Downtex v Flatley

This is an appeal by the claimants against the interlocutory decision and order of Mr Justice Elias dated 10 October 2002 in an action brought by the claimants for defamation and (in the case of the first claimant) for breach of contract against the defendants.

The contract in question, to which both the first and second defendants were parties, was a contract for sale by the second defendant to the first claimant (of which the second and third claimants were directors) of the business then carried on by the second defendant. The contract contained (inter alia) a term that the defendants would not do or say anything harmful to the reputation of the business or which might lead a person to cease to deal with the business on substantially equivalent terms to those previously offered or at all (clause 13.1.4).

The claimants sought summary disposal of the claim in defamation and in particular an injunction against repetition pursuant to CPR Part 53, coupled in the alternative with an application to strike out certain parts of the defence pursuant to CPR Part 24. That application related not only to the defamation action but also to the first claimant’s claim for breach of contract in respect of the publications the subject of the defamation claim. However, because of the terms of CPR Part 53.2(3)(a), the Part 24 application could not be made until the application under CPR 53 had been disposed of. Accordingly the judge ruled that the application under Part 53 should be heard first so that, dependent upon its outcome, the claimants could thereafter, if they wished, seek to pursue the Part 24 application.

The Part 53 application principally concerned a defence of qualified privilege raised by the defendants. In the event the judge decided that it was premature to rule upon the defence and in particular to dispose of the claim in defamation at that stage, on the basis that the issues could only be finally and properly resolved after a careful analysis of the particular facts and hence he dismissed the Part 53 application. He adjourned the various other applications before him and gave certain directions, which are not material. The judge refused permission to appeal from his order. However, leave was granted by Sedley LJ on the single question whether or not the publication of any of the three letters the subject of the application was on an occasion of qualified privilege.

It is material to note that, following its failure under CPR 53 before Elias J, the first claimant pursued its application under CPR 24 in respect of its contract claim and, in particular, sought an injunction pursuant to clause 13.1.4. The application was heard by Gray J on 28 November 2002 who made an order which provided inter alia that:

“3.

the Defendants shall not do or say anything which alleges or might reasonably be taken to infer:

(a)

that the first Defendant is or might be in financial difficulties or might be unable to pay its creditors or that its directors have been guilty of misconduct in the management of its affairs or anything else to the like effect; or

(b)

any other similar words harmful to the reputation of the first Claimant and/or which might lead a person to cease to deal with the first Claimant on substantially equivalent terms to those previously offered or at all.”

So far as the question of damages was concerned, Gray J held that in the light of the debate about damages for injury to reputation in contract, the assessment of damages should be adjourned to be heard by the trial judge dealing with the libel aspect. He stated that this had distinct advantages, avoiding the problem of double accounting and enabling Downtex to formulate and quantify its claim. By an apparent error, specific provision for the postponement of the assessment to the judge trying the libel action was omitted from Gray J’s order. However, he ordered that the costs occasioned by the contract claim issue should be reserved to the trial judge in the libel action.

The first claimant (“Downtex”) carries on business as a wholesale distributor of household accessories and flatpack furniture accessories. The second and third claimants (“the directors”) are brothers who are directors of Downtex. The first defendant (“Mr Flatley”) is the sole director of the second defendant company which bears his name. In April 2000, Downtex bought a business from the second defendant, the terms of which included clause 13.1.4 and which need not be otherwise rehearsed. Later, the parties made allegations and counter-allegations of each other’s failure to comply with the agreement and their relationship deteriorated. Both defendants asserted that they were owed moneys wrongfully withheld by the claimants. In that context, the first defendant, on the writing paper of the second defendant circulated to the claimants’ suppliers letters, which it is alleged were defamatory of each of the claimants as well as constituting a breach of clause 13.1.4.

In the particulars of claim the claimants identified four letters as constituting the defamatory communications complained of. The first was anonymous (“the anonymous letter”). It bears no letterhead. Its contents refer to the reduction of profits and incurring of losses at Downtex attributing them to the extraction from the company by the directors of more than a million pounds in the previous three years, asserting that the directors were buying loss-making shops to get their hands on the current assets with the intention of leaving the debts to a receiver and referring to the second claimant as a well-known manipulator of figures. That letter is plainly defamatory. However, being anonymous and the defendants denying authorship, the claimants accepted before the judge that they were unable to seek summary relief in relation to it, on the basis that Mr Flatley was the author or that he was party to its publication. However three further letters of 17, 18 and 19 June 2002 were relied on, the first two of which were accepted by the defendants to be defamatory. They were written by Mr Flatley on the second defendant’s writing paper. The letter of 17 June referred to (but did not further identify the contents of) the anonymous letter. Its contents were as follows:

“I do not know if you are dealing with Downtex Plc of 48 George Street, Manchester.

