Following defamation of a company on the internet and the subsequent reduction in the value of their shares, can shareholders sue the defamer for damages?
Under some circumstances, the shareholders might be able to sue but their real legal challenge would be to prove causation between the defamation and the loss that they incur through the reduction of the value of their shares in the defamed company.
Defamation against a company can cause the company damage which is in excess to the damage which normally follows defamation against an individual.
Some people argue that because companies do not have feelings, defamation against a company should be treated by the court more lenient than defamation against an individual when it comes to awarding damages for defamation.
But what if defamation against a company brings the company share price down? Would the court take into consideration the feelings of the shareholders who lost money as a consequence of the defamation against the company?
Probably not because the company is a distinct legal entity the court will consider the feelings of the shareholders as irrelevant to any legal action which is brought by the company.
Firstly, defamation against a company might damage the reputation of products or services that the company sells, resulting in lower sales. Secondly, defamation against a company might result in difficulties to raise investment, and thirdly, defamation against a company might result a slap to the company’s share price, defamation of a company could therefore result in a simultaneous loss of confidence by both customers and investors at a time when the company is in urgent need for cash.
This might result in the company exposing itself to a hostile takeover.
Occasionally a spate of defamation against a company, particularly on the various investors’ forums, has the potential of influencing the company shares price which means there could be a sizeable portion of shareholders who lost some of their money as a direct result of defamation against the company.
In such case, can a company sue the defamer for damages for the loss of value of its shares?
The general answer is no because the company and its shareholders are separate legal entities, the shareholders will need to sue for damages independently of the company, after all, it is the individual shareholders who lost their money following the defamation on the company as opposed to the company itself.
As evidence is emerging that proves defamation against a company has the real potential of influencing its share value, company directors and particularly non-executive directors, are becoming more concerned about finding themselves victims of defamation. Whilst feeling as if you are not being listened to or being ignored, it does not take long before those who defamed the company in the first instant escalate their defamatory activities and begin to target the executives. This adds a new element of risk to the position of a non-executive director of a company.
As large portions of websites are being backed up and archived by third parties, the personal price that company directorship extracts might be far greater and longer lasting than initially anticipated.