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Jason Lee/Reuters

A newly opened Tesco supermarket in Beijing, January 2007

Among all the postmortems that will inevitably follow the dramatic implosion of the global financial system, there will doubtless be one on how it was covered in the press. Was there sufficient information in the public domain about the dangers of financial derivatives and subprime mortgages? Did news organizations, facing their own crises of liquidity, have sufficient resources to monitor and analyze the available data? In view of the intricate financial engineering involved, did newsrooms employ journalists with the expertise to understand and explain what was going on? Did the ones who could comprehend it project the issue powerfully, repeatedly, and noisily enough? Did anyone pay attention?

These and related questions touch on the essence of the relationship between governors and governed. Some of the most critical developments concerning economics, security, the environment, and social policy are immensely complex and worthy of careful explanation. But they do not necessarily sell newspapers. News organizations in the Western world, struggling with declining audiences and revenue, are shedding journalists, closing down foreign operations, and cutting costs. But they are also increasingly inhibited by efforts—of government officials and of private corporations—to prevent them from protecting sources or from carrying out difficult investigations. Many minds are rightly focused on the regulatory, economic, technological, and legal issues that news organizations committed to serious journalism should be addressing. A starting point would be to reform one of the potential obstacles to their doing so—the British laws of libel. Do not be lulled into a false security by the word “British”: in the Internet age the British laws can bite you, no matter where you live.

As editor of The Guardian, I have been at the thick end of these laws more than is strictly good for anyone. The paper’s most recent serious brush with the British defamation laws came on April 4, 2008, when it was sued for libel by Tesco, one of the largest public companies in Britain and the fourth-largest retailer in the world. According to its latest accounts, the company has a gross income of over $85 billion (£50 billion), with profits before tax of nearly $5 billion. Its share of the UK grocery market is around 30 percent, and the company is now expanding globally, especially in the Far East and, more recently, in the US with its Fresh & Easy chain. In Britain Tesco occupies a position similar to that occupied by Wal-Mart in America. It is, by any measure, a giant international corporation—successful and controversial in equal measure.

Never in recent history had The Guardian faced a libel suit from a major corporation, let alone in the manner in which Tesco chose to fight—effectively four actions in one: two for libel and two for malicious falsehood, directed both against the newspaper and against the editor personally. The claim of malicious falsehood effectively stated that we had deliberately printed a story we knew to be untrue—or, as one letter from Tesco’s lawyers charmingly put it: “You have been caught out publishing lies…and you don’t like it.”

It is important to say right away that the Guardian piece that occasioned the legal action by Tesco was, in important respects, quite wrong. By misunderstanding the limited amount of information in the public domain and misconstruing the company’s circumscribed written responses to our inquiries, we had concluded that Tesco was planning to avoid paying up to $1.7 billion of corporation tax on a number of complex deals involving the sale of property through companies registered in the Cayman Islands, the Isle of Jersey, and the UK.

It is increasingly common for large companies to arrange their corporate structures, intellectual property, and accountancy so as to incur the minimum amount of tax. This can often involve the use of tax havens, many of them former British dependencies. It turned out that Tesco’s deals were structured to avoid a different tax—the Stamp Duty Land Tax (SDLT) assessed on UK real estate transfers—and that the sums avoided were much less than we had supposed. The satirical British magazine Private Eye subsequently produced evidence that Tesco had, in fact, established at least two offshore strategies to reduce or avoid UK corporation taxes on some of its profits—a claim that was not challenged by Tesco.

But there is no question that we were mistaken in our original assertion: we have twice corrected it and have twice apologized for the mistake. We made other errors in the article, including not including Tesco’s full responses to our questions and not publishing a letter from Tesco’s tax advisers contradicting our report (though we did offer the company space to state its case). There’s no escaping the fact that this was a flawed piece of journalism. As we said in our second apology: “The article was wrong and should not have been published.” Tesco’s extreme irritation can well be imagined.

