By George – no loss, no substantial damages for malicious falsehood or for distress

Background

The first defendant, Linda Cannell, owned and operated the second defendant, LCA Jobs Ltd, a recruitment agency specialising in recruiting for estate agents and property companies. The claimant, Fiona George, was employed by LCA as a recruitment consultant, but after eight months resigned and joined another recruitment agency, Fawkes & Reece, which specialised in recruiting for the construction industry.  

The claimant’s employment contract with LCA did not prohibit her from soliciting business from LCA’s clients after her employment had ended, and she proceeded to do so. Despite this, Ms Cannell, under the mistaken belief that the claimant did not possess the handbook that contained her post-employment obligations, emailed the claimant threatening legal action for any “breach” of those.  Ms Cannell then approached a client of LCA, as well as the claimant’s new employer, asserting that she had been acting in breach of her legal obligations under the terms of her employment by LCA.

The claimant showed her new employer the handbook as proof that she was not in breach of her obligations, and the new employer accepted this. But she resigned shortly afterwards, under the incorrect assumption that Cannell had undertaken the same exercise with other clients of LCA, thereby, in her view, making her position at her new employer untenable. The claimant quickly found another job with a further recruitment agency in a different sector.

Proceedings

The claimant issued proceedings against Ms Cannell and LCA for defamation and malicious falsehood. The defamation claim failed at trial, because the High Court found that the statements complained of had not caused Ms George serious reputational harm, as required by section 1 of the Defamation Act 2013. As for the claim of malicious falsehood, the High Court found that the statements complained of were false and, given that Ms Cannell did not honestly believe they were true, were made maliciously. It was also held that the statements had caused the claimant no financial loss at all, and so the High Court held that the claim for damages for malicious falsehood had also failed, under common law, and that section 3(1) of the 1952 Act did not apply. The claim was therefore dismissed.

On appeal, the Court of Appeal held that the claim did fall within section 3(1), and so the claimant was entitled to a judgment for damages to be assessed. It was also held that, even though the statements did not cause the claimant any financial loss, she was not limited to an award of purely nominal damages, but was also entitled to recover compensation for injury to feelings.

Issues

On further appeal to the Supreme Court, two issues were to be determined:

• the proper interpretation of section 3(1) in relation to proof of financial loss; and
• whether a claimant can rely on section 3(1) to recover damages for injury to feelings in a claim of malicious falsehood, even where no financial loss has been caused.

Interpreting section 3(1)

The relevant section provides that, in an action for slander of title, slander of goods or other malicious falsehood, it is not necessary to allege or prove special damage:

1. if the words on which the action is founded are calculated to cause pecuniary damage to the claimant and are published inwriting or other permanent form; or
2. if those words are calculated to cause pecuniary damage to the claimant in respect of any office, profession, calling, trade or business held or carried on by the claimant at the time of publication.

In construing section 3(1), the Supreme Court also found relevance in section 2, which provides that, in an action for slander overwords calculated to disparage the claimant in any office, profession, calling, trade or business held or carried on by the clamant at the time of publication, it is not necessary to allege or prove special damage, whether or not the words are spoken of the claimant in the way of such office, profession, calling, trade or business.

After a thorough analysis of the history and purpose of the law of malicious falsehood, the Supreme Court found that the clear underlying purpose of section 3(1) is to make it easier for claimants to recover damages for malicious falsehood, but that the statute is less clear on how that should be achieved.

In submissions, counsel for the defendants argued that:

• The lack of a need to allege or prove special damage dispenses with the requirement under common law to allege and prove loss with certainty and precision.
• The presumption created where section 3(1) applies is rebuttable, i.e. there is nothing that prevents a defendant from relying on specific facts at trial to negate the inference of financial loss and thereby to defeat the claim.
• There is nothing in section 3(1) to suggest any intention to discard the basic principle that financial loss is the gist of an action for malicious falsehood.

The court agreed with the first and third submissions, but not with the second. The effect of this is that, where section 3(1) applies, there is, as far as liability is concerned, an irrebuttable presumption that the publication of the words complained of has caused financial loss. But this does not necessarily lead to an award of substantial damages. Should the court conclude, as in this case, that no financial loss has actually been caused, a claimant will be entitled only to nominal damages.  

In this case, the claimant was entitled to succeed on the question of liability, but that did not affect the High Court’s decision that the statements complained of caused the claimant no financial loss. As such, the Supreme Court awarded the claimant nominal damages of £5.

Injury to feelings

The court then had to consider the practical significance of the fact that some, albeit notional, financial loss had been caused to the claimant, and that this might act as a gateway to the ability to recover more substantial damages for injury to feelings caused by the statements, even though they did not have any economic effect.

Lord Leggatt, with whom Lords Hodge and Richards agreed, noted that, in an action for malicious falsehood, a damages award for injury to feelings in the absence of aggravating conduct would be unprecedented.

The defendants submitted that such damages are only available where significant financial loss has been caused, and that any such distress relates to the infliction of such loss.

On this point, Lord Leggatt agreed with the defendants’ submission, but Lords Hamblen and Burrows dissented.  Their Lordships all agreed on the starting point that, in principle, if a tort has been committed, a claimant should been titled to compensation for all pecuniary and non-pecuniary loss. Where their Lordships disagreed was whether, in instances of a malicious falsehood causing some financial damage, however small, or if financial damage can be presumed by operation of section 3(1), a claimant can recover damages for all mental distress, even if such distress is unrelated to any financial damage suffered.

Lord Leggatt considered that the dissenting view would disregard the fact that financial damage is an essential element of the tort and would allow the claimant to obtain compensation for non-pecuniary loss that was not caused by the tort. His Lordship held that such a view would be illogical, and would open the door to an award of compensation for a different type of injury altogether, even though the injuries were causally unrelated.

In this case, the court found that no financial loss was actually caused by the statements complained of. While section 3(1) applied, the financial damage was purely notional and could only attract token damages. So there was no loss that could have given rise to injury to feelings for which compensation might have been awarded. The “huge emotional stress as a result of the publications complained of”, as detailed in the particulars of claim, could not have been, and was not, a consequence of financial loss occasioned by the statements complained of. As a result, the defendants could not be held responsible for the claimant’s emotional stress, which was not suffered as a consequence of the tort of malicious falsehood.

Decision

Accordingly, the Supreme Court, by a three-to-two majority, allowed the appeal, set aside the order made by the Court of Appeal for an assessment of damages for injury to feelings, and directed that the judgment entered for the claimant should be for nominal damages only, namely £5.

Comment

In clarifying the requirements for proving loss and the criteria for awards of damages for malicious falsehood, the Supreme Court has usefully confirmed the test under section 3(1), which will provide a clearer framework for future claims.  

Notable too is the extent to which the Supreme Court was split on the issue of whether, to result in an award of damages, injury to feelings must solely flow from financial loss. Lords Hamblen and Burrows, in their dissenting judgements, considered that damages for proven mental distress and injury to feelings can and, unless ruled out on normal grounds such as remoteness and mitigation, should be awarded for malicious falsehood. Their Lordships took the view that damages for mental distress ought to be recoverable by a claimant, for example, for upset and anxiety caused by the malicious falsehood itself. So it will be interesting to see whether – perhaps in a case with more compelling evidence of non-pecuniary distress flowing from malicious falsehood – the conditions for recovering damages might be further refined, or whether the court would just follow the majority’s rigid requirement for a pecuniary causal link.

Article written for Entertainment Law Review.