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Having it both ways

April 7th, 2005

The Gunns case, in which the world’s largest woodchip exporter is suing critics it accuses of ‘corporate vilification‘ is a typical instance of companies wanting to have it both ways. On the one hand, advocates of the corporation deny that corporations can have any moral or ethical obligations, other than to their shareholders. On the other hand, they want all the protections available to a natural person, including protection from defamation[1]. An individual who acted the way a company is supposed to act in the standard theory would be a sociopath, incapable of being defamed because of the absence of any justified reputation.

In this case, of course, we have the equally important issue of defamation laws being used to suppress free speech on political issues. I doubt that Gunns will prevail, but they don’t have to – a corporation with deep pockets will always win at this kind of game, unless the courts come down hard. I hope that they not only lose but are forced to pay a full accounting of the costs they’ve imposed.

fn2. On the third hand, to mangle the metaphor, the officers and shareholders expect to be protected from any sort of liability for their corporate actions, relying on the sanctity of the ‘corporate veil’. I had a go at this topic here

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  1. Jason Soon
    April 7th, 2005 at 22:08 | #1

    well, it depends on what you mean by defamation. surely you’re not saying corporations don’t have a claim in tort just because they’re corporations? ethics has nothing to do with it, tort is just an efficient device for ensuring parties internalise the costs they impose on others. and if corporations are allowed actions in tort that devalue their assets including their brandname, then defamation may in certain cases just another one of those torts. i’m not saying that gunns necessarily has a case here but i don’t see any inconsistency between this and talk about moral or ethical obligations

  2. April 8th, 2005 at 01:12 | #2

    Hear! Hear!

    (And I’ll try to figure out what jason is on about later).

  3. Jason Soon
    April 8th, 2005 at 01:33 | #3

    the point is that corporations do invest in their reputation and this reputation is of commercial value to them – it doesn’t matter that it’s not the same sort of reputation that actual natural persons have.
    where would mcdonalds or coke or walmart or qantas be without their reputation embodied in their trademarks?
    I believe we do allow corporations to claim damages for tortious conduct leading to economic loss and to sue for ‘passing off’. some defamatory acts would fall under this category too so it makes no sense to argue that defamation per se should not be available to corporations since that would be inconsistent with allowing them to claim damages for other tortious conduct.

  4. April 8th, 2005 at 02:35 | #4

    Two points.

    One, agency costs mean that agents can let the company wear any fines – its just more misapplied pressures, like sanctions on non- or non-functioning democracies. It merely punishes a different lot of victims.

    Two, one reason I didn’t accept the out of court offer the blood service made me was that it would have stopped me exposing similar misbehaving agents and managers, without giving me any redress from them – only making promises on behalf of the covering corporation. So I would have received under the counter bad references with no opportunity to object without violating a legal obligation. Worthless.

  5. John Quiggin
    April 8th, 2005 at 06:11 | #5

    Jason, most torts don’t rely on the fiction of a corporation as a person. If I crash into one of the corporation’s cars, the loss I impose is borne by the shareholders in proportion to their equity. It makes sense for them to to be able to take collective tort action through the company.

    But if I say that Gunns is a bad company, this isn’t a claim about the shareholders and even if it was [for example if I went on to say that Gunns shareholders are evil] it wouldn’t be actiionable.

    As regards trademarks, I don’t have a particular problem with protecting these but personal defamation actions don’t seem like the right way to go about it and this isn’t an issue in relation to disputes about corporate conduct.

  6. derrida derider
    April 8th, 2005 at 08:31 | #6

    Think of a world where corporations cannot sue for defamation. People, even competitors, are free to make all sorts of lurid claims – but precisely because of that the damage to the corporation’s reputation will almost always be slight because such claims will meet more scepticism from the public (you see a similar phenomenon in the US with politicians, who effectively cannot sue for defamation). And corporations generally have the means to counter false claims through their marketing budget – a way of protecting reputation not available to most individuals.

