Stories of the privileged

The introduction of the Defamation Bill has been widely followed. But one often over-looked proposal is the suggested extension of the statutory reporting privilege, particularly as it relates to the affairs of public companies.

The existing privilege is enshrined in the Defamation Act 1952 which relates to a fair and accurate report of proceedings at a general meeting of any company “not being a private company”.

The new Defamation Bill aims to broaden the privilege to include copies of or extracts from public company documents circulated to shareholders by the board of directors, auditors or by any shareholder relying on his statutory rights.

It also protects fair and accurate copies or extracts from documents which have been circulated to shareholders of a public company regarding the appointment, resignation, retirement or dismissal of the company's directors. In either case, the privilege would operate not only in respect of the proceedings of UK public companies but also any public company formed in a member state.

Will this extension change the way the activities of our leading companies are reported? Financial journalists have traditionally enjoyed some latitude in their coverage of the affairs of public companies. But this may be due less to skillful pre-publication advice than to a reluctance on the part of those companies to antagonise institutional investors by suing.

One possibility is that, if the Bill becomes law, the stories covered will be much the same but will break earlier. Indications are that journalists have sometimes been reluctant to report on the reasons for a director's removal, for example, before the general meeting at which the resolution for that removal is tabled.

The Bill should help to reduce editorial concerns on that score by conferring privilege on a report of that story which appears once notice of the resolution to dismiss is circulated to shareholders.

The same may be true for stories about the resignation of auditors which, notwithstanding considerable public interest, are often reported in guarded terms. The odds are that European public companies will also come under increasingly detailed security.

The time at which a document is circulated to shareholders is likely to be a rich source of legal dispute. The Securities and Futures Association and Stock Exchange will doubtless wish to avoid the possible market instability generated by a story based on a document received by some shareholders but not others. Equally, wire services will not be inclined to delay a report until satisfied all shareholders are seised of the information.

A financial journalist who today writes a balanced story supported by the existing statutory and common law privilege will frequently be able to cover high-profile corporate bust-ups without difficulty. Nevertheless, with two specialist business papers due soon, this government proposal may encourage more widespread coverage of life in the boardroom.