Technology, Media and Telecoms | 01 May 2010

The threat from modern methods of communication is that the potential damage to an individual, company or brand’s reputation is fast and global. As international companies and their brands grow, so does the need for a trusted reputation and the need to protect the brand. The speed at which information travels, especially in this internet age, means that damage to reputations can be swift and far-reaching. Clients doing business worldwide need advice on an international scale. A media crisis affecting a brand’s product in Spain can rapidly spread online through the EMEA region, or even globally, and can then be picked up by the mainstream media in newspaper articles across many different countries. Having a proactive cross-border media strategy is a vital element in damage control.

An internationally renowned client would do well to know the details of the approaches of different jurisdictions to reputation protection, or at least have access to someone who does. It may be that their interests are better protected by the laws of another jurisdiction. This is not meant to advocate forum shopping, but to promote a sophisticated and intelligent attitude to reputation protection. A defamatory article concerning a client published on a French website can be dealt with from the UK, as it is ‘published’ here. However, it would be much faster, less expensive and certainly more subtle to use the droit de réponse procedure in France.

One of the best methods is to have instant access to the appropriate advisers, who have in-depth knowledge of the law of that country as it relates to reputation protection, and how best to use it: a little black book of reputation protection specialists around the world, available at a moment’s notice. Schillings has an established and trusted network of such lawyers, and has acted as the single point of contact to manage multi-regional threats to reputation and ensuing litigation. This allows clients to outsource the inevitable time and resources that would be required to manage such an eventuality to people who know what to do and, most importantly, who to call.

Acting swiftly and keeping ahead of the latest developments is essential in a crisis scenario. Having access to this efficient pan-European resource can make all the difference in providing a fast solution, while allowing the in-house legal team to concentrate on other matters and the communications teams to work on the positive messages to help limit the damage to the corporate or brand reputation.

GLOBAL THREATS TO REPUTATION

Modern communication is international and instantaneous. As such, the potential for damage is immense. The internet has completely changed the battleground, and it is constantly evolving. Online news, Facebook, blogs and Twitter all contribute to the dissemination of information, and if that information is harmful the effect can be devastating. A disgruntled employee or dissatisfied customer only has to post one negative comment on a backstreet blog for it to become a raging fire in the mainstream press. The need for news, 24/7, also results in journalists churning out unresearched articles to meet increasingly unrealistic deadlines and demands. This practice is referred to as ‘churnalism’. Facebook, blogs and Twitter are the first port of call for many journalists, scouring the sites for any signs of a story.

As modern communication knows no borders or boundaries, and there is no international charter on reputation protection, corporates are confined to the laws of each country to seek to protect a reputation, and each country’s laws are different (as illustrated in the case study on p57). However, this is not as much of a nightmare as it sounds. While each jurisdiction’s law, and application of the law, differs, so do the options and opportunities for protecting reputations.

A EUROPEAN SOLUTION

Right of reply

In France, criminal libel law offers a droit de réponse, which provides that the record must be set straight within months, with the defamer getting a criminal record and being obliged to publish a prompt and appropriate retraction. Defendants are only afforded three months’ notice to appear before a tribunal, and have just ten days from receiving that notice to file evidence in defence if they want to assert that the statement is true and to provide a list of witnesses that they intend to call. If the evidence and list is not filed within the ten days, the evidence will not be admitted and the witnesses will not be heard. Hearings are brief, generally lasting less than a day.

In England, there is no right of response. Defamation proceedings must be issued to oblige a defendant to set the record straight. Defamation proceedings can be long (generally 18 months) and expensive, and result, if successful, in a judgment clearing the claimant’s name and an award of damages and costs. The court cannot compel the defendant to publish an apology or retraction. What sets England apart is the amount of damages awarded, which are usually much higher than the amounts awarded by European courts.

