Supreme Court clarifies test for damages in malicious falsehood claims

Introduction

In George v Cannell [2024] UKSC 19, the UK Supreme Court clarified the test for malicious falsehood under section 3(1) of the Defamation Act 1952. Principally, the court determined that if a claimant was able to satisfy the requirements of that section, this would create an irrebuttable presumption that they had suffered some (but not necessarily substantial) financial loss, and would be entitled to an award of nominal damages. However, it remained open to the claimant to adduce evidence that they had in fact suffered substantial financial loss as a result of the malicious falsehood, in which case compensatory damages would be payable.

The court also considered the circumstances, if any, in which damages for emotional or mental distress would be payable in a malicious falsehood claim. The court concluded that such damages would be payable only where the emotional distress complained of had been directly caused by the substantial financial loss suffered by the claimant.

Background

The claimant worked for a recruitment agency, LCA Jobs Ltd, which was owned and operated by Ms Cannell. The claimant left her employment at LCA and joined another agency, Fawkes & Reece.

The claimant’s contract of employment with LCA did not contain any ‘non-solicitation’ clauses (i.e. provisions which would prevent her from soliciting clients or business from LCA, her former employer). Soon after beginning her new role, the claimant began to target and solicit clients of LCA. Ms Cannell wrote to the claimant threatening to take legal action against her for breaching her “post-employment obligations”, despite knowing that the employment contract had no such obligations. Immediately before and after this email, Ms Cannell also:

1. held a telephone call with a representative of one of LCA’s clients, Mr Butler, who informed her that the claimant had approached his firm offering the services of Fawkes & Reece in connection with recruiting for new staff. During the call, Ms Cannell stated that the claimant was breaching her contract with LCA by approaching LCA’s clients; and
2. emailed the claimant’s new manager, Mr Lingenfelder, stating that the claimant had been approaching LCA’s clients in an attempt to solicit new business, in breach of her legal obligations under her employment contract with LCA.

The claimant subsequently resigned from her new role, on the basis that she believed Ms Cannell had contacted other clients of LCA to provide the same information. Ms Cannell had not in fact done so. Shortly afterwards, the claimant obtained employment with another recruitment agency. However, the claimant sued Ms Cannell and LCA for defamation, including for malicious falsehood.

Proceedings below

At first instance, the claimant substantively failed in her claims for both defamation and malicious falsehood.

1. Defamation - The trial judge, Saini J, concluded that Ms Cannell’s statements to Mr Butler and Mr Lingenfelder did not cause serious harm to the claimant’s reputation, as required by section 1 of the Defamation Act 2013.
2. Malicious Falsehood – Although the trial judge determined that the statements to Mr Butler and Mr Lingenfelder were false, and LC had made them maliciously, he held that the claimant had not suffered any financial loss as he considered was required. Consequently, the judge concluded that the claim for malicious falsehood could not succeed.

In considering the malicious falsehood claim, the trial judge had regard to s.3(1) of the 1952 Act, as set out below:

“(1) In an action for […] malicious falsehood, it shall not be necessary to allege or prove special damage—

(a) if the words upon which the action is founded are calculated to cause pecuniary damage to the plaintiff and are published in writing or other permanent form; or

(b) if the said words are calculated to cause pecuniary damage to the plaintiff in respect of any office, profession, calling, trade or business held or carried on by him at the time of the publication.”

Saini J had determined that s.3(1) of the Act required a historical, backwards looking analysis to determine whether a claimant had suffered actual, evidenced pecuniary (financial) loss and that unless a claimant could demonstrate actual financial loss, they could not recover damages for mental distress or injury to feelings.

