Defamation and Corporate News Releases
Likely to the relief of publicly traded companies, the B.C. Supreme Court recently dismissed a claim in defamation over a corporate news release that provided general information about the intended response to a lawsuit. The court did so on the grounds that news releases issued by companies to report on litigation brought against them are published on occasions of either absolute or qualified privilege. As such, the content of the news releases, even if defamatory, are protected and cannot be the basis for a defamation claim.
The case, Merit Consultants International Ltd. v. Chandler, involved the cancellation of a consulting contract between the plaintiff, a consulting firm, and Redcorp Ventures Ltd., a publicly traded mining exploration company. The plaintiff sued Redcorp for breach of contract after Redcorp unilaterally terminated the plaintiff’s services. In response, Redcorp issued a news release stating that it had good reason to terminate the plaintiff’s contract and intended to “vigorously defend the action and counterclaim alleging negligence and breach of contract on the part of Merit that has caused damage . . . , and for costs”. Subsequently, Redcorp was assigned into bankruptcy, effectively ending the plaintiff’s breach of contract claim. Undeterred, the plaintiff then started a claim against Redcorp’s directors alleging that the news release was defamatory.
The issue before the court became whether or not a news release, even if defamatory, was protected by a defence of privilege. The directors (in addition to pointing out they individually had not published the news release) argued that the news release was protected by either absolute or qualified privilege. Absolute privilege protects any publication, even if defamatory. Speeches in Parliament and evidence given at trials are examples of occasions protected by absolute privilege. Qualified privilege protects a publication when it is made to persons who have a duty or interest in receiving it and if it is made for a proper purpose. Qualified privilege can be defeated if the defamatory comments were made maliciously, meaning for an improper purpose. An employee reporting to their employer or a patient to their doctor are examples of occasions of qualified privilege. Generally, the scope of publication on occasions of qualified privilege is quite limited.
The interesting point in this case is that the news release was made available to the world, not just a limited audience. The court began its analysis by highlighting the principle of openness in the judicial system and noted that this included the right to publish and comment on documents filed with the courts, including civil claims filed by litigants. The news release in this case gave notice of a material event involving Redcorp (the litigation) to people who may have an interest in knowing about it such as shareholders, employees and creditors. The court viewed it as illogical that a person could commence a lawsuit making serious allegations of wrongdoing affecting Redcorp and be immune from a defamation claim but that Redcorp could not make any responsive comment about that lawsuit without risking a defamation claim.
The court found it reasonable for Redcorp to advise those who had an interest in its affairs that the lawsuit would be defended, the grounds of the intended defence and the prospect and nature of a counterclaim against the plaintiff. As the Court noted, “the notion that one party can initiate process against another and then somehow claim to be defamed if that party says how it intends to respond makes a trap out of what is meant to be protection against truly egregious behaviour. The mild allegation that one intends to sue for breach of contract and negligence in response to a claim for breach of contract is nothing of the kind.”
The underlying reason for this was the public interest in freedom of expression by participants in judicial proceedings. In dismissing the claim, the court did not decide whether the applicable privilege was absolute or qualified as it found either would succeed. There was no allegation or evidence the news release had been issued maliciously.
This decision is good news for companies who wish to make public comment relating to ongoing litigation in which they are involved. Provided the statements made are related to the lawsuit and are not egregious, they will be immune for claims of defamation.