Injunctions

You cannot, yet, prevent the publication of defamatory material in the UK, following Bonnard v Perryman [1891]. Damages are perceived to be an adequate remedy. Reynolds v Times Newspapers Ltd & ors [1999] (a case that established a defence for responsible journalism) outlined principles that unsettled publishers. The questions raised were:

  • What is the urgency?
  • Who are your sources?
  • What are the precise allegations?

This is a very effective tool to tone down, and even prevent, the publication of defamatory allegations.

Contrast this with Germany, where injunctions are commonly used to restrain the media from repeating allegedly false and defamatory reports. Injunctions to prevent the first publication of a possibly defamatory statement are rarely ever issued because of the difficulty that claimants face in substantiating the contents of the prospective statement. An injunction can be permanent, through final judgment, or temporary, through an inhibitory order pending litigation. Injunctive relief is available where:

  1. a claimant can prove that the defamatory statement is untrue; and
  2. the defendant fails to meet the burden of showing that they have conformed to the duty to investigate the facts.

Who to sue

In France, under the rules of the press, each media organisation nominates a person who is responsible for statements published by that organisation. The directeur de la publication is the one who is sued, personally, in the event that those statements are defamatory. France operates a ‘cascading’ system of responsibility, first in line being the directeur de la publication who assumes full responsibility for their team. This allows for easier identification of the person against whom proceedings should be initiated. A similar system operates in Spain and Italy. In England, you can sue anyone responsible for publishing the defamatory statement, including the author, editor, publisher and even, in certain circumstances, the distributor.

A frequent conundrum is how to approach the anonymous blogger posting defamatory material on a website. In Spain, the internet protocol (IP) address of the author is protected by data protection laws. In France, as in this country, you can apply to court for an order that the internet service provider (ISP) reveals the individual’s details. In England, the ISP is treated as a publisher of the defamatory statement and is the usual port of call. Aside from the traditional defences of justification, fair comment, qualified privilege and absolute privilege, an additional defence is available under s1 of the Defamation Act 1996 if a person can prove that:

  1. they were not the author, editor or publisher of the statement complained of;
  2. they took reasonable care in relation to its publication; and
  3. they did not know and had no reason to believe that what they did caused or contributed to the publication of a defamatory statement.

In Europe, the Electronic Commerce (EC Directive) Regulations 2002 define the circumstances in which internet intermediaries (including ISPs) can be held liable for material hosted, cached or carried by them. In brief, the Regulations give immunity from liability to internet intermediaries who act as ‘mere conduits’ and qualified immunity to internet intermediaries who act as ‘cachers’. To qualify for this immunity, cachers must act in accordance with industry standards and must have immediately removed material on receipt of a complaint. The Regulations also give an even more qualified immunity to internet intermediaries who act as hosts. Again, this is dependent on the host immediately removing material on receipt of a complaint.

Where to sue

A defamation action can only be issued in the UK if there has been publication in the jurisdiction. If the newspaper or manuscript was not available in the UK, no claim could be brought. The internet has radically changed this. Under UK libel law, the tort is committed in the place where the publication is received by the hearer, reader or viewer. Therefore where material is posted on a blog in France, but accessed by a person in England, the tort is committed in England (see Dow Jones & Co Inc v Gutnick [2002]) .

In Fiona Shevill & ors v Presse Alliance SA (convention on jurisdiction and the enforcement of judgments)[1995] the European Court of Justice (ECJ) held that a party seeking compensation can sue in a state where they suffered direct damage. In Shevill, a person resident in England claimed compensation for an article published in a French magazine. The ECJ considered whether the ‘place where the damaging event took place’ could be every location where the allegedly insulting publication was circulated or whether jurisdiction can only be conferred on the courts of the state in which the publisher has its registered office. The ECJ held that the victim of damage to honour and reputation can bring a claim before the courts of every single state in which the insulting statement was circulated. This principle applies only to damage sustained in the particular state. Compensation for all damage sustained can only be brought in the courts of the state where the publisher has its registered office.

