One of the significant changes made by the uniform defamation laws introduced in 2006 concerned the right of companies to sue for defamation.  Previously (with the exception of New South Wales), a company (no matter how big or small) could sue for defamation and recover compensation for damage to its trading reputation or goodwill.

The Defamation Act 2005 (Act) introduced a general rule that corporations cannot sue in defamation, unless they can bring themselves within the definition of an “excluded corporation”.  The issue is important in practice.  Although companies will sometimes have other causes of action available to them arising out of the publication of defamatory material (eg an action for injurious falsehood, which is available where a defendant maliciously publishes false material which causes special damage to the company or its property), these actions are much harder to prove than a claim for defamation.

A recent decision of the New South Wales Court of Appeal has clarified the circumstances in which a company will be an “excluded corporation”.  However, the position of companies that use the services of labour hire firms for a significant part of their operations remains clouded in uncertainty.

Special Counsel Brett Bolton discusses further. 

Definition of excluded corporation under the Act

Section 9 of the Act relevantly states:

“(9)       Certain corporations do not have cause of action for defamation

  1. A corporation has no cause of action for defamation in relation to the publication of defamatory matter about the corporation unless it was an excluded corporation at the time of the publication.
  2. A corporation is an excluded corporation if:
    1. ...
    2. it employs few than 10 persons and is not related to another corporation,

and the corporation is not a public body.

  1. In counting employees for the purposes of sub-section (2)(b), part-time employees are to be taken into account as an appropriate fraction of a full-time equivalent.”

The meaning and scope of section 9 has been clouded in uncertainty since the introduction of the defamation laws in 2006.  That uncertainty has arisen as a result of conflicting court decisions.  A decision of the New South Wales Court of Appeal delivered late last year has clarified some, but not all, of the uncertainty (Born Brands Pty Ltd -v- Nine Network Australia Pty Ltd [2014] NSWCA 369) (Born Brands).

The position prior to the Born Brands decision

In Redeemer Baptist School Ltd -v- Glossop [2006] NSWSC 1201 (Redeemer Baptist), the Court interpreted the word “employs” in the statutory predecessor in New South Wales to section 9(2)(b) to mean “to use the services of a person”, and went on to say:

... Absent qualification, the meaning of the word ‘persons’ in sub-paragraph (a) includes individuals who are employees and those who are not.  There is no justification for confining its meaning to individuals under a contract of employment with the corporation ...

The construction of the verb ‘employs’ should be approached in the same way.  The use of the word ‘persons’ indicates that it was not intended that ‘employs’ be understood in an industrial sense referrable to a relationship of master and servant under a contract of service.

The approach adopted by the Court in Redeemer Baptist was accepted as correct in Heart Check Australia Pty Limited -v- Channel Seven Sydney Pty Limited [2007] NSWSC 555 (Heart Check) and by the Trial Judge in Born Brands.

As a result of these decisions, the only relevant issue to consider in deciding whether a company could bring itself within the definition of an “excluded corporation” was whether or not the number of persons whose services the company used in its business was fewer than 10.  Issues such as the nature of the arrangement or understanding under which the person provided services, whether or not that arrangement or understanding was legally enforceable, and whether or not the person was paid for the services or was a volunteer, were irrelevant.

One of the issues raised by Born Brands Pty Ltd in its appeal to the New South Wales Court of Appeal was the Trial Judge’s finding that the company was not an excluded corporation and, therefore, had no standing to sue for defamation.  Although the Court of Appeal dismissed the company’s appeal on other grounds, it took the opportunity to firmly state its view that the construction of section 9(2) which had been adopted by the Trial Judge (following the decisions in Redeemer Baptist and Heart Check) was wrong and should no longer be followed.

Although the Court of Appeal conceded that the verb “employs” has a range of meanings, it said that, read in context, the words in section 9(2)(b) were very clear.  The Court noted that sub-section (3) expressly referred to “counting employees for the purposes of sub-section (2)(b)”.  As Basten JA noted in his Judgment:

it (ie sub-section (3)) does not refer to counting single ‘persons’ for the purposes of section 9(2)(b); rather, it assumes that those persons are employees, an assumption which is consistent only with the use of the verb ‘employs’ as referring to a person having a contract of employment” [emphasis added].

Implications for companies

The NSW Court of Appeal’s decision in Born Brands provides some welcome clarification of the circumstances in which a company will be able to bring itself within the definition of an “excluded corporation” and, therefore, have standing to sue for defamation.

However, many companies nowadays maintain a small permanent staff but make extensive use in their operations of persons supplied by labour hire firms.  Is such a company still an “excluded corporation”? 

It is arguable that the term “employees” and its variants in section 9 should not be limited to what may be described as “traditional” employees but should extend to individuals engaged in the day to day operations of the company and subject to its direction and control.

If this argument was accepted, a company which had a small pool of permanent staff but made extensive use of individuals supplied by labour hire firms would not be able to bring itself within the definition of an “excluded corporation”.  It is regrettable that the NSW Court of Appeal in Born Brands did not take the opportunity to address this, as it would have provided welcome clarification to companies and those advising them on this issue.