    Where are the the anti-corporate, anti-globalisation, deep green activists when you need them? These proposals ought to be a much more useful focus for protest than some trade meeting.

  7. observa
    April 8th, 2005 at 09:22 | #7

    This is really an argument about absolute free speech, which of course would lead to untruths and some degree of defamation from time to time. We corporates could handle absolute free speech, but could the community? ie would it be prepared to drop ACCC powers to judge truth in advertising and the like, or are you going to have some monstrous public body sitting in judgement on the truth of public utterings of corps and individuals and ordering apologies and rights of reply, etc. Clearly a gargantuan task.

    You also have to understand that corporations come in different strengths. I am the sole director of a pty ltd company cf a publicly listed company, yet ‘we’ both face the same corporate law, as Rodney Adler is finding out right now. I am only too well aware of the muscle big corpora enjoys, but it is a double edged sword for them, as I found out when taking on one such in the supreme court over 10 yrs ago. They do bluff well when barristers charge $500 an hour(God knows what now), but in the final analysis they folded and settled out of court, because their strength is their weakness. They could not afford to have their name attached to case law for every uni law grad to read forever, whereas I could, because of my general anonymity. They rolled over and settled.

    Generally speaking I don’t think individuals should be able to hide behind corporate or association(eg political parties and groups)veils from the law applying to individual ethical behaviour. Simply make up your mind about what law you think should apply to all.

  8. Simon
    April 8th, 2005 at 09:53 | #8

    “Think of a world where corporations cannot sue for defamation.”, says derrida derider.

    In NSW we live in such a world. Corps with over 10 employees can’t sue for defamation.

    I totally agree with observas comments re the weakness of corps. The common misconception fuelled by Hollywood is that the deepest pockets win. Even a cursory glance at US court decisions shows the opposite. As a lawyer who has mainly sued corps on behalf of individuals, I say the bigger the better.

  9. April 8th, 2005 at 10:05 | #9

    The internet has been around for more than a decade and PR departments still haven’t figured out how to counter negative opinions? Right-of-reply is automatic in the age of the web, any corporation that can afford a website can counter any untruths or aspersions cast on it.

    On the other hand, defamation suits can be justified on the basis that bad repute can spread rather quickly over the internet. What corporations have to understand is that the web brings a great deal more transparency than they have been comfortable with in the past. Do a web-search on Kane’s Furniture to see what I mean.

    In the Gunn’s case, the threat is an existentialist one, and the directors are bound to act in the interests of its shareholders and use every technique in the book to dampen criticism.

    However, it is exactly the threat of influence on public policy that should deem the speech protected. Otherwise, there’d be no-one around to critice child-labour, or dangerous coal mines, or asbestos. Imagine what our world would be like if people are not allowed to criticise corporations.

  10. Hal9000
    April 8th, 2005 at 11:10 | #10

    “I totally agree with observas comments re the weakness of corps. The common misconception fuelled by Hollywood is that the deepest pockets win.”

    I know of an excellent counter-example. A close relative of mine threatened legal action against a large national retailer over the unauthorised use of intellectual property in a tv advertising campaign. The next thing the corporation had briefed a team of WA QCs and juniors and put them up at a swank Melbourne hotel, run up a bill for $15K and went her for security for costs. Although her advice was that she had a 90% chance of winning, there was a 10% chance of losing and being financially ruined. There was also a 99% chance that she’d run out of money before the case was appealed to the High Court, which on form the retailer was certain to do in the likely event they lost. She ended up paying over $25K in settlement to them for a theft of her property they had committed. Deep pockets win because they can abuse the process to achieve results against the little person, regardless of the rights of the case and regardless of what a putative court may decide, because it never even gets to court.