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But newspapers have always made mistakes, not invariably, or even mostly, from malign motives. Supreme Court Justice William Brennan Jr.’s landmark opinion for the majority in New York Times v. Sullivan in 1964 coined the phrase “erroneous statements honestly made.” This remarkable judgment recognized the chilling effect—“the pall of fear and timidity”—that the routine prospect of costly legal battles inevitably causes the press, and sought a way of offering protection to newspapers writing about matters of high public importance.

Tesco may not have set out to chill debate about its affairs through the use of legal actions in Britain and elsewhere, but there is little doubt that the effect of major corporations resorting to highly aggressive and expensive lawsuits will be to discourage investigations of complex financial affairs at the very moment when most readers might expect more and better coverage of them.

The two reporters involved in the original Tesco story are award-winning specialists. One is a qualified accountant; the other a best-selling author of studies of food production and migrant labor. Both had investigated the increasingly widespread strategies used by large international companies to pay less tax. Quite how much tax is avoided through such means is difficult to pin down—even for governments. US Senator Carl Levin—who, together with Senators Norm Coleman and Barack Obama, proposed legislation to stamp out offshore tax havens and tax shelter abuses—claims that the annual loss to the US Treasury from corporations could be around $30 billion. An assessment published in 2005 by the UK tax authority, Her Majesty’s Revenue and Customs (HMRC), estimated that the total “tax gap” in Britain—tax avoided by individuals and corporations—might fall anywhere between $17 billion and $68 billion.1 HMRC claims it has improved procedures for monitoring the seven hundred–odd largest UK companies. Nevertheless it was recently revealed in Parliament that only 238 of these businesses could be classified as posing a “low risk” of tax avoidance2; and a parliamentary committee found in October that 25 percent of these large companies paid no corporation tax at all in 2005–2006.

Tax avoidance is a growth industry, with global accountancy firms and boutique tax avoidance specialists devising strategies for sheltering companies from tax through ingenious offshore arrangements, tax havens, registration in multiple jurisdictions, complex derivative instruments, restructuring, and charging for intellectual property. One firm advising Tesco on a particular tax avoidance strategy employed no fewer than ninety lawyers on the project. Such plans are frequently put into operation before being disclosed to HMRC, which must then make a judgment on whether they fall within the spirit of the law and/or whether the legislation needs to be tightened. That process can take two years (in 2007 the government closed 350 out of nine hundred schemes it was informed about). The result is that the HMRC is playing a continual and, for many of the companies, lucrative game of catch-up—legislation to close the loopholes is seldom retrospective.

The Tesco property deals examined by The Guardian involved a particular tax-planning device—devised by imaginative tax advisers—called Jersey Property Unit Trusts (JPUT). This is a “vehicle” (to use accountantspeak) through which UK property is held as an investment by trustees resident in Jersey for beneficiaries who live elsewhere. The advantage of such a setup is that Stamp Duty Land Tax—a compulsory 4 percent charge on UK land transactions of more than £500,000—does not apply to transactions conducted in the Isle of Jersey, which has the special status of a “Crown dependency” and is not part of the United Kingdom. This means that the trustees of a JPUT can buy and sell the property of their UK beneficiaries without incurring the tax. From December 2003 there was a boom in JPUTs and their equivalents in Guernsey and the Isle of Man, also Crown dependencies. By 2006 one Jersey lawyer estimated that $51 billion in UK property was being held in JPUTs. Others put the figure nearer $85 billion. Mourant du Feu & Jeune, the Jersey law firm that acted for Tesco on its offshore property deals, estimated that it formed on behalf of its clients two hundred of the four hundred JPUTs created in 2005 alone.