Case Study

In a recent example, an international client encountered an issue with a journalist from a national newspaper in Switzerland. The journalist contacted the client’s local office in Zurich with a series of questions, which all seemed to point to an allegation that the client was insolvent. The allegation was entirely without foundation and, if published, would be extremely damaging to the client’s business worldwide. The local office called the head office, who then called Schillings. Schillings contacted a Zurich law firm, well versed in Swiss media law and reputation management. The Swiss lawyer wrote to the journalist, editor and in-house legal team of the regional newspaper, reminding them of their responsibilities, both legal and journalistic, under Swiss law, and warning them that any deviation would be met with swift legal action. Schillings contacted lawyers in several other European jurisdictions where the client had a significant presence, to warn them of the potential of a similar threat arising in those countries. After an initial and brief resistance, the Swiss newspaper undertook not to publish the article and the story disappeared. It was not the international catastrophe that the client had feared. However, if it had ended down that route, the client would, at least, have been prepared.

 

European approach to defamation law

 England

English defamation law is divided between libel and slander. If the publication is made in a permanent form – eg in a letter, on a billboard, on a blog – it is libel. If it is made in some transient form – eg it is spoken or an instant message – it is slander. The limitation period is one year from the date of the defamatory statement. The claimant must prove that the statement is defamatory, ie that it damages their reputation, and it is for the defendant to prove that the words are:

  1. a) true;
  2. b) fair comment; or
  3. c) made on a privileged occasion (absolute or qualified).

Defamation actions, which are brought in the civil court, are conducted before a jury, unless there will be a prolonged examination of documents, in which case it is tried by judge alone.

France

In France, unlike the UK, there is no distinction between libel and slander. The limitation period is very short – only three months starting from date that the defamatory material was first published. The defences are:

  1. a) justification;
  2. b) good faith;
  3. c) privilege/immunity; and
  4. d) the defamatory material was an expression of an opinion, not fact.

Defamation is a criminal offence in France, actionable in civil and criminal courts, and tried by judge alone.

Germany

In Germany, libel includes statements in verbal, written or other form that injure a person’s reputation. The limitation period for bringing a claim is three years after the end of the year when the defamatory material was published. The defences are:

  1. a) the libel was a statement of opinion;
  2. b) it was in ‘fulfilment of journalistic diligence and carefulness’;
  3. c) that a false allegation of fact may be justified if the maker of statement has acted ‘in the pursuit of legitimate interests’; and
  4. d) fair comment on a matter of public interest.

Like the UK, the burden of proof is on the defendant.

Spain

In Spain, there is a distinction between libel and slander. Libel is defined as an imputation of a crime made with knowledge of its falsehood or rash disregard for truth. Slander is an act or expression that harms the dignity of another person, discredits their reputation, or undermines their self-esteem. Defamation is both a criminal and civil offence. Slander is punishable by a prison term of between six months and two years, and a fine; libel is punishable by a fine. The principal defence is whether the statement was true. Unlike the UK, the claimant bears the burden of proof and must establish elements of the offence. However, the defendant has the burden of proving that the defamatory imputation is true and that there was no willful misconduct.

Technology, Media and Telecoms | 01 April 2010

It is well recognised that the Internet has made the world a smaller place. Not just by the easier methods of communication and the exchange of information, but also to commerce and the availability of new, larger markets to buy and sell to. These changes have provided opportunities for small businesses to reach a potential global audience, but beware, when a small business competes on the world stage, they can find themselves unprepared for the infringement of copyright or passing off in any number of jurisdictions. [Continue Reading]

Technology, Media and Telecoms | 01 March 2010

When we think of reputation, particularly corporate reputation, we are really thinking about trust in an organisation. A successful company must gain the trust of its employees, suppliers, shareholders and customers to help win a commercial advantage over its competitors and protect the value of its business. Losing stakeholder trust can result in the failure of a business, as recently demonstrated by a host of high-profile corporate scandals. Enron, Xerox and Barings Bank are all examples of brands that failed their stakeholders and lost the trust of consumers. Good governance should be at the heart of any business and not just a reaction to a reputational or media crisis. It is vital to the long-term prosperity of a business and there have been several recent changes in the law aimed at improving corporate governance.

