New Clause 4 - Action for defamation brought by body corporate

Defamation Bill – in a Public Bill Committee on 26th June 2012.

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‘(1) Before bringing a claim for defamation, the body corporate shall obtain the permission of the court.

(2) In determining whether to grant permission, the matters to which the court may have regard include, but are not limited to—

(a) whether the body corporate can demonstrate an arguable case;

(b) whether it could pursue alternative means of redress;

(c) its size and area of operation;

(d) the proportionality of allowing the corporation to bring a claim by reference to the likely costs of the proceedings, and the level of harm suffered, or likely to be suffered, by the corporation.

(3) Subject to subsection (5), a body corporate which seeks to pursue an action for defamation must show that the publication of the words or matters complained of has caused, or is likely to cause, substantial financial loss to the body corporate.

(4) In determining for the purposes of this section whether substantial financial loss has been incurred, a court shall have regard to the following—

(a) whether there has been, or is likely to be, a substantial loss of custom directly caused by an alleged defamatory statement;

(b) whether the body corporate can prove likelihood of a general turndown in business as a consequence of the alleged defamatory statement, even if it cannot prove the loss of specific customers or contracts; this shall suffice as a form of actual loss, and satisfy the test of substantial financial loss;

(c) a fall in share price shall not suffice as the sole grounds to justify the bringing of a claim;

(d) injury to goodwill or any expense incurred in mitigation of damage to reputation shall not suffice as the sole ground to justify the bringing of a claim for defamation.

(5) The test specified in subsection (3) applies solely to bodies corporate, or other non-natural legal persons that are trading for profit, or trade associations representing “for-profit” organisations; it does not extend to charities, non-governmental organisations or other non-profit making bodies.’.—(Robert Flello.)

Brought up, read the First time, and Question proposed this day, That the clause be read a Second time.

Photo of Dai Havard Dai Havard Labour, Merthyr Tydfil and Rhymney 4:00 pm, 26th June 2012

I remind the Committee that with this we are considering new clause 7—Corporations —

‘(1) A non-natural person will only have an action in defamation if they can show—

(a) that the publication was published with malice; or

(b) that they have suffered actual or likely financial harm.’.

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

On this glorious afternoon, let us see how we can canter our way through. During the break, I reflected on a point that my hon. Friend the Member for Bishop Auckland raised about the Derbyshire principle. It occurred to me that there may be members of the Committee for whom that principle is a grey or indeed completely unenlightened area, so it is worth clarifying. It is relevant because we are effectively looking at an extension of the Derbyshire principle to corporations.

The Derbyshire case concerned the propriety of certain investments made by that local authority of moneys in its superannuation fund. The House of Lords determined that a democratically elected governmental body, including a local authority, and indeed any public authority or organ of central or local government, should be open to uninhibited public criticism and does not therefore have the right to maintain an action for damages for defamation. To allow otherwise would have an inhibiting effect on freedom of speech. The court did, however, acknowledge that if the reputation of an individual councillor or executive carrying out the day-to-day management of the authority’s affairs is damaged as a result of the defamation, that individual can himself or herself bring proceedings.

The House of Lords decision focused my mind on corporations and circumstances in which a company chief executive or a senior manager in a company might find themselves in a similar position. Again, it is worth pointing out that adverse public comment about local authority actions is common, but occasionally strays into criticism of individual officers or employees. Such criticism can be damaging for the individual concerned. The Derbyshire principle has established that a public authority cannot sue for defamation, but, if the reputation of an individual officer is impaired by a publication attacking the activities of the authority, that individual can bring a claim for defamation. There is no limit to an individual officer’s right to sue, provided that the comments refer to and defame the individual.

I am alive to and slightly concerned about a situation whereby one of the corporations that we will look at shortly tried to get round new clause 4 or new clause 7 —should the Minister in his great generosity agree to accept them—by having perhaps the chief executive of the company or the chairman of the board take the case themselves. Again, we have a situation in which the inequality of arms kicks in and the company funds the lawsuit for the chief officer, chairman or whoever. In that case, going back to what happened in the Derbyshire case and subsequent case law, the new clause would be helpful in ensuring that there was not that trespass, as it were, into such a situation. I am sure that the Minister will acknowledge that there is a possible cause for concern, but what has happened in Derbyshire should be directly comparable.

There are several examples of corporations using their might to inflict problems on individuals who are just going about their normal legitimate business. I want to draw the Committee’s attention to circumstances in which such problems might occur. For example, a company might bring a case instead of engaging in scientific debate. In the earlier part of our discussions, we looked at the very helpful clause on the protection of peer-reviewed scientific debate. At the moment, rather than perhaps entering into an academic or scientific discussion, corporations use the libel law—defamation law—to chill such discussion. Two examples spring to mind: the case of Dr Peter Wilmshurst and the case of the British Chiropractic Association and Dr Simon Singh.

For the Committee’s benefit, Dr Wilmshurst was a consultant cardiologist at the Royal Shrewsbury hospital, as I think he still is, and joint principal investigator on the clinical trial of a heart device. He was sued for libel in London by the American device manufacturer NMT Medical. Dr Wilmshurst’s comments to a Canadian journalist at a cardiology conference in the US criticising the handling of data from the trial were reported on a subscription-only American website with little readership in the UK and remained online for only three days. NMT Medical was able to launch a case against Dr Wilmshurst that it prolonged for five years, restricting discussion of the trial’s conduct. In the process, NMT Medical made defamatory allegations about Dr Wilmshurst, but, for personal reasons, he is not able to sue. Dr Wilmshurst could not avail himself of a public interest defence. He will never recover his costs. NMT Medical did not need to be able to sue for libel; it had other options, such as an action for malicious falsehood or simply entering into the scientific discussion. The UK charity HealthWatch launched a fund to support Dr Wilmshurst, and a little while ago, NMT’s UK solicitors entered mediation.

Photo of Andrew Slaughter Andrew Slaughter Shadow Minister (Justice)

Presaging a debate we will have later this afternoon, as a defendant, rather than a claimant, Dr Wilmshurst was the beneficiary of a conditional fee agreement. Does my hon. Friend agree that, whatever the Government’s view of CFAs, which no doubt we will hear later, CFAs can prevent oppressive behaviour towards defendants of limited or impecunious means, such as Dr Wilmshurst?

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

Absolutely. I look forward to my hon. Friend’s comments on new clauses 10 to 13 later this afternoon.

Photo of Helen Goodman Helen Goodman Shadow Minister (Culture, Media and Sport)

Notwithstanding the remarks of my hon. Friend the Member for Hammersmith, surely the point on the disparity in resources between an ordinary citizen and a corporation is that a person who might in normal life be of above-average income and wealth, and therefore not entitled to legal aid, is much poorer in a dispute with a large corporation. That is why we need a set of rules to address such situations.

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

I agree entirely with my hon. Friend. The wider implication for people such as Dr Wilmshurst is that their reputation is potentially at risk—as I said, defamatory comments were made about Dr Wilmshurst—  and their livelihood and personal financial position are at risk due to unrecoverable costs. The greatest reputational risk that Dr Wilmshurst faced as, I am sure, a thoroughly decent, good and upstanding member of society, was that he was under pressure to retract what he had said. We cannot have situations whereby a corporation, because of its size, deep pockets and ability to throw its weight around, can have people withdraw or lie just to stop themselves being dragged through the court at huge cost. That is potentially dangerous.

Photo of Andrew Slaughter Andrew Slaughter Shadow Minister (Justice)

To clarify the point raised by my hon. Friend the Member for Bishop Auckland, in using the word “limited” I meant not “modest” but a contrast with “unlimited”. The Murdochs and the international corporations of this world can use costs as a weapon by saying, “We will discuss costs later.”

If this method of balancing the two sides of the equation and ensuring that there cannot be oppression by large corporations is more attractive to the Government, they would be well advised to seize on these new clauses.

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

I am grateful for that enthusiastic support for my new clauses. At the moment, justice is effectively for sale to whoever has the largest pot of gold. For the unfortunate person sued—no matter how eminent, learned, able to make the case and prove correctness—huge corporations can still use legal proceedings instead of entering scientific debate.

The second case I referred to occurred in 2008. The British Chiropractic Association launched a libel case against science writer Dr Simon Singh, following an opinion piece he had published in The Guardian, concerning a lack of evidence for claims that chiropractic can be used to treat childhood colic and asthma, and the related conduct of the BCA. The Guardian withdrew the article and offered the BCA the right to reply, which it did not take. Instead, it decided to sue Dr Singh. BCA dropped the case after two years of extended and expensive legal argument, when the Court of Appeal ruled that Dr Singh could use the defence of fair comment.