The more complicated tax avoidance measures indulged in by major companies are largely ignored by the British press, with the consequence that there is virtually no public pressure on corporate boards to behave otherwise. In a recent Oxford University study, which included interviews with the tax directors of nine major UK companies, the authors reported that

only three business respondents said that they would be concerned about negative press coverage regarding avoidance of corporation tax. The remaining respondents, including HMRC representatives, believed that corporation tax issues seem to be too complex or obscure for the media and the public to understand. Accordingly, the issues are not covered in the media or they go unnoticed by the public.3

This was the background against which The Guardian’s reporters began to examine Tesco’s tax affairs. They concentrated on the giant retailer because one of the reporters—the qualified accountant—had spotted a complex structure in the company’s accounts relating to two deals in which Tesco stores were sold and then leased back: one with the British Land Company and the other with the British Airways pension fund. Over a number of weeks the reporters sent Tesco questions and asked for a face-to-face briefing about those deals. Tesco declined to meet them but did give truthful, if circumscribed, written answers to some of the questions, while ignoring others.

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This sort of financial journalism is notoriously difficult, expensive, and time-consuming. Few reporters have the training to disentangle and make coherent sense of the information publicly available from company accounts, annual reports, statutory filings, and corporate structures. The vast majority of reporters and editors—even those who specialize in business—would not know how to begin to unravel extremely complex corporate structures, which rely for their success on tax havens, partnerships, and tiers of associated financing and holding companies. A financial expert may understand public accounts, but be weak on corporate accounting. A corporate accounting specialist may know little or nothing about taxes. Effective analysis is complicated by the apparent legal impossibility—recognized by both academics and judges—of defining in a precise way the difference between tax avoidance and tax planning.

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Darren Staples/Reuters

A shopper leaving a Tesco store in Loughborough, England, April 2008

As we were to discover—if belatedly—the only route to total prepublication self-protection in these matters is to spend tens of thousands of dollars on tax, accountancy, and legal advice. Essentially, the only people qualified to produce wholly authoritative libel-proof assurance are the very people involved in constructing the strategies under scrutiny. They do not come cheap—and many of them have conflicts of interest.4 Some would give advice in private, but would not speak in public or in court.

The story over which The Guardian came to grief involved a program launched by Tesco in 2006 to raise $8.5 billion through mainly joint venture sales and leaseback property deals over the following five years. The Stamp Duty Land Tax, assessed on all land transactions, represented a potential $340 million cost to the purchasers on that $8.5 billion (which, if saved, would enhance the price that the third party would be willing to pay).

Take one of these deals, involving a company named Aqua: in the absence of a face-to-face meeting, a reporter trying to write about it would have had to piece together, from publicly available documents, a trail beginning with the creation of the vehicle for this transaction, the Aqua Limited Partnership (LP), whose partners were initially two Cayman companies (the limited partners) and Aqua, a UK company (the general partner, the GP). One of the Cayman companies was resident in the UK, the other in Cayman. A month after Aqua LP was established, in September 2006, public documents reveal that a Mr. Philip Shirley (a tax scheme promoter) became a partner in it and further contributions of cash to the capital of the Aqua Limited Partnership were made: $515,100 by each of the Cayman companies and $289,000 by Philip Shirley.

The reporter would have to follow the document trail on to October 2006, when Tesco Aqua (Finco) Limited loaned $732.7 million to the Aqua LP repayable in 2017. This loan originated from Tesco PLC, i.e., the main UK-based Tesco corporation. He would then discover that in December 2006 one of the two Cayman limited partners was replaced by a Jersey Property Unit Trust. In March 2007, as part of the initial property deal, the loan from Tesco was repaid and a new loan of $882.75 million was raised from Goldman Sachs, secured by the twenty-one Tesco stores that were owned by Aqua LP. The 2007 accounts for Tesco Aqua (Finco) show that it earned interest from the Aqua LP of $16.62 million and paid interest to Tesco of $16.58 million, leaving a minimal profit on which it paid full corporation tax. The accounts of the general partner show a minimal profit from its 0.1 percent interest in the limited partner.