Research shows that trust is at the centre of a successful business. The Edelman Trust Barometer 2009 shows that customers are more likely to buy the products and shares of a company that they trust. Asked about a company that they distrusted, 77% of respondents to the study refused to purchase its products or services, 72% criticised it to a friend or colleague, 34% criticised it online and 17% sold their shares in the business. However, for a trusted company, 91% of those surveyed chose to buy its product or services, 76% recommended them to a friend or colleague, 55% payed a premium for its products or services, 42% complimented it online and 26% bought shares in the firm. Enthusiasm for good governance among companies has also increased following the recent changes to s172(1)(d) of the Companies Act (CA) 2006, which came into force on 1 October 2007. CA 2006 states that a director of a company must:

‘Act in a way that he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.’

Under the Bribery Bill, companies must put in place adequate procedures preventing their staff from engaging in acts of bribery and may be prosecuted for a failure to do so (see the box on p57 for a summary of the Bribery Bill). Stakeholder trust and legal compliance can only be achieved through a well-planned and robust corporate governance policy. A positive corporate reputation is achieved by making sure that an organisation:

  1. has a constructive commitment to corporate social responsibility;
  2. manages publicly available information (including the internet) and takes steps to deal with damaging information;
  3. manages the media and makes sure that action is taken to correct inaccurate stories in the press, including preventing the publication of damaging reports; and
  4. assists chief executives and other senior staff in maintaining a strong public image.

Businesses that think ahead and carefully plan how to deal with reputational risk will be best placed for avoiding meltdown. When a company does face a reputational crisis, it is essential that it conducts a governance review, including a full audit of any risks, especially those applicable to its human resources, information technology, legal and communications departments. Lawyers are increasingly being asked to provide services that minimise the chances of a reputation crisis, including audits of organisations with which clients are doing business.

BAE Systems

Five years ago, BAE Systems, the world’s second largest defence contractor, was caught in a media storm resulting from allegations of bribery involving business in Saudi Arabia. Following investigations by the Serious Fraud Office and the Ministry of Justice, BAE commissioned an independent review of its ethical conduct that sought to determine any changes needed in the company to achieve global leadership in ethical standards and help improve stakeholder trust in the organisation. Roger Wiltshire, BAE’s chief counsel UK, has shared his experiences of the committee’s report and how the business is committed to a policy of superior corporate governance relating to its business conduct and reputation. The scale of the project is extraordinary and a full case study is included in the box on p58.

Comment

Companies that have built a high level of trust are far more likely to bounce back from a reputational crisis. Investing in sound corporate governance and ethical behaviour creates a reserve of trust that makes stakeholders far more likely to forgive future mistakes.

In-house legal advisors play an important role in establishing trust in the company for which they work. A counsel working in co-ordination with communications, public relations, human resources and IT teams, as well as a board of compliance and regulation, will be well placed to identify the warning signs of a reputation crisis while there is still time to act. Such an advisor will be a valuable asset to their company and success in this role depends on combining a commercial mindset with legal prudence. For further reading please visit www.justice.gov.uk/publications/docs/draft-bribery-bill-tagged.pdf and www.justice.gov.uk/publications/draft-bribery-bill.htm.

By Jo Paton, solicitor, Schillings.E-mail: jo.paton@schillings.co.uk.

Bribery Bill

A new and consolidated criminal law of bribery is currently passing through parliament as the draft Bribery Bill. The Ministry of Justice describes the draft bill as aiming to:

‘Reform the criminal law to provide a new, modern and comprehensive scheme of bribery offences that will enable courts and prosecutors to respond more effectively to bribery at home or abroad.’