  11. observa
    April 8th, 2005 at 11:38 | #11

    Hal9000,
    The problem you point out of unequal resources is a general one applicable to individuals or organisations. Mind you, I did show my opponents evidence of a $100,000 term deposit I had set aside for the purpose of fighting them, just to help them make up their minds at the door of the Supreme Court ;)

  12. observa
    April 8th, 2005 at 12:09 | #12

    I liked the way the Judge put it after both sides had presented a precis of their respective cases to him.

    “Are both parties quite sure they have exhausted all avenues of negotiation open to them, before we all embark on the exercise of setting some very expensive case law in this place?” as he looked drily over his spectacles. Bloody priceless.

  13. ab
    April 8th, 2005 at 12:17 | #13

    John,

    You’re mixing things up here. In relation to moral or ethical obligations, corporations and individuals are in exactly the same position. There is no enforced moral standard other than that embodied in the law. Similarly, when a person is damaged by the commission of a tort, they may be compensated, or, where their damage is indirect because of an intermediate corporate entity, that entity is compensated. There is no inconsistency here.

    I also don’t get your distinction in relation to defamation. If individuals choose to organise their affairs by way of a corporate entity, why should their capital be at greater risk? To anticipate one possible reply, that shareholders benefit from limited liability, just remember why we legislate for the ‘Pty’ or ‘Ltd’ to be appended to all company names: it’s a warning.

  14. April 8th, 2005 at 12:37 | #14

    Here in Melbourne, the Greens are giving a talk on the Gunns case this evening, 8.4.05. I’m sure you can track down more if you google for their website.

  15. John Quiggin
    April 8th, 2005 at 14:15 | #15

    ab, it’s trivially true that the only enforced moral obligations are those embodied in the law, since the law claims a monopoly of force.

    The point relates to moral obligations that are not enforced. If you claim to be under no such obligations, then you have no moral character to be defamed.

    As regards limited liability, I think you have answered your own question, and the warning you mention doesn’t change this.

  16. Simon
    April 8th, 2005 at 14:25 | #16

    Hal 9000,

    I assume your relative was a corporation as security for costs is an application that can usually only be made against a corporation. So I don’t know if you are really arguing for the little guy or just corp v corp.

    All sympathy for your relative but looking at the probabilities you quoted it looks like they blinked. Of course continued payment of legals can be a problem but seriously if someone is frightened of $ 15 k worth of legals they should never have got involved in litigation in the first place.

    I can give you many many counter counter examples – insurers for example get taken down again and again by plaintiffs who aggressively push on with sometimes very weak cases.

  17. joe2
    April 8th, 2005 at 15:50 | #17

    Well done J.Q., a subject close to my heart. I was interested in your comment that it is O.K, to call the company “evil” but not the shareholders.

    Fair enough, Mum’s and dad’s.

    What if that large shareholder,theoretically,is a large bank that prides itself on it’s ethical credentials? Indeed, good people have invested, imagining, from publicity, that they would not be involved in the destruction of old growth forest.

  18. Hal9000
    April 8th, 2005 at 15:55 | #18

    Simon, the issue was that the $15K was merely the opening gambit, it was the 30:1 spend ratio that scared the pants out of her. In any case, I’m not sure your case is well founded – doesn’t “if someone is frightened of $ 15 k worth of legals they should never have got involved in litigation in the first place” translate as “forget about justice if you aren’t rich” – not many Australians have a lazy $15K just lying around if they need to assert/defend their rights.

    I’m glad to hear some litigants of modest means win against the big end of town, however I beg to doubt whether that’s the general run of things. Note the success of big corporates in bludgeoning small businesses to death with legal processes claiming nonsensical rights, such as ownership of the “Mc” prefix or, in the McLibel case, squashing people daring to publish the truth. The McLibel case only rebounded on the corporation because they foolishly took on people with no assets to threaten. Homeowners with families would have given in long before.

