Draft Defamation Bill - Joint Committee on the Draft Defamation Bill

Draft Defamation Bill - Joint Committee on the Draft Defamation Bill Contents

3 Consultation issues

Early resolution and cost control

INTRODUCTION

74. As outlined in Chapter 1, the early resolution of libel claims is both desirable in itself, to limit any unjustified damage to reputation, and essential to the critical task of reducing the unreasonably high costs involved. Changes to legal procedures, whilst not a matter for the Bill itself, are nonetheless required to fulfil this task and are rightly a key part of the Government's consultation exercise. This section considers the limitations of existing procedures for early resolution, examines the Government's proposals in this respect, which we believe would go some way to addressing the problem, and proposes a new framework for the handling of defamation claims, based upon the presumption that other means of dispute resolution should ordinarily be attempted before going to court. Some of these changes may require amendments to the rules governing civil procedure (the Civil Procedure Rules).

THE SCALE OF THE PROBLEM

75. The full costs of libel actions are not always disclosed, which makes it difficult to obtain reliable statistics. There are usually between two and three hundred cases started each year,[118] of which only a handful ever reach a final trial at the High Court. Senior members of the judiciary emphasised that a high proportion of cases were already resolved at an early stage and did not appear to view early resolution as a priority.[119] This perspective fails to recognise that even in cases which are resolved before they reach trial at the High Court, costs for a single party can amount to hundreds of thousands of pounds.[120] The Jackson Review estimated that damages awarded are unlikely to average even £40,000, so it is very unlikely that this sum would come close to covering the costs of most libel actions (other than those which are quickly disposed of by the offer of amends procedure). Subject to Conditional Fee Agreements (which we discuss separately[121]), taking legal action for libel is well beyond the means of most people, and successful claimants face the strong likelihood of being significantly out of pocket.[122] Those who are unjustly threatened with legal proceedings often face the stark choice between offering an undeserved settlement and financial ruin. In these circumstances, it is understandable—but wholly unsatisfactory—that many potential claimants and defendants are unwilling to risk the cost of legal action in defence of their reputation or right to free speech.

LIMITATIONS OF EXISTING MEANS OF REACHING EARLY SETTLEMENT

76. There are a number of legal options designed to help those who believe they have been defamed to avoid expensive court action. Some of these appear to work more effectively than others, as indicated below.

Alternative dispute resolution. The Pre-Action Protocol for Defamation, which sets out how both parties should conduct the initial stages of any case, encourages the parties to consider whether some form of alternative dispute resolution procedure would be more suitable than litigation. The Protocol is criticised by the Jackson Report for failing to ensure that a claimant specifies the nature of the complaint in sufficient detail, thereby undermining the chances of early resolution. The Protocol also requires the court to have regard to any failure to follow it when determining costs.[123] In practice, the Protocol is not always followed and failure to adhere to it is rarely, if ever, punished by adverse financial consequences.[124]
Early determination of meaning. A judge may make a determination of meaning at an initial hearing, which may lead to early resolution in many cases, but may only presently do so if trial by judge alone has been agreed or there is no realistic prospect of a trial by jury being ordered. This is often a difficult matter to assess at an early stage, which undermines the prospects for early resolution.[125]
Offer of amends. A defendant who has made an honest mistake or is unable or unwilling to defend a libel claim may make an offer of amends,[126] which requires publication of an apology and the payment of compensation and costs.[127] This procedure is frequently used and appears to work well.[128]
Summary disposal procedure. This is another statutory procedure[129] that allows a judge to dispose of a case when either party has no realistic chance of success. The judge can order the publication of a correction or apology and award damages of up to £10,000. In practice, this procedure is seldom used, possibly because other procedures are available.[130]
Active case management. Judges have wide powers to manage a case as it moves towards trial. They may limit disclosure, order the trial of some issues before others, and reduce the pleaded issues where that fits the overriding objective. Weak case management was a frequent complaint in the evidence we received, with a lack of determination on the part of judges (and often the parties) to seek swift resolution cited as a contributory factor. In view of the lack of action up to now, there seems to be scope for much more robust case management, although this will undoubtedly be easier once jury trials are no longer a possibility in most cases.[131] A pilot of new costs management procedures was established in 2009 and is now due to conclude in the autumn of 2011.
Summary judgment and strike-out powers: The courts have powers to dismiss a claim or a defence (or parts of either) in clear cases.

It was clear from the evidence we received that the way these procedures currently operate does not provide reasonable access to justice for all. There is agreement that significant reform of procedures is required in order to achieve this goal.

THE GOVERNMENT'S PROPOSALS

77. The Government's proposals on early resolution were informed by the report of the Early Resolution Procedure Group[132] and the Jackson review of civil litigation costs. The proposals envisage all defamation cases being channelled through a new process which allows for key issues to be determined at an early a stage as possible. The key issues involved are: substantial harm; meaning (what the actual meaning is and whether this meaning is defamatory); and fact/opinion (whether the words in question are a statement of fact or an opinion—central to the honest opinion defence).[133] The Government consultation suggests that other issues might also be capable of determination at an early stage. These are:

Public interest: whether or not the matter is one of public interest, which affects the defences available; and
Privilege: whether the publication is protected by absolute or qualified privilege (at common law or by statute).