Despite winning, Dr Singh will never reclaim all his costs. A common-law public interest defence was not available to Dr Singh, which meant that the case was bogged down in the exact meaning of his words and whether he could prove the truth of the claimant’s asserted meaning. I am sure that the Minister will say that the Bill would now give Dr Singh that defence. Leaving hanging the question of whether it would or would not, if corporations can stifle scientific debate by firing off letters from lawyers and starting libel or defamation cases, we will still have the situation whereby the Dr Singhs of this world may find themselves several months or years down the line without resolution of their cases while incurring costs. That could all be solved quite easily by adopting new clause 4 or new clause 7.

Let me move on to the second concern, where proceedings are started but material is withdrawn before they are made. Again, with the cost of defending a libel case so high, even when successful, and the possibility of losing and having to pay all costs quite likely, relatively few cases reach court. Under current law, early strike out can take months and costs tens of thousands of pounds. Even trivial or weak threats can lead to withdrawal  of the publication. Scientists have reported that they, their editors or publishers have withdrawn articles and sometimes apologised for material that the scientists stand by but they or the publishers cannot afford to defend.

Examples include the editor of a newsletter of a health charity who withdrew an article criticising claims about umbilical-cord blood banking after the company concerned threatened libel action. There were similar concerns about a threat to sue the writer personally after she spoke of her concerns about the company’s claims on a BBC radio programme. The author and editor of the newsletter were uncertain how a case would proceed and could not take the financial risk of defending their words against a large company.

Another example is a scholarly review of a new specific type of lie-detector technology, written by two professors of linguistics at Swedish universities and published in the International Journal of Speech Language and the Law in 2007. That was also withdrawn after a libel threat from the manufacturer, a large corporation with deep pockets, able to intervene and take action. That again shows that the new clause is vital.

Photo of Helen Goodman Helen Goodman Shadow Minister (Culture, Media and Sport)

The last example my hon. Friend gave is of particular interest. That kind of lie detector was being tested by the Department for Work and Pensions when I was a Minister there. My officials said that they thought it would work, but I said that I had read criticism of the lie detector. They said that I could ignore that. The ramifications are immense if we do not get down to the truth. It is not simply a question of truth and untruth; vast amounts of public resources could be wasted if we do not know the truth of the case.

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

Absolutely. In many cases, it is a matter of life and death. Take a situation—similar to the Wilmshurst case—in which a heart valve is developed by a major manufacturer who has invested a lot of time and money in it. An eminent specialist then says that, under certain circumstances, the valve can block and cause the death of a patient.

Currently, the corporation, which has invested lots of money, could say to the person publishing that paper: “If you do this, we will sue you.” I appreciate that the Bill talks about peer-review papers, but there may be something about which the specialist is so keen and concerned, and wishes to get into the public domain quickly while the peer review is happening, that the publisher ends up having to withdraw and publish an apology while the peer-review process is going on. There are huge concerns about this. As my hon. Friend the Member for Bishop Auckland has said, the Israeli lie–detector manufacturer threatened the publisher with legal action for defamation and the publisher withdrew the article. How can this help anybody?

Rather than pursuing these actions, often letters are sent and threats are made, even when they are not legally sound. Many letters threatening libel action are not legally sound, but access to expert legal advice is not always available and non-legal threats often lead to that  unnecessary chilling of scientific or medical discussion. It is very difficult for the Committee this afternoon to know how many non-legal threats result in withdrawing material. I will give a couple of examples. A plastic surgeon, Dr Dalia Nield, was sent a letter by lawyers for a company threatening further legal action if she did not withdraw comments published in the Daily Mail about boob job cream. The manufacturers, Rodial, claimed it could increase breast size. Dr Nield said Rodial had not provided a full analysis of tests on the cream. Again, there was threat of legal action, which had untoward consequences.

A science writer, Martin Robbins, received a letter threatening unspecific legal action from a vitamin pill manufacturer, Principle Healthcare, about a series of posts criticising claims that the company made about its products. The letter told Robbins that he had seven days to remove the blog before legal action would be taken. He sought legal advice from readers of his blog and wrote to Principle Healthcare, asking it to clarify the complaint. There was no response and the posts remain accessible. Again, it illustrates that, all too often, companies are reaching for their lawyers’ phone number or e-mail address, and firing off threats of legal action or actually taking legal action.

I also want to refer to something I came across only a few hours ago. A citizen journalist received a bizarre letter from lawyers who claimed to be acting on behalf of the Olympic Delivery Authority, alleging,

“serious, false and defamatory allegations”, against the authority and one of its employees. The blog article was published on the Indymedia website and covers the eviction and arrest on 10 April of protesters campaigning against the construction of the Olympic basketball training courts at Leyton Marsh in Waltham Forest. The letter demands that a phrase be removed from the blog immediately, and made unspecified threats that if it remains published,

“you may well leave our client no option but to take matters further”.

The accusations of defamation imply that the ODA would initiate a libel action, but public authorities are barred from using libel, on the Derbyshire principle, as I outlined earlier. A Government authority cannot sue for libel on behalf of itself, or, as I understand it, on behalf of its employees. Employees themselves, of course, can sue. Other cases then came to light, in which it appears that the Olympic Delivery Authority tried to prevent criticism about the effects of the work that has gone on. Clearly, there are cases out there of companies using threats of libel action, even when they cannot take the action that they have threatened.

The final area that I want to highlight is what has been called editorial spiking. Perhaps unsurprisingly to members of the Committee, particularly to those who have served on the Joint Committee on the draft Bill, medical and scientific journals regularly and frequently consult libel lawyers and sometimes do not publish material in order to avoid perceived libel risks.

A survey of journal editors was undertaken a couple of years ago to gauge the extent of editorial spiking. The main results were that, first, journal editors in all subject areas have been threatened with libel; almost a third of the respondents said that their journal had been threatened with libel action. Secondly, editors  modify papers before publication; some 44% of respondents said that they have asked for changes to the way papers or articles were written to protect themselves from libel action. Thirdly, scientific editors have refused work for fear of libel action; some 38% of respondents have chosen not to publish certain articles because of a perceived risk of libel action, for example about controversial subjects or concerning particular people or companies. Finally, both peer-reviewed and non-peer-reviewed content, including editorials and commentary, news, letters to the editor and book reviews, was being chilled. It seems that legal advice is always being taken in order to play it safe. Self-censorship is going on. Never mind corporations starting legal action; merely the fear that they may start an action is enough for self-censorship to be rife out there.

We are trying to restrict corporations in the use of libel laws. I completely accept that corporate claimants and other non-natural persons should be able to use laws where they have actually been defamed, but they should not be able to use them just to manage their brands. They should not be able to use defamation law just because someone says something about them that they do not like, even though it is absolutely true and justifiable. There is certainly widespread support for restriction on corporations’ use of defamation.

I referred earlier today to “Mc” corporations looking at and using defamation laws. I want to return to that and talk about the case of McDonald’s Corporation v. Steel and Morris, which came to be known as the McLibel case. McDonald’s Corporation filed a suit against environmental activists Helen Steel and David Morris, who are often referred to as the McLibel two. The case concerned a pamphlet that they had produced that criticised the company. The original case lasted 10 years, making it, as I understand it, the longest running case in English history. Even though McDonald’s won two hearings in English courts, the partial nature of its victory, the David versus Goliath nature of the case, and the drawn-out litigation were in some ways just as damaging to its brand as anything else. The case was then taken to the European Court of Human Rights, where it was found that the provisions of articles 6 and 10 came into play.

I was going to talk about a couple of other cases, but I am conscious that time is pressing on. Just for the Committee’s reference—it may wish to refer to this later—there was the case of GE Healthcare, a US corporation. It dropped a controversial defamation case against a scientist who had criticised one of its drugs. In dropping the case, the firm said that it did not intend to stifle academic debate. Nevertheless, it shows again how willing and ready companies are to reach for defamation lawyers first, rather than taking a more measured and considered view.

The purpose of new clause 4 is to ensure that companies realise that they must convince the court before they can reach for the libel lawyers. It would give protection and reassurance to all the folk I have cited so far, and to the hundreds—possibly thousands—of bloggers, scientists, academics and journalists who know that writing something about a company or a corporation will bring them immediately into the firing line of people who have far greater resources than they could possibly hope to command.

I turn again to one of my favourite tomes, the Joint Committee report, and I draw the Committee’s attention to the discussion of corporations on page 57. It is lengthy and detailed, so I will not go through it in detail, but I hope that members of the Committee have studied the report hard and taken it on board. I draw the Committee’s attention to paragraph 109, which states:

“In contrast, we heard recurring evidence from other witnesses, including legal representatives and non-governmental organisations that publishers are routinely and unfairly threatened”.

I read that out earlier, so I will not repeat it. There is certainly a chilling effect, because companies have access not only to defamation law but to the resources that they need to use it.

New clause 4 would require a corporation to obtain the permission of the court before bringing a claim for defamation. If a corporation felt that it had genuinely been defamed and that a serious problem had to be addressed, it should not fear that requirement. The corporation would be able to approach the court and obtain permission to bring the defamation action.

