Litigation and Dispute Resolution Insights

09 July 2009

High Court clarifies correct test for defamation in business reputation cases

By Kym Fraser and Andrew Westcott.

Key Points:
It is now clear that the courts will measure the reputation of a person in a particular business or profession against the same community standards that apply to everyone else. The general test for what is defamatory applies to the reputation of businesspeople and professionals: is the published matter likely to lead an ordinary reasonable person to think less of the person? There is no separate tort of business defamation. A claim for damage to the reputation of a business, such as an attack on its products or services, can be framed in injurious falsehood or on other grounds but not in defamation.

On 22 April 2009 the High Court of Australia handed down its decision in Radio 2UE Sydney Pty Ltd v Chesterton [2009] HCA 16 which states the test for what will be considered to be defamatory in business reputation cases, overruling an earlier decision of the New South Wales Court of Appeal.

The common law test for what is defamatory as clarified by the High Court in Radio 2UE applies in each of the Australian States and Territories. Previously a variety of tests had been applied, such as whether a person was exposed to hatred, contempt or ridicule, excluded from society or lowered in the estimation of right-thinking members of society.

The ability to sue for defamation offers particular advantages in protecting a business reputation. In defamation law, the defamatory matter published is presumed by a court to be false unless proven otherwise, and the court also presumes that there was damage to the business or trading reputation, in addition to any pecuniary injury that can be established.

Australian courts and legislatures have historically provided special protection to business and professional reputations. Yet many people have tended to think of defamation law in connection with someone's conduct or character in their personal life. This may be because of the common confusion and uncertainty about when attacks on business reputation will be regarded by the courts as defamatory.

One example of the special recognition afforded to business reputations lies in the historical distinction, now abolished in Australia, between "slander", essentially oral defamation, and "libel", essentially written defamation[1]. Previously it was generally necessary to show "special" or pecuniary damage in order to sue for slander. However, defamation in relation to a person's trade, profession or business was considered particularly serious, and the courts presumed that damage had been suffered.

Corporate defamation and recent uncertainty in business defamation

The right of many corporations to sue for defamation in Australia was abolished in New South Wales from 2003 and in other States and Territories from 2006. (The exceptions to this rule are corporations not related to other corporations and which have fewer than the equivalent of 10 full time employees, and not for profit corporations.)[2]

For small companies or corporate identities contemplating litigation to protect their business reputation, a further layer of complexity and uncertainty was created by the 2007 case of John Fairfax Publications Pty Ltd v Gacic (2007) 230 CLR 291, which involved a very adverse newspaper review of a restaurant. The question was whether it was defamatory to say that the food of a purportedly high-class restaurant was unpalatable and the service bad. The jury thought not, but the New South Wales Court of Appeal and the High Court both disagreed and held no reasonable jury, properly instructed, could have reached that conclusion.

In Gacic v John Fairfax Publications Pty Ltd (2006) 66 NSWLR 675, the New South Wales Court of Appeal had said that in cases where it is alleged that a person has been injured in their business, trade or profession it is unnecessary to prove that the imputation would tend to lower that person in the estimation of right-thinking members of society; it is sufficient to prove that the person’s reputation in their trade, profession or other office has been injured.

As the High Court has pointed out in Radio 2UE, the New South Wales Court of Appeal confusingly focused on the damage done to the actual business as a result of the publication of the material, instead of the injury to the relevant reputation.

The High Court dismissed an appeal in Gacic from that decision.

The High Court did not confirm, but nor did it overrule the proposition that there is a separate test for business defamation cases.

The decision

In 2005 the radio programme host John Laws had said on air (among other things) that Ray Chesterton, a journalist, is a bombastic, beer-bellied buffoon, that as a journalist Chesterton is not to be taken seriously and that Chesterton was fired from Radio 2UE.

A New South Wales jury found that the imputations relied on by Chesterton were defamatory.

Radio 2UE appealed to the New South Wales Court of Appeal, arguing that the jury had been misdirected by the trial judge. Radio 2UE relied on the earlier decision of the New South Wales Court of Appeal in Gacic.

A majority of the New South Wales Court of Appeal dismissed Radio 2UE's appeal, holding that the jury had not been misdirected. However, a majority of the Court of Appeal declined to criticise or disagree with the decision of the (differently constituted) Court of Appeal in Gacic (Radio 2UE Sydney Pty Ltd v Chesterton (2008) Aust Torts Reports ¶81-946).

The High Court in Radio 2UE overruled the decision of the New South Wales Court of Appeal in Gacic and dismissed the appeal, holding that the same test for what is defamatory generally also applies to defamation in relation to a person's trade or business, namely whether the published matter is likely to lead an ordinary reasonable person to think less of the person.

Implications: a clearer and simpler test

Since larger corporations were prevented from suing for defamation in 2003 (in New South Wales) and 2006 (elsewhere in Australia), claims for damage to business reputation are now more likely to be framed in the torts of injurious falsehood, deceit, negligent misstatement and statutory prohibitions against misleading or deceptive conduct, all of which can be more difficult to prove than defamation.

Larger corporations can also pursue claims for defamation in the names of their officers or employees who are generally known as the public face of the corporation, whether or not they are expressly named in the offending article or publication.

Where a claim for defamation is available for damage to a business reputation, the High Court in Radio 2UE has confirmed that the tort of defamation may provide a remedy if the defamatory material published is likely to lead an ordinary reasonable reader or audience to think less of a person or to shun and avoid the person.

As a result, people concerned with business reputation management will have greater certainty about what will be regarded by the courts as defamatory. While the High Court held that there is no separate tort of "business defamation", the decision in Radio 2UE will make it easier to answer the threshold question in any defamation case of whether the material published is defamatory.

In deciding whether material that has been published is defamatory, the court is able to take into account the business or profession of the person whose reputation is in question. However the material has to be assessed by reference to the same community standards as any other defamatory matter. The court cannot confine itself to looking only at whether the person's business or profession is injured.

If the ordinary reasonable person would not know that the published matter is defamatory but the matter would tend to injure the person's reputation with a person or class of people who have specialised knowledge, a claim for defamation is still possible. The test in such cases is whether the person's reputation is injured in the eye of an ordinary reasonable person who has that specialised knowledge.

Finally, while the disparagement of products or services causing damage to a business may enable a claim for the tort of injurious falsehood, misleading or deceptive conduct, deceit or negligent misstatement, unless the matter published also carries an express or implied imputation in respect of a person's reputation, a remedy for defamation is not available.

 

[1] Defamation Act 2005 in New South Wales, Victoria, Queensland, South Australia, Westerns Australia, Tasmania, Defamation Act 2006 (NT), Civil Law (Wrongs) Act 2002 (ACT). Previously, Defamation Amendment Act 2002 (NSW).

[2] Defamation Act 2005 in New South Wales, Victoria, Queensland, South Australia, Westerns Australia, Tasmania, Defamation Act 2006 (NT), Civil Law (Wrongs) Act 2002 (ACT). Previously, Defamation Amendment Act 2002 (NSW).

For further information, please contact Kym Fraser and Andrew Westcott.

Disclaimer
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states or territories.