Business Law: Protecting Your Business’s Reputation From Defamation
Protecting Your Business’s Reputation From Defamation: What You Need to Know
Read time: 3-5 minutes
Reputation is a significant factor to a business’s success or failure. Customers are influenced by what they read and hear on the internet, news and social media. While good publicity can help bring in more customers, bad publicity can deter customers away from the business and can cause significant monetary loss to the business.
Defamation occurs when a false statement, that lowers the reputation of the business in the mind of a reasonable person in the community, is intentionally communicated to at least one other person. Defamation can occur orally or in writing. Defamation cannot occur when the statement refers to an action that a corporation cannot legally do, such as practice medicine. When defamation occurs a business may be entitled to pursue civil litigation to recover damages.
Other Torts Available to Protect Reputation From Defamation
Tort law protects business reputation from many forms of defamation. It is important for a business owner to be able to recognize situations that may entitle a business to pursue civil litigation.
- Negligent Communication
Negligent communication occurs when a careless statement is made which harms the reputation of a business. In order to assert negligent communication, the injured party needs to show that there is sufficient proximity between the person who made the statement and the business that suffered harm, such that there exists a duty of care, and that the harm caused by the statement was reasonably foreseeable.
- Injurious Falsehood
Injurious falsehood occurs when a false statement regarding a business is made with malice and is published to a third person, resulting in loss of business. In order to show malice, the defendant must have known the statement to be false or been reckless regarding the truth of the information. Malice does not require that the defendant made the statement in ill will towards the plaintiff, only that the statement was made intentionally and without cause.
- Breach of Trademark or Passing Off
A breach of trademark occurs when a business infringes another business’s registered trademark, creating confusing in the marketplace. Passing off occurs when a business attempts to pass off or associate their business with another business, where no trademark exists. This can be done by using similar colours, packaging or logos. This can harm a business’s reputation where the goods that are being passed off are defective or incompetent.
- Interference with Economic and Contractual Relations
Closely related to the above, this occurs where economic harm results from illegal or unlawful means such as negligent communication, injurious falsehood or passing off. The defendant must intend to injure the plaintiff’s economic interests.
When defamation occurs, a business may be entitled to recover damages for injury to reputation, lost business and other factors.
- General Damages
Where defamation is proven on a balance of probabilities, the injured business can seek general damages for injury to reputation. Once a claim is proven these damages are presumed by the court. While it is hard to calculate general damages with precision, the court will likely look at the seriousness of the allegations, the actual and potential damages, and the good reputation of the plaintiff before the defamatory statement was made, among other factors.
The factors that a court should consider in awarding general damages are set out in Farallon Mining Ltd. v Arnold.
- Special Damages
In addition to general damages, the plaintiff can show specific and measurable monetary losses they have incurred as a result of the defendant’s defamation. Examples of specific business losses might be a lost contract with a potential customer, loss of existing customers or the costs associated with efforts to restore the company’s good reputation. The plaintiff must prove that the damages resulted from the defamation.
In order to prove special damages the injured party may be required to reveal confidential financial statements or business documents. This may not be desirable where the defendant is a competitor business.
- Aggravated Damages
Aggravated damages are intended to compensate the injured party for hurt feelings and mental stress. The court cannot impose aggravated damages when the plaintiff is a corporation because a corporation cannot suffer from hurt feelings.
- Punitive Damages
Punitive damages can be awarded to corporations. They are used to condemn a defendant’s egregious conduct where they acted with exceptional malice or oppressive conduct. The focus of the court is to punish the defendant, opposed to compensating the plaintiff. Punitive damages need to be proportionate to the defendant’s conduct and the need for deterrence.
In the case, Second Cup Ltd. v Eftoda, the court awarded punitive damages in the amount of $75,000 in addition to general damages in the amount of $425,000. The punitive damages were awarded by the court in proportion to the blameworthiness, intent and motive of the defendants and the egregious harm caused by the defendants’ actions. The court determined that there was a need to impose punitive damages in order to deter the defendants from committing further offences.
There are some defenses available to defendants in a claim of defamation. The defendant can attempt to show that the statement is true or that the statement was made in absolute or qualified privilege, fair comment, or responsible communication. Absolute privilege refers to statements made in legislature or in the courtroom. Qualified privilege refers to relationships where there is a social interest in protecting communication, such as communication within a business. Fair comment protects statements of opinion rather than facts. Responsible communication protects statements that are made in the public interest, such as a statement made by a journalist on a matter of substantial concern to the general public. Before initiating a proceeding, it is a good idea to consider if one of these defenses might apply.
Please contact Michael Paiva for more information about business defamation, or if you require assistance with a possible civil litigation matter.