The Court of Appeal was not required to consider the defamation claim. However, in respect of the malicious falsehood claim, it overturned the decision of the High Court, finding that:

1. the test under s.3(1) of the Act as to whether a claimant suffered financial loss was forwards- rather than backwards-looking; it required an analysis of whether the statements were likely, at the time of publication, to cause the claimant financial loss (rather than whether the publications actually resulted in such loss). The Court of Appeal concluded that the claimant had satisfied this test; and
2. even if a claimant was only entitled to nominal damages (i.e. token damages) in respect of their financial loss, this would not prevent them from successfully recovering damages for mental distress or hurt feelings.

Appeal to Supreme Court

The defendants appealed to the Supreme Court on two principal issues:

1. In respect of s.3(1) of the 1952 Act, what was the correct approach to demonstrating financial loss in malicious falsehood claims; and
2. Whether, in claims of malicious falsehood, it was open to claimants to recover damages for emotional distress and injury to feelings (and if so, in what circumstances).

1. Interpretation of section 3(1)

The Supreme Court unanimously found that a malicious falsehood claim under s.3(1) did not require the claimant to demonstrate actual (backwards-looking) proof of substantial financial loss. The court determined that s.3(1) intended a forward-looking approach when considering damages in respect of a publication, which required an analysis of whether, at the time the statement was published, the statement was objectively likely to cause financial loss to the claimant, not whether the statement had actually caused such loss. This approach required the courts to consider all relevant facts and matters which should reasonably have been known to the publisher of the statement.

Accordingly, even if there was no evidence of actual financial loss, a claimant was able to succeed in a malicious falsehood claim by demonstrating that, at the time of publication, the statements were likely to cause financial loss. However, in such circumstances the claimant would only be entitled to nominal (token) damages.

These were precisely the circumstances which the Supreme Court found to apply in the claimant’s claim. Although the claimant had been unable to demonstrate proof of any substantial financial loss, the Supreme Court was persuaded that Ms Cannell’s statements were calculated to cause her financial loss. She therefore succeeded in her malicious falsehood claim under s.3(1). However, although the claimant succeeded on the question of liability, she was awarded only £5 by way of nominal damages.

2. Recovery of damages for injury to feelings

The Supreme Court subsequently turned to the second issue: whether, in claims of malicious falsehood, damages for injury to feelings were recoverable and in what circumstances.

The Supreme Court was split on this issue. The majority determined that it was possible for malicious falsehood claimants to recover damages for mental distress. However, overturning the Court of Appeal’s decision, it was held they would only be able to do so if they could demonstrate significant financial loss (and therefore prove entitlement to substantial, rather than nominal or token, damages). Furthermore, the burden would be on the claimant to prove that there was a clear causal link between their injured feelings and the financial loss. In essence, the Supreme Court confined the recovery of damages for mental distress to circumstances where (a) actual financial loss could also be shown, and (b) the mental distress was shown to have been caused by such financial loss. The Supreme Court’s rationale for this restriction was that malicious falsehood was intended to protect economic interests, not compensate for psychological distress.

In the claimant’s case, it was found that the statements did not cause her any substantial economic loss. Although section 3(1) of the Act applied, only nominal damages had been awarded. As a result, the claimant’s mental distress was held not to have been caused by any financial loss, and damages for injury to her feelings were not capable of being awarded.

Comment

The Supreme Court has, for the first time, clarified whether proof of actual financial loss is required for a claimant to succeed in a malicious falsehood claim. This will provide greater predictability for claimants considering an action for damages in cases of malicious falsehood, and defendants assessing whether or not to make an offer of settlement. However, the division of the Supreme Court on the question of whether a malicious falsehood claimant can recover damages for mental distress even when these do not flow from proven financial loss suggests there is scope for this topic to be further debated.

These are highly technical matters for what many may see as a rather obscure tort (the Supreme Court judgment commences by noting that the tort goes by a number of different names). However, defamation actions are perceived as becoming increasingly difficult (it should be noted that the defamation claim in this case failed at first instance and was not appealed). This is even more the case for corporates than for individuals. As a result, there is an increased focus on malicious falsehood as a viable alternative cause of action, and for that reason, this judgment is significant.

Co-authored by Xenia Baranova