I received an anonymous letter recently and after some days of research I have decided that it would be appropriate to call a creditors’ meeting.

I suggest that this meeting should be held in Manchester or Chester which ever is more suitable and that we engage a solicitor to monitor it, and the possibility of engaging a receiver to keep the company running.

This letter has been sent to the following companies, if you know of any suppliers outside of these please inform me.”

There then followed a list of the names of twenty suppliers of Downtex.

The letter of 18 June also referred again to receipt of the anonymous letter, without further reference to its contents. It stated:

“Since receiving an anonymous letter regarding Downtex Plc and being sent a credit report on Downtex from another creditor who impelled me to take some action, I have spent professionally assisted hours looking into the affairs of Downtex Plc and believe …

The bank must take all the responsibility for the situation in which the company is in.

If they had left the directors personal guarantees in place I believe that these same directors would have behaved more responsibly.

They have allowed themselves to take impossible risks with other people’s money at the same time as they have taken out of the company more than 10 times their original investment discounting their introduction initially of tangible assets.

I am of the opinion that the bank are in a sueable position but clearly a suitable compromise must be sought in preference to a law suit.

The main points are can this business be salvaged and can we get our money?

…

Enclosed is a copy of a creditor’s report sent to me by another creditor who does not wish to be named as he is still struggling for his payment.

The Mond brothers have already informed me of my interest so we need to act quickly.”

The third letter, dated 19 June 2002 stated simply:

“Further to my recent letter of 19^th June 2002 regarding Downtex.

I have been requested by one creditor to send them a copy of an anonymous letter I and some other creditors have received. I do not think we should pass on or even consider this letter; it is anonymous and abusive and reeks of rancour rather than fact which we should rely on.”

Despite their admissions that the letters of 17 and 18 June were defamatory, the defendants disputed that the case was appropriate for summary relief for two reasons. First, they submitted that the letters were published in circumstances which attracted the defence of qualified privilege and second they did not admit that either of the letters made clear or explicit reference to the second and third claimants, submitting that it would be necessary for the claimants to adduce evidence at trial to demonstrate that the words complained of had been understood by third parties as referring to the second and third claimants.

The defendants’ case that a defence of qualified privilege arose was fully set out in the particulars to paragraph 9 of the defence. Particulars 9.1 to 9.8 referred to the agreement between the parties for the sale of the business, and to various oral terms alleged to have been agreed during the negotiations as to the financial terms of the sale. They also referred to breach of an alleged oral agreement to pay the first defendant for one year’s consultancy services and of undervaluation of certain stock as a result of which the defendants were said to have been underpaid.

Particulars 9.8 to 9.12 read as follows:

“9.8

By reason of the breaches of the agreements detailed in paragraph 9.3 above, as set out in paragraphs 9.4 to 9.7 above, the First Claimant was indebted to the First Defendant for substantial sums in excess of £82,700.00. The First Defendant wrote to the Third Claimant on 19 and 26 October 2000, and on 1 November 2000, complaining about the Claimants’ conduct and requesting that he be reimbursed. The Claimants refused, denying that they had any outstanding liability to the First Defendant.

9.9

On or about the middle of June the First Defendant received the anonymous letter complained of in paragraph 4 of the Particulars of Claim by e-mail from a trade supplier. The First Defendant initially dismissed the letter. However, the First Defendant decided that, in view of the large sums owed to him by the First Claimant, and the First Defendant’s significant shareholding in that company, it would be as well to look into the financial health of the First Claimant in any event.

9.10

Accordingly, the First Defendant consulted the First Claimant’s Annual Report of 2001. The First Defendant was very concerned by what he saw, namely that despite producing more goods than ever to the extent of needing to contract out some of their manufacturing, the First Claimant:

9.10.1

had a retained deficit of £38,553.00 for the year in contrast to the year 2000 profit of £154,927.00;

9.10.2

turnover had fallen by almost £1,000,000.00;

9.10.3

operating expenses had risen by over £200,000.00, as had staff costs;

9.10.4

the Chairman’s report described trading conditions as ‘extremely difficult’;

9.10.5

had unclear loan conditions with its bank, from which it was impossible to ascertain who was liable to pay the cover interest, the Second and Third Claimants or the First Claimant.