Confused? Unhappily for The Guardian, so were our reporters. From re-reading the prepublication exchanges between Guardian reporters and Tesco it is clear to me that there was an early, fundamental misunderstanding by the reporters of the transactions they were examining, which meant both sides ended up communicating at cross purposes. That may not be excusable—particularly given Tesco’s attempts to set them straight—but some may think it understandable. There was, I believe, no malice involved on The Guardian’s side and no intention to deceive on Tesco’s part.

The truth is that the advanced tax planning undertaken today by most global companies is as intelligible to the average person as particle physics. This state of incomprehension extends to most journalists, editors, parliamentarians, and, importantly, company directors themselves—executive and nonexecutive. It is the very problem these same people have in trying to understand the epidemic of “innovative financial products.” In the middle of October’s banking implosion, Dan Bögler, the managing editor of the Financial Times, said:

Unfortunately, financial journalists—and the FT has better-trained financial journalists than others—don’t really understand this stuff, and they join a long list of people that starts with bank regulators, central bank regulators and money managers.5

In the Tesco strategy, there was a complex structure designed to deprive the Revenue of Stamp Duty Land Tax, not corporation tax, and an experienced reporter, trained in accountancy, who got it completely wrong. It took us some time—including meetings with lawyers, forensic accountants, and especially qualified senior tax lawyers—before we fully understood the nature of this strategy, and thus the true nature of our error. On May 3 we corrected the mistakes, explained how we got it wrong, set out our best understanding of Tesco’s tax arrangements, and apologized. The ways of the British libel laws are not so simple, however. Tesco had employed one the most aggressive firms of libel specialists in London—Carter-Ruck—and it rapidly became clear that the stage was set for a drawn-out battle.

In addition to being the most de-regulated financial center in the West, London has the dubious reputation of being the libel capital of the world. Until recently there has been nothing in the UK like the Sullivan protection for American newspapers engaged in journalism about matters of high public interest. In Britain, the burden of proof in defamation cases is squarely placed on the defendants’ shoulders. Libel lawyers have recently offered potential clients who are seeking damages against publishers conditional fee arrangements—no win–no fee—and these have led to daunting legal bills for newspapers, large and small. There is no constitutional protection of free speech such as that provided by the First Amendment in the United States. There have been modest advances in the UK. Since the Human Rights Act passed by Parliament in October 2000, newspapers have been able to point to Article 10, which gives a measure of protection for freedom of expression. And the so-called Reynolds privilege—a form of the Sullivan doctrine which has so far proved an unreliable shield for the British press—does offer some comfort to “responsible” journalists who can present sufficient reassurance about sources, checks, fairness, and so on.6

Nevertheless, it comes as no surprise that two American senators—Joe Lieberman and Arlen Specter—are attempting to pass legislation designed to prohibit the recognition and enforcement of foreign defamation judgments by American courts and to deter “libel tourism.” The senators have London in mind, pointing out that some libel actions in UK courts are designed to circumvent First Amendment rights protected by the US Supreme Court. The bill would allow American writers and publishers to sue for triple damages in the US if the libels alleged against them in the UK don’t constitute defamation under US law.7 The UK remains the venue of choice for Russian oligarchs or multinational businessmen to “clear” their names.

In an attempt to rectify its mistake, The Guardian tried on May 16 to use a recently introduced defense, an offer of amends, designed by Parliament as a means of settling defamation cases quickly and with minimum cost. The idea is that the newspaper should admit error and publish a correction and apology, with a judge deciding on damages—the amount partly dependent on whether he/she considers the correction and apology to be adequate. If the claimant accepts the offer of amends, it’s the end of the case—barring damages. If it’s rejected, the burden of proof switches to the claimant, who must then prove malice and who, if unsuccessful, has to bear the costs of the entire proceedings.

