impact of attacks on the reputation of corporate entities has never been so potentially damaging. The use of social media and the propensity for news to ‘go viral’ has heightened the need for companies to develop robust preventative strategies and to know what can be done when the worst happens. When attacks on reputation do occur, businesses may have no other option but to turn to the courts for vindication and redress.

The purpose of this article is to explore the ways in which an organisation can seek to defend its reputation under the law of defamation. The underlying legal concepts which dictate how to succeed will be outlined. The focus will, though, remain on the practical ways in which a corporation can make plain to the court the damaging effects that the defamatory publication has had on their business.

Background

Defamatory remarks represent an assault on reputation.

The law of defamation is concerned with protecting reputation. In legal terms, repairing the damage done by a defamatory article to a person’s reputation is known as achieving vindication. In practical terms, this can amount to the payment of damages, the removal of an article complained of, and a statement read out in open court.

A claimant must establish that the words complained of are defamatory of them. There is no single definition of what constitutes a defamatory statement. It is, though, often referred to as one which would lower the individual in the estimation of right-thinking members of society.

Companies have reputations to protect, just as individuals do.

Despite changes in the law brought about by the Defamation Act 2013 which made it more difficult for companies to bring claims, corporate entities are still able to do so. It is often thought that it is far more straightforward for an individual to protect their reputation at court. It is true that the hurdles a company must overcome before it can succeed to hold another to account for attacks to its reputation differ from those encountered by an individual, but the principle holds true. A number of recent court decisions have shown that companies are able to assert their rights under the law and protect their reputation.

Current position of the law

One fundamental difference between an individual issuing defamation proceedings and a company is that the law requires companies to establish that the words complained of have or are likely to cause ‘serious financial loss’.

What constitutes ‘serious’ has been the subject of much debate and a number of recent decisions have provided guidance on this topic.

‘Serious’ has been determined to be weightier than substantial.

Whether the loss is ‘serious’ will depend on the particular circumstances involved and be subjectively assessed on a case by case basis. In other words, there is no ‘one size fits all’ approach to assessing whether the loss suffered, or likely to be suffered is ‘serious’, thus allowing for a degree of flexibility. This means that where the loss of one customer may not constitute serious financial loss to a large corporation, it could still pass the threshold of seriousness for a small company where the effects of a defamatory article might consequentially be more devastating.

The term ‘likely to cause’ with regard to seriousness of the damage done to the company has also been found to mean that the words complained of are liable to or have a tendency to cause serious financial loss.

Establishing ‘serious financial loss’

There are number of ways to demonstrate that the words complained of have caused or are likely to cause serious financial loss. In essence, a company must establish that in the absence of the defamatory statements being published, their financial position would have been better.

To do this, there are a number of aspects of the company’s business to look at.

For example, the past performance and track record of the corporation will not only provide an historical overview but also an indication of where the business expected to be at the time the defamatory statements were published.

The company’s budget or forecast will prove helpful. This is especially so where regular forecasts have been shown to have been accurate in the past. The extensive documentation generated, for example, in the process of applying for a bank loan may prove useful when assessing the damage caused by the publication of defamatory statements.

Contemporaneous correspondence is another area where evidence can be gathered of a company’s financial position at the time of being defamed and, again, where the company anticipated that it would be. Company communications may also provide an important record of any losses accrued as a result of the defamation.

The importance of seeking expert financial advice at the earliest stages of proceedings cannot be overstated. Liaising with an expert at the outset enables them to establish clearly the damage done in financial terms by the defamatory statements, advise on relevant revenue streams which may have been affected, discuss areas of concern on a potential claim and gain a familiarity with the evidence right from the start.

Finally, as always, the devil is in the detail; scrutinise the evidence very carefully. Place yourself in the position of your opponent and the test your case for any potential weaknesses. Knowing the relative strengths and weaknesses of your claim will enable you to proceed with confidence.

Remedies

In a case of defamation, an award of damages can be considered as vindication.

Further to any damages awarded, a final injunction which prohibits any further publication of the statements complained of can also be obtained. This takes effect immediately, preventing republication of the defamatory material. Failure to comply with this order can result in imprisonment for contempt of court.

In addition to the above, case law has shown that the courts are also willing to order that the costs incurred by companies in seeking to restore their reputation following an attack may be also be recoverable from the opponent. For example, often corporate entities will seek PR advice on how best to remove false and defamatory allegations from online. These costs have been recovered by claimants from their opponent at court.

Conclusion

Reputational damage is a real issue and the consequences can be far reaching. It is important for companies not to be naive or blasé about the reality of the effects of reputational damage.

The importance of maintaining detailed records cannot be overstated as they provide vital evidence of the financial impact of any attack on a company’s reputation.

Analysing the threats to reputation that currently exist and preparing for all eventualities may help to mitigate any future losses.

Recording any costs or expenditure arising out of a crisis and focusing on a detailed analysis as events unfold will help to create reliable evidence in support of any claim.

Christopher Hutchings is a partner at Hamlins LLP. Mr Hutchings can be contacted on +44 (0)20 7355 6104 or by email: christopher.hutchings@hamlins.com.

Christopher Hutchings

Hamlins LLP