As indicated in paragraph 22, some of these issues may currently fall to be settled by a jury, so preventing early determination by a judge. We agree with the Government's intention of promoting early resolution by allowing the judge to determine key issues in question at an initial hearing—within a few weeks, certainly not months—and believe that this will go a significant way towards improving the chances of early resolution.

78. The Ministry of Justice acknowledges that its proposals have not yet been fully developed and translated into provisions in the draft Bill or potential changes to the Civil Procedure Rules. For example, it is prepared to "assess developments" relating to the use of alternative dispute resolution.[134] The Government seems to envisage a two-stage process involving an early oral hearing where the judge determines the substantial harm test. If passed, this is rapidly followed by an initial case management hearing to determine other key issues.[135] However, there will still be potentially large costs to both parties incurred in preparing for initial hearings on substantial harm and then the case management hearing. This creates the opportunity for more wealthy parties to use rising costs as a weapon. The changes to procedures proposed by the Government are largely a tightening up of existing mechanisms: they cannot be seen as radical and do not go far enough towards reducing costs to the extent that legal action will be realistically accessible to the ordinary citizen.

A NEW APPROACH

79. We want to see the development of a culture in which expensive legal action is the last rather than the first resort. We believe that a tougher approach is required to ensure that the potential for early resolution is properly explored in all cases. There should be straightforward alternative means of dispute resolution which form the starting point for any complainant, unless there are exceptional reasons for going directly to court. The advantages of using these alternatives to the court should be sufficient to ensure that a far smaller number of claims ever reach court in the first place, never mind proceed to full trial. The approach we outline below is based upon some elements of existing procedures, as improved by the Government's proposals, and some new ideas that have emerged from the evidence we have gathered. We propose an approach which is based upon strict enforcement of the Pre-Action Protocol governing defamation proceedings, and has three elements: a presumption that mediation or neutral evaluation will be the norm; voluntary arbitration; and, if the claim has not been settled, court determination of key issues using improved procedures. We deal with each of these elements in turn.

Initial stages of action: mediation or evaluation

80. In a great many cases, statements that are regarded as defamatory turn out to be based upon mistaken facts or assumptions, or are interpreted as having a different meaning to the one intended, or are meant as expressions of opinion but can arguably be interpreted as statements of fact. In such cases, a simple phone call can be enough to produce a suitable correction or clarification and the case goes no further. It should often be possible to formulate an apology, which, while not conceding the claimant's case as necessarily correct, withdraws the sting attributed by the claimant to the words. Often, the longer a complaint remains unresolved, the more likely it is that costs may become a stumbling block to settlement. These negotiated settlements are used all the time, along with other means of alternative dispute resolution. Many issues would be resolved if more newspapers devoted columns to the publication of corrections and apologies and more organisations made public apologies or retractions when they have made potentially libellous statements in error. The Press Complaints Commission mediates in some such cases of dispute but there are concerns that it is not as effective as it could be and does not cater for broadcasters and other platforms of publication.

81. The evidence we have received indicates that individuals and organisations, or their legal advisers, are not always willing to engage meaningfully in efforts to resolve disputes in this type of constructive and low key manner. We believe that some solicitors for both claimants and defendants are over-confrontational in correspondence at these crucial early stages. The threat of court action, however empty, is enough for many to give way, regardless of the merits of their case. Whereas newspapers editors might listen to reasoned requests from wealthy or litigious individuals, large companies and politicians, they are perhaps less likely to engage so constructively to complaints from ordinary citizens. In many situations, a publisher may correctly identify the risks of court action as low and refuse to engage constructively to resolve a complaint in the knowledge that there is no requirement to do so. To prevent this type of game-playing, the courts should ensure that any failure to comply with the terms of the Pre-Action Protocol could incur significant cost penalties.

82. We believe that ordinarily the first step following the initial exchange of letters under the Pre-Action Protocol should (in the absence of an offer of amends) be mediation or assessment by a suitably qualified third party, known as "early neutral evaluation".[136] Mediation could take place under the umbrella of existing bodies[137] or a designated service established by the Government. We do not wish to be too prescriptive but, in principle, the mediation process must be swift, inexpensive and resistant to delaying tactics. To counter this latter possibility, any failure to engage constructively with the process should be punished if and when it comes to the awarding of costs. If there has been no mediation or neutral evaluation, the judge should have power to order it at the first hearing in the case.