9.11

Consequently, the First Defendant decided to inform other companies and individuals who were creditors of the First Claimant to support him in calling for a creditors’ meeting. The First Defendant, acting on behalf of the Second Defendant, therefore published the letter complained of to the persons listed in the letter.

9.12

In the premises, the Defendants and the said publishees had a common or corresponding interest in the subject-matter of the letter complained of and/or the Defendants published the letter complained of in the reasonable protection of their own legitimate interests to the said publishees, who had a like interest in receiving it.”

It should be noted that while the matters pleaded, if correct, arguably demonstrated that Downtex was in poor financial health, it was and is not suggested that the company was insolvent i.e. unable to pay its debts as they fell due.

The submissions advanced before the judge by Mr Boggis-Rolfe, who appeared for the claimants both here and below, were as follows.

For the defendants, Miss Addy of counsel who appeared below but not in this court, submitted as follows.

The case was not suitable for summary disposal because (i) the issues involved were complex particularly on the defence of qualified privilege (ii) there were conflicts of evidence on crucial issues relating to publication as well as qualified privilege and (iii) the defendants wished for a jury trial.

Summary trial was not appropriate on the present state of the witness or documentary evidence. Discovery had not taken place and the evidence was not complete as to the financial health of Downtex and its indebtedness to (a) the defendants and (b) its suppliers/creditors.

Miss Addy relied upon the observation of Lord Woolf MR in Swain v Hillman [2001] 1 All ER 90 at 95, in relation to the power of the court to dispose summarily of defences which have ‘no real prospect’ of being successful.

“Useful though the power is under Pt 24, it is important that it is kept to its proper role. It is not meant to dispense with the need for a trial where there are issues which should be investigated at the trial … The proper disposal of an issue under Pt 24 does not involve the judge conducting a mini-trial, that is not the object of the provisions; it is to enable cases, where there is no real prospect of success either way, to be disposed of summarily.”

She submitted that the test to be applied to the question of summary disposal under s.8 of the Defamation Act 1996 was the same as that under CPR Part 24: see the decision of Eady J in James Gilbert Ltd v MGN Ltd [2000] EMLR 681.

In relation to the defence of qualified privilege, Miss Addy submitted that the defendants had a keen and legitimate interest in protecting their financial position as did the suppliers to whom they communicated the information contained in the letters. Although the first letter was communicated to suppliers rather than creditors as such, the actual creditors were not known to the defendants and the suppliers were either creditors or potential creditors of Downtex in a situation where the continuing financial viability of Downtex appeared to be in doubt. It was therefore reasonable in the circumstances to contact the suppliers with a view to joint consideration of the position and there was sufficient reciprocity of interest as between the defendants and those to whom the letters were communicated.

As to the question of any imputation of insolvency, as opposed to poor financial health, which might arise from the reference to the holding of a creditors meeting, Miss Addy submitted that, even if the defendants had in the correspondence exaggerated the financial difficulties of the company that would not necessarily deprive them of the qualified privilege defence.

In this connection reliance was placed on the distinction taken in paragraph 14.59 of Gatley on Libel and Slander (9^th ed) between statements where a privileged communication contains unconnected defamatory matter irrelevant to the main statement which cannot be regarded as the subject of privilege and, on the other hand, communications which include statements which are connected with the main privileged statement, albeit involving exaggerations of the position as the defendant believes it to be. Such statements do not destroy the defence of privilege in a situation where a reciprocal interest exists, albeit the question of exaggeration may provide evidence of actual malice.

