By Jane Marsden and Ryan Lynch
GGI member firm Memery Crystal has seen an increasing trend of businesses being defamed online. This includes statements on share trading websites, share blogger websites and on social media, such as Facebook and Twitter.
This can have a rapid and devastating effect on the reputation of a business and, indeed, its share price. In these situations, urgent action needs to be taken.
What is Online Defamation?
The rise of the internet has seen a growing trend of shareholders, commentators, rampers, derampers and others, defaming companies and their directors online. Typical outlets for online defamation include share trading websites’ bulletin boards (such as ADVFN, Interactive Investor and LSE), share tipster websites (such as ShareProphets), websites set up by shareholders seeking to hold companies and their directors to account, social media sites (such as Twitter and Facebook) and individual blogs.
What do you have to prove for online defamation?
Where statements of fact are published online which damage a company’s or director’s reputation and are untrue, the statements will be defamatory if they cause or are likely to cause serious harm. UK law does not distinguish between online defamation and, for example, defamation in other written forms such as letters or newspapers.
New requirement to show Serious Harm
The requirement for companies and individuals to show that “serious harm” has been caused or “is likely” to be caused by the offending statement is a new requirement introduced by the Defamation Act 2013. It significantly raises the bar for defamation claims as it means that statements which are untrue and defamatory but are merely trivial will no longer be defamatory.
In the case of a company which trades for profit, under the Defamation Act 2013, “serious harm” equates to serious financial loss. Thus a company must show that serious financial loss has been caused or is likely to be caused to it by the statement. Where allegations are made against the directors rather than the company itself, there is no need to show serious financial loss but it is still necessary to show that the statements have caused or are likely to cause serious harm.
Some statements made online which might be considered frivolous or trivial will therefore fall short of this threshold. There is no doubt also that the internet is a more transient form of communication. The need to show serious harm/a likelihood of serious harm will generally be more difficult in the case of bulletin board posts or chat room blogs. The question of how many people have read a particular statement or post will also have a significant bearing on whether the “serious harm” threshold has been reached.
That being said, many statements made online about companies and their directors are often extremely serious ones. Allegations of dishonesty, misleading the market, insider dealing are not uncommon. In our view, it is likely that at least some of these cases will continue to satisfy the threshold of being likely to give rise to serious harm and, in the case of companies trading for profit, serious financial loss.
Getting Round the Anonymity Issue
A frequent difficulty when dealing with online defamation has been the difficulty of establishing the identity of the author of the statement complained of.
Share trading sites, in particular, have historically not verified the identification of those wishing to post on their forums. This is perhaps understandable, given the administrative burden this would entail.
The Defamation Act 2013 seeks indirectly to place greater onus on website operators to verify the identity of those signing up to use their websites. It has long been the case under UK law that website operators such as iii, ADVFN, Twitter or Facebook are generally not liable for content posted on websites operated by them, unless and until they have been put on notice of defamatory content on their sites and asked to remove it.
The Defamation Act 2013 does not change this basic position. It reinforces the fact that website operators who are not themselves the originators of the statement, eg those who merely host a forum/share trading bulletin board, are not liable for content unless they have been put on notice.
However, what the Defamation Act 2013 does do is to add a further protection for website operators. That protection, however, comes at a price. What the Defamation Act 2013 says is that a website operator which has been notified of defamatory material on its site will only be liable for defamation if, in addition to failing to remove/deal with the defamatory item, the complainant is unable to identify the person who posted the statement.
It is therefore highly beneficial to website operators to know who is posting on their websites. The prudent website operator would clearly be well advised to verify the identity of persons signing up to forums/chatrooms hosted by them. In such circumstances, the complainant alleging that their site contains defamatory material will then have a way of identifying the person behind the defamatory content (see below for the process this entails) and the website operator will potentially be able to escape liability for defamation.
Can I obtain details of the person making the defamatory online statements?
Whilst website operators cannot voluntarily divulge the identity of those registering usernames and posting on share trading bulletin boards due to issues of data protection, a straightforward court application process known as a “Norwich Pharmacal” order is available at reasonably low cost against website operators requiring them to disclose the identity of the poster. Many website operators will not contest the making of the order as they are in reality neutral and it is therefore a formality.
What should anyone concerned about online defamation do?
Some key practical points arise from the above which can be summarised as follows:
- Print off and retain hard copies of the offending online material immediately as online statements may be removed or only published for a certain amount of time.
- It is important to take legal advice at the earliest opportunity on whether there is an actionable claim for defamation. This will involve examining the defamatory statements and whether any defences are available. Not all potentially defamatory online statements will meet the threshold of serious harm.
- Look up who is hosting the website on one of the various domain name look-up services.
- Write to the website operator. Look for the email address on the website for complaining. Typically this may be “abuse@name of company”. Always email your complaint. Not only is this faster but many companies will not deal with issues of defamation by telephone or by letter. Ask for the offending statements to be removed immediately.
- In the case of serious or repeated defamatory statements, consider instructing lawyers to obtain a “Norwich Pharmacal” order i.e. an order requiring the website operator to identify the poster of the defamatory material.
- Retain any emails received from third parties who have viewed the defamatory material/complaining about the defamatory statements.
- If you want to sue the perpetrator, compile evidence of any actual financial loss caused by the defamatory statements e.g. loss of sales, loss of contracts, loss of opportunity. Where loss has not yet been caused, you will need to put forward a witness statement explaining why the statements are likely to cause serious financial harm/loss.
Managing online reputation is a serious issue for companies and it is important to actively decide on a policy to manage online reputation issues. This may include some monitoring of bulletin boards and websites at particularly sensitive times for the company.
Removal of offending posts by the website operator is often a fast and pragmatic solution to reputational damage.
In extreme cases, legal action is available to silence wrongdoers. It takes guts and determination to see a defamation action through. However, increasingly, shareholders expect Boards of Directors to take a proactive approach to protecting a company’s reputation, including legal action against derogatory and often downright fictitious allegations.
Ironically, in this age of shareholder activism, it may well be the shareholders themselves whose voices are the loudest in their demands for legal action against the rogue elements in their own ranks who step out of line.
GGI member firm
Memery Crystal LLP