In the age of digital and social media, it is important to take care of your business’ reputation. If someone has made a false statement against yourself or your business and you have suffered financial loss as a result, they may be liable for injurious falsehood. The tort of injurious falsehood can protect those suffering financial loss caused by false representations made about the goods and/or services of a person or company. These statements can either be written or spoken, and must encourage others not to engage with the business of the plaintiff, causing economic loss. Keep reading this Legal Kitz blog for more information on what may constitute as injurious falsehood.
What is the difference between injurious falsehood vs defamation?
Injurious falsehood may be a source of economic relief for businesses suffering loss who cannot succeed with a defamation claim under the Defamation Act 2005 (Cth) (“Defamation Act“).
Defamation is also a tort which can arise when defamatory material is published which can injure the reputation of the plaintiff. The Defamation Act carefully balances the rights of the alleged tortfeasor, such as the right to freedom of expression, and has created speedy and efficient dispute resolution in the event of defamatory statements.
The Defamation Act has also created limitations to defamation actions available to businesses. Section 9 of the Act restricts it to corporations which:
do not seek to obtain profit or financial gain; and
employ fewer than ten people.
Such a corporation with more than 10 employees will need to rely on injurious falsehood. The difference between injurious falsehood and defamation is that injurious falsehood protects commercial interests, rather than a plaintiff’s personal reputation.
What are the elements of injurious falsehood?
Established in the case of Mahon v Mach 1 Financial Services Pty Ltd (No 2) [2013] NSWSC 10, the required elements of establishing injurious falsehood claims are:
a statement concerning the plaintiff’s goods or businesses which is false;
the statement has been published and concerns the plaintiff;
the statements were published with malice by the defendant; and
the statements caused actual loss and damage.
1. False statements
There must have been a false statement concerning the plaintiff’s goods or business, which has been made by the defendant. Whether the statement was a falsehood is a determination made by the Court which depends on the circumstances of the case. There may also be consideration on whether the statement is referring to the plaintiff’s goods and services.
2. Publication
The false statement must have been published and communicated to a third party. An action cannot succeed if the statement was only communicated from the defendant to the plaintiff. It is not a requirement that the publication be widely communicated, although this factor will be taken into account. Publication can be in both a written or spoken form, so the demonstration of a published statement may vary. It is important to note that a party which has control of a communication platform may be liable as a secondary publisher. For example, the administrator of a forum may be held liable for controlling the platform on which false representations are made.
3. Malice
There must have been malicious intent behind a publicised false statement, which can be established by showing the existence of indirect, dishonest or improper motive, or an intent to injure without just cause or excuse. Malice is a question of fact which may be difficult to establish, but can be proven by demonstrating that the publisher knew that, as a result of the publication, the plaintiff was likely to suffer financial harm.
4. Actual damage
Finally, there must be actual damage which has been caused by the statement, such as loss of business or sales. Potential or future damage cannot be included, but a claimant may also be able to establish general financial loss. In the instance that actual damage cannot be proven at the time, the plaintiff may also seek an injunction (a court order to remove or stop publishing the false statements) to prevent further publication while the litigation is pending.
The court will accept reasonable probability of economic harm as opposed to evidence of actual damage when granting an interim injunction. Actual damage must be proven to recover any damages. The following factors will be taken into account by the court when considering any applicable damages:
Seriousness
The nature, context, and malice of the defendant’s statements will be considered. For sufficient seriousness in a claim for injurious falsehood, the statement must have:
a clear intention to cause damage; and
the nature and substance must show malicious intent.
Extent of the publication
The type of publication and the audience that the defendant intended to reach is an important consideration for the court in a claim for injurious falsehood.
For example, if the false publication was aimed at the plaintiff’s colleagues, clients and/or target demographic, it may have a stronger impact than being communicated to those outside of the plaintiff’s industry or demographic.
The ‘grapevine’ effect
The grapevine effect helps measure the economic damage caused to a plaintiff through the spread of the defendant’s false statement. This effect was discussed by the court in Crampton v Nugawela (1996) 41 NSWLR 173 as a way of defending a plaintiff from industry gossip.
This effect will have an impact on the extent of publication: by targeting one or two influential and informative people, the defendant may spread false statements further than it would seem at first blush. This extent will be considered by the court in a claim for injurious falsehood.
Size of the business
It may be difficult to prove that any damage has occurred if a business has not been operating for long or does not have a sufficient reputation. The size will generally be taken into account by the court to get an overview of the reputation a business may have realistically lost through the statement.
Effect on the plaintiff’s reputation
While a statement may be false, malicious, widespread and targets a reputable business, it may simply have a negligible impact on the plaintiff’s reputation. On the other hand, if the plaintiff can exemplify a severe impact, this will also be taken into account.
Attempts of rectification
The court will also consider the effect of any apologies the defendant has made in an attempt to rectify the false and malicious statements. If the defendant publicly apologises and acknowledges the statement to be false to all third parties who witnessed the original publication, damages may be averted by the defendant.
An apology may be made too late or be too insignificant to rectify the damaged caused.
Limits to damages
Damages are limited to actual damage suffered by the plaintiff, but economic loss caused by injurious falsehood can be very difficult to establish and accurately assess. The court will usually use the above factors to determine the impact of the false statement, and actual evidence will often have little to no bearing on the court’s decision.
Legal advice
False statements can have rapid and significant impacts on the success and reputation of your business. If you believe you may be a victim of, or liable for injurious falsehood, you may want to seek legal advice. Legal Kitz is here to help. We offer FREE 30-minute consultations to assist you with any queries or concerns. Book here now for your free consult.