Having considered the rival submissions and the substantial body of evidence before him, the judge stated at paragraph 17 of his judgment:

“After careful consideration, I have reached the conclusion that it would not be right to dispose of the claim at this stage. I recognise that the question whether the circumstances give rise to the defence of qualified privilege is for the judge to determine. However, as Mr Boggis-Rolfe fairly accepted, it is a question which is highly fact sensitive i.e. it depends on the particular facts of the individual case. I recognise the force in his submission that the communication was not “fairly warranted by the occasion”, and that even if communications to creditors or potential creditors could in principal be justified, even then the letters had been too widely targeted here. Nonetheless it seems to me that this is an issue that can only be resolved after a careful analysis of the particular facts in issue. I do not consider that I can with confidence say at this stage that the defence of qualified privilege has no real prospects of success. Moreover, to the extent that the letters do indeed exaggerate the financial difficulties facing the claimant company, (and the extent of any exaggeration will itself be dependent on the facts that are ultimately found at trial), I accept the submission of Miss Addy that any such exaggeration would go to the question of whether or not the defendants were motivated by malice but will not necessarily deprive them of the defence of qualified privilege itself. On any view, the point is strongly arguable. Plainly the question of malice can only be determined at trial.”

The judge went on to say that, since the defence of qualified privilege (if made out) would apply also to the claims made by the individual directors, it was not necessary to determine whether or not there was a sufficiently unambiguous reference to them. However he went on to hold (at paragraph 18) as follows:

“There is no reference in the letter of 17 June to either of the individual defendants, but in the letter the following day there is a reference to the Mond brothers, and one of them is specifically identified as a director in the credit report which was attached to that letter. However, it is arguably not wholly clear which defendants are being referred to in that letter. There is, for example, no specific evidence from suppliers to the effect that they would have understood the critical comments to refer to the two individuals, and I do not think it would be right at this stage that I should make the assumption that the evidence will inevitably bear that out, albeit that it seems very likely that it will. This is a matter best left to trial.”

In those circumstances the judge concluded that it would be premature to dispose of the claims at that stage and accordingly the application under CPR 53 failed.

As already indicated, upon this appeal the submissions of Mr Boggis-Rolfe have essentially been a repetition of those he made before the judge. The defendants no longer have the advantage of Miss Addy’s services. Mr Flatley has made clear that he seeks to uphold the decision of the judge on the lines of Miss Addy’s submissions as well , but spent the time before us making a number of less relevant points of his own.

Mr Boggis-Rolfe has rightly drawn to our attention the recent decision of the Court of Appeal in Kearns v General Council of the Bar [2003] EWCA Civ 331 [2003] 2 All ER 534, in which Simon Brown LJ (with whom the other Lord Justices agreed), after a review of the leading authorities, observed [at paragraph 30] as follows:

“The argument, as it seems to me, has been much bedevilled by the use of the terms “common interest” and “duty-interest” for all the world as if these are clear-cut categories and any particular case is instantly recognisable as falling within one or other of them. It also seems to me surprising and unsatisfactory that privilege should be thought to attach more readily to communications made in the service of one’s own interests than in the discharge of a duty – as at first blush this distinction would suggest. To my mind an altogether more helpful categorisation is to be found by distinguishing between on the one hand cases where the communicator and the communicatee are in an existing and established relationship (irrespective of whether within that relationship the communications between them relate to reciprocal interests or reciprocal duties or a mixture of both) and on the other hand cases where no such relationship has been established and the communication is between strangers (or at any rate is volunteered otherwise than by reference to their relationship … Once the distinction is made in this way, moreover, it becomes to my mind understandable that the law should attach privilege more readily to communications within an existing relationship than to those between strangers. The latter present particular problems.”

Mr Boggis-Rolfe relies upon that authority to emphasise that a defence of qualified privilege is more easily established in a case where the communicator and the communicatee have a pre-existing relationship than where that is not so. That is plainly the case. However, I do not think that it overturns the principles to be applied in relation to a plea of qualified privilege in respect of persons who are properly to be categorised as strangers (as in this case) but are alleged to have a common or reciprocal interest in the material communicated. Further, as it seems to me, the case does emphasise that in the latter category of case it is usually necessary to examine by factual inquiry at trial all the circumstances surrounding the publication complained of before coming to a conclusion. An example is afforded by Comarek v Ramco Energy [2002] EWHC 2501 (QB), [2002] All ER (D) 314, a case where a company in business in Prague had sent a document defamatory of the claimants with whom they were in a business relationship to the British Ambassador in Prague and asked for his assistance. Eady J observed:

“Counsel for the defendants drew an analogy with the recent case of Kearns v General Counsel of the Bar … That too was primarily a common interest case, but it turned upon the well-established relationship between the Bar Council and members of the Bar … The issue was not fact sensitive therefore, in the sense that it would become necessary to investigate the particular circumstances surrounding each individual publication. Here, by contrast, the common and corresponding interest contended for is not, so to speak, “off the peg” and is being tailored to the individual circumstances and people involved. There is more room, therefore, for factual inquiry at trial before it can be finally determined that the common interest alleged would be classified as ‘legitimate’ by the law of defamation.”