Arbitration

83. There will inevitably be some cases which do not prove possible to resolve by mediation or early neutral evaluation. Rather than such cases heading automatically to court, careful consideration should always be given to pursuing the option of voluntary independent arbitration. Arbitration can have a number of advantages over court proceedings. Arbitrations can be arranged and resolved more quickly than court proceedings. The parties can choose which issues to seek to refer to arbitration and have discrete issues determined in advance of mediation if they wish. In some cases, the resolution of one or two issues at the outset might help a mediation to resolve the whole case. Parties can also choose what the procedures are to be, for example, whether or not to have an oral hearing. The decisions of arbitrators are generally appealable only in very limited circumstances. It is up to the parties to agree on a choice of arbitrator—or an appropriate institution to appoint one, if this proves difficult. Generally, proceedings in arbitration are confidential, which is often useful in defamation cases, where the claimant in particular does not want the damage caused by the original publication exacerbated by further publicity. Finally, arbitration can save money, because although the parties have to pay the arbitrator's fees, the parties can limit the expense of the arbitration by carefully defining particular issues to be referred or by adopting streamlined procedures. Arbitration can bring access to justice within the grasp of the ordinary citizen (especially important should Conditional Fee Agreements in their current form be abolished) and may be vastly cheaper than a single contested hearing in full legal proceedings.

84. We see value in there being a range of effective arbitration options available. We heard a suggestion from editors that newspapers would be open to a rapid and informal way of settling disputes involving arbitration.[138] They pointed out that newspapers, particularly local ones, did not have the resources to defend expensive libel claims in the courts. There may be a case for a new voluntary forum or service being established and funded by the media. Such a forum would be more effective if it covered other communication platforms too. We heard some, though not universal, support for this idea.[139] We encourage the Government to explore further the development of a voluntary, media-orientated forum for dispute resolution in the context of the current review of the regulatory regime governing the media.[140]

85. We recognise that it is an established right under the ECHR of any individual to seek redress in the courts and this must be preserved.[141] It is possible, whilst respecting this right, to encourage settlement by alternative means which are more readily available to ordinary citizens. Arbitration represents a cost-effective alternative to the courts, and helps to reduce the impact of any financial inequality between the parties. The financial and other incentives to use arbitration must be strengthened as far as possible.

Proceedings reaching court

86. With an approach based upon on compulsory mediation or early neutral evaluation, with arbitration as a further option, we believe that even fewer cases would involve full court proceedings than do so presently. The removal of trial by jury, save for exceptional cases, combined with the early determination of key issues, will promote swifter resolution in court. Even these reforms will not necessarily prevent those cases going to trial from being prohibitively expensive. To bring costs down further, more radical changes to the way in which our courts operate—not just in defamation cases—would need to be contemplated. Some suggestions include the application of maximum hourly rates, mandatory capping of recoverable costs, paper hearings with limits on written submissions and changes to the Conditional Fee Agreement regime.[142] Such issues extend well beyond our brief. Nevertheless, we recommend that the Government gives serious consideration to these and other measures, which are essential if court costs are to be attacked in a more radical and effective way. In the meantime, we believe that more aggressive case management can help to minimise costs, if it is applied fairly and consistently. Courts should have the power to determine key issues which stand in the way of early determination. As we mention in relation to the harm test, we recognise that, to some extent, the early determination of such issues may result in the "front-loading" of legal costs, but in our view the overall benefits of early resolution outweigh this potential downside.[143] We recommend that the Ministry of Justice and the judiciary take measures to ensure that judges personally and consistently manage defamation cases in a robust manner that minimises delays and costs incurred by both parties.

SPECIALIST OR COUNTY COURTS

87. Some witnesses argued that costs would be reduced if libel cases were generally dealt with by county courts rather than the High Court.[144] Others favoured the establishment of specialist libel courts or tribunals, in which specialist judges might be able to provide swifter justice.[145] We considered these options carefully. Our recommendations stem from our core principles of reducing costs and increasing accessibility. Once our proposals for clarifying and simplifying the law are implemented, with jury trials in libel cases a rarity, and streamlined procedures that encourage early resolution, we see no reason why many smaller defamation cases should not be heard in county courts. We accept that the most serious cases (and any defamation jury trials) will still merit being tried by specialist High Court judges in London. However, with some appropriate training, we see no reason why there could not be a county court judge designated to hear defamation cases in most major county court centres in the regions. The availability of county courts to hear defamation cases, particularly outside London, should increase accessibility for ordinary citizens and would, in many cases, reduce costs as well.[146] The Ministry of Justice should implement a pilot scheme to determine how this proposal might work in practice.

REFORM OF CIVIL LITIGATION COSTS AND ACCESS TO JUSTICE

88. The costs of pursuing and responding to libel claims will be affected by the implementation of broader reforms aimed at making the costs of civil litigation more proportionate, which follow a report from Lord Justice Jackson.[147] The proposals focus on the cost of Conditional Fee Agreements (CFAs) - often known as "no win, no fee" agreements. These CFAs were originally introduced in the 1990s in order to improve access to justice for those of ordinary means. Whilst they have achieved this,[148] a side-effect has been a substantial increase in costs, as CFAs may involve a "success fee" charged by the winning side's lawyers of up to 100% of their costs, potentially doubling the costs of libel action for a losing party. In order to protect against the risk of incurring liability for the other side's costs (if the case is lost), most parties on a CFA presently take out insurance, known as "after-the-event" or ATE insurance.[149] The premiums for this insurance are also liable to be charged to the losing party. The Jackson Report recommended that success fees and the cost of ATE insurance should no longer be recoverable from the losing party, while putting forward alternative proposals.

