Injurious falsehood: the claim for businesses that cannot sue for defamation

Most false statements that damage a business are dealt with as defamation. Some cannot be. Since the uniform defamation legislation came into force in 2006, companies with ten or more employees have had no cause of action in defamation at all, and even smaller businesses sometimes find that the statement complained of attacks their products or dealings rather than their reputation. For those situations the common law tort of injurious falsehood, sometimes called malicious falsehood, slander of goods or slander of title, remains available. It is a demanding claim, but in the right case it offers remedies that defamation does not, including interlocutory injunctions and uncapped damages for commercial loss. This article explains the elements, how the tort compares with defamation, why it matters for corporations, and where it fits alongside the misleading or deceptive conduct provisions of the Australian Consumer Law.

The elements

The High Court considered the tort in detail in Palmer Bruyn & Parker Pty Ltd v Parsons. A Newcastle councillor opposed to a McDonald’s development fabricated a letter on the letterhead of the surveying firm acting for McDonald’s, offering councillors free burgers for life and abusing local residents, and faxed it to a colleague. The firm lost its retainer and sued. Gummow J described the action as generally having four elements: a false statement of or concerning the plaintiff’s goods or business; publication of that statement by the defendant to a third person; malice on the part of the defendant; and proof by the plaintiff of actual damage, which may include a general loss of business, suffered as a result of the statement.¹ Gleeson CJ stated the same test more compactly: the plaintiff had to establish that the defendant maliciously published a false statement about the plaintiff, its property or business, and that actual damage resulted.²

The classic statement of the tort, quoted by Gummow J, is that of Bowen LJ in Ratcliffe v Evans: an action lies for written or oral falsehoods, not actionable in themselves nor even defamatory, where they are maliciously published, are calculated in the ordinary course of things to produce actual damage, and do produce actual damage.³

Falsity. The plaintiff must prove that the statement was false. In defamation, falsity is presumed and the defendant must prove truth. Here the burden is reversed, and a defendant who shows that the statement was substantially accurate defeats the claim without needing any further defence.

About the plaintiff’s goods, business or property. The statement need not be defamatory. A false claim that a business has closed, that its products are contaminated, that it does not hold a licence, or that it is about to be sold can found the action even though none of those things lowers anyone’s reputation in the ordinary sense. Equally, a statement that is defamatory of a company may also be an injurious falsehood if it concerns the company’s trade and the other elements are met. The same facts can support both torts where the plaintiff is entitled to bring both.⁴

Malice. This is the element on which most claims fail. Malice in this context means an intention to injure the plaintiff without just cause or excuse, and is commonly proved by showing that the defendant knew the statement was false, or was reckless as to its truth, or was actuated by an improper motive. In AMI Australia Holdings Pty Ltd v Fairfax Media Publications Pty Ltd, Brereton J found that each of five allegations a newspaper proposed to publish about a medical business was substantially false and calculated to cause it pecuniary loss, yet dismissed the injurious falsehood claim because the journalists had conducted a good faith, if imperfect, investigation and believed they had just cause to publish. Nor did the court’s finding of falsity mean that any future publication of the allegations would necessarily be malicious, because the journalists might obtain further evidence or honestly believe the court was wrong.⁵ Honest belief, however mistaken, is usually an answer.

Actual damage. The plaintiff must prove pecuniary loss caused by the falsehood. The loss may be a general decline in business rather than the loss of identified customers, but it must be proved by evidence and it must have been caused by the falsehood in a legally relevant way. In Palmer Bruyn, the surveying firm could show that McDonald’s ended its retainer after a newspaper reported a police investigation into the “bogus” letter, but the majority held that the newspaper report, which stripped out the absurd features that marked the fax as a hoax, was not the natural and probable result of the councillor’s publication, and the claim failed. Gummow J held that the defendant must either have intended the harm or the harm must be the natural and probable result of the publication; reasonable foreseeability is not the test.⁶ The case also establishes that the recipient need not have believed the falsehood. A statement the recipient knows to be untrue can still cause loss if it is a substantial factor in the recipient’s decision, for example a customer who stops dealing with the plaintiff to avoid the doubt or dispute the falsehood has created, as McDonald’s did when it ended the retainer to avoid being associated with anything that could cause doubt among residents.⁷

How it compares with defamation

The comparison shows why the tort is both harder and, in some respects, more useful. Everything that defamation presumes in the plaintiff’s favour must be proved, and the plaintiff must prove the defendant’s state of mind. Against that, none of the 2021 procedural hurdles apply: there is no serious harm element, no concerns notice, no offer to make amends regime and no statutory cap. Damages are compensation for proven financial loss, which in a substantial commercial case can far exceed the defamation cap.

Why larger companies rely on it

Under s 9 of the uniform defamation Acts, a corporation has no cause of action for defamation unless it is an “excluded corporation”, meaning one whose objects do not include financial gain for its members, or one with fewer than ten employees that is not an associated entity of another corporation; public bodies are excluded altogether.⁸ A company with ten or more employees that is the subject of a false and damaging publication therefore cannot sue for defamation, although its directors and executives can sue in their own right if they are personally identified and defamed.