It is plain that the view of Elias J in the instant case was that it was a ‘fact sensitive’ case requiring full investigation at trial before the issue of qualified privilege could be finally determined.

That being so, it seems to me there is a heavy onus on Mr Boggis-Rolfe to demonstrate clearly that Elias J was wrong in the decision to which he came and that he had all of the circumstances before him which were necessary to decide the issue of qualified privilege with confidence. The test under CPR Part 53 is essentially the same as under CPR Part 24 i.e. the need for the claimant to demonstrate that the defendant has no real prospect of successfully defending the proceedings: see James Gilbert v MGN above. As stated by Lord Woolf MR in Swain v Hillman at 92j, those words

“ … do not need any amplification, they speak for themselves … they direct the court to the need to see whether there is a ‘realistic’ as opposed to a ‘fanciful’ prospect of success.”

As already quoted at paragraph 20 above, the summary procedure should not involve the conduct of a mini-trial in a case where the defence advanced is ‘fact sensitive’ and there is reason to think that further facts may emerge or require investigation at trial before a fair and/or final conclusion can be reached. However, where there is sufficient material before the court on the pleadings or in evidence to allow the court to form a confident view upon the prospects of success for the defence advanced and the case is not fact sensitive in the sense that the essentials have all been deployed and there is no reason to think that the defendant will be in a position to advance his case to any significant extent at trial, then the court should not shy away from careful consideration and analysis of the facts relied on in order to decide whether the line of defence advanced is indeed no more than fanciful.

It is the submission of Mr Boggis-Rolfe on this appeal that the judge did indeed shy away from that task when, if he had been prepared to embark upon it, he would have appreciated that the defendants had fully shot their bolt as to the matters underlying their plea of qualified privilege, but had fallen well short of the target.

In this connection, in the course of a long and detailed argument, including examination of Downtex’ accounts, Mr Boggis-Rolfe has sought to demonstrate not only that Downtex was able to pay its creditors before they fell due, as indeed was not contested, but that there was no objective cause for concern as to its solvency in the near future which could properly justify the letters which were sent. In those circumstances, he relies upon the principle that (a) the ruling as to whether or not the communication was fairly warranted by the occasion is one for the judge applying the objective standards of a right-minded man in the position of the defendant and (b) whether or not the recipient had a legitimate interest in the matter (i.e. concerns as to the solvency of Downtex) is similarly an objective question.

“The defendant cannot create a privilege for himself because of honest belief on his part that the person to whom he made a slanderous communication had an interest or duty in respect of the subject matter of such statement”: see Hebditch v MacIlwaine [1894] 2 QB 54, 59 per Lord Esher MR.

The interest of the defendant, in advancement of which the letters were published, and the corresponding (i.e. reciprocal) interest of the suppliers relied on as founding the plea of qualified privilege were nowhere expressly defined in the defence. The pleading in paragraph 9.12 asserted, but did not define, the “common or corresponding interest in the subject matter of the letter complained of”. That interest had to be culled by inference from paragraphs 9.8 – 9.11 which preceded it. For the purposes of his judgment, the judge treated the question of privilege in the terms of the defendants’ submission, which he recorded at paragraph 13 of his judgment as follows:

“In this case the defendant submits that it had a keen interest in protecting its financial position, as did the suppliers to whom it communicated the relevant information. True it is that the first letter was communicated to suppliers rather than creditors as such, but the actual creditors would not be known, and the suppliers were, after all, either creditors or potential creditors of Downtex. It was therefore reasonable in the circumstances to contact the suppliers. Accordingly, there was both the necessary interest in the first defendant and the reciprocity of interest between the defendant and those to whom it communicated the correspondence, to attract the protection.” (emphasis added).

His conclusions upon the submissions made to him have already been quoted in the passage of the judgment set out at paragraph 24 above.