89. We are concerned that defamation law will become even less accessible to the ordinary citizen because the Government does not plan to apply to defamation all Lord Justice Jackson's proposals that protect access to justice. For example, in respect of personal injury claims, there will be a cap on the amount that can be charged by lawyers as a success fee of 25% of the damages awarded.[150] This cap does not apply to other civil claims, leaving the existing costs associated with 100% success fees in place. The Government's proposal to increase by 10% the level of general damages payable in civil cases is designed to go some way towards helping parties to pay for their own costs and to meet any success fee if they win. There is also the argument that parties are likely to take greater care over incurring costs when they are paying the costs themselves. However, we do not believe that the 10% increase in damages will be enough to make a difference, given that the average level of damages in defamation cases is no more than £40,000, and costs tend to be in measured in hundreds of thousands when a case goes to court. The mechanism recommended by Lord Justice Jackson to protect the less well-off—known as "Qualified One Way Costs Shifting" (QOCS)—will also not be available in defamation cases under the Government's proposals. This mechanism ensures that a claimant does not risk paying the costs of the defendant if the claim fails, unless they can afford to do so or have themselves acted unreasonably during proceedings.[151] We consider that the application of this form of protection to defamation cases, as recommended by Lord Justice Jackson, may go some way to towards addressing the financial inequality that often exists. It is outside our remit to explore the impact of the Government's separate proposals on civil litigation costs reform in detail. Nonetheless we are sufficiently concerned about them to ask the Government to reconsider the implementation of the Jackson Report in respect of defamation actions, with a view to protecting further the interests of those without substantial financial means.

Conclusions on procedural reform

90. We do not believe that the proposals the Government has brought forward so far will, in themselves, deliver the improvements to libel proceedings so as to make them genuinely within the grasp of the ordinary citizen. We have set out a new, three-tiered approach, based upon our core principles, designed to give everyone a realistic chance to take action if they think they have been defamed and to resist proceedings if they believe they have a valid defence. Our proposed approach seeks to take libel disputes, for the most part, out of the courts and into rapid, inexpensive, alternative means of resolution. Access to the courts must be preserved, but as a last, not a first resort. There will be penalties for those indulging in legal game-playing and delaying tactics.

91. The Government will need to consult the judiciary on how best to implement these changes but it is ultimately up to Ministers to ensure that effective action is taken. While the drafting of the Civil Procedure Rules is the responsibility of the judiciary[152] we note that the Lord Chancellor has power effectively to direct the Committee to make rules to achieve specified purposes.[153] We recommend that the Ministry of Justice prepares a document setting out in detail the nature of the rule changes required to ensure that the Civil Procedure Rule Committee will implement the procedural changes we recommend in this section of our Report. This document should be published at the same time as the Bill.[154]

Publication on the internet

INTRODUCTION

92. The internet has fundamentally changed the way that we communicate. It has created a new online world in which anyone can legitimately share information, engage in debate and express their views. But, at its worst, it has also created a platform on which people can break the law and cause harm, including by making defamatory statements. Our law of defamation has not been reviewed since the internet came into widespread use. This has led to the Ministry of Justice consulting on whether the law needs to be changed or clarified in the way that it applies in this setting.

93. We have heard that practical difficulties mean relatively little, if anything, can be done to regulate the worldwide web in the absence of international agreement.[155] We acknowledge the challenges that any national legislature faces when acting alone in relation to a global issue but do not regard these as an excuse for inaction. Our inquiry has revealed broad agreement that the law of defamation should in principle apply to publications on the internet in the same way that it does to other more traditional forms of media. We agree that the internet cannot be exempt from the law of the land, and that the rule of law should apply to the fullest extent possible online. We nonetheless recognise that the law needs to take account of various distinct challenges that arise.[156] It is these issues we have sought to address, mainly by making new proposals covering two areas. Specifically, we propose:

a) A new notice and take-down procedure to cover defamation in the online environment; and

b) Measures to encourage a change in culture in the way we view anonymous material that is user-generated, including via social media.

94. We start this section by briefly considering two aspects of the draft Bill that should help to address defamation on the internet, namely the substantial harm test and the single publication rule.

THE SUBSTANTIAL HARM TEST AND THE INTERNET

95. When people are harmed by a defamatory statement it makes no difference to them whether it happened online or offline. Ultimately, defamation should be treated as defamation, irrespective of the setting. Nonetheless, many derogatory and mocking statements on blogs and social networking sites may be read casually, remain fleeting in their impact and be given limited credence by readers when compared, for example, to material published by reputable media organisations.[157] Further, in many online situations the victim may be in a position to reply rapidly by rejecting the criticism that is made, and the publisher may also promptly withdraw, amend or apologise for what was said. We intend these kind of considerations to be given due weight when determining whether online material has caused serious and substantial harm. There is already some judicial support for this approach.[158] If this test is to serve its intended purpose then it must be applied rigorously in relation to casual internet publications.

