The Supreme Court has delivered an eagerly-anticipated judgment on the law of malicious falsehood. It is the first time that the highest court has considered s.3(1) Defamation Act 1952, and the judgment provides important clarity on its meaning and effect, even though it reveals that even at the highest level experienced judges can disagree when encountering novel points of law. The Court has upheld the Court of Appeal’s decision that the test as to whether a malicious falsehood is “calculated to cause pecuniary damage to the plaintiff” is forward-looking: the court should ask whether, viewed at the time of publication, the words complained of were likely to cause financial loss to the claimant. Furthermore, a claimant can only recover damages for financial losses actually suffered. However, the majority of the Court rejected the Court of Appeal’s view that injury to feelings could be recovered under section 3(1) on their own. Instead, given that malicious falsehood is an economic tort, damages for injury to feelings can only be recovered if they are a consequence of financial loss suffered as a result of the publication.

The case concerned Fiona George, a recruitment consultant who used to work for LCA Jobs Ltd (“LCA”), which was owned and operated by Linda Cannell. Ms George left LCA to start a new job with a different agency and immediately began targeting some of LCA’s clients. On discovering this, Ms Cannell contacted Ms George threatening her with legal action for breaching “post-employment obligations under the terms of your employment not to solicit business from LCA clients”. Ms Cannell also telephoned a client of LCA, Mr Butler, warning him that Ms George’s contact with him was in breach of her contract with LCA. Finally, Ms Cannell sent an email to Ms George’s line manager at her new employer stating that she had been approaching LCA’s clients for new business in breach of her “legal obligations under the terms of her employment with LCA not to solicit business from our clients”.

Ms George was not, in fact, under any post-employment restrictive covenant preventing her from contacting clients of LCA. Furthermore, the trial judge found that Ms Cannell was well aware of this. Nonetheless, Ms Cannell and her legal adviser sent the various communications in the belief that Ms George would not have a copy of the employee handbook which set out the reality of the situation. As it happens, they were wrong and Ms George was able to show her new employer that she was under no obligation preventing her from contacting LCA’s clients.

Fearing that Ms Cannell would follow through with her threats to contact more of LCA’s clients, Ms George resigned from her role at her new employer and sued Ms Cannell and LCA for defamation and malicious falsehood.

At the High Court, the claim for defamation was unsuccessful since Ms George was unable to demonstrate that the statements by Ms Cannell to third parties had caused serious harm to her reputation.

As for her claim for malicious falsehood, Ms George needed to establish three things: (1) that the statements were false; (2) that the statements were made maliciously (i.e. Ms Cannell knew them to be false, or was reckless as to the truth); and (3) that they had caused ‘special damage’ or, alternatively, they fell within an exception as set out in section 3(1) of the Defamation Act 1952.

It was the third of these criteria that was the focus of the case before the courts. Traditionally, the position of malicious falsehood in common law was that a claimant had to prove so-called ‘special damage’, namely actual loss that can be specified in monetary terms. However, over time it was recognised that it was difficult for claimants to prove that a publication caused special damage. Therefore, Parliament intervened and legislated for an exemption under s.3(1) of the Defamation Act 1952. It states that:

“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.”

At the High Court, Saini J held that whilst Ms George had satisfied the first two criteria for a claim for malicious falsehood, the third was not made out: she had suffered no special damage, nor did she fall under the exceptions of s.3(1) since she had not suffered any pecuniary damage as a result of the publications:  “malicious falsehood is a tort that compensates only for pecuniary loss, not for loss of reputation. Recovery turns on matters of fact as to pecuniary damage, whether at common law or under section 3(1), not on a publisher’s view of a claimant’s reputation (or his view of a product or other business interest) from which no pecuniary damage flows”.

The Court of Appeal thought differently. Analysing the wording of s.3(1) – and in particular its requirement that the words complained of are “calculated to cause” pecuniary damage – Warby LJ rejected what was termed the ‘historical approach’ of the High Court which required a claimant to prove that they had probably been caused some actual pecuniary financial loss by the publication. Instead, the correct approach was a ‘forward-looking’ one which requires a claimant to prove that publication by the defendant of a false and malicious statement was “of such a nature that, viewed objectively at the time of publication, financial loss was an inherently probable consequence; in other words, that financial loss would probably follow naturally in the ordinary course of events”.

Applying this ‘forward-looking’ test, the Court of Appeal held that s.3(1) did in fact apply to this case: Ms Cannell had falsely alleged to Ms George’s new employer and one of her clients that she had broken her contractual commitments to Ms Cannell and LCA.  As the Court explained, such allegations had a natural tendency to cause financial loss to someone whose income was commission-based.