In that passage the judge referred to the acceptance by Mr Boggis-Rolfe that the question whether or not a defence of qualified privilege is made out is highly ‘fact sensitive’ and that the issue in this case could only be resolved after a careful analysis of the particular facts in issue. Mr Boggis-Rolfe has not resiled from that acceptance; nor does he disagree with the need for careful analysis. However, he does submit that the judge was wrong in the next sentence of his judgment when he said that he considered he could not with confidence say that the defence of qualified privilege had no real prospects of success. Mr Boggis-Rolfe submits (as his skeleton argument before the judge testifies) that the necessary analysis of the information relied on by the defendants had taken place before the judge. Such analysis made clear that the material relied on as the factual basis advanced for the defendants’ plea of qualified privilege simply did not bear examination as demonstrating a position of insolvency or near insolvency so as to give rise to cause for concern. He submits that the facts pleaded in the Defence (as quoted at paragraph 14 above), coupled with the lengthy statement of Mr Flatley (which was largely directed to the merits of his original dispute with the claimant directors), did not constitute an occasion warranting the sending of the letters.

Mr Boggis-Rolfe having repeated his analysis in this court, I am bound to say that I agree.

Before stating why that is so, I should perhaps observe that I was initially resistant to the detailed submissions of Mr Boggis-Rolfe on the grounds that, the judge having considered the matter at length below, it would be an inappropriate exercise in this court to reverse the considered view of a first instance judge in a specialist jurisdiction that there were insufficient facts before him at an interlocutory stage to justify the giving of summary judgment. In such cases, the approach of this court is usually, and rightly, to refuse to become engaged in the detail of a matter in which, (as in the case of the exercise of a judicial discretion), the outcome largely depends upon a process of evaluation in relation to which opinions may vary from judge to judge.

Nonetheless I have been persuaded otherwise in the particular circumstances of this case. First, it is of course the case that the question of whether an occasion of qualified privilege exists is one for the judge and not the jury. Second, this is a case where the defamatory nature of two of the three letters in issue (17 and 18 July) is not disputed and the third is of little, of any, consequence in the overall picture. Third, the claimants have confirmed to this court, as indicated before the judge, that, if successful upon their Part 53 application in respect of the first two letters, they will not seek to establish that the earlier anonymous letter was in fact published and circulated by Mr Flatley (albeit there are strong reasons so to suspect). Fourth, Mr Flatley made clear to the judge, that the defendants desired a jury trial with all the time and expense thereby involved, although, before the conclusion of the hearing before this court, the parties, in response to my suggestions, agreed they would be content with trial by judge alone. Finally, the claimants now having obtained an injunction from Gray J pursuant to their contract claim (see paragraph 5 above) which prevents any repetition of the libels complained of, all that remains in relation to Downtex, if the claimants are indeed correct on the qualified privilege issue, will be the assessment of damages in respect of the (overlapping) libel and breach of contract claims, the amount of which will under Part 53 be limited to £10,000.

The position throughout has been that set out in the witness statement of the claimants’ solicitor which was before the judge:

“So far as damages are concerned, the Claimants would be content with judgment in their favour and the protection of a permanent injunction together with the relatively modest award and other relief which the Defamation Act 1996 permits on a summary basis; this would be preferable to the expense and hassle of continued proceedings seeking larger rewards, special damages and further damages for the disputed publication. … I believe that such a result would be consistent with CPR objectives of proportionality.”

In such a case, the words of Lord Woolf MR in Swain v Hillman at 94a-c have particular application.

“It is important that a judge in appropriate cases should make use of the powers contained in Pt 24. In doing so he or she gives effect to the overriding objectives contained in Pt 1. It saves expense; it achieves expedition; it avoids the court’s resources being used up on cases where this serves no purpose, and I would add generally, that it is in the interests of justice. If a claimant has a case which is bound to fail, then it is in the claimant’s interests to know as soon as possible that that is the position. Likewise, if a claim is bound to succeed, a claimant should know that as soon as possible.”

I accept the submissions of Mr Boggis-Rolfe, which I have sufficiently set out at paragraph 16 above. In my view, the plea of qualified privilege is unsustainable for the reasons advanced by him.

It is plain that the two letters which are admitted to be defamatory carry the meaning that Downtex was insolvent or close to insolvency and that the directors had distorted and manipulated the financial figures of Downtex and/or taken “impossible risks with other peoples’ money”. Neither Miss Addy below, nor Mr Flatley before us, argued to the contrary and it is plain from Mr Flatley’s submissions to us that he remains of that opinion. At the same time Miss Addy admitted that insolvency could not be demonstrated and, indeed, that it was not alleged in the sense that Downtex was unable to pay its debts or that circumstances existed which in fact justified the calling of a creditors’ meeting. Nor, finally, was it argued that an inference of insolvency or near insolvency arose on the basis of the particular matters pleaded as founding Mr Flatley’s ‘concern’. All that was done was to assert cause for that concern on a basis which was not precisely specified but broadly asserted to be an unhealthy financial position.