THE SINGLE PUBLICATION RULE AND THE INTERNET

96. A defamation claim must be brought within one year of the relevant material being published to prevent the publisher facing open-ended liability for what was said in the past.[159] This straightforward and widely accepted principle does not operate effectively in practice due to what is known as the multiple publication rule, as explained in paragraph 55. In the online setting, it means that every time an article is viewed it is treated as a fresh publication with its own one year limitation period. In effect, it exposes a publisher of archived online articles to indefinite libel claims. We have already expressed our support for the proposed single publication rule and recommended that it be extended.[160] This should provide valuable additional protection to online publishers.

SOCIAL NETWORKING, ONLINE HOSTS AND SERVICE PROVIDERS

97. A specific issue that arose time and again during our inquiry was the legal liability of internet hosts and service providers for defamatory material that is posted by online users. There has been a substantial growth in user-generated material, which ranges from posts on social media sites like Facebook and Mumsnet to blogs and micro blogs such as Twitter, and user reviews on sites such as Amazon and TripAdvisor. These new platforms have, in effect, turned everyone into a potential publisher and massively enhanced the ability of people to express their own views, well considered or not.

98. Under the current law, online forums and hosts (who are commonly referred to as "secondary publishers" in this setting) are liable for statements made by their users (who are the authors or "primary publishers") where they fail to take down material once they know that it may contain a defamatory allegation.[161] Specifically, if the host or forum leaves the material online after receiving a complaint then they risk being treated as a primary publisher of the defamatory statement. They then become an attractive target for the person who was defamed due to their ability to pay substantial damages. More specifically, service providers and forums have told us that in many cases it is impossible for them to know whether the material is libellous given their limited knowledge of the background.[162] This further encourages service providers and online forums to avoid legal liability by removing material whenever a complaint is received, leading to many entirely legitimate comments being removed.

99. A further difficulty is that once a host or site owner employs moderators[163] or a monitoring system of any kind including a flag and report system, they are at risk of losing their defence if the moderation process leads to knowledge of, and therefore liability for, material which is defamatory.[164] As the law stands, far from encouraging service providers to foster legitimate debate in a responsible manner and removing the most extreme material, it encourages them to ignore any dubious material but then to remove it without question following a complaint. This is contrary to the public interest and an unacceptable state of affairs. The law should set out clearly the responsibilities of service providers and encourage them to moderate public debate in line with defamation law.

100. With this in mind, we recommend that the Government takes action by:

Ensuring that people who are defamed online, whether or not they know the identity of the author, have a quick and inexpensive way to protect their reputation, in line with our core principles of reducing costs and improving accessibility;
Reducing the pressure on hosts and service providers to take down material whenever it is challenged as being defamatory, in line with our core principle of protecting freedom of speech; and
Encouraging site owners to moderate content that is written by its users, in line with our core principle that freedom of speech should be exercised with due regard to the protection of reputation.

A NOTICE AND TAKE-DOWN PROCEDURE

101. We propose a new notice and take-down procedure, as indicated in paragraph 93, designed to provide everyone with easy access to the rapid resolution of disputes about online material. It will also help promote a culture which downgrades the credibility of anonymous online material, as discussed below.

102. We are concerned to address some of the problems facing innocent victims of defamatory material on the internet. In particular, a defamatory allegation can spread around the world far more quickly than the victim can react. Posts and blogs are also often written anonymously by users who adopt a generic username and/or email address, or make use of encryption software to mask their identity. Anonymity may encourage free speech but it also discourages responsibility, as people feel free to make abusive or untrue comments without fear of any comeback. We heard a mixed range of views about the feasibility of identifying users by seeking a court order against the host or internet service provider and then investigating the person's "electronic fingerprint" to reveal who and where they are.[165] It is clear that even where this process leads to the defamer's identity being known, it is not quick, cheap, or guaranteed in its outcome.

103. The challenges facing regulation of the internet contribute to what some people have described as a new "Wild West", in which law enforcement is failing to keep pace with technology. Issues of this kind will not be solved overnight. There is, and will be, cultural change as we adapt to the use of new communication technologies. The law needs to respond to this. The precise direction of this social change is unpredictable but we believe it is possible, and desirable, to influence its development, in part through legislative reform. Specifically we expect, and wish to promote, a cultural shift towards a general recognition that unidentified postings are not to be treated as true, reliable or trustworthy. The desired outcome to be achieved—albeit not immediately—should be that they are ignored or not regarded as credible unless the author is willing to justify or defend what they have written by disclosing his or her identity.[166]

