Defamation by investors on social media
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Defamation against a company and defamation against directors
In a case that is believed to be the first of its kind in the UK concerning online defamation by investors against a company, online defamation and social media specialist solicitor firm Cohen Davis won damages for its PLC client, a gold mining company Red Rock Resources (RRR) after the company was defamed on social media by one of its small yet very vocal investors.
In the UK, a company might sue a shareholder for defamation if the false allegations or unsubstantiated claims extend to defaming officers of the company. Whilst a company needs to demonstrate serious financial harm in order to succeed in a defamation claim, it is often difficult to argue that decreasing share prices, represent serious financial harm to the company.
This is because it is in the nature of stock that the share prices might go up or down and that the value of stock will inevitably be the subject of speculation. Whilst it might be difficult for a company to demonstrate serious financial harm which is directly linked to defamatory claims, and whilst the real loss is for the investors rather than for the company, there are still circumstances where a company might sue an investor for defamation.
Company & Shareholder Defamation Legal Advice FAQ
In the UK, a company can sue a shareholder for defamation if the false statements or claims defame officers of the company or the company itself. Demonstrating serious financial harm is necessary for the company's claim to succeed, and this often revolves around allegations such as fraud or maladministration by the company's officers. Although proving direct financial harm from defamatory statements can be challenging due to the speculative nature of share prices, it is feasible under specific circumstances.
A company may successfully sue an investor for defamation when the allegations involve fraud or mismanagement by company officers such as the Chairman, directors, or company secretary. The claim is typically brought on behalf of the officers, especially if these claims result in significant reputational damage or attract negative media attention, impacting the company's integrity and operations.
Initiating legal action against an investor is risky due to the potential of unsettling other investors and attracting negative media attention. Litigation can also be lengthy and costly, and may not always result in a favourable outcome. Companies usually prefer to resolve such matters amicably to avoid these risks and preserve their reputation and investor relations.
In the case of RRR v Carp, the defaming shareholder admitted to using Twitter, online investors’ forums, and email to spread defamatory statements against the company and its Chairman. The shareholder agreed to avoid trial, apologised, and paid an undisclosed sum in damages to the company, which was then donated to a charity. This resolution came about due to the prompt and strategic response of the board of directors.
Companies can mitigate risks by maintaining open and transparent communication with their investors, monitoring online platforms for any defamatory content, and addressing any grievances promptly and amicably. Implementing a robust crisis communication plan and educating investors about the impact of defamatory statements can also help. When necessary, taking decisive legal action with clear strategic goals can protect the company's reputation and interests effectively.
A company may successfully sue an investor for defamation, where the defamation extends to allegations of fraud or of maladministration by officers of the company, by the Chairman, the company directors or the company secretary. Under those circumstances, the defamation claim will be brought by the company on behalf of the officers of the company.
In the case of RRR v Carp, Mr Carp was a disgruntled investor. He began a campaign which accused the Chairman of mismanagement and of fraud. This resulted in legitimate investors questioning the integrity of the board of directors and very rapidly the defamatory allegations began to attract a degree of undesirable media attention on investors’ online forums on Twitter and on the national press.
Taking an investor to court, even following an intensive campaign of defamation, is never desirable. There are risks that are associated with every litigation but also it could upset investors and attracts undesirable media attention. Whilst every efforts should be made to resolve matters amicably, particularly when it comes to a listed company, speed is of the essence and company directors can never afford allowing those type of matters to go on for too long a litigation has a tendency to unsettle investors.
In the case of RRR v Carp, over a period of 3 weeks RRR and its lawyers made every possible attempt to amicably resolve the matter with the disgruntled investor but even this period of time turned out to be too long for some investors. Within days, investors began to complain about potential falls in the value of their investment so the board had no choice but to file a claim for libel defamation in the High Court in London in order to protect the legitimate interests of its investors.
The defaming shareholder, admitted to have used Twitter, online investors’ forum, Proactive Investors and email to spread defamation against the company and its Chairman. He agreed to avoid trial and pay the company undisclosed sum in damages, which the company donated to its chosen charity. The matter was settled within approximately 6 weeks, thanks to the prompt reaction of the board of directors and the important strategic decisions the board has taken.
"To whom it might concern,
Since October last year I have sent a number of messages via email and on Twitter making a series of allegations of wrongdoing, including criminal allegations, against Red Rock Resources PLC (RRR) and Andrew Bell. Based on assurances issued through their lawyers that Mr Bell, RRR and its Directors are innocent of any wrong doing, which I accept, I wish to retract these statements.
I apologise unreservedly to RRR, its directors (including Mr Bell), and its shareholders for any unwarranted damage I have caused to RRR’s and Mr Bell’s reputation and for the upset and distress my allegations have caused Mr Bell.
I have agreed to pay RRR and Mr Bell a significant sum in damages, which they have said they will donate to the Build Africa charity working in Uganda and Kenya
Mr Gary Carp"
Published on behalf of Red Rock Resources PLC