‘Bribery’ is not clearly defined but ss1-3 of the draft bill set out two examples of offering a bribe and one of receiving a bribe.

Offence of corporate liability

Section 5 of the draft bill proposes that a ‘relevant commercial organisation’ will be guilty of a criminal offence where there is proven negligent failure by a responsible person (the person at the company or partnership responsible for preventing bribes, or a senior officer of the company or partnership) to prevent a bribe being paid on behalf of company or partnership, both in the UK and abroad. In such circumstances, the company or partnership, rather than the individual offender, would be held liable and there is no limit to the amount that a business may be fined as a result.

Defence

A company or partnership will have a strong defence to allegations of bribery only where it can prove that it had adequate anti-corruption procedures in place at the time of an offence.

Practical effect

The proposed new offence emphasises the need for companies and partnerships to ensure they have sound anti-corruption procedures and policies in place. In-house legal counsels will need to manage risk by ensuring that their employers create such measures.

Current UK law

There are currently three main corruption offences in the UK.

1) Common law offence of bribery

This offence is defined as a bribe given or offered to induce a public official to fail to act in accordance with their duty (R v Whitaker [1914] 3 KB 1283).

2) Public Bodies Corrupt Practices Act 1889 (the 1889 Act) (c69) (corruption in office)

The 1889 Act makes it an offence for any person to ‘corruptly’ solicit or receive any advantage as an inducement to any officer of a public body, doing or omitting to do any matter or transaction.

3) Prevention of Corruption Act 1906 (the 1906 Act) (c34) (bribes obtained by or given to agents)

Section 1 of the 1906 Act provides that it is an offence:

‘If any agent corruptly accepts or obtains, or agrees to accept or attempts to obtain, from any person, for himself or for any other person, any gift or consideration as an inducement or reward for doing or forbearing to do, or for having… done or forborne to do, any act in relation to his principal’s affairs or business, or for showing or forbearing to show favour or disfavour to his principal’s affairs or business.’

The Anti-Terrorism, Crime and Security Act (ATCSA) 2001 extended the 1906 Act to include bribery carried out overseas, but the new statute has rarely been used to prosecute since its enactment and the effect of ATCSA 2001 remains to be seen.

CASE STUDY: BAE SYSTEMS

Challenge

Amidst ongoing media allegations, investigations on both sides of the Atlantic and the controversial end to the Serious Fraud Office investigation covering its business practices in Saudi Arabia, BAE Systems’ board commissioned the Woolf Committee in June 2007. The committee was asked to provide an independent review of the ‘ethical’ state of the company and a ‘road map’ for it to become a global leader in ethical business conduct. The committee was authorised to go anywhere and speak to anyone. The board agreed to act on all of the committee’s findings before the publication of the Woolf Report. Published in May 2008, the report covers the ethical standards to which a global company should adhere, the extent to which BAE met those standards and action that the company needed to take to achieve such standards. The review made 23 recommendations for BAE to enact to become a global corporate leader in ethical business conduct, setting out how it should ‘establish a global reputation for ethical business conduct that matches its reputation for outstanding technical competence’. It also emphasised the importance for global businesses of managing reputational risk through the adoption of high ethical standards.

Responding to the Woolf Report

BAE set itself three years to implement the Woolf Committee’s findings. It created a dedicated team that was led by a full-time programme director and was overseen by Philip Bramwell, the group’s general counsel. A steering group of senior business leaders provided strategic oversight and monitored the team’s progress. The 23 recommendations were divided across six working groups and covered future contracting, anti-corruption and compliance, governance and operation of BAE’s board and management, leadership in business ethics, external engagement, and the creation of a code of conduct. It aimed to make the recommendations part of the company’s day-to-day practices and governance.