    But back to JQ’s main point – I seem to recall defamation law and the corporation had their birth at about the same time. The issue with defamation was to put a stop to duelling wasn’t it? And incorporation was a useful device to cloak the assets behind risky piratical activities abroad. Incorporation protects individuals from the consequences of their commercial activities.

    Defamation is all about remedy for bringing an individual into ‘hatred, ridicule and contempt’ among his fellows/peers, isn’t it? Perhaps if corporations are to enjoy the right to litigate in defamation they ought only to be able to litigate against other coporations…

  19. Paul Norton
    April 8th, 2005 at 16:36 | #19

    Defamation law is a wonderfully ironic field. I recall that some years ago the La Trobe University Union news sheet published a claim that a visiting speaker was an ASIO agent. After his talk the speaker visited the Union office in high dudgeon and threatened to sue the pants off all and sundry involved with the publication of this libel. The Union’s lawyers were untroubled by the threat, basically because in their opinion it would be difficult to mount a case that claiming that a person was an ASIO agent would bring them into ‘hatred, ridicule and contempt’ amongst the patriotic, pro-US conservative circles of the speaker and his peers. In the event, the speaker (who is now a Labor MHR) didn’t follow through on his threat.

    Taking a line through this to the Gunns case, I think a corporation might find it difficult to sustain a case if the alleged libel basically said that the corporation had fulfilled its obligations under corporations law to singlemindedly pursue the interests of its shareholders to the exclusion of other considerations, and that other considerations had suffered as a consequence.

  20. derrida derider
    April 8th, 2005 at 17:08 | #20

    You’re missing the point, Paul. Gunn’s case may be completely without merit (I wouldn’t know either way), but the credible threats arising from the gross imbalance of resources means that either way it stifles legitimate debate.

    It’s a perfect illustration of the evils of allowing deep-pocketed corporations to attack individuals in the courts. And defamation is a far too convenient pretext for such an attack.

  21. ab
    April 8th, 2005 at 17:18 | #21

    Derrida,

    Ought Kerry Packer be prevented from bringing an action in defamation against any individual of average means. If not, why? Surely by your logic there is a sufficient ‘imbalance of resources’.

  22. peter kemp
    April 8th, 2005 at 17:29 | #22

    The case to me seems to be centred around negligence and economic loss which appears to be, not having read the plaintiff’s claim, is presumed based on supposed and alleged defamatory actions by the defendants.

    To prove economic loss, the law schools preach the 5 point test from Perre v Apand as propounded by Justice McHugh, paraphrased as appropriate:

    1) Was the loss reasonably foreseeable?

    2) If yes, would imposition of a duty of care impose indeterminate liability ?

    3) If no to Q2 would imposition of a duty of care impose an unreasonable burden on the autonomy of the defendant?

    4) If no to Q3, were the plaintiffs (or some of them if applicable) vulnerable to loss from the conduct of the defendants?

    5)If yes to Q4, did the defendants know that their conduct coild cause harm to (individuals, entities as appropriate) such as the plaintiffs?

    For what’s its worth, I think the suit is problematic on vulnerability where the question to raise is was it reasonably open to the plaintiff to take steps to protect itself (ie media campaign to counter the ‘villification’?) and determinancy, (and if called to account for sub-judice, I will plead the implied right to political communication from the constitution) where Cardozo a New York Judge in a 1931 case is the definitional authority :

    “If liability for negligence exists , a thoughtless slip or blunder… may expose [defendants] to a liability of an indeterminate amount, for an indeterminate time to an indeterminate class”
    (Ultramares Corp v Touche Niven and Co 174 NE 441 (NYCA, 1931)

    Food for thought and I think many will be following this one.

  23. Simon
    April 8th, 2005 at 17:38 | #23

    Hal9000,
    McLibel is a great example. McDonalds won and decided not to enforce the judgment for public relations reasons. I have never seen a large corp/insurer enforce a judgment/costs order. Two reasons for this – bad publicity, and expensive and time consuming to do against an individual. Only the bloody minded who ignore profitability do so.This is why a lot of individuals push their luck on appeal against corps. Often the corp will settle rather than continuing to throw away money on legal costs which they will not recover even if they win and get a costs order.

