MPs back restrictions on businesses' right to bring defamation claims

The Defamation Bill is currently progressing through Parliament and is subject to a 'ping pong' stage where the House of Commons and House of Lords seek to agree on the final wording of the legislation.

Under the latest series of amendments agreed to in the Commons, businesses would be barred from bringing a case for defamation against critics unless they "can show that the publication of the words or matters complained of has caused [them], or is likely to cause [them], substantial financial loss". Courts would be obliged to "strike out" an application for such a claim where businesses cannot demonstrate this effect.

The amendment was expected to receive the support of the House of Lords in a Parliamentary session on Tuesday, according to a report by the Guardian. 

“This amendment reflects long standing concerns of freedom of speech proponents over the 'unequal legal contest' that can arise when a company sues individual critics in defamation," said litigation expert Jim Richards of Pinsent Masons, the law firm behind Out-Law.com. "The main purpose behind it is to make it hard for corporates to intimidate defendants with limited resources but without removing the company’s ability to seek redress where its reputation is genuinely damaged."

Richards said that the amendment may not achieve the fair balance that is seeks to and that the requirement for companies to prove substantial financial loss as a result of what has been published may be a barrier to them taking action at all.

"The concern will be that far from eliminating frivolous or vexatious claims it will discourage companies from bringing claims even in relation to the most blatant defamatory statements. Indeed it might rule out the possibility altogether," he said. "Establishing that the publication has directly caused the company a substantial loss is notoriously difficult . Even if it were possible to track the damage through to a direct impact on the balance sheet, the damage to a company’s reputation might not be limited to financial loss. For example, the impact on the company’s asset of  goodwill is almost impossible to quantify."

"Almost certainly one consequence is likely to be increased legal costs as accountancy experts will need to be instructed to support the damages claim," said Richards. "Furthermore this amendment overlooks the fact that defamation claims are not just about compensation. No doubt opponents will argue that it cannot in the interests of justice to deprive a company from seeking the vindication of its reputation if false defamatory statements are made about it .”