Defamation: serious financial loss and offers of amends examined

23 Nov 2016

(1) Khalid Undre (2) Down to Earth (London) Ltd v The London Borough of Harrow [2016]
 

In (1) Undre (2) Down to Earth (London) Limited v London Borough of Harrow [2016] EWHC 931 (QB) and [2016] EWHC 2761 (QB), a defamation claim, the court has examined what is meant by serious financial loss for the first time and has considered the relationship between serious harm/loss and the offer of amends procedure.

The Defamation Act 2013 section 1(2) introduced a new requirement for claimants that ‘trade for profit’ before they were able to pursue a defamation claim. Such claimants have to show that the statement complained of has caused, or is likely to cause, serious financial loss to them before it can be regarded as defamatory (‘the serious financial loss test’).  

There is a statutory procedure in the Defamation Act 1996 (sections 2 to 4) whereby a defendant who has made an innocent mistake can offer to make and publish a suitable correction and sufficient apology. Such an offer also includes an agreement to pay compensation and costs (with the court determining these if agreement cannot be reached). The London Borough of Harrow (“LBH”) made such an offer to the individual claimant (the director and shareholder in the company “DTE”) Mr Undre, which was accepted.
 

The facts

Mr Undre ran a vegan and vegetarian restaurant called Down to Earth in Kensington High Street, London. The restaurant was operated by DTE. He also kept rare breed cows on some farmland he owned in Harrow.

LBH pursued a prosecution against Mr Undre relating to the cows’ welfare. At trial, Mr Undre was convicted of a number of offences connected to the handling of the cows. LBH published a news release on its website about the matter. It was alleged that the news release was defamatory of both Mr Undre and DTE and they pursued claims against LBH.

Given the way that the action progressed procedurally the court first dealt with the claim of DTE and then that of Mr Undre resulting in two separate judgments.
 

Down to Earth - the decision

It was found at the trial of preliminary issues in April that DTE had not been defamed by the news release. The court also considered, (in case it was wrong on that), whether DTE’s claim satisfied the section 1(2) serious financial loss test. DTE argued that following the news release the restaurant’s trade suffered with a consequent decrease in net sales.

DTE’s main problem was that it had not put forward profit and loss calculations of any kind. It relied on a “Net sales summary” prepared by its accountants based on credit card receipts and cash banked. This was found to be unhelpful as it only showed revenues and did not provide evidence about costs or profits. DTE also relied on a ‘sales analysis’ document extracted from VAT returns and its bank. However, discrepancies in the figures were unexplained and this undermined confidence in both documents.

Mr Justice Warby made it clear that a claimant can only recover damages for loss of profit (or increased losses) actually caused by the publication of the statement complained of. In the absence of persuasive supporting evidence the judge found that DTE had not proved it had suffered any serious financial loss as a result of the publication of the statement complained of and so had not overcome the necessary threshold.


Mr Undre - the decision

DTE took no further part in the proceedings but there remained Mr Undre’s claim to be resolved as whilst he had accepted an offer of amends, the parties were unable to agree the figure for compensation. Judgment on that issue, which proceeded to a full hearing, was handed down earlier this month.

In determining what the figure for compensation should be Sir David Eady (sitting as a High Court Judge) considered the important inter-relationship between the serious harm test and the offer of amends regime which has proved to be extremely effective in the resolution of claims.   It has to be deployed before a defence is entered but if an offer of amends is made it can be relied on as a defence. The court will usually make a discount of between 25% and 50% of the base damages to reflect that an apology/correction will be published and the vindication the claimant achieves from such an offer. For these reasons such offers are rarely rejected and claims often resolve at a very early stage with the consequent costs saving.

Here the challenge for the court was to consider whether having made an offer of amends LBH were entitled to argue that any damage done by the publication complained of was minimal or trivial in circumstances where it was accepted that under the new regime it is implicit in the making of an offer of amends that serious harm/loss has been caused. 

In examining the relationship between the serious harm test and the offer of amends regime, the judge said:
 

“It is plain that they co-exist and must be made, where it is appropriate, to operate in harmony. Just as a defendant cannot make an unqualified offer of amends while contending that the words are true, so too it would not be consistent with the underlying objective to argue that the defamatory words are trivial.“

That said, the judge was satisfied that account can be taken of mitigating failures even in the context of an offer of amends such as “relevant background context”. Here that meant reaching the right figure for compensation for a claimant who had been convicted of a number of animal welfare offences. On that basis the right starting figure was £12,000 with a 25% discount applied for the offer of amends resulting in a final figure of £9,000.


What this means for you

A number of strategic and tactical conclusions can be drawn from the judgments in this case:

  • This is a useful reminder that the serious financial loss test is a substantive hurdle to overcome and that allegations of serious financial loss must be backed by cogent and persuasive evidence.
     
  • The case also highlights the challenge that companies face in demonstrating serious financial loss, where profitability can be affected by a huge range of factors aside from the statement complained of.
     
  • If determination of serious financial loss is likely to require expert evidence, the court will need to be persuaded that dealing with the claim by way of preliminary issues is a cost effective one. The court was concerned that only appropriate cases are dealt with by way of a preliminary hearing in this way given that if the serious financial loss test is satisfied at the first hearing there is potentially then a need for a second hearing to determine quantum.
     
  • Corporate claimants should be wary of pursuing a defamation claim if they are not able to produce either a comprehensive profit and loss account or obtain expert evidence to demonstrate serious financial loss. Defendants to such claims should weigh up the risk of requiring a corporate claimant to incur the cost of proving serious financial loss, against the prospect of dealing a knockout blow at a preliminary issue stage.
     
  • This case highlights the difficulty of contending (as defendants are likely to do) that the damages should be nominal or small where an offer of amends had been made (and therefore serious harm conceded). How the courts deal with the balance between the requirement to prove serious harm and the offer of amends procedure is crucial especially as the judgment looks to avoid deterring defendants from making use of the offer of amends procedure to promote early resolution of claims.
     
  • Defendants should bear in mind that making an offer an offer of amends involves accepting that serious harm/serious financial loss has been caused. They will not be able to argue that the harm/loss was minimal (and if this is the case should consider arguing for serious harm/loss as a preliminary issue) but will be able to rely on any mitigating facts in reducing damages.


Tim Smith, partner and Vishal Parmar solicitor, of BLM acted for the London Borough of Harrow.

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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