Tesco and Carter-Ruck were having none of this. They persevered with the libel and malicious falsehood actions, trying, for good measure, to obtain widespread discovery while pondering whether or not to accept the offer of amends. In Carter-Ruck’s view, they were perfectly entitled to keep The Guardian’s offer on the table until (if necessary) the very end of the malicious falsehood action up to eighteen months later. It was a busy period for Tesco’s lawyers. In addition to the Guardian actions the main board had approved three libel actions against critics of its retail operations in Thailand, including one for criminal libel against a former Thai MP, who faced the prospect of up to two years in jail and a claim of $27.88 million for complaints about Tesco’s aggressive expansion in Thailand.

A full-scale defamation case develops an awesome momentum of its own. Letters rain in day after day, week after week—drafted by counsel, amended by junior partners, redrafted by senior partners, few of them earning less than $500 an hour. Their tone is alternately sneering, bullying, threatening, and demanding. Within seven weeks of receiving the initial writ of libel, The Guardian’s costs alone of responding to the bombardment of Carter-Ruck demands and drafting a defense had mounted to more than $500,000. Within nine weeks Carter-Ruck submitted an estimate of their own costs to date of $808,607. The firm’s lead partner claimed $78,200 for the 93 hours and six minutes he had toiled over the case (at $850 per hour). Another partner had clocked up $67,269 for 131 hours and 54 minutes (at $510 per hour), much of which appears to have been spent composing needling letters. The accountants Ernst and Young eventually wanted $173,000—for advising Tesco’s lawyers on Tesco’s own accounts. Berwin Leighton Paisner, the specialist tax lawyers who helped set up the offshore companies The Guardian had written about, billed Tesco for a further $361,000—presumably for explaining to Tesco’s lawyers the precise nature of the company’s own tax structures. Three barristers specializing in defamation law charged Tesco a further $155,125.

These remarkable sums for explaining the tax structures were all the more ironic since Tesco was fond of contending that The Guardian’s error was an elementary, “absurd” one. The total cost for both sides of fighting the action to the bitter end—which could have ended up largely being borne by either Tesco or The Guardian—could have been in the region of $7.6 million. All this for a case where any damages would have been relatively insignificant.

In the middle of all this—in late May and early June—Private Eye published two stories about two Tesco strategies that were apparently constructed to avoid corporation tax, the same kind of strategies The Guardian had incorrectly alleged Tesco was using. Neither Private Eye story was followed up in any British newspaper, although The Guardian itself published a story about the Private Eye investigation.8 This silence was hardly surprising. The complexity of the strategies—combined with the threat of a multimillion-pound legal bill in the event of getting it wrong—meant that no editor in his right mind would go near such a story. A certain amount of concentration is necessary to follow what Tesco was accused of by Private Eye.

The magazine, which employs a tax specialist who was once employed by HMRC, reported a baroque set of arrangements. One of them used Tesco subsidiaries registered in the Grand Duchy of Luxembourg, the tiny EU state on the borders of Germany, Belgium, and France, long regarded as a tax haven. Private Eye published details of a collection of offshore holding companies and accompanying partnership agreements, which it said Tesco was using to pile up $85 million a year free of corporation tax in the Grand Duchy.

These offshore entities—called Armitage, Cirrus, Delamare, and Cheshunt—appear to have been named after Tesco office addresses; Tesco buildings include Armitage House and Cirrus House, and its headquarters is located on Delamare Road, Cheshunt. The tax loophole highlighted by Private Eye was outlawed by government legislation passed this summer. Treasury Minister Jane Kennedy described such a strategy to a House of Commons committee in June, saying it was one of a number of “highly artificial tax avoidance schemes.”

Private Eye also identified what Tesco lawyers termed an “entirely legitimate tax exemption.” This involved depositing $1.7 billion in a limited liability partnership, called Cheshunt Overseas LLP, with a Swiss branch office in the canton of Zug, a tax haven. The partnership loaned the money out at interest to its overseas store operations, and accumulated the interest in the partnership. The Zug strategy, which has so far apparently not been challenged by the HMRC, could be costing the British treasury up to $27.2 million a year in lost corporation tax.