For the company itself, the realistic claims are injurious falsehood and, where the statement was made in trade or commerce, misleading or deceptive conduct under s 18 of the Australian Consumer Law. In Beechwood Homes (NSW) Pty Ltd v Camenzuli, a home builder sought to restrain a building consultant from publishing website material describing it as the worst ranked builder and alleging dishonest commercial tactics. Harrison J noted that the plaintiff, as a corporation, had no cause of action in defamation under s 9, and that the true nature of the claim was to be determined from its substance.⁹ The restraint on publication was continued until trial on the basis of injurious falsehood and the Fair Trading Act.

The difficulty for corporate plaintiffs is the one illustrated by AMI: a critic, journalist or disgruntled customer who honestly believes what they say is not malicious, however wrong they are, and the company then has no remedy in this tort even if the statement is false and costly. That is why the Australian Consumer Law, which requires neither malice nor falsity in the strict sense, is often pleaded alongside it.

Injunctions

Courts are reluctant to restrain publication of allegedly defamatory matter before trial. In Australian Broadcasting Corporation v O’Neill, the High Court explained that the public interest in free speech, the fact that justification is usually unresolved at the interlocutory stage, the traditional role of the jury and the possibility that a plaintiff of poor character will recover only nominal damages all dictate caution, so that injunctions are granted in defamation only in clear cases.¹⁰ Gummow and Hayne JJ observed that the historical exception for slander of title and slander of goods, which later developed into injurious falsehood, meant that where both causes of action lay on the same facts an injunction might be granted in respect of the injurious falsehood claim.¹¹ Gummow J had made the same point in Palmer Bruyn: the inhibition on injunctions to restrain further publication of defamatory material does not apply to injurious falsehood, the rationale being that the tort protects proprietary and commercial rather than personal interests.¹²

In Beechwood, Harrison J held that the special rules applying to attempts to restrain a defamation did not apply to injurious falsehood, found a prima facie basis for malice and a reasonable probability of actual damage, and continued the restraint until trial.¹³ For a threatened publication, a reasonable probability of damage can suffice; the plaintiff does not have to wait for the loss to occur.¹⁴

Two cautions apply. First, courts have repeatedly said that the special rules for defamation injunctions cannot be avoided simply by relabelling a defamation claim as injurious falsehood, and injunctions have typically been granted only in cases that do not involve questions of public interest, free speech or liberty of the press.¹⁵ A claim against a newspaper over an article about matters of public concern will be treated very differently from a claim against a competitor’s false advertising or a former customer’s campaign. Second, the plaintiff must still show a serious question to be tried on each element, including malice, and the balance of convenience must favour restraint.

Interaction with the Australian Consumer Law

Where the false statement was made in trade or commerce, s 18 of the Australian Consumer Law prohibits conduct that is misleading or deceptive or likely to mislead or deceive, and the Act provides for injunctions, damages and other orders. A corporation of any size can sue, and the plaintiff need not prove malice or actual damage to obtain an injunction. The main limits are that the conduct must be in trade or commerce, which excludes much private commentary, and that prescribed information providers such as media organisations are exempt for most publications under s 19. For statements made by a competitor, a supplier or a customer in a commercial context, a combined claim in injurious falsehood and under s 18 is the usual approach, with the consumer law claim carrying the case if malice cannot be shown. The companion article on misleading or deceptive conduct deals with this in more detail.

Limitation

Because injurious falsehood is an ordinary tort, the general limitation period applies rather than the short defamation period. In New South Wales a cause of action founded on tort must be brought within six years, whereas defamation must be brought within one year from publication.¹⁶ Queensland is the same: six years for an action founded on tort, one year for defamation.¹⁷ Other jurisdictions have equivalent provisions in their limitation statutes. The longer period is a practical advantage where loss emerges slowly, but a plaintiff who has let the defamation period expire should not assume that an injurious falsehood claim is a straightforward substitute, because the elements are different and harder.

Practical points

• Identify precisely what was said, to whom and when, and whether it concerns the plaintiff’s goods, business or property rather than only the reputation of an individual.
• Gather the evidence of falsity early; the plaintiff bears the burden.
• Collect material bearing on the defendant’s state of mind: prior dealings, warnings that the statement was false, the defendant’s response when challenged, and any motive to injure.
• Document loss with financial records, and be prepared to prove the causal link between the statement and the loss rather than mere coincidence in time.
• Consider a combined claim with the Australian Consumer Law where the statement was made in trade or commerce.
• If the publication is ongoing and the plaintiff is a company, consider an early application for an interlocutory injunction, which is far more realistic than in defamation.
• For defendants, an honest belief in the truth of the statement, supported by contemporaneous material, is the central answer to the malice element.

Differences between jurisdictions

The elements of the tort are governed by the common law and are the same throughout Australia, although procedural and limitation rules differ. The restriction on corporate plaintiffs in s 9 is in the same terms in the uniform defamation Acts of New South Wales, Queensland, Victoria, South Australia, Tasmania, Western Australia and the territories, although the territory provisions are numbered differently. The Australian Consumer Law applies nationally. Limitation periods for tort are generally six years but should be confirmed for the jurisdiction concerned.

Getting advice

Injurious falsehood fills a real gap for businesses that cannot sue in defamation or whose complaint is about false statements concerning their trade rather than their character. It is, however, a claim that demands evidence on every element, and in particular evidence of the defendant’s state of mind and of financial loss that defamation plaintiffs never have to assemble. Early advice on whether the facts support malice and loss, and on whether the Australian Consumer Law offers an easier route to the same result, will usually determine whether the claim is worth bringing or worth resisting.