The new clause sets out some of the matters that the court would have to look at in determining whether to grant permission. First, is there an arguable case? In many of the examples that I have cited, there clearly was not an arguable case, and the courts should be able to strike such cases out quickly and easily. If the court believes that there is a case to argue, it can give permission. Secondly, are there alternative means of redress? Organisations such as the Libel Reform Campaign have highlighted that companies can take other actions, such as making a malicious falsehood claim. That question should focus a company’s mind on whether the matter should really be the subject of a defamation claim, or whether the company can seek an alternative form of address that would not involve dragging somebody through a lengthy and expensive court case to protect their reputation.

Thirdly, what is the size and area of operation of the company? If an allegation was made against a small corner shop that had a real impact on that shop’s business because of its size and area of operation, the court might well grant permission for that case. The court might not, however, grant permission to a huge corporation on the carcase of which an allegation had barely the impact of a mosquito bite. Fourthly, what is the proportionality of allowing the corporation to bring a claim, by reference to the likely costs of the proceedings? If the corporation is likely to suffer a miniscule amount of harm as a result of the matter, would the cost of a huge, drawn-out, 10-year legal case be proportionate?

That explanation of the structure of new clause 4 brings me nicely to new clause 7, which is a simplified version of new clause 4. New clause 7 says:

“A non-natural person will only have an action in defamation if they can show (a) that the publication was published with malice; or (b) that they have suffered actual or likely financial harm”.

This is much simplified, more straightforward—it simply asks whether there is malice or actual or likely financial harm. It does not go through all the things that new clause 4 looked at—the impact on share prices; the costs of restoring the brand—it simply looks at those two points.

I shall pause and delve more deeply into “likely financial harm” in both new clauses. My concern in drafting these was whether a corporation of whatever size would be able to manipulate its balance sheet and profit figures, and use clever creative accounting to show an “actual or likely financial harm”. The problem is that it may well be able to do those things, but that is why, in new clause 4, getting the permission of the court is important. A court can take into account whether the balance sheet or the profit and loss figures have been manipulated to show actual or likely financial harm.

New clause 7 reflects the view of the Libel Reform Campaign, which feels that courts should not entertain libel or defamation actions from corporations at all; that it should be far more restrictive. I am hesitant about new clause 7 because I think that there are circumstances in which a non-natural person, as we have discussed, should be able to bring a case where there is genuine defamation and actual or likely financial harm. So I am testing the water with new clause 7, to see whether it is a step too far, or whether it is something that should be looked at.

I have not tested the Committee’s view—but this is an appropriate place to do it—on the situation in which a corporation is acting for a Government body, but is not caught by the Derbyshire principle. There is one company that springs to mind, and my hon. Friend the Member for Newcastle-under-Lyme will immediately recognise the heartfelt sentiment with which I say the word “Serco”, remembering our experience in north Staffordshire with that company and its activities regarding our children’s education and schooling. There is a host of companies out there doing work for Government, in many cases standing in stead of a local authority, but which it is not possible to criticise in the way one could criticise a local authority and know that the Derbyshire principle applies and protects free speech, effectively, against Government. Where a private company is standing in stead of a local authority, clearly such a challenge is not possible.

Indeed, people have made representations to me who are concerned about the organisation Atos, which undertakes assessments on behalf of the Department for Work and Pensions. Allegations have been made to me that Atos has reached for the lawyers when blogs have made statements about how that company has operated and behaved, irrespective of whether there is merit in what they are saying. If it were the DWP doing those reviews, there would be no recourse, but because Atos is standing in the shoes of the DWP, it can reach for the lawyers and take action.


Quite verbose, surely valuable time could be saved if the facts were fully understood and perhaps the minister /s concerned could be contacted informally and "what is actually going on" explained to the people wasting parliaments time with half formed opinions. After much "puffing and blowing" from various people intent on being noticed, for whatever reason, the motion was lost. This would have been an obvious outcome if the FACTs had been understood. What little time spent in parliament by the MPs should surely be assiduously used and preferably for the benefit of constituents.

Submitted by Mike Johnson

Photo of Helen Goodman Helen Goodman Shadow Minister (Culture, Media and Sport) 4:30 pm, 26th June 2012

My hon. Friend has made an absolutely brilliant point. He is highlighting the loss in public accountability when public services are privatised and contracted out. Does my hon. Friend agree that that loss is deeply damaging to our democracy?

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

Not only do I agree, but that was the point I was about to come on to. Over the past 20 years or more, we have seen the increasing engagement of the private sector. I suspect that we will see a massive growth—I am sure that the Minister will not take the bait on this one—in the number of private companies getting involved in delivering services, particularly for the national health service.

Photo of Helen Goodman Helen Goodman Shadow Minister (Culture, Media and Sport)

My hon. Friend has put his finger on something significant, and that point is paralleled by the fact that we cannot recover information through parliamentary processes because we are constantly being told that it is commercial in confidence.

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

My hon. Friend makes an extremely valid point. It is increasingly difficult to get information to hold private companies and corporations outwith Government to account, and if anybody puts their head above the parapet outside of the privilege we have in this place—there was a question on Tuesday about whether that privilege will continue, and I know the House is looking at that—the danger is huge. If even Members of Parliament cannot question what is happening with private corporations acting on behalf of the Government—

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

Absolutely. They are using taxpayers’ money, effectively standing in for the Department, Government agency or local authority concerned, but without the ability to be questioned. When bloggers and journalists rightly want to start digging into them in a responsible way, raising questions, they will be shut up by firms and corporations saying, “Sorry, but you have defamed us. Here is our writ.” We have to stamp on that quickly.

When the Minister responds on new clauses 4 and 7, I hope he recognises that a huge danger lies before us, which will grow as more companies get involved, whether in the NHS, or in other areas of Government and local government business. Companies are becoming increasingly involved and unless we tackle the issue of corporate bodies through the Bill, we may well find in a few years’ time that they are completely untouchable. Despite the level of Government money that they receive, we may be unable to bring them to account, because as my hon. Friend says, we cannot question them. When anybody dares to say anything, they will fall back on the provisions in the Bill, after it is enacted, and produce their get-out-of-jail free card.

The Committee probably has the gist of where I am coming from on the two new clauses. I certainly hope that Committee members have looked at the Joint Committee report, but if not, they probably have a few moments to do so. It is a glaring error that should have been addressed in the Bill, and I do not understand why it was not. I am sure the Minister will give me an extremely good explanation, but I do not stand alone on that issue. A huge number of people out there cannot see why corporations were not included, and this is the opportunity for that to be put right.

Photo of Tom Brake Tom Brake Liberal Democrat, Carshalton and Wallington

I shall go over much of the same ground as the hon. Member for Stoke-on-Trent South, but I intend to do so much more concisely, as the Committee will be pleased to hear.

It looks as though there may be an alternative, albeit possibly a transient coalition, building up around the issue of corporations. That is an omission, and the opportunity should have been taken to consider restricting corporations’ ability to use libel laws in the way that the  hon. Gentleman has described. There is often a David and Goliath scenario, and the right hon. Member for Rotherham might be raising a more topical David and Goliath case than others that have been mentioned.

Photo of Kwasi Kwarteng Kwasi Kwarteng Conservative, Spelthorne

There is this distinction: my understanding is that the David and Goliath case referred to by the hon. Member for Stoke-on-Trent South was won by McDonald’s.

Photo of Tom Brake Tom Brake Liberal Democrat, Carshalton and Wallington

I thank the hon. Gentleman for his intervention, although I am not quite sure what his point was.

Photo of Tom Brake Tom Brake Liberal Democrat, Carshalton and Wallington

It is probably safer for me to pursue my points, although there may be other interventions about David and Goliath cases.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

Further to the previous intervention, McDonald’s did indeed win, but—after nine years—it was awarded £40,000, which it declined to collect.

Photo of Tom Brake Tom Brake Liberal Democrat, Carshalton and Wallington

One has to speculate on the reputational damage incurred by McDonald’s along the way, in achieving that win.

As was outlined by the hon. Member for Stoke-on-Trent South, corporations have many other legal avenues to pursue. I made this point last week, and I will repeat it: I wonder whether any corporations have made representations against what we are discussing. If they are happy, I want that to be on the record, so that their exact objections, if any, can be known. The view of the Libel Reform Campaign, and my view, is that if corporations are allowed to use libel laws in such a way, they must show that there is actual or likely serious financial harm and malice, dishonesty or reckless disregard for the truth.

Photo of Helen Goodman Helen Goodman Shadow Minister (Culture, Media and Sport)

The right hon. Member’s point about representations was what I raised in my question to the Minister. If the Minister has managed to get that information on a slightly faster timetable, does the right hon. Member agree that it should be shared with the Committee?