You could be forgiven for not following the details of this report, which was, of course, of interest to The Guardian. Tesco’s original writ against the paper said it was a “devastating attack on [the company’s] integrity and ethics” to be accused of large-scale corporation tax avoidance. And yet here was Tesco accused of setting up elaborate schemes—one of them subsequently outlawed by the government—apparently designed to avoid significant sums of that very tax.

In order for The Guardian to follow up the Private Eye story, the paper had to spend perhaps $17,000 in seeking expert libel and tax advice on whether the magazine was correct (and maybe double that to secure the opinion of a senior tax lawyer in order safely to plead it in the paper’s defense). Any editor wanting definitively to state that this was, indeed, a strategy to minimize corporation tax would have needed to be able to find a qualified tax specialist prepared to testify under oath to that effect. Such an expert would have needed an extremely sophisticated understanding of current corporate tax law; the latest filed accounts of all the companies involved (including in Luxembourg); details of the partnership’s lending activities; and a knowledge of Luxembourg accounting practice.

Of course, almost no news organization has this sort of expertise to hand. Pro-bono advice, for example, from professors of law or business, might be of help—but few academics would volunteer to give evidence in the High Court. So, after the Tesco legal assault, it is fairly safe to predict that almost no British paper will investigate in any detail how companies today increasingly fund and structure their overseas expansion with an eye to avoiding tax. If Tesco feels unfairly spotlighted in this respect, it is with some justification. The company does pay a great deal of tax, and is by no means the worst culprit in matters of avoidance. The UK government’s own estimates suggest that thousands of major companies behave in a similar way. Their directors can sleep easy, knowing that the likelihood of anyone writing about their tax affairs is slim.

The end of the libel case was, in a way, rather bathetic. In late July both parties appeared before Mr. Justice Eady in the High Court for a two-day case-management hearing. Tesco wanted to push full steam ahead, refusing to say whether it would accept The Guardian’s offer of amends while being free to pursue both actions for malicious falsehood. In addition, the company wanted all the Private Eye evidence on corporation tax avoidance to be excluded from any consideration of damages. The Guardian insisted Tesco should declare its hand on the libel action, asked for the malicious falsehood action to be stayed, and insisted on having the right to produce the Private Eye evidence by way of mitigation of damages.

Mr. Justice Eady found against Tesco on all counts. He said it was no part of the court’s functions to “punish or humiliate” the other party, “or to provide an opportunity to achieve additional public relations purposes.” He ordered Tesco to say whether or not it would “walk through the open door provided by the offer of amends.” He stayed the malicious falsehood action, admitted the evidence of corporation tax avoidance turned up by Private Eye, and ordered Tesco to pay both sides’ costs of the hearing.

Two months later—oddly, four hours after the deadline set by the court—Tesco agreed to suggested wording for another correction and apology. The terms of the settlement prevent either side from saying how much this differed from the wording offered to the company almost exactly four months earlier, and from revealing the size of the sum paid by The Guardian to a charity of Tesco’s choice. There is yet to be a settlement on how the overall costs will be divided. At a recent court hearing in one of the libel actions Tesco is also fighting in Thailand, the company’s representative handed out to the press copies of The Guardian’s apology. The clear message one defendant understood was that if a big newspaper like The Guardian apologizes, who are you to hold out against a mighty retailer?

Few would argue with a newspaper’s right to examine such matters, or a company’s right to be fairly reported. What I have done here is to try to describe a process that, on all sides, is manifestly unsatisfactory. It is clearly undesirable that the remaining news organizations still willing to commit serious resources to matters of high public importance should be disproportionately penalized for honest errors. That the litigation ended up with a judgment so heavily weighted in The Guardian’s favor was, of course, a good outcome for both sides in future libel actions.