    I think the whole debate here is predicated on hearsay. I won’t say that the imbalance of resources never causes injustice but it’s a lot rarer than the post and comments imply.

    By the way the Wilderness Society is not small beer. An analogous argument could be made – why should they be able to form a large organisation and yet not be subject to the law in just the same way other orgs are ?

  24. April 9th, 2005 at 00:14 | #24

    That last point touches on something important. The law now incorporates (!) the idea that incorporation is a “good thing”, rather than something that may or may not be a good thing. Never mind this one issue, I am coming to the view that corporations often aren’t good things.

    What corporations get is a set of privileges, which other things being equal diminishes the position of natural persons and previously existing legal entities. The justification usually comes from the ability to use the framework to concentrate resources in the first place, or to conduct operations on a proper scale.

    But there are other possible forms of organisation, like mutual societies (ask yourself where the money comes from when they change their organisation to companies), and the gathering of resources gives them a continuing benefit from their undying nature (think Statute of Mortmain and why it was brought in even that far back).

    So I’d like to see other things around that empower people rather than merely act in their name. But I’m only posing the question here, not presenting any firmed up proposed solutions.

  25. mangler
    April 10th, 2005 at 15:00 | #25

    Most of this discussions has progressed from the starting points of (i) the merits or otherwise of corporate entitlement to bring defamation proceedings, and (ii) the consequences of setting deep pocket litigatants against persons unable to fund legal representation.

    These points are interesting, but neither seem to have much to do with the Gunns litigation. First, if you have a look at Gunns’ legal papers (links to which are up on various green websites), the defamation action is tucked away in a corner of the case, and the overwhelming bulk of the case is a more direct collection of allegations that financial harm was caused to the business by various unlawful means. Second, these defendants are far from unable to afford legal representation. They have queues of silk lining up to represent them probono, if you read the age this week, and they are advertising to employ someone on a $50g salary to ‘coordinate’ their ‘campaign’ in opposition to Gunns’ case. Seems to me that paying lawyers is not really their problem.

  26. April 11th, 2005 at 00:15 | #26

    JQ, I just had a look at your old post you refer to. By coincidence – considering you are in the throes of another spam raid – that post has some residual spam stuck on the end from yonks ago.

  27. May 10th, 2005 at 12:02 | #27

    http://tasmaniantimes.com/index.php/weblog/comments/world-class-forestry-practice/

    [For those who are not too familiar with Tasmania, Gunns Ltd is the biggest woodchipping/native forest clearfell company in Tasmania. The company is sueing 20 environmentalists...some with the dubious charge of 'corporate villification.]

    Posted by Gerry Mander on 05/09 at 12:52 AM
    Gunns Pty. Annual General Meeting – 2056

    Chairperson’s report.

    It gives me great pleasure to be able to address this shareholder’s meeting on the fiftieth anniversary of our historic legal win over our traditional enemies, and to report on the progress we have since made. That legal precedent having been set, any of the recalcitrant ‘Old timers’ who were determined to cling to their redundant farms and homesteads and try to avoid the march of progress, have now seen the light. They have realised that the punitive damages that can be inflicted by the Supreme Court for impeding the progress of a Project of State Significance are a sufficient inducement to hand over their land to Forestry, now, of course, one of our own departments.

    With the remaining vestiges of Tasmania under our control, the fifty year plan laid down by our former chairperson, John Gay, has come to fruition, and export and home consumption of logs is now running at a record 26 million tonnes per year. This is easily sustainable under our wealth generating policies since we no longer have to bother with the ‘Old Growth’ problem. It is with some satisfaction that I can say that the entire area of Tasmania from space looks somewhat like a giant cricket pitch after the mowers and rollers have left their patterns. Thirty kilometre squares, all at different stages of growth of the double crops of e.nitrans and pines, plus the harvested and burnt areas is an aesthetically pleasing sight. We are expecting another ‘Best Practices Award’ to be added to our already large list of trophies.