Photo of Tom Brake Tom Brake Liberal Democrat, Carshalton and Wallington

I agree with the hon. Lady that that would be helpful. What is unusual about our discussion on corporations is that all the arguments are coming from one side. It is rare that we have a debate where there are no representations from the other side. One can draw conclusions from that, and mine is that corporations are not particularly bothered whether the Government make the changes we are seeking.

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

To turn that on its head, if restrictions in line with my new clauses 4 and 7 had been included in the Bill, I suspect we would all have been deluged with representations from corporations.

Photo of Tom Brake Tom Brake Liberal Democrat, Carshalton and Wallington

I suspect that corporations have sufficient parliamentary advisers to keep track of what is happening. They will be aware that this is a subject of debate, and they may have wanted to pre-empt things by making representations to prevent the introduction of proposals such as those in the new clauses.

My final point is on the Derbyshire county council case, which has been mentioned. I understand that it has set a common law rule that public sector bodies cannot sue in libel because they do not have article 8 rights in reputation and therefore do not need the same remedy as natural persons, and because of the public interest in not chilling free debate about the conduct of powerful organisations. It seems to me that those criteria should also apply directly to corporations.

If, for some reason, the Government feel that that cannot be conceded, could they at least envisage applying the cut-down version referred to by the hon. Member for Stoke-on-Trent South? That version would ensure that private providers have to play by the same rules as public providers on public services—a matter which I have raised in relation to the Independent Police Complaints Commission and freedom of information—and it would mean that there was a level playing field between the two types of providers.

Photo of Denis MacShane Denis MacShane Labour, Rotherham 4:45 pm, 26th June 2012

I have a modest experience of such matters. I wrote a book many years ago, which was quite profitable—the only one that was not remaindered and did make some money—in which I referred to the Institute of Journalists in derogatory terms. I was shocked to find that as a body corporate it could sue me. Because my publisher was a left-wing publisher, it immediately surrendered and I lost all the profit. [ Interruption. ]A long time ago, yes—a left-wing publisher.

I am concerned that as the Bill progresses, we have an extraordinarily egregious example of exactly the points that the shadow Minister, my hon. Friend the Member for Stoke-on-Trent South, covers in his new clause, and that is the news that the law firm Schillings is showering defamation writs on the citizens advice bureau—one of the most prestigious and respected of all the voluntary organisations that we all have relationships with—as well as the law firm Bates Wells and Braithwaite, the Justice Gap website and the consumer websites Legal Beagles and Consumer Action Group.

Why is Schillings doing that? It is because there is an extremely unpleasant practice now taking place in our retail industry—developed, I am sad to say, under a Labour Government—called civil recovery. In essence, 90% of all shoplifting in our stores is organised by gangs. About 8% or 9% is done by in-house stealing. The tiny 1% is done—frankly, for the most part—by rather sad people. I am not condoning shoplifting; none of us would. Quite a lot of people who walk out of Tesco or Boots have not put in the correct barcode. We have all had that problem now since we have had to, as it were, do our own till accounting. Then the people are pulled back into the shop, taken into a little room and told that they could face prosecution, but Tesco, TK Maxx, Boots or Primark will not prosecute. Instead they will ask for names and addresses and a few weeks later a company in Nottingham called Retail Loss Prevention, which is owned by one person—Mrs Jackie  Lambert—sends a threatening letter to the person saying that unless they immediately pay £150 or £180, they may face prosecution.

Most of the people are children or adolescents, often from families without much structure. They are terrified out of their wits. Retail Loss Prevention—this Jackie Lambert person—says that this practice has been approved by the Association of Police Chief Officers and is thoroughly legal. It is not. It is a threat to obtain money, because the point of detention is not to go forward and hand the shoplifter—if that is the case, and we are not condoning it—over to the police for prosecution. There have been 750,000—

Photo of Dai Havard Dai Havard Labour, Merthyr Tydfil and Rhymney

Order. Can you explain how your speech fits with the question of defamation?

Photo of Denis MacShane Denis MacShane Labour, Rotherham

Quite. This is exactly the core of the point. This is a £15 million racket used by a lot of major companies—corporate groups—such as Boots, TK Maxx, Primark, Debenhams, Superdrug and Tesco. They are all shops that we use. These bodies corporate are going to another body corporate called Retail Loss Prevention and getting it to obtain money from very vulnerable people. When the CAB, also a body corporate, seeks to take up the cases, it then faces defamation writs from Schillings. I am sorry if any member of the Committee does not see the seriousness of the matter and why we should stand with the vulnerable people in our society rather than the Nottingham company and its use of Schillings to put pressure on the CAB.

Photo of David Morris David Morris Conservative, Morecambe and Lunesdale

The whole point of scrutinising the Bill is to find out where we can improve it instead of going over old turf.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

I would certainly welcome that, but until Government Members understand exactly what is going on, they will continue to support the Government’s rejection of the new clause tabled by my hon. Friend the Member for Stoke-on-Trent South. We have a Standing Committee in order to go into the problems of the case in much greater detail than is allowed on Second Reading.

Here we have an example, before our very eyes, at this very time, of Schillings acting on behalf of one body corporate and companies that hide behind the Nottinghamshire-based company and Mrs Lambert. They seek to extract an estimated total of £15 million from poor and vulnerable people.

I am sorry that the right hon. Member for Bermondsey and Old Southwark is not present—he is obviously busy—but he has raised that point in an Adjournment debate in Westminster Hall. I know that the right hon. Member for Carshalton and Wallington is also aware of that case, so this is not a point of view from just the Labour side of the Committee.

As the company now realises that the CAB and other organisations are defending weak and vulnerable people, they have initiated one or two court cases for shoplifting, only to find that they are being thrown out by the High Court.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

The hon. Lady says from a sedentary position that it is theft. If it is theft, the store has an obligation to call the police, have the person arrested, provide the evidence and prosecute the person. They are not doing that, but sending people home and seeking to extract money from them later on.

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

Despite the interjections of the hon. Member for Broxtowe, I am following what my hon. Friend is saying. The situation, as I understand from what he was saying—I would like his clarification on this—is exactly was I was talking about when moving new clause 4. Companies throw their weight around and are quite happy to reach for letters to threaten all sorts of things, whether or not they can do it. What he is talking about is symptomatic of a problem with corporations, which, even if the law is not on their side, they will make up as they go along.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

It is no accident that the practice, which is quite widespread in America, was unknown in Britain until 1998. It started with the arrival en masse in our high streets of TK Maxx and Superdrug, two American companies. One should congratulate Mrs Lambert in Nottingham for having realised what a wonderful little earner that is.

I have no problem with making any shoplifter or anyone who steals anything face the legal consequences. What is wrong, in my judgment, is for Schillings to be suing the CAB—my goodness! I think all hon. Members will accept that in every one of our constituencies, the CAB is having to shed staff and operate on a reduced basis due to financial constraints. To make it undertake the responsibility of defending a worrying set of defamation writs from Schillings, acting on behalf of the Retail Loss Prevention company and some of the most powerful corporations in our land, is a grotesquely unfair and improper abuse of existing defamation law.

That is why I hope hon. Members on both sides of the Committee will accept the new clause tabled by my hon. Friend the Member for Stoke-on-Trent South. It would not stop the bullying in toto, but it would at least send a much clearer signal to big companies such as TK Maxx, Tesco, Primark, Superdrug and Boots, and to Retail Loss Prevention that their little game is over. If they find someone who has committed a valid shoplifting crime, they should call the police and bring the people before the courts. They should not use that underhanded way to achieve their aims and use Schillings, a defamation lawyer, to put pressure on the great and good organisation that is the CAB to stop it raising the issue in public.

Photo of Tom Brake Tom Brake Liberal Democrat, Carshalton and Wallington

Is the right hon. Gentleman as concerned as I am about the following aspect of the letter? It is the suggestion that the company has encountered substantial financial losses as a result of a small number of postings on a website that I think is relatively obscure.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

Once again, we have the bullying side of defamation writs. CAB is probably the best known of those threatened by Schillings. On the whole, it is big enough, old enough and reasonably resourced enough to look after itself. We have, thank goodness, lots of wonderful little consumer groups producing websites,  and maybe here and there getting a techie bit wrong, that are terrified out of their wits when big bully Schillings sends in a letter on behalf of Mrs Lambert in Nottingham.

I hope that all parts of the House will consider this. I think the Minister himself when the matter was debated on Adjournment—I do not know if the Minister would like to listen to me [Interruption.] From a sedentary position, we have the courtesy we are used to from the party two years into power. The Minister said in the debate that he hoped that there would be a test case and I appreciated his words. People concerned about the matter felt he was on their side. Therefore, I hope he will be prepared to accept my hon. Friend’s new clause and allow the pro-consumer groups around the world to carry on their business without fear of defamation writs from Schillings.