Identifiable material

104. Contributions published on the internet can be divided into those that are identifiable, in terms of authorship, and those that are unidentified, as described above. In respect of identified contributions, we recommend the introduction of a regime based upon the following key provisions:

a) Where a complaint is received about allegedly defamatory material that is written by an identifiable author, the host or service provider must publish promptly a notice of complaint alongside that material. If the host or provider does not do so, it can only rely on the standard defences available to a primary publisher, if sued for defamation.[167] The notice reduces the sting of the alleged libel but protects free speech by not requiring the host or service provider to remove what has been said; and

b) If the complainant wishes, the complainant may apply to a court for a take-down order.[168] The host or service provider should inform the author about the application and both sides should be able to submit brief paper-based submissions. A judge will then read the submissions and make a decision promptly.[169] Any order for take-down must then be implemented by the host or service provider immediately, or they risk facing a defamation claim as the publisher of the relevant statement. The timescale would be short and the costs for the complainant would be modest.

Unidentified material

105. In order to promote the cultural change we have outlined above, we recommend that any material written by an unidentified person should be taken down by the host or service provider upon receipt of complaint, unless the author promptly responds positively to a request to identify themselves, in which case a notice of complaint should be attached. If the internet service provider believes that there are significant reasons of public interest that justify publishing the unidentified material—for example, if a whistle-blower is the source—it should have the right to apply to a judge for an exemption from the take-down procedure and secure a "leave-up" order.[170] We do not believe that the host or service provider should be liable for anonymous material provided it has complied with the above requirements. If a person who has been defamed can go on to establish the identity of the author (with the help of the courts, online host or service providers) then they may take action against the author in order to pursue a legal remedy for the harm that they have suffered. Where this is not possible, we believe that the law should provide that ordinarily internet material from unidentified sources may not be relied upon by a defendant or claimant in defamation proceedings. Any host or service provider who refuses to take-down anonymous material should be treated as its publisher and face the risk of libel proceedings, subject to the standard defences and our proposals relating to leave up orders. It is for the Government to make clear in the Bill any exceptional circumstances in which unidentified material should have evidential value for the purposes of defamation proceedings. We do not pretend that we are advancing an ideal solution, still less an instant one, but promoting cultural change is an achievable goal that will minimise the damage inflicted by the mischievous and the malicious. Our aspiration is that, over time, people will pay less attention to and take less notice of material which is anonymous.

106. This two-stage procedure should apply equally to online sites that are moderated and those that are not. This is necessary to correct the existing disincentive to online hosts to moderate sites.[171] To achieve this, the Government will need to reform the Defamation Act 1996 to the effect that secondary publishers—such as internet hosts or service providers—shall not be treated as becoming liable for allegedly defamatory statements solely by virtue of having moderated the material or the site more generally. Liability should be determined by the way in which the host or service provider responds to a request for a defamation notice or a take-down order.

107. The Government needs to frame a coherent response to the challenge of enforcing the law in an online environment where it is likely to remain possible to publish unidentified postings without leaving a trace. As part of doing so, the Ministry of Justice should publish easily accessible guidance dealing with complaints about online material. We recommend that the Government takes the necessary steps to implement the approach we outline.

Corporations

108. The Ministry of Justice is consulting on the right of corporations[172] to sue for defamation. At present, a corporation can bring a legal claim where a defamatory statement is said to harm its trading or business reputation.[173] The MoJ and several of our witnesses emphasised that corporations can suffer serious injury when they are defamed and, some witnesses stated that as a result corporations should continue to be protected by the law without new restrictions being introduced.[174] In the worst case, for example, a false report that a corporation is exploiting child labour, recklessly harming the environment, or carelessly producing products that are unsafe, can weaken or even destroy the business. This can lead to redundancies and financial losses for anyone who trades with, or invests in, that corporation, while leaving less choice for consumers.[175] Moreover the resulting financial loss is not recoverable by individual employees or directors, even if they are also defamed.

109. In contrast, we heard recurring evidence from other witnesses, including legal representatives and non-governmental organisations that publishers are routinely and unfairly threatened with libel proceedings by corporations who do not want negative reviews or sensitive information to enter the public domain.[176] We have heard that this leads to publishers modifying, withdrawing, or altogether avoiding publication, which harms their freedom of speech and wider public debate.[177] This chilling effect is caused mainly by the high cost of defending a libel claim against a well-resourced corporation that is using expensive lawyers to pursue every available method to silence the critical publisher.[178] In this respect, it is the inequality of financial means between the corporation and the publisher that is at the heart of the problem.