Global code of conduct

BAE also implemented a code of conduct across the business. Recognising the importance of clear and visible leadership, the code was ‘cascaded’ from the chairman through to the board and executive committee, so that every employee was briefed by their line manager, helping to make the code relevant to an individual’s role. Every employee undertook a training programme and signed a declaration confirming that they understood and would comply with the code. By the end of 2009, more than 90,000 employees had been briefed and trained. In addition, every executive and those employees dealing with people outside the company had to undergo integrity in business dealings training, covering anti-bribery and anti-corruption, gifts and hospitality, facilitation payments, conflicts of interest, fraud, money laundering, and behaviour in negotiations. BAE established a confidential ethics helpline to provide guidance to employees and a mechanism for ‘whistleblowing’.

Impact on business practice

The Woolf Committee states that individual directors had a clear responsibility for ensuring high standards of business conduct, and that ethical conduct and reputational risk should be standing items on board agendas. Part of the company’s senior executives’ bonuses are now aligned to business conduct. The committee also said that the board must deal with these issues itself, and ensure that values, principles and standards of business conduct are established corporately and applied globally. The company appointed a managing director for corporate responsibility.

Progress

The committee highlighted a change in the organisation from a UK-headquartered exporter to a global enterprise with strong operational footprints in six home markets and said that the wider business culture needed to follow suit. BAE revised 23 corporate governance policies and created three new ones, establishing three-yearly reviews to ensure they remain up to date. Responsible trading principles, together with a new code of conduct, now underpin the way that BAE intends to do business in the future, and applies to all employees of wholly owned and majority-owned businesses.

Compliance and regulation

To support its response to the Woolf Report, BAE has developed a principles-based compliance to assess non-financial risk in everything the business does, including decisions to sell products, use suppliers, purchase capital equipment, or sell or develop land. The public will not believe that a company is well run and responsible unless it can demonstrate that this is the case. BAE is externally audited twice a year and advisor appointments are overseen by a panel chaired by independent experts.

Developing corporate culture

Eighteen months into its response to the Woolf Report, BAE has made significant progress. There is still work to do, however, despite more robust governance and a global code of conduct now being embedded in the company’s practices. BAE developed its total performance cultural model, underpinned by the three values of trust, innovation and boldness. These are the characteristics that it wants people to attribute to BAE. Enshrined in its corporate governance, this marks a clear commitment to a different way of doing business, placing customer focus and responsible behaviour on an equal footing with financial performance and programme delivery. Together with its response to the Woolf Report, BAE’s global code of conduct and responsible trading principles, backed by a rigorous compliance programme, is developing a culture of total performance. This culture will not only support the delivery of BAE’s strategy and future prosperity, but will also ensure that it manages its reputation and turns it into something of significant value to the company.

Technology, Media and Telecoms | 01 February 2010

The rising divorce rate and some well-publicised settlements running into tens of millions of pounds have focused attention on a growing issue in divorce cases: just how far can spouses go to obtain information about their partner’s financial affairs?

Uncertainty about legal outcomes adds to the temptation for well-heeled spouses to disregard their obligation to provide full and frank disclosure in divorce and ancillary proceedings. Meanwhile, the ease of copying electronic data from a partner’s laptop or accessing online bank accounts is prompting some spouses to actively hunt evidence that their estranged partner has the wherewithal to fund a sizeable settlement. [Continue Reading]

Technology, Media and Telecoms | 01 December 2009

Reynolds v Times Newspapers Ltd & ors [2001] established a new defence for libel claims in which the story is in the public interest and the publisher acted ‘responsibly’. The Reynolds defence is designed to protect serious investigative journalists acting in good faith and reporting on matters of public interest. Even where allegations are false and hugely damaging to the subject of the publication, publishers can make use of this defence. However, Reynolds has also provided a useful tool for subjects to delay, if not prevent, publication of defamatory allegations.

[Continue Reading]

Legal Briefing

Author(s)

  • Laura Tyler, Associate solicitor, Schillings

    Laura Tyler

    Associate solicitor

  • Samantha Domin, Solicitor, Schillings

    Samantha Domin

    Solicitor