‘Special’ forces

Stockbroker Collins Stewart has set its Schillings ‘Rottweilers’ onto the FT, claiming £230m in lost future earnings. But is it just using scare tactics? By Jon Robins

So you want to be a record-breaker? That is a rough précis of the legal argument deployed by Desmond Browne QC, acting for the Financial Times (FT) earlier this month in its libel battle with stockbroker Collins Stewart Tullett. The silk claimed that the latter’s chief executive Terry Smith was trying “to get into the Guinness Book of World Records” by pursuing a £230m claim for special damages.

The FT asked Mr Justice Tugendhat in the High Court to disqualify the “utterly ludicrous” claim put in by leading claimant firm Schillings on behalf of Collins Stewart. The broker is suing the newspaper for its coverage of allegations of financial wrongdoing made by analyst James Middleweek against his former bosses in August 2003. The paper argued that the case should go ahead next April based solely on the issue of alleged damage to the company’s reputation, with a £200,000 ceiling on damages.

The offending coverage was based on allegations made by Middleweek in a document sent to the Financial Services Authority. Collins Stewart maintains that the article was libellous. The FT disputes the charge and argues that it was entitled to report the analyst’s allegations because they were contained in a public document. The document in question was an attachment to Middleweek’s claim form for wrongful dismissal. The FT is expected to argue that it is protected by qualified privilege to print “a fair and accurate copy of, or extract from, any register or other document required by law to be open to public inspection”. The FT is not defending the allegations as being true. Collins Stewart argues that the FT article led to a fall in its share price, and that the £230.5m loss of actual and potential market capitalisation was “the best available reflection of the loss in future revenues which [Collins Stewart] has suffered and will suffer”.

Neither Schillings partner Rod Christie-Miller for Collins Stewart nor Nicholas Alway, the Farrer & Co partner representing the FT, would comment. But other media lawyers were not so reticent. “It’s shock and awe litigation designed to get prime-time coverage,” reckons Martin Soames, a media litigation partner at DLA. “The really interesting question is why [Collins Stewart] has done it, knowing that the prospects of success are quite poor. I think the reason is simply to draw attention to the claim, put the wind up the defendants and then the insurers. It establishes it as one big and very messy claim.”

“It’s a scatter-bomb approach whereby you wipe out your opposition by chucking everything you have at them,” reckons Rod Dadak, head of defamation at Lewis Silkin. “Schillings has a reputation for being Rottweilers and this is very aggressive behaviour.”

But how seriously does Fleet Street take the claim? FT lawyers believe that a special damages action could have “not so much a chilling effect, as a positively freezing effect, on financial journalism”. Newspaper lawyers are, however, sceptical about its prospects. “I’m very surprised that the claim has come this far,” comments Alastair Brett, the legal manager of Times Newspapers. “I’d have thought that the special damages side of the action would have been dumped ages ago.”

It is a view that is echoed elsewhere. “We’re all expecting the vast lion’s share of the claim to be struck out by Tugendhat,” says one Fleet Street head of legal. “Of course, it could have a worse than freezing effect. You can just imagine the consequences on reporting if papers were to find themselves on the receiving end of a claim like that.” But, the lawyer adds, even if the claim is not struck out by the High Court next week, “it doesn’t mean Collins Stewart is going to win anyway”.

Companies normally recover only a fairly low figure for libel because, as Soames points out, corporate defendants “don’t have feelings, and the bulk of individual recovery in libel damages is always for hurt feelings”. He adds: “Even for a very serious libel against a company, in the absence of special damages you would tend not to get above the £20,000 mark.

“For special damages you have to show a specific loss in libel. For example, you could argue a contract was cancelled and the reason for that was because of the publication of an article, and you have evidence for that – for example, from the director of the company. That’s a world away from saying that your share price went down the tubes and the article was the reason why. The market has done all kinds of peculiar things over the last couple of years and share prices fluctuate for a host of reasons.”

Nick Armstrong, a media law partner at Charles Russell, asks how on earth one would prove loss anyway. “Can you attribute a particular move in the stock market solely to the publication of one article?” he queries. “In this case, [the loss] does seem to be very closely linked in time, as in a matter of days the share price plunged. But who knows how these valuations are made?”

Browne was in scathing form on this point. The silk argued that the assessment of the market varied “with the subjective, collective judgement of a cabal of unidentified individuals who happen to be in the market on one day”. Any decline in shares represented a loss to shareholders, not to the company, he reasoned. “It does not assist [Collins Stewart] to dress up these facts by calling the loss in market capitalisation a ‘reflection’ of the loss in future revenues,” he said, quipping that “reflection won’t do, unless you’re Narcissus.”

Browne also points out that the allegedly libellous elements in the FT article had already appeared in a number of papers days earlier.
Soames says that loss of share value has been used in other libel actions, such as when diamond company Oryx sued the BBC for £10m in 2001 after the broadcaster ran an untrue story on connections between the company and al-Qaeda. “But it’s argued more from a tactical point of view rather than because of any real prospect of success,” he says. “The terror effect on the publisher is great and one can imagine that impacting on the publisher’s insurers.”

As Dadak acknowledges, the special damages ploy is an effective tactic. “Any libel writ has a chilling effect on a newspaper and the bigger the writ the bigger the chill, and this is as big as you get,” he says. “So yes, this is worrying.”