Canada: An Overview Of Business Defamation

Traditionally, a reputation carefully fostered over decades could be lost in minutes through a defamatory comment. The Internet accelerates this destruction to mere seconds.

Communicative attacks on businesses come in all flavours. A few hypothetical examples:

  • a cosmetic surgery clinic accuses a rival of having a higher surgery complication rate;
  • a disgruntled customer sets up a "copycat" website based on a web address similar to the name of a company, that features shoddy visuals and inaccurate information;
  • an environmental activist falsely accuses a company of polluting a river;
  • a corporate press release accuses a rival of stock manipulation;
  • a company is accused of not owning the intellectual property rights to the movie it is distributing, and a threat is made to sue any purchasers of the show;
  • a blogger accuses a mining company of salting core samples and making false statements about preliminary exploration results in an area thought to be rich in minerals.

A swift legal response can help to counteract the harm caused by such attacks. Recent cases confirm that the law of defamation protects the reputations of corporations and businesspeople as well as other individuals.

Defamation is the intentional publication of a false and harmful statement. A publication is defamatory if it has the tendency to lower the reputation of someone in the estimation of reasonable persons in the community.

Generally, to succeed in a defamation claim, a plaintiff must prove three things:

1. Is the statement defamatory?

A statement is defamatory if is harmful to the trading reputation of the company.

An attack on the products or services of a company is only defamatory if it attacks the integrity, competence or other reputational value of the business.

It is the overall effect of the statement that matters. If something disreputable is said about the company in one part of a statement, but is qualified or corrected in another, the overall effect may not be defamatory.

2. Does the statement refer to the plaintiff?

The issue is not whether the defendant intended to refer to the plaintiff, but whether the people who read or hear the statement would reasonably understand it to refer to the plaintiff. The actual recipients of the defamatory statement must have associated it with the plaintiff.

A business may be sufficiently identified even though it is not named, where a reference is made to something or someone over which it exercises control or for which it has some responsibility, for example, its directors or employees.

3. Was the statement "published"?

The essence of publication is communication of the defamatory statement to a person other than the plaintiff.

Every instance of repetition of a defamatory statement is a separate wrong, with a separate potential claim resulting from it. This has important significance for limitation periods, which may restart years after the initial publication.

Generally, a defendant will only be responsible for their own defamatory statement and not for republication by others, unless the defendant requests or authorizes someone to communicate defamatory remarks to others, the person to whom the original publication was made was under a moral, legal, or social duty to repeat or publish the words to someone else, or the republication was a "natural and probable consequence" of the original publication.

It is no defence that one is merely repeating someone else's defamation. Repeating a statement has the same legal consequences as making it in the first place.

The Supreme Court of Canada has very recently confirmed that, generally, providing a hyperlink to a website on which defamatory material is posted will not make the person providing the hyperlink liable for defamation (see "More Protection From Defamation Liability for Website Owners", p. 5). If, however, the person providing the hyperlink adopts or endorses the contents of the hyperlinked defamatory page as their own, they may be liable for republishing the words themselves.

DEFENCES

Truth (also known as "justification") is a complete defence to a claim for defamation. The defendant must prove that their statement was true. The test is whether the published statements are substantially true in the setting, context and circumstances in which they were used.

The defence of fair comment protects statements of opinion. It permits a person to comment on a matter of public interest, ranging from an attack on a politician's competence to a scathing restaurant review. The Supreme Court of Canada has recently significantly broadened the defence. The test now only requires that the opinion be one that "anyone could honestly have expressed", including a person "prejudiced, exaggerated or obstinate in his views".

The defence of absolute privilege protects communications of traditionally special importance, where complete freedom of communication is considered crucial for society. Common examples are statements made in Parliament or court.

The defence of qualified privilege applies where the defendant has a legitimate interest or a duty – legal, social, or moral – to communicate information, and where the recipients of the communication have a corresponding duty or interest to receive it. It is sufficient that the defendant honestly and with some reason believed that such an interest or duty existed. In such circumstances, the defendant can "get it wrong" and still be protected from liability, because society does not wish to chill such communications. Occasions of qualified privilege in business include employee reference letters, credit reports and warnings issued by a company about the potential dishonesty or dangerousness of an employee or customer.