Mr. Justice Eady’s judgment will make it easier for news organizations frankly to admit error in the knowledge that this should—in the absence of provable malice—bring a swift conclusion to the case. But one good judgment does not undermine a general lack of faith in the willingness of British courts to prevent the chilling effect of the uncertainty and expense of litigation. Tesco and Carter-Ruck would hardly have fought their corner so fiercely in the July court hearing had they not held a strong belief that they would win.

Though this was a case in which the newspaper was on weak ground—having its facts wrong—there is no shortage of cases where news organizations, including several American media companies, have had to risk millions of dollars to protect solid reporting on matters of public interest. The Wall Street Journal’s dogged fight in the Jameel case—all the way to the House of Lords—is but one recent example. At the same time as the Tesco settlement was made, The Guardian successfully defended itself against a libel suit by the vitamin promoter Mathias Rath, whose company’s promotion of “alternative” treatment of African HIV sufferers is widely considered to have caused much suffering. In order to defend an utterly solid report on Mr. Rath’s unappealing practices, we had to spend $680,000, with a commitment to risk many times that amount to fight the case to the bitter end.

How, in a more perfect world, could an offended retailer and a newspaper have settled their differences? One option would have been for Tesco to have appealed to The Guardian’s independent readers’ editor (the only such ombudsman among the British daily papers). In its eleven years of existence, the readers’ editor has dealt with numerous serious complaints against the The Guardian. In those years there has been only one instance in which a complainant subsequently felt the need to go to court. Another route would have been for Tesco to have complained to the news industry’s self-regulator, the Press Complaints Commission, which offers free and quick mediation of issues that parties can’t resolve between themselves. Both options would have been preferable to what actually happened.

British libel laws—with the burden of proof on the defendant, conditional fee arrangements, the ability of lawyers to ratchet up eye-watering costs, and a still uncertain degree of qualified privilege protection for “responsible” journalism—remain a formidable weapon in the hands of claimants, whether rich individuals or powerful corporations. Before putting journalism on trial, a more responsive standard of public interest should surely be applied. If a news organization is self-evidently seeking to publish material of high public importance—matters to do with corporate responsibility, government, fiscal risk and management, health, science, security, and so on—then the law ought to find better ways of protecting it. Before any corporation is given the green light to sue, one possibility worth considering is a requirement that it must first attempt to resolve matters via mediation—whether through ombudsmen or regulatory or self-regulatory bodies.

In Australia the government recently introduced laws reducing the power of large corporations to bring defamation cases. The Uniform Defamation Laws, passed in 2006, prevent corporations from suing for defamation unless they have fewer than ten employees or are classified as not-for-profit entities.

This provision will prevent actions by large corporations while still allowing an individual associated with the firm, such as a director, to sue for libel on the basis that the defamation of the corporation had resulted in damage to their personal reputation. Corporations can still sue for “injurious falsehood” where a false and malicious statement against business, property, or goods causes provable economic loss. This contrasts with libel, where the only damage necessary to establish liability is damage to reputation.9

Some reform of the British system is urgently needed. As long ago as 1975, the Faulks Committee report on the reform of defamation in the UK, for example, recommended changing the law so that any company wishing to sue for libel would have to prove quantifiable damage. It stated:

No action in defamation should lie at the suit of any trading corporation unless such corporation can establish either—(i) that it has suffered special damage, or (ii) that the words were likely to cause it pecuniary damage.10

Whether we are dealing with banks, taxation, security, religion, or climate change, we need more than ever to find ways of encouraging, not penalizing, news organizations that try to report matters of the greatest complexity and significance. The financial crisis currently facing newspapers in America and Europe is grave and comes at a time when they are more needed than ever. In years to come people may not question why newspapers got things wrong about such complicated matters as corporate tax structures or the behavior of investment banks; they may express wonder that they even tried.

This Issue

January 15, 2009