It is also important to appreciate that, while it was conceded for the claimants that they could not rely on the anonymous letter for the purposes of their application, the defendants, (by Miss Addy before the judge and Mr Flatley before us), likewise did not seek to rely upon it. Mr Flatley was plainly concerned to distance himself from it. Neither in the defendants’ pleading, nor in the evidence filed by Mr Flatley, nor in argument before us, has he sought to assert reliance upon the matters therein contained. The Defence, at paragraphs 9.9 and 9.10, expressly based his concern upon his own study of the Downtex Annual Report for 2001. The letter of 19 July expressly dismissed the anonymous letter as ‘anonymous and abusive and reeking of rancour rather than fact’. Finally, Mr Flatley’s witness statement stated:

“I cannot say that I believe what the letter had to say, but I was intrigued and I [was] concerned enough to look into Downtex. I wanted to ascertain the likely future value of my own shareholding and prospects of recovering the shortfall in stock value that was still owed to me. This caused me to look at Downtex’s Annual Report of 200l.”

The basis of Mr Flatley’s concern was dealt with shortly as follows:

“…I saw that the retained deficit for 2001 was £38,553.00 in sharp contrast to the profit of 2000 of £154 , 927.00. I also noticed that the turnover had fallen by very nearly £1m, operating expenses had increased by over £200,000 and at page 15 of the balance sheet … staff costs had increased by some £200.000. I know that the Chairman’s statement refers to the fact that ‘trading had been extremely difficult’. However, because of my knowledge of the Seventy Four division of Downtex’s business I was aware that in fact they were producing more goods than ever, to the point of having to out-source some of their manufacturing needs. Consequently, I was not convinced by the statements in the balance sheets. I was also concerned at the loan conditions which the Mond brothers took out with the Bank as to whether the cover interest was coming from - the firm or the brothers? I found all the above alarming and for this reason wished to bring about the calling of the Creditors’ meeting. I therefore sent the letter dated 17^th June 2002 to suppliers of Downtex. (I recognise that as suppliers, they would be almost certain to be creditors of Downtex, particularly as Downtex tended to insist on 90-day credit terms. I do not see that being creditors ‘in the normal course of trading’, as argued in the Reply, made or makes any difference to the suppliers’ obvious interest in being informed of the company’s financial standing).’

Mr Flatley’s witness statement did not condescend to deal with, and did not contradict those parts of Mr Mond’s witness statement which dealt in detail with the financial situation of Downtex. In that statement, Mr Mond disputed the assertion in the anonymous letter that the profits had dropped from £216,000 to losses of £39,000 in 2001 and pointed out the profits before tax fell from £257,871 in 2000 to £10,046 in 2001. As at 31 December 2001 Downtex had total net assets of £1,437,243, the director’s emoluments totalling £151,309. Although the anonymous letter made reference to the value of stock being worth less than £300,000, the figures certified by PriceWaterhouseCoopers in the Annual Report 2001 were £1,632,450. Finally, Mr Mond exhibited a bundle of suppliers’ status reports in respect of all the suppliers referred to in the letter of 17 June. These demonstrated that the majority of those suppliers were owed no money at all and that, where there was money due to suppliers, the sums outstanding fell within the credit period agreed and within the ‘Creditor Payment Policy’ referred to in the Directors’ Report, and accounts for 2001.

Summarising the position, therefore, it does not appear to me that, objectively, any imputation of insolvency or near insolvency could be objectively justified from the material which the defendants themselves relied upon as founding the plea of qualified privilege. With respect to the judge, it seems to me that, having rightly identified the necessity for the statement to be ‘fairly warranted by the occasion’, and having indicated that he understood the strength of the arguments of the claimants to the effect that it was not so warranted, he should have gone further. For the defendants simply to express subjective ‘concern’ that the company was insolvent was insufficient. It appears clear from her skeleton argument below, and from paragraph 16 of the judgment, that Miss Addy was effectively accepting that references in the letters went further than simply to suggest that Downtex was in poor financial health and imputed insolvency or imminent danger of insolvency. In those circumstances, it seems to me that the judge should have grasped the nettle and dealt with the question of whether or not Mr Flatley’s concerns were objectively justified by the material on which he relied.

