Clarifying the test for malicious falsehood in George v Cannell

Facts

Fiona George (the claimant), was a recruitment agent in the construction sector, who worked for LCA Jobs Limited (second defendant) – a company owned by Linda Cannell (first defendant). George moved to a different agency, and soon after, began soliciting business from LCA's clients.

Cannell made statements to one of LCA's clients, and also to George's new employer. On both occasions, Cannell falsely stated that George was acting in breach of her post-employment obligations with LCA – namely, she was prohibited from soliciting business from LCA's clients. However, George was not in fact restricted from soliciting LCA's clients under her post-employment obligations, and moreover, Cannell knew that George was not restricted in this way. George later resigned from her new employer, and obtained another recruitment position in a different sector.

George brought a claim against Cannell and LCA for defamation and malicious falsehood.

At first instance, the High Court dismissed George's claim for defamation on the basis that she failed to prove that she had suffered any serious harm, and malicious falsehood on the basis that she failed to prove that she had suffered financial loss.

However, the Court of Appeal reversed the first instance decision, and found that the respondents were liable for malicious falsehood under s.3(1) of the 1952 Act, even though George had not suffered any financial loss. The Court of Appeal held that where liability for malicious falsehood was established, George could recover damages for injury to her feelings / mental distress.

The defendants appealed to the Supreme Court.

Issues

The defendants' appeal hinged on the proper interpretation of s.3(1) of the 1952 Act, which we quote in full:

"(1)In an action for slander of title, slander of goods or other malicious falsehood, it shall not be necessary to allege or prove special damage—

• if the words upon which the action is founded are calculated to cause pecuniary damage to the plaintiff and are published in writing or other permanent form; or

• if the said words are calculated to cause pecuniary damage to the plaintiff in respect of any office, profession, calling, trade or business held or carried on by him at the time of the publication."

The issues before the Supreme Court were as follows:

• Did section 3(1) of the 1952 Act require proof of financial loss in order to be actionable?

• If so, can a claimant also rely on s.3(1) to recover damages for injury to their feelings in relation to the publication of the malicious falsehood, even where no financial loss has been caused to the claimant?

Judgment

By a three to two majority, the Supreme Court allowed the defendants' appeal.

Proof of financial loss required

The Court unanimously found that a claim for malicious falsehood under s.3(1) of the 1952 Act was actionable per se – i.e. it did not require actual proof of financial loss, in order to be actionable. The Court conducted an extensive historical examination of the common and statutory law on malicious falsehood as an economic tort, and concluded that while it is actionable without proof of financial loss, proof of financial damage "is an essential element of the tort" in order to successfully claim damages.

In particular, the test under s.3(1) is whether or not the words complained of "are calculated to cause pecuniary damages to the claimant". Specifically, whether it was "objectively likely" that the published words were likely to cause the claimant financial loss, given the facts known to the defendant (or should have been known) at the time they published the words complained of.

The Court rejected the defendants' argument that s.3(1) did not apply if the evidence showed that no financial loss occurred.
On the facts, this meant that the claimant was able to show that the defendants' statements were likely to cause financial loss, and therefore the Court found that her claim for malicious falsehood succeeded on liability. However, because the claimant could only recover damages for the financial loss which she had sustained, and she had not actually sustained any financial loss as a result of the defendants' statements, she was only entitled to nominal damages.

No claim for damages for injury to feelings

Lord Leggatt (with whom Lord Hodge and Lord Richards agreed) also determined that damages for injury to feelings / mental distress were not recoverable in a claim for malicious falsehood, where there had been no financial loss. In doing so, their Lordships considered that malicious falsehood was an economic tort with financial damage as an essential element of the tort, and, properly interpreted, s.3(1) of the 1952 Act was not intended to protect against non-pecuniary harm (being the "emotional wellbeing" of the claimant in this case). The only way in which damages for mental distress are recoverable are if that mental distress is caused by the financial loss or if the claimant is entitled to aggravated damages as a consequence of the "exceptional and contumelious" behaviour of the defendant. This was not the case here.

Lord Hamblen and Lord Burrows dissented on this point. They considered that mental distress damages could be awarded for malicious falsehood, even in the absence of financial loss being proved by the claimant. Their Lordships view was that it was inconsistent for the majority to conclude that malicious falsehood was actionable per se, but then determine that injury to feelings / mental distress damages were only recoverable on proof of financial loss.

Their Lordships observed that there was "no good reason, of principle and policy" for mental distress damages to be limited in this way, and that it would be "artificial and arbitrary" if the award of mental distress damages turned on whether or not a claimant was able to show it had sustained financial loss, even where that loss was nominal. Further, Lords Hamblen and Burrows considered that the award of mental distress damages could be subject to the normal constraints of remoteness and mitigation.

Comment

The Supreme Court's judgment is an important clarification for the test on malicious falsehood under the 1952 Act. As noted by the Court, the question of whether a claim under s.3(1) required proof of financial loss in order to be actionable, had not been determined before by the courts.

The test for bringing a claim for malicious falsehood remains a high bar to meet, not least because of the requirement of proving that the statement was made with an improper motive, in addition to proving that financial loss was caused, or was "objectively likely" under s.3(1) of the 1952 Act. While this was comfortably proved on the facts of this case, it is generally difficult to make out in practice. Prospective claimants may want to explore alternative causes of action such as defamation, where a malicious falsehood claim is not viable on the available evidence.

However, the majority decision that mental distress damages in a claim for malicious falsehood are not recoverable in the absence of proving financial loss, appears to have been a difficult decision. Their Lordships were interestingly divided on this point. While Lords Hamblen and Burrows were in the minority, their dissent powerfully articulated why a claimant should be able to recover mental distress damages without having to establish financial loss.