Photo of Ben Gummer Ben Gummer Conservative, Ipswich

The hon. Member for Rotherham—

Photo of Ben Gummer Ben Gummer Conservative, Ipswich

I apologise. The right hon. Member for Rotherham raised an important point that deserves consideration. I wish he had spent some time with me queuing overnight for private Members’ Bills, because I am sure one on this topic would have been very popular in the House. However, it is not one that necessarily finds its place in the Defamation Bill. The right hon. Gentleman appealed to the Committee; in turn, I appeal to Opposition Members to think carefully before they vote on this new clause.

It is difficult to know where to start with the new clause, as it is such a jumble of assertion and assumption, with general principles drawn from anecdotes. I will look at one or two aspects where hon. Members might feel—[Interruption.]

Photo of Dai Havard Dai Havard Labour, Merthyr Tydfil and Rhymney

Order. A little decorum, please.

Photo of Ben Gummer Ben Gummer Conservative, Ipswich

Thank you, Mr Havard. I want briefly to draw out a few points on which the Opposition might want to reflect before they say aye to the new clause. Proposed subsection (1) says,

“Before bringing a claim for defamation, the body corporate shall obtain the permission of the court.”

One of the considerations is to “demonstrate an arguable case”. That would be the first time in English law since Magna Carta that somebody would have to prove to the court before the case is heard that the facts and the argument are admissible. Clause 40 of Magna Carta says that the state should not

"refuse or delay right or justice", or access to justice in any form. Yet here for the first time, for some reason, a corporation, no matter how good or evil, must show it has an arguable case before the court will even hear it.

Photo of Ben Gummer Ben Gummer Conservative, Ipswich

I shall finish my comments quickly. The hon. Gentleman spoke at great length. I just want to make a few points that I wish his colleagues to listen to. This would be the first time that this has been in English law. Consider that for a moment.

Proposed subsection 4(c) would exclude loss as a consequence of a fall in share price. I put this hypothetical but not completely unrealistic proposition to the Opposition. Imagine a hostile takeover position of a company that might have a significant employee trust that holds shares in the company, where a significant part of the pension fund of that company’s employees holds shares in the company. Imagine that a defamatory comment is made that changes the company’s valuation on the eve of the sale, and that the hostile takeover therefore happens at a lower price than would otherwise have been obtained. The people who lose are not the evil shareholders, or the evil management of the big, bullying corporations that the shadow Minister seems to think exist without any employees or owners, but the employees, the shareholders, some of whom will be very small. They will be the people on low incomes with investments in pension funds that hold shares in the company, and the employees in the employee trust. They will lose out because of the new clause and will not be able to take action to correct the defamation. Those companies are not just the evil Schillings, and the rest of them; they might be Marks and Spencer, Debenhams or the Co-op, which exists to make a profit, albeit that it disburses that profit to its owners. [Interruption.] No, I will not take an intervention. I will conclude my comments.

Proposed subsection (5) excludes from this bizarre new clause organisations that exist not to make a profit, including, I presume, charities.

Photo of Rob Flello Rob Flello Shadow Minister (Justice) 5:00 pm, 26th June 2012

The hon. Gentleman should read the new clause. It excludes charities.

Photo of Ben Gummer Ben Gummer Conservative, Ipswich

The new clause says that

“it does not extend to charities”, but it also says that it does not apply to bodies not trading for profit, so the Church of Scientology, which is keen to take defamation actions, as Opposition Members know, would still be able to take action as a body corporate, but not the Co-op, Marks and Spencer, or Tesco, which employs 350,000 people in this country—far more people than are represented by any trade union on its own. Is that right? Is it right that Tesco and all its employees, and the families and people whom it supports, should be exempted, but not the Church of Scientology?

Opposition Members should think carefully before supporting the new clause. They should think about what the new clause says about their party. The new clause blows their cover. They care about profit, not the many hundreds of thousands of people whom businesses employ, and whose jobs depend on the good reputation of their company. If that reputation is destroyed, their jobs are at risk. Opposition Members should remember that before they vote for this new clause.

Photo of Helen Goodman Helen Goodman Shadow Minister (Culture, Media and Sport)

I listened carefully to the hon. Gentleman, and I will speak in support of new clauses 4 and 7 in the name of my hon. Friend the Member for Stoke-on-Trent South, which is not to say that the drafting of new clause 7 could not be improved. The hon. Member for Ipswich made some pertinent points about the Magna Carta, but our concern is that in the public debate on defamation in this country, the most significant and well known problems involve small people, however defined, and large corporations. The Bill’s lacuna in not addressing large corporations is striking.

My hon. Friend the Member for Stoke-on-Trent South talked about a large number of cases, but he did not talk about the Trafigura case, which I thought was the most well known. Those of us who laboured on the Legal Aid, Sentencing and Punishment of Offenders Bill know that Trafigura is adept at using and abusing the law in every respect. First, it had to defend claims made by people in Ivory Coast. Then, in May 2009—this is relevant to the Bill—it sued the BBC over allegations made on “Newsnight” that the hazardous waste dumped by Trafigura in Ivory Coast caused deaths and miscarriages. In December 2009, the BBC settled out of court, with Trafigura paying £25,000 to charity and issuing an apology. It has been reported that the reason behind the BBC’s decision to settle was the fear that Trafigura’s lawyers, Carter- Ruck, could run up legal bills of £3 million, for which the BBC would be liable if the case did not go its way. My hon. Friend the Member for Newcastle-under-Lyme will no doubt talk about the injunctions that were issued.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I tabled a parliamentary question on Trafigura because of the substantial concerns raised about public interest. If I catch your eye later, Mr Havard, I will not talk about that, but I do want to put on record my sadness that the BBC settled that case when it had the wind of public interest in its favour, given that The Guardian and other organisations had stood up to Trafigura.

Photo of Helen Goodman Helen Goodman Shadow Minister (Culture, Media and Sport)

I am grateful for my hon. Friend’s insight into that case.

We should also be concerned about another large organisation, Atos, given the huge involvement it now has in the delivery of our public services, and how it had the Carer Watch web forum taken off the internet. It made no direct contact with Carer Watch but instead went straight to the web hosts, who removed the forum. Notwithstanding the strong feelings of the hon. Member for Ipswich, we need to address imbalances of power. I am surprised that the Government have ignored the Joint Committee, which looked thoroughly at the matter and recommended that the Bill incorporate provisions along the lines of those proposed by my hon. Friend the Member for Stoke-on-Trent South, and I would like to hear an explanation from the Minister. I have raised the issue of from whom representations have been heard. As the right hon. Member for Carshalton and Wallington said—I hope he will vote for the new clauses—it is significant that public bodies may not bring defamation cases. In the case of public bodies, however, the general public have, through the ballot box, the possibility of changing their management and governance. They do not have that opportunity with large private corporations, yet the influence that such corporations can wield in our society can sometimes make them just as significant. The hon. Member for Ipswich made a point about the amount of jobs they create; that illustrates their power, influence and significance, and actually makes the opposite case. The fact that they make a major contribution to the British economy is not a reason not to have the power to look at their activities.

I assume that my hon. Friend the Member for Stoke-on-Trent South—he will no doubt correct me if I am wrong—has taken up the point made in the Joint Committee report that trade associations should be  covered. Otherwise, there would be a legal loophole: private corporations would simply create trade associations.

The other issue that stands out in the cases that have come to public attention is how many of them are about scientific matters. I fear that clause 3 will not be adequate, because it refers to scientific journals. We have heard, however, that it is when attempts are made to communicate with the general public through ordinary newspapers—to popularise opinions, and to explain to the ordinary citizen what is going on—that large corporations use existing defamation law in such an oppressive way. Even if the Minister does not like the drafting, I hope that he will go away and think about the matter, and return on Report with something that he believes will work.

Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

I apologise because I had to go out during some of the debate, but I was here at the beginning.

Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

I rise to speak on the issue that lies behind the new clause. I have initiated Adjournment debates in the House on Retail Loss Prevention, and have worked with colleagues in the Lords on the matter, and I have had several meetings about it over the years with Richard Dunstan of Citizens Advice.

I remain concerned that power is abused by large retail outlets, which use a regular set of solicitors to protect their interest. They pursue normally young and often vulnerable people for small amounts of money, and lead them to believe that other consequences will flow if they do not pay, even though that is not true under the law. Effectively, retail outlets often get large sums from such individuals. If, for example, someone has left a store with a comb or a tube of toothpaste, they are told that unless they pay considerably more than the value of the property—£100 or sometimes £1,000, which accumulates very quickly—they will be guilty under criminal law.

Of course, retailers have to protect stores and the goods in them; I understand that. It is perfectly reasonable for stores to have security people, as long as they act reasonably. There is a real issue here, however, and there is a social malaise in how such companies pursue their interests. Some quite reputable companies are involved, as well as some disreputable ones.