110. There is enormous variety in the size, available resources and influence of corporations. Many multinationals and large corporations now exercise significant power and influence within society. They will routinely employ public relations advisors and often have access to the media and expensive legal teams to challenge criticism. This allows corporations to defend themselves by attacking others. It is vitally important to the public interest that their actions should be open to scrutiny and debate, particularly to uncover suspected or actual wrongdoing and abuse of power. On the other hand, many smaller corporations will not have substantial resources to defend or promote themselves, and may rely heavily on the strength of their commercial reputation to continue trading. Irrespective of their size and available resources, all corporations are different from individuals in that they do not have feelings. The courts already take this into account when assessing damages to be awarded to corporations, yet it does not follow that corporations should in other respects have the same rights as individuals to sue for defamation.[179]

111. A number of witnesses called for a ban on defamation claims by corporations. Others advocated the Australian approach under which statutory corporations employing ten or more people cannot sue in defamation, instead being left with alternative remedies such as malicious falsehood.[180] The Australian prohibition does not apply to corporations which do not trade for profit, including charities and non-governmental organisations. The ban is proving effective at reducing the "chilling effect" by enabling publishers, including the media, to report more freely on the activities of corporations, although to what extent it has encouraged irresponsible publications is difficult to assess.[181] It would be helpful if the Ministry of Justice, and in due course Parliament, took time to study the perceived advantages of the Australian approach. Nonetheless, it is clear that there are objections to this option. We are concerned that there will be circumstances where even a large corporation should be entitled to seek redress in the courts for what is otherwise irreparable and unjustified commercial damage to its reputation with serious financial consequences. In any event the attempt to exclude large corporations by reference to criteria based solely on the size of their workforce is arbitrary and liable to lead to anomalous consequences.[182] It would seem undesirable to create a situation in which a family company with a low turnover employing ten people or more cannot bring a libel claim, while a highly profitable company employing nine staff is faced with no such restriction. Lord Lester concluded that a fair dividing line cannot be drawn because any type of ban on corporate libel claims will either be under or over-inclusive.[183]

112. Furthermore, the Ministry of Justice has stated that a ban in line with the Australian approach would be at risk of being incompatible with the European Convention on Human Rights.[184] The main concern is that corporations would not be left with adequate redress for the harm that is caused to their commercial reputation.[185] It has been widely doubted whether malicious falsehood provides sufficient protection given the difficulty of proving malice, which is tantamount to alleging dishonesty.[186] It is equally apparent that neither the MoJ nor Lord Lester views the ability of directors to bring libel claims in their own name as sufficient. An individual director or chief executive may have a right to sue for libel where they are identified as being responsible for the activity that is criticised, but that individual would not be entitled to claim for the corporation's loss. Our attention was drawn to existing competition and fair trading laws but, even if these provisions might provide a viable alternative in some situations, they do not readily protect the reputation of a corporation that is defamed by someone who is not a business rival.

113. A number of witnesses favoured an alternative approach, under which corporations could seek a declaration of falsity from the court in relation to a libellous statement but could not obtain damages.[187] This proposal is attractive insofar as it would help to vindicate a corporation's reputation where it is harmed by a false allegation but there are serious potential disadvantages with this approach. For instance, it would not prevent corporations using the threat of litigation to silence publishers, since the chilling expense of a libel claim would be replaced by the chilling expense of fighting a declaration, which would often be similarly costly and complex to resolve. Furthermore, a declaration would not compensate a corporation that suffers serious financial loss in consequence of a defamatory statement, and introduce a new type of remedy which is not presently available to individuals. We have already explained our reasons for rejecting a wider scale introduction of declarations of falsity for individuals at paragraph 36, including on grounds of cost.

114. Lord Lester's Defamation Bill tackled the inequality of financial means between corporations and lesser-resourced publishers by requiring all corporations to prove "substantial financial loss" or the likelihood of such loss as part of bringing a libel claim.[188] This approach was supported by numerous witnesses for the reason that it would help to prevent abuse of a corporation's financial strength but without removing an effective remedy for serious and unjustifiable harm to its commercial reputation.[189] The Ministry of Justice has stated that this type of restriction is far more likely to be compatible with the European Convention of Human Rights than a total ban, though it may potentially lead to a front-loading of costs by requiring the evidence of harm to be addressed at the outset.[190] We acknowledge this concern but note that proof of harm is a matter which will always arise at an early stage in libel claims once the Bill's substantial harm test is introduced. The potential for an increase in costs at the outset is outweighed by the advantage of halting claims where there is no sufficient damage. It is unacceptable that corporations are able to silence critical reporting by threatening or starting libel claims which they know the publisher cannot afford to defend and where there is no realistic prospect of serious financial loss. However, we do not believe that corporations should lose the right to sue for defamation altogether. While this would considerably strengthen the position of publishers, it would fail to take adequate account of the harm that a serious and irresponsible libel can cause to a corporation's business. Where a libel leads to serious loss, there is no adequate alternative remedy to a libel claim. Yet we do not agree with the Ministry of Justice that corporations should continue to have an unrestricted right to sue publishers. There is merit in continuing to explore the Australian approach but on balance, we favour the approach which limits libel claims to situations where the corporation can prove the likelihood of "substantial financial loss". This approach will provide greater protection to freedom of speech but will not, in our view, remove necessary protection for the reputation of corporations.