    Our Press Officers are particularly to be applauded in their handling of the then controversial burning of the State reserves and heritage forests. It was pointed out by them that the drought years were to blame for the highly inflammatory nature of these forests, and it was not, as suggested, that they were fire-bombed by our helicopters. After all, with a water shortage and lack of resources due to the ‘best water usage’ policies implemented by the government at our behest, it was almost impossible to extinguish the blaze. Once burnt, there was no point in retaining their heritage status and it was decided that the land could be put to much better use under rotational crops. It’s a pity in some ways, for the Gordon/Franklin reserves were very pretty in their day.
    The total loss of tourism due to this transformation is regrettable, but not when seen in the light of the extra profits that the land gave us and the effect on the State finances. With this decline in the tourism menace, the tourist industry also collapsed, and that meant the exodus of most of the workers – those that could not be placed in our own expanded employment program. It has been said that the new pulp mills and subsequent paper mills have been a major plus for the state. At the last estimate, 94% of all inhabitants of Tasmania now work for our company, and we are by far the largest company of our kind in the world. We are currently looking into the other 6%. Also on the plus side, the old, non-profit Spirits of Tasmania have been converted to very profitable pulp carriers.
    There have been several major economies made by this company since the departure and loss of interest of the conservationists. As you must be aware, in the latest Project of State Significance, our industry has been amalgamated with the government to form a single State body, currently referred to as ‘The Gunnerment,’ which is not as big a step as it sounds, as most of the Cabinet members were also directors, or potential directors of this company. The new corporate headquarters have been moved from Gayton and are now housed in the old Parliament building in Lennonville.

    Part 2.

    This has brought a remarkable amount of efficiency to our organisation and has resulted in many savings. We no longer contribute to party funds, and with the extra money available we have been able to carry out some remarkable ‘Public Relations’ projects at Federal and International levels. Our ratings, as a result, have never been higher!
    Other projects now have a smooth passage and there is no longer opposition. As previously mentioned, the water of Tasmania, once intended for the inhabitants, now has a single use, and that is to boost the efficiency of the Gunnerment. All rivers have been dammed and the results guarantee the supply for every mill and paper factory, as well as for irrigation and our own hydro power. Pollution and water quality is now no longer a political issue and in consequence, we have added further efficiencies. With the crops currently growing in thirty kilometre squares, we can spray with the new mixture of pesticides, herbicides and fertilisers from converted Boeing 747’s. The feral pests that were once such a bone of contention are now completely under control, and like the original inhabitants, only to be found elsewhere.

    The question has arisen, ‘now that we own the whole of Tasmania, are we at the end of the line as far as expansion is concerned?’ Gentlemen, let me assure you, the future is bright. Already China is asking for an increased quota of disposal wooden chopsticks from three billion sets to five billion sets per week and the latest estimate for toilet paper to that same country is staggering. We have made significant progress in our take-over bid for the South Island of New Zealand and the new name of ‘Clarkia’ for Wellington seems to have found favour. I think I can say in conclusion, that we have finally dispelled the myth ‘that money does not grow on trees!’

    Posted by Gerry Mander on 05/09 at 12:51 AM

  28. Robert Patterson
    June 26th, 2005 at 15:47 | #28

    We need an investigativel jounalist/s – if there are any left that are not owned by murdoch? to check and see if gunns have contributed, and how much, to the liberals. Howard really gave them all they wanted during the last election – surely gunns must repay howard?? The poor stupid unionists thought that howard was on their side – what a pack of neanderthal dummies, typical self serving unionists. It’s OK none of these unionists would have the brains to get on the net, so they won’t read this. numbat

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