It is clear from correspondence that Schillings, which has written about the case, is trying to represent Mr Dunstan as someone who is on a frolic of his own, pursuing something disreputably, obsessively and almost paranoically. He has been doing a job for a highly reputable organisation, Citizens Advice, with which I have worked over the years and on behalf of which I once sponsored somebody to work with me here. We all know from experience in our constituencies that Citizens Advice has at heart only the best interests of those who come through its doors. I simply want to ask how we stop the big boys and girls attacking the little boys and girls with the back-up of lawyers, who intimidate them and misrepresent the legal position.

In answer to the hon. Member for Bishop Auckland’s challenge to my right hon. Friend the Member for Carshalton and Wallington and me, I am not persuaded that the new clause is the right way to deal with the  problem, although I understand absolutely that we must do something. I would be interested to hear what the Minister says. I am aware of previous debates on the issue in consideration of the draft Bill, but I certainly do not think the right solution is to make companies go through a separate doorway and an entirely different process that does not apply to individuals. I am keeping an open mind about that.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

Is it not a fact that, as we speak, across the range of civil laws and torts, companies may be in front of judges, asking for urgent applications, injunctions or hearings? In the hypothetical case of a company that was about to be taken over when something grossly defamatory was said, clearly the company would go to a judge, who would instantly acquiesce to the necessary action being taken. The new clause does not prevent that, but it says to Tesco, Superdrug, TK Maxx and Mrs Lambert that they should not seek to silence genuine concerns about what they are up to by using defamation threats and Schillings.

Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

I understand the right hon. Gentleman’s argument. I am a lawyer, and I know the process of judicial review: one first goes before a judge to get off first base; the judge decides whether there is a case; and then one goes on to make the substantive case later. That is available to anybody who applies for judicial review. It is not discriminatory or available only for a corporate applicant or local authority, as opposed to an individual. I am not saying that there cannot be a process, and I am not resisting the argument that something is needed to ensure that intimidatory libel actions are not taken. I am just expressing an open view about how we get to the result we want to achieve, understanding the point of principle made by my hon. Friend the Member for Ipswich, which is that suddenly to create a divide that says “corporate applicants this way” and “individual applicants that way”, with the first group having to play a preliminary or first round and the second having a bye to the second round, may not be the right way to do it.

I will listen to the Minister. We have a concern, and if there is an opportunity of addressing it in the Bill, that would be a good thing, particularly in relation to this issue, as people are still being intimidated by companies and their lawyers. We need to try to solve a problem that, to my knowledge, is producing great distress and considerable concern up and down this country, if not the UK.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme 5:15 pm, 26th June 2012

I, too, want to speak to new clause 4 and its kid brother—or shorter sister—new clause 7. I am really glad that we have had this extensive debate—and I am glad to extend it. The Bill is silent on corporations, and I welcome the fire and brimstone contribution by the hon. Member for Ipswich, and what I would call the very responsible use of privilege by my right hon. Friend the Member for Rotherham and the right hon. Member for Bermondsey and Old Southwark. It is entirely responsible to highlight in this debate the aggressive activities of lawyers such as Schillings, how they use the libel laws to chill, very often on behalf of behalf of  corporations in so-called reputation management, and how they deploy those weapons against organisations such as Citizens Advice.

The Select Committee on Culture, Media and Sport considered corporation defamation, including many of the issues in new clauses 4 and 7, in our report, “Press standards, privacy and libel”, in February 2010. In that report and its recommendations, we had regard to existing limitations regarding bodies—rather than actual people of flesh and blood—who in law can, or cannot, sue for defamation. The seminal case was Derbyshire v. Times Newspapers in 1993. We also considered the seminal case in the United States, where there are fundamental protections. The result of New York Times Company v. Sullivan in 1964 was that McLibel would have been highly unlikely in the United States.

One of the significances for the hon. Member for Spelthorne about the McLibel case was that it reaffirmed the rights of corporations to sue in this country. That right has more recently been reaffirmed in the seminal case of Jameel v.Wall Street Journal Europe. In both those cases—and unlike in the Derbyshire case, where restrictions are put on local authorities, trade unions and other unincorporated bodies—the courts have said that with regard to corporations, rather than taking the decisions themselves, they look to Parliament to make that change. That is why it is important for us to consider the issue in the Bill.

We also considered another very unequal case, in terms of the financial resources that the parties could deploy: the case of Tesco Stores Ltd v. Guardian News and Media Ltd in 2008. I want to come to that later. We also considered representations from people with the opposite view, the hon. Member for Ipswich will be glad to hear. There were representations to the effect that companies also had a reputation to maintain. In our recommendations, we commended the Government’s measures to cut costs, speed up libel cases and strengthen the defence of responsible journalism, which we hope will reduce the inequality of arms.

We also recommended that the Government perhaps look at a new tort of corporate defamation where proof of actual damage was required before an action was brought. Again, that is relevant to new clause 7, as is our recommendation that the Government look at the possibility that corporations can sue only where they can show malice or recklessness. We also asked the Government to consider reversing the burden of proof as part of the new tort of corporate defamation, to look at developments in Australia, and to consult widely, which they did.

The issue was explicitly addressed by Lord Lester in clause 11 of his private Member’s Bill, which set down the test that appears in the new clauses and which requires companies to show likely and substantial financial loss. The issue was considered by the Joint Committee on the draft Defamation Bill in response to the Government’s consultation on the subject, and it recommended looking at Australia. It cited the difficulty of complying with the European convention on human rights—an issue that the Australians do not have to grapple with—and recommended that companies should not lose altogether the right to sue, while recognising the issue of inequality of arms. However, it explicitly favoured the Lester approach, which is embodied in the new clauses, of “substantial financial loss”. The benefit  of new clause 4 is that it includes the clarification of the phrase, “substantial financial loss”, that was recommended by the Joint Committee.

The Joint Committee recommended a further hurdle, which again finds a place in new clause 4, that corporates should first have to obtain the permission of the court. That addresses a serious problem in libel law connected court procedures and costs. In libel, all someone needs is a lawyer, usually, and a rubber stamp in order to issue a writ. Defending a writ, however frivolous or malicious, puts the defendant in the position of having to commit costs and time and file a defence. Without a defence, a court can find against the claimant. That is all part of the intimidatory and chilling effect of the existing system.

There was a further recommendation from the Joint Committee, which was ably chaired by Lord Mawhinney, that its proposals cover trade associations that represent for-profit organisations. The case of Simon Singh, and the quirks that enabled the British Chiropractic Association to bring a case because it was incorporated, are echoed by the comments of my right hon. Friend the Member for Rotherham on the Chartered Institute of Journalists, which could bring a case against him because it, too, by a quirk of organisation, was an incorporated body. New clause 4 very helpfully clarifies the position to remove any uncertainties or ambiguities in the law, and deals with which bodies may or may not sue. New clauses 4 and 7 do not seek to prevent corporations suing, but seek to present reasonable hurdles for them to surmount and reasonable tests that they have to pass.

Turning to the Government’s response to the Joint Committee’s recommendation, the Government considered that all the concerns about corporates were satisfied by clause 1, which deals with serious harm. On page 26 of their response, they said that

“in order to satisfy the serious harm test in Clause 1 a corporation would in practice be likely to have to demonstrate actual or likely financial loss”.

The phrase “would…be likely” suggests that there is no certainty about that. Indeed, if there were certainty, everyone who has been raising concerns about corporates throughout discussions on the Bill would have been told that their concerns were entirely misplaced and that they were effectively wasting their time. The explanatory notes are entirely silent on corporations or on any definition of serious harm in relation to them. After all the consultations, the Bill is silent on corporations, full stop. The Government also rejected the additional permission stage by the court that was recommended by the Joint Committee, favouring instead a reliance on early resolution procedures. Again, we do not have the details of the early resolution procedures that the Government plan to pursue.

I want to consider two cases. In the first, the procedures failed and in the second, the courts acted speedily but other measures to speed up the resolution, including those in the Defamation Act 1996, did not bite early enough to stop costs escalating enormously, and inequality of arms had its day.

The first case is of Dr Peter Wilmshurst, who was sued by NMT Medical of Boston, Massachusetts. I do not want to repeat what has been said about that case, and I hope that other provisions in the Bill would help to prevent such a case arising in future. It is easy to  conjure circumstances, however, in which reasonable people, such as medics, scientists and professionals, make comments very responsibly over the reliability of trials, the effectiveness of devices and other issues of public interest, but can be sued. There are other cases involving Dr Ben Goldacre, a responsible journalist and medic, who has written a science column in The Guardian.