The Court of Appeal went on to consider damages. At the High Court, Saini J had said that even if Ms George had established a claim for general damages under s 3(1), he would have awarded a nominal sum only. Warby LJ disagreed: even though the publications complained of caused her no financial loss, he held that Ms George was entitled to recover compensation for injury to her feelings. He ordered for these to be assessed and commented that “I do not think that we should rule out an award of substantial, as opposed to nominal, damages for distress on the facts of this case”. Explaining why he had come to that conclusion, As Warby LJ said that Ms George had “learned that the defendants had wronged her tortiously by maliciously publishing a falsehood in circumstances that made it probable that she would suffer consequential financial loss. According to the claimant’s evidence, she found this very hurtful. The prospect of loss and the prospect of distress were both foreseeable by the defendants. Neither the claimant nor the defendants knew that, as the Judge later found, what was inherently likely would not in fact come to pass. The fact that this later emerged, and the claimant came to know it, would limit but not extinguish her claim.”

The Court of Appeal’s judgment provoked considerable commentary as some argued that, in making it easier for a claimant to satisfy section 3(1) and appearing to open the door to substantial damages for injury to feelings, malicious falsehood claims would increase substantially. All eyes were therefore on the Supreme Court to see what it would decide.

Delivering the majority judgment of the Court, Lord Leggatt considers the history of the tort of malicious falsehood and the circumstances surrounding the implementation of section 3(1) Defamation Act 1952. He explains that “the aim of the provision is to make it easier to bring actions for malicious falsehood by removing the need to allege and prove (on the balance of probability) that special (i.e. pecuniary) damage has actually been caused”. In Lord Leggatt’s view, the so-called ‘historical approach” defeats that purpose if “to avoid the need to allege and prove that a malicious falsehood – more probably than not – has caused pecuniary damage, it were necessary to prove that it probably has caused pecuniary damage. Such an interpretation would make section 3(1) vacuous”.

He therefore agrees with the Court of Appeal that the historical approach should be rejected and that the correct “forward looking” test is whether “viewed at the time of publication, the words complained of were likely to cause financial loss to the claimant”.

The judgment then turns to the question of damages. As Lord Leggatt puts it, “the claimant contends that, if only she can pass through the gateway of section 3(1), she is entitled to compensation for injury to her feelings caused by the two publications complained of, even though it has been found as a fact that they had no economic effect. This issue has real practical significance.”

He goes on to explain that the interests protected by malicious falsehood are purely economic interests: “the tort consists in the infliction of financial loss by maliciously publishing false words”. Therefore, for a claimant to recover damages for mental distress, it is “critical” that there is a causal connection between the injury to feelings and the financial damage inflicted by the falsehood. As he explains, “If the injury to the claimant’s feelings is not causally connected with the financial damage on which the action is founded, then it is not an injury caused by the tort and is therefore not compensable”. He therefore concludes that “in cases where section 3(1) applies, it therefore remains necessary, if an award of damages for injury to feelings is to be justified, to show that financial damage has been suffered which has caused such injury to feelings”.

Lords Hamblen and Burrows dissented on this final point. Their view is that mental distress damages can indeed be awarded to a claimant for malicious falsehood under s.3(1) even though he or she has suffered no pecuniary loss. Their lordships’ views are summarised as follows:

“It is our view that damages for proved mental distress/injured feelings can be and, unless ruled out on normal grounds such as remoteness, mitigation etc, should be awarded for malicious falsehood whether at common law or under section 3(1) (but, although we have heard no argument on this, not for loss of reputation as a non-pecuniary loss). In this case, this means that mental distress damages can be recovered by the claimant for, for example, upset and anxiety caused by the malicious falsehood that is actionable per se under section 3(1). As ordered by the Court of Appeal, the case should therefore be remitted to the trial judge for the assessment of such damages on the facts.

On this issue we therefore disagree with the judgment of the majority. Our reasons for doing so are set out above. The majority conclude that mental distress damages cannot be awarded because “financial damage is an essential element of the tort” (para 109). In our view that is inconsistent with the majority’s acceptance (at paras 51-56) that once the requirements of section 3(1) are made out the tort is actionable per se. If so, that means that the tort of malicious falsehood can be established (and, indeed, has been established in this case) without proof of pecuniary loss – ie it is not an essential element of the tort. It also follows that, contrary to what is said in the majority’s judgment at the end of para 109, our approach is consistent with the premise, shared with the majority, that non-pecuniary loss caused by a tort is recoverable subject to normal rules restricting or denying damages such as remoteness and mitigation.”

To read the judgment in full, click here.