115. We acknowledge concerns that corporations may find it difficult to prove actual financial loss.[191] Such a narrow test would risk creating injustice for corporations that have suffered a serious libel without experiencing immediately identifiable financial harm. For this reason we endorse Lord Lester's proposal to permit corporations to rely upon likely financial loss. We believe that in a serious case proof of a likelihood of financial loss will often be a matter of legitimate inference from the nature of the allegation and the extent of publication. We make the following additional observations:

The test of "substantial financial loss" should focus on whether there has been, or is likely to be, a substantial loss of custom directly caused by defamatory statements. This is because the impact of a defamatory statement reaches its most serious, and hardest to mitigate, where it leads to a material reduction in customer numbers and turnover more generally;
In our view, neither mere injury to goodwill nor any expense incurred in mitigation of damage to reputation should enable a corporation to bring a libel claim. The concept of goodwill is too vague and any corporation can decide to create its own mitigation costs, for instance by spending money on advertising to counter the impact of an allegedly defamatory statement. Taking these matters into account would make the test ineffectual;
A corporation should not be entitled to rely on a fall in its share price to justify bringing a libel claim since this loss is suffered by its shareholders rather than the corporation itself. This appears to be settled law already; and
Where a trading corporation can prove a general downturn in business as a consequence of a libel, even if it cannot prove the loss of specific customers or contracts, this will suffice as a form of actual loss (albeit unquantified).

116. There is one additional and significant restriction on corporate libel claims that we endorse: corporations should be required to obtain the permission of the court before bringing a libel claim. This would encourage robust and decisive action by the courts to prevent trivial and abusive litigation from being commenced at all, let alone continued for years. In deciding whether to grant permission, the court would examine whether the corporation can demonstrate an arguable case that it has suffered substantial financial harm. It could also take into account alternative means of redress available to the corporation; the size of the body and area of operation; and the proportionality of allowing the corporation to bring a claim by reference to the likely costs of the proceedings alongside the level of harm suffered by the corporation. This additional hurdle would also help to weaken the impact of what has become a widespread tactic aimed at strong-arming publishers into withdrawing publication, namely hiring expensive lawyers to send aggressive letters threatening libel proceedings imminently. Publishers who know that the corporation must face judicial scrutiny before bringing a claim may feel better protected against empty threats and more able to defend their position.

117. We have already set out our views on the importance of reducing costs in libel proceedings, including through an early resolution procedure, at paragraphs 79-86. It is important to re-emphasise, however, that the Ministry of Justice and the courts must be determined and creative in preventing corporations from using the high cost of libel claims to force publishers into submission. The requirement for a corporation to obtain prior permission before bringing a libel claim provides the perfect opportunity to control the corporation's recoverable legal costs before they get out of hand, whether through cost capping or otherwise. Judges must redouble efforts to make the most of their case management powers by reducing the inequality of wealth that can exist between corporations and publishers.

118. The reasoning behind our proposals on corporations applies equally to other types of non-natural legal person that trade for profit, such as Limited Liability Partnerships. In effect, there is no practical distinction between them. However, the same cannot be said about not-for-profit corporations, such as charities and non-governmental organisations. For instance, there are many non-governmental organisations that could suffer reputational damage from a defamatory attack on the credibility of their work, but this will not necessarily have a financial impact on their resources and future capability. Similarly, we do not anticipate that a charity would commit resources to bringing a libel claim unless its failure to do so was likely to impact on its fundraising. As such, charities may be better able than non-governmental organisations to prove substantial financial loss, but we do not anticipate them being able or willing to exploit the inequality of wealth that underlies our recommendations on corporations more generally. For these reasons, our proposal to introduce a test of "substantial financial loss" applies only to corporations or other non-natural legal persons that are trading for profit; it does not extend to charities or non-governmental organisations. This must not, however, open the door to abuse by enabling profit-led corporations to launch trade associations for the purpose of bringing claims that, in effect, protect their commercial interests. Trade associations that represent for-profit organisations should be covered by the new requirements that we propose.

118 Jackson Report, ch 32, para 2.11. Back

119 Q 615 [Mr Justice Tugendhat] Back

120 For example, Dr Simon Singh ran up costs of £250,000 in a case lasting 3 years which was settled (in his favour) before reaching full trial, Vol II, p403. Back

121 For most, legal action is only a realistic option because of the possibility of recovering all costs via Conditional Fee Agreements and After the Event Insurance, as discussed in paras 88-9. Back

122 Dr Simon Singh states that following his successful defence against the British Chiropractic Association, he found himself £100,000 out of pocket, Vol II, p393. Back

123 Pre-Action Protocol for Defamation, para 3.7. Back

124 Early Resolution Procedure Group, Media Disputes & Civil Litigation Costs, December 2010, para 4.3.5. Back

125 See paras 22-25 for discussion of jury trials. Back

126 Under section 2 of the Defamation Act 1996. Back

127 Section 2(4)(c) refers to "compensation (if any)", but in practice compensation is invariably paid. Back

128 Ministry of Justice, Report of the Libel Working Group, March 2010, p 35. Back

129 Under sections 8-12 of the Defamation Act 1996. Back