The more widely applicable feature of the Wilmshurst case is that it went on for four years, until NMT Medical collapsed. The consultant paediatrician was sued in 2007, and the case was allowed to continue until December 2010, until a High Court master said that it would be struck out finally if the complainant did not lodge £200,000 as surety for costs. The company did not do that, of course, and used delays all the way through. Those delays and the prospect of further costs and aggravation were an attempt to silence not only Dr Wilmshurst but other critics. In March 2011, after the Court master’s decision, it issued a fourth writ against Dr Wilmshurst. The whole thing only stopped when the company went bust.

Even in that case, an administrator would be entitled to bring a case; dead people cannot sue, but it is foreseeable that dead companies might. The case is an example of procedures being spun out and costs being increased in an effort to stress the defendant, to chill him and others, and to take them out of the game, with no reasonable hurdles to pass.

Time permitting, we may come on to an additional feature of the case in this debate, but if not, we will certainly do so on Third Reading. Dr Wilmshurst was defended with a conditional fee arrangement, but the likelihood of him being able to do so in today’s circumstances is much diminished because the protections of CFAs are gone. Because NMT Medical went bust, the lawyers defending Dr Wilmshurst with a CFA could not recoup their costs. Dead companies cannot pay.

The second case—Tesco Stores Ltd v. Guardian News and Media Ltd. and Alan Rusbridger—involved the courts acting speedily. It started in April 2008, when Tesco, the biggest supermarket group in the UK and one of the biggest retail groups in the world, issued no fewer than four writs against The Guardian. Two were for libel and two were for malicious falsehood, the latter against both the newspaper and the editor.

The case was about an article on Tesco’s tax affairs written by two award-winning journalists. I will declare that one of them, Ian Griffiths, is a very good friend, with whom I worked at The Independent on Sunday. Ian is a former business journalist of the year and a qualified accountant, and he wrote the seminal book, “Creative Accounting” in 1986. It was an account of how companies could flatter their profits and balance sheets.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

Not about journalists’ expenses.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

Not about journalists’ or anyone else’s expenses. That was published years before a better known book by Terry Smith from 1992, called “Accounting for Growth”. I mention Mr Smith and the background of those publications for a very good reason—before you interrupt me, Mr Chairman.

Terry Smith, a colourful City figure, plays more than a cameo role in the debate, because between 2003 and 2006 he sued the Financial Times for £230.5 million in  damages. It would have been a record for libel. The case was about articles from 2003, and was brought in the name of his company, the stockbroker Collins Stewart, because the share price had allegedly plunged. As to the circumstances raised by the hon. Member for Ipswich, I can tell him that the court struck out the claim for damages based on the fall in the share price. That issue is referred to in the new clauses.

To return to the Tesco case, having looked at the circumstances, I cannot see that there was any prospect that Tesco would be able to prove malicious falsehood against journalists and an editor of such distinction.

Photo of Helen Goodman Helen Goodman Shadow Minister (Culture, Media and Sport)

I remember that there was a dispute between Tesco and The Guardian but will my hon. Friend remind us what it was about?

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme 5:30 pm, 26th June 2012

I am just about to come to that, after this short preamble.

Tesco brought the case for malicious falsehood simply because it could. In doing so it alleged that as well as libelling the company the journalists and editor deliberately printed a story they knew to be untrue. The article was about a complex series of property deals, via jurisdictions such as the Cayman islands and Jersey, whereby Tesco allegedly sought to save more than £1 billion in tax. Tax avoidance is as hot a topic today as it was then.

The principle mistake made by The Guardian, which it afterwards admitted, was that it identified the wrong tax. It alleged that the saving was of corporation tax, whereas in fact it was of a more obscure but still important property tax called stamp duty land tax. At the time, in solidarity, Private Eye launched its own investigation and found that Tesco was using elaborate schemes, legally, to avoid corporation tax too. Tesco, as has been tried before under our libel laws, sought the exclusion of that evidence from Private Eye in court, but in that case the judge refused. Although we were critical of him in our report, in that case Mr Justice Eady was the hero of the hour.

Essentially, therefore, the thrust of the story was true. Tesco had entered into complex arrangements of avoid paying large amounts of tax—more than £1 billion—to the Exchequer. The Guardian issued two corrections of its mistakes. I remember an extensive double-page spread of admissions and clarifications. Never, as far as I can see, has a newspaper apologised or clarified so much, no doubt under the incentive of Tesco’s firepower. It issued two apologies.

In defence of the reporters, I would say that the trail was very complex, even for an experienced accountant, and Tesco did not exactly help The Guardian to follow it; but mistakes were made and apologies were given. There was certainly no malice involved, but Tesco pressed on regardless, aided and abetted by perhaps the country’s most aggressive libel lawyers, alongside Schillings, Messrs Carter-Ruck.

In mid-May 2008, some weeks in, The Guardian made another attempt to settle the case, making use of the offer of amends procedures introduced in the Defamation Act 1996. That was a previous attempt by Parliament to provide a means to settle cases swiftly and therefore cheaply. Tesco and Carter-Ruck, however, were having none of it. In offers of amends, the procedure works  only if an offer is either accepted or rejected. They neither accepted nor rejected the offer, preferring to ponder it while they pressed on and racked up even more costs.

I will give an example of such costs, because they are central to how corporations can and have used the law in ways that new clauses 4 and 7 seek to correct. The costs are in dollars, because I have taken them from a good description of the case by the editor of The Guardian, Alun Rusbridger, which was published in The New York Review of Books. I commend the article to the Minister; it is clearly not unbiased, but it is a factual account of what happened.

Roughly by the stage of the offer of amends, some seven weeks in, The Guardian had racked up $500,000 of costs. By week nine, Carter-Ruck had presented a bill for more than $800,000, plus other costs. Let me give some examples of how ridiculous the situation became. As part of those costs, the accountants Ernst and Young wanted $173,000 for advising Tesco’s lawyers, Carter-Ruck, about Tesco’s own accounts, and the specialist tax lawyers Berwin Leighton Paisner billed Tesco for $361,000 for explaining Tesco’s own tax structures to its board and libel lawyers.

Had the case gone the full distance, The Guardian might have been liable for all those costs, and for more costs had it lost. In total, if the case had gone beyond the High Court to the Court of Appeal and the House of Lords, the estimated bill for the whole case would have been £5 million, even though the newspaper apologised, clarified the matter and sought to take advantage of the measures brought in by this House in the form of the 1996 Act. Had Tesco lost, £5 million would clearly have been neither here nor there for such a huge multinational corporation; for The Guardian or any smaller newspaper, it would have had a substantial impact.

That is another case in which damages would have been insignificant. The courts acted speedily—the much-criticised Mr Justice Eady was the hero of the hour in trying to speed up the case—but the early resolution procedures did not work and did not keep down costs. In September 2008, The Guardian agreed to settle and to issue a correction and an apology that had been agreed with Tesco. However, because of confidentiality, we do not know how that apology differed from earlier ones or what sum was paid by The Guardian to a charity of Tesco’s choice in order to settle the case. There would also have been arguments about costs, but I do not know how they were resolved.

The likes of The Guardian can take on such cases, but it did not want to go all the way in that case because of the size of the bill it might have faced. Not every defendant is The Guardian, The New York Times, The Wall Street Journal, or Times Newspapers Ltd—backed by News Corporation—which took the Flood case to the House of Lords. The point that new clauses 4 and 7 seek to address is that huge multinationals, by pursuing such actions, achieve their aims even if they lose, because they demonstrate the huge costs, time and effort that are involved. Such a chilling effect spreads from local newspapers to the rest of the media, publishing and non-governmental organisations, as we have seen in the example of citizens advice bureaux.

The Committee will be glad to hear that I am nearing my conclusion. New clause 4, like the alternative new clause 7, seeks to address such problems. It is not by any  means a panacea. The proposed reforms of court procedures are vital, as is the Bill as a whole, and they are important in ensuring that existing procedures, such as offers of amends, actually work.

Photo of Ben Gummer Ben Gummer Conservative, Ipswich

I feel that one of the correspondents of “Private Eye” has revealed himself in this speech. I feel almost as if I had read next week’s copy without having to pay for it. This has been a brilliant exposition of a series of cases. It is true that it demonstrates the need for reform of procedure.

To return to new clause 4, will the hon. Gentleman answer something before he supports it, if he does? For some companies, such as Coca-Cola, a large part of their balance sheet rests on brand value. The size of the loss as a result of reputational damage can be quantified only at the point of crystallisation when the company is sold, so it is unlikely to be seen. Significant loss of reputation could occur while sales remain the same. Such companies would fall foul of this clause; there would be considerable damage and harm to the company, but it would not be seen in the underlying sales figures. How would they find remedy for the damage to their reputation and to their ability to employ people and grow prosperity?

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I am pleased to answer the hypothetical case put by the hon. Gentleman. I have advised on the corporate financing on takeovers, and I do not think that any corporate financier or corporate finance lawyer worth his salt would advise a company to proceed with a sale at that particular point.