The Supreme Court of Canada recently confirmed a new defence of "responsible communication on matters of public interest". To establish it the defendant must prove the publication was on a matter of public interest and was responsible, in that the defendant showed diligence in trying to verify the allegations, having regard to all of the circumstances. To qualify as a matter of public interest, the public must have some substantial concern about the subject, either because it affects the welfare of citizens or because it has attracted considerable controversy. Almost any statement concerning a business activity with a potential public effect could be protected, if the defendant exercised reasonable care in making the statement. This defence is not only available to professional journalists, but is anyone who publishes material of public interest in any medium". It extends to bloggers and other online media.

The defences of fair comment and qualified privilege will be defeated if the defendant was predominantly motivated by malice, or if the publication was excessive in terms of communication or distribution. Malice is shown where the defendant published a falsehood deliberately or recklessly, without regard to its truth or falsity, or to advance an ulterior purpose rather than for the sake of the social purpose protected by the qualified privilege. This ulterior purpose must be the dominant motive for the defamatory publication and is usually the desire to injure the person who is defamed. In a business context, the fact that the plaintiff and a defendant are bitter competitors will be helpful in leading to an inference that the defendant made the communication for the purpose of harming the plaintiff and improving its own economic interests.

The defendant may also lose a qualified privilege defence if the communication is sent to too many people, or contains additional statements unnecessary to achieve the social purpose of protecting the kind of communication in question. The information communicated must be "reasonably appropriate in the context of the circumstances existing on the occasion when that information was given".

DAMAGES

Traditionally, courts have treated individual plaintiffs and business plaintiffs very differently in awarding damages. A business plaintiff could generally only recover a nominal amount unless it could show the defamation had a direct effect its business: harm to its credit, or loss of customers or sales. Recent case law indicates, however, that a corporation may now recover damages for injury to its reputation without proof of specific business loss. That said, potential corporate defamation plaintiffs should be cautioned that, absent proof of specific business loss, damages will likely be modest.

Where the defamatory words are likely to produce a general loss of business, damage to loss of earnings or customers may be inferred. It is not necessary to prove a direct link between the loss of specific contracts and the defamatory publications. Canadian courts have noted that Internet-based defamation holds the potential for much greater harm, and thus may warrant larger damages awards.

STRATEGIC CONSIDERATIONS

There are a number of strategic considerations a business should keep in mind when dealing with disparaging statements about it.

When a business suspects that a defamatory statement has been made, it is prudent to adopt a multi-pronged response, focused on preserving customers and evidence. Websites on which defamatory items appear should be printed and preserved and all copies preserved. Employees with likely exposure to customers or members of the public who have seen the defamatory publications should be instructed to keep precise and accurate notes about all inquiries and comments that they receive about them. They should be provided with a script to counteract the defamatory claims. It may be useful to set up a phone line for concerned customers to ask questions about the statements.

A demand letter to the publisher of a defamatory statement should provide sufficient detail to establish the credibility of the complaint, as well as to allow the recipient to investigate the defamation and take steps to stop further statements. All, or a selection of, the falsehoods should be quoted or paraphrased, and their falsity explained. In drafting the demand letter, one should consider the likely response, and make sure that the business does not suffer insult added to injury by a refusal to comply with an unreasonable demand.

A typical demand letter will ask for confirmation that the defamation will not be repeated, that all copies of the defamatory statement have been retrieved and destroyed, and that copies of the defamatory statement have been removed from all websites and other locations. The letter may demand a listing of all places the defamatory statement was published, and to whom the statements were made. It will typically demand that the individuals or employees making the defamatory statements be specifically told that such statements must not be made, and could result in personal liability. Finally, the demand letter should seek reassurances that no further defamatory statements will be issued.

Caution must be exercised with respect to a demand for a retraction or an apology because these may have the detrimental effect of reminding people of the original defamation.

CONCLUSION

Attacks on reputation, products, or personnel of a business require a rapid business response. They may also require a rapid legal response. As set out above, this area of law is full of complicated pitfalls, and errors in made in the early stages of a crisis can have lasting negative ramifications in the business's struggle to retain and regain its damaged reputation. This article is very much a broad and high-level survey of the law. Because defamation claims turn primarily on their unique facts, it is imperative that a business obtain careful legal advice as part of any comprehensive business reputation rehabilitation strategy.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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