The serious point that the hon. Gentleman makes is whether share prices, which go up and down, can be used to establish real loss of reputation. I am afraid that real loss of reputation is demonstrated by an effect on the underlying business. If there is no such effect, in the medium and long run—or the very short run—share prices recover. Nestlé suffered grave damage to reputation in the milk powder situation. Where companies genuinely suffer, it can be seen in their profit and loss and sales. That is where the case must be made.

To conclude, what we had in the case of Tesco was a determined, deep-pocketed litigant for whom money was no obstacle, with aggressive lawyers who had an incentive to spin out the case, racking up costs and thus their own remuneration. There was no interest in settling. Many of the procedures assume that parties wish to settle, but the difficulty is when there is inequality of arms and a corporation’s intention is to teach the other person a lesson. That is apparent in the Wilmshurst case and others, where the intention was to chill reporting. In the Tesco case, strangely enough, no one picked up the parallel Private Eye investigation, no doubt because they were fearful of being sued as The Guardian was being sued. The intention was to take reporters and organisations out of the game.

The real test of the Bill, including how it addresses corporations, is how cases such as those cited would have been affected. Would the Bill have made a difference? It fails because, despite all the consultations, Lord Lester’s Bill and the Joint Committee’s recommendations, the Bill is still entirely silent on corporations. I urge the  Government to table amendments and clarifications on Third Reading regarding how the law of defamation should apply to corporations.

Photo of Jonathan Djanogly Jonathan Djanogly The Parliamentary Under-Secretary of State for Justice 5:45 pm, 26th June 2012

Hon. Members have debated the new clauses at some length, so I shall do my best not only to explain the Government’s position but to provide some background for how we got there. The clauses relate to the ability of corporations and other non-natural persons to bring an action for defamation.

New clause 4 focuses on corporations and would have the effect of restricting a corporation’s right to bring an action. It seeks to do so in two ways. First, it would require a corporation to obtain the court’s permission before bringing a claim. It specifies a number of particular matters that the court might wish to consider in reaching that decision. Secondly, it would require a corporation to demonstrate that the statement being complained of has caused it, or is likely to cause it, substantial financial harm. It sets out a number of matters that the court must consider when determining that.

The Government recognise the concerns of the Joint Committee and others in the area, and we are aware of the arguments that have been made in favour of restricting corporations’ right to sue for defamation. However, we believe that there is a difficult balance to be struck. Clearly, businesses are sometimes powerful, and it may be undesirable for them to be able to bring, or threaten to bring, claims simply in order to stifle debate. Equally however, as my hon. Friend the Member for Ipswich indicated, the vast majority of businesses are small and not cash-rich. Many have genuine reputations to protect, and they can be subject to unfounded or spiteful allegations, harming not just the management, but shareholders and employees. While corporations are therefore not mentioned in the Bill, we think the correct approach is generally to raise the bar to trivial claims, and the Bill’s new test of serious harm, with clearer defences, will apply equally to companies.

Corporations are already unable to claim for certain types of harm, such as injury to feelings. In order to satisfy the serious harm test, a corporation would in practice be likely to have to demonstrate actual or likely financial loss in any event. Given the potential effect on shareholders and management, we see no reason why there should be no redress for a defamatory action that has caused a fall in share price.

I listened to the significant description of the impact of cost from the hon. Member for Newcastle-under-Lyme, but I do not necessarily see that to be an argument against corporations. However, as my hon. Friend the Member for Ipswich pointed out, it goes to procedural reform. In addition, the serious harm test and other measures, such as the new procedure for determining key preliminary issues, should help to reduce the cost and length of proceedings, and therefore reduce the likelihood of attempts being made by corporate or wealthy individual claimants to intimidate defendants with limited resources.

We do not consider the introduction of a permission stage for corporations to be appropriate. As part of the new preliminary procedure, the court will be able to deal with the key issues in dispute at the outset and  make detailed provisions in relation to cost control and the future management of the case in light of issues that remain to be resolved. A permission stage for corporate claims in addition to that new procedure would almost certainly add to the cost involved.

New clause 7 would restrict the circumstances in which non-natural persons may bring a defamation action. They would be permitted to do so only if they can show either that the publication was published with malice or that they had suffered actual or likely financial harm. Hon. Members have to appreciate that the new clause would go beyond just restricting the ability of trading corporations to bring a claim, and would affect the rights of all non-natural persons. That would include a wide range of bodies, including charities, non-governmental organisations and companies operating on a not-for-profit basis.

The intention of the new clause may be to reflect the Libel Reform Campaign’s call for restrictions to be focused on non-natural persons who perform a public function. The hon. Member for Stoke-on-Trent South mentioned Derbyshire County Council v. Times Newspapers Ltd, on which we had a significant discussion. We sought views in our consultation on the suggestion that the principle from the case should be put in statute and extended to a wider range of bodies that exercise public functions. A clear majority of responses considered that to be inappropriate and took the view that that would represent a significant restriction on the right of a wide range of organisations to defend their reputation.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

When the Minister repeats the Government’s response to the Joint Committee, that corporations will be likely to have to show substantial financial loss under clause 1 and the serious harm test, will he consider how he could bring more certainty to that as the Bill goes through, so that he does not have to use the word “likely”?

Photo of Jonathan Djanogly Jonathan Djanogly The Parliamentary Under-Secretary of State for Justice

The position is based on case law and it would be for the courts to decide, depending on circumstances. We share the concerns shown throughout the consultation. We believe that it is much better for the courts to develop the Derbyshire principle as they consider appropriate in the light of individual cases.

The hon. Member for Stoke-on-Trent South took the point further, asking why the Derbyshire principle should not be extended to corporations. We believe the same arguments apply. The Derbyshire case considered the position of local authorities alongside that of corporations. Lord Keith identified that the most important feature distinguishing a local authority from a corporation was the fact that it was a governmental body. He clearly stated,

“It is of the highest public importance that a democratically elected governmental body, or indeed any governmental body, should be open to uninhibited public criticism.”

In the case of McDonald’s Corporation v. Steel and Morris, the courts again recognised that corporations were

“constitutionally in a quite different position”.

We agree with that position.

The hon. Gentleman also expressed his desire that private corporations exercising public functions should not be able to sue. The current law in the area is capable  of being developed by the courts. The courts have in fact already shown themselves alive to the flexibility of the law in using the rule to prevent the British Coal Corporation from suing in defamation. That is not a direct analogy but we believe that it is preferable for the courts to be able to develop the law in this area as they consider appropriate in the light of all the circumstances of individual cases.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I hope the Minister appreciates that we are now in a position where the courts have said it is for Parliament to change the law and the Minister is effectively saying it is for the courts to change the law.

Photo of Jonathan Djanogly Jonathan Djanogly The Parliamentary Under-Secretary of State for Justice

The courts will interpret the law and, in the case of the Derbyshire principle, develop existing case law.

I have just been speaking about corporations exercising public functions under contract. That is a much narrower question than whether corporations more widely should fail in defamation action under an extension of the Derbyshire principle. I will, however, look more closely at the particular observation of the court case to which the hon. Gentleman refers. I remain of the view that it is not appropriate to single out companies in the way proposed.

The Government believe that the Bill takes the right approach and that the serious harm test and other measures, such as the new procedure for determining key preliminary issues, should help to reduce the cost and length of proceedings.

Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

I am grateful to the Minister for the clear statement on where the Government are in general. I hope he may come specifically to issues raised about how to deal with abuse by Retail Loss Prevention, comparable companies or their solicitors, and their big position against small players.

Photo of Jonathan Djanogly Jonathan Djanogly The Parliamentary Under-Secretary of State for Justice

I think I have addressed that in my remarks. The Government’s position is that we do not think that corporations should be included in the Bill.

The Government believe that the Bill takes the right approach, and the serious harm test and other measures, such as the new procedure for determining key preliminary issues, should help to reduce the cost and length of proceedings. That in turn should reduce the ability of corporate claimants and other non-natural persons to intimidate defendants with limited resources. On that basis, I hope that the hon. Member for Stoke-on-Trent South will withdraw new clauses 4 and 7.

Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

The Minister came to a more specific point about the particular concern that we have. I heard what he said, but I ask him to go away and reflect on the matter. He could ask colleagues in his Department to dig out the past Adjournment debates and questions in both Houses. Perhaps they could put together a briefing about this specific series of abuses and the civil penalty and Retail Loss Prevention story, and perhaps some of us could talk to the Minister, before Report stage, about how it could be dealt with. It is an issue of wide social concern as well as a narrow legal point.

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

On a point of order, Mr Havard. Am I required to move the new clause formally?

Question put, That the clause be read a Second time.

The Committee divided: Ayes 7, Noes 11.

Division number 5 Decision Time — New Clause 4 - Action for defamation brought by body corporate

Aye: 7 MPs

No: 11 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.