So far as ‘reciprocal’ interest in the suppliers was concerned, again there was no reason pleaded or relied upon as to why the suppliers might be concerned or should concern themselves with the company’s position, the financial figures relied upon by the defendants in the published Report and Accounts being equally available to such suppliers and there being no reason to suppose that they were not being properly paid in due time. In those circumstances, it seems to me that this was an appropriate case for the judge to decide the issue of qualified privilege on the material before him. It is my view that on that basis there was no realistic prospect that the defendants would succeed upon the issue, and the judge should have ruled in favour of the claimants in that respect.

Permission to appeal on the issue of qualified privilege was granted by Lord Justice Sedley in writing on 13 February 2003, the time for appeal being enlarged for that purpose. Permission was not granted in respect of the Judge’s holding that there was no sufficiently unambiguous reference to the second and third claimants in the letters of 17 and 18 June: see paragraph 25 above.

Mr Boggis-Rolfe has renewed the application for permission to appeal before us. On this aspect I would not be prepared to disturb the reasoning of the judge.

Mr Boggis-Rolfe relies upon

Mr Boggis-Rolfe accepts that, in the absence of the express naming of the subject of the libel, extrinsic evidence is required to connect the libel and the claimant: see generally Gatley at paras 26.25 and 32.16. It is clear that, in such a case, a claimant’s damages claim is limited to damage suffered in the eyes of those persons who can actually be shown to have had the relevant understanding. However, no third party evidence was adduced from the suppliers or anyone else in that respect. In those circumstances, it seems to me that there was room for the judge’s view that the evidence of identity was insufficient and that, although it was likely that such evidence would be forthcoming, the matter should properly be left to trial. I would therefore refuse the permission sought.

I would only add that, if (as is now the case) the claimants have the benefit of the permanent injunction against repetition granted by Gray J. and, following success in this appeal, Downtex’s right to damages for libel as well as breach of contract is made out, the claims of Downtex are now susceptible of final adjudication without the need for a trial on liability. The principal purpose of the litigation has thus been achieved, subject only to resolution of the separate claims of the second and third claimants which, as Mr Boggis Rolfe made clear, have always been regarded as subsidiary to the claims of Downtex and amenable to a modest assessment of damages, if pursued.

I would allow the claimants’ appeal on the issue of qualified privilege and rule that the ‘qualified privilege’ defences advanced are bad in law. I would also hold that the words of the letters of 17 and 18 June are defamatory of Downtex as claimed. There being no other substantive defences pleaded, Downtex is entitled to judgment for damages to be assessed pursuant to CPR Part 53.

On 16 June 2003, some four months after the order of Sedley LJ granting permission to appeal, Mr Flatley filed a respondent’s notice which was effectively an application for permission to adduce fresh evidence in the form of a number of documents. It read as follows:

“In the event that Lord Chief Justice Sedley [sic] decides to allow the appeal to go ahead I beg leave to enter further evidence. That includes the balance sheets for 1998 to 2003. Five letters and 3 court decisions from my former solicitor.

The DTI files on the records of the three directors of Downtex plus the original statement of director David Mond which differs from the one in the applicant’s bundle.

A letter from the applicant’s solicitor requesting me to itemise the amounts I was claiming from the applicants for money they owed me. A summary from myself on the applicant’s 2003 balance sheets. A letter sent by the applicants to former trading clients of mine suggesting they had won the case against me in the Manchester court had a similar statement in the 2003 balance sheets in regard to the Lord Chief Justices decision before it has been made. The balance sheet will confirm all the above and that my plea for a privileged state is fully justified”.

The respondent was informed by letter dated 16 June 2003 from the Civil Appeals Office of the need to supply three sets of the document referred to, indexed and paginated for the use of the court. He failed to do so. The matter was listed as an application for permission to cross-appeal, but was not proceeded with by Mr Flatley who did not seek to place any of those documents before us; nor did he suggest that any of them were matters upon which he relied at the time when the letters of 17-19 June 2002 were written. Accordingly, Mr Flatley’s listed application to cross-appeal is dismissed.

I agree that the claimants’ appeal on the issue of qualified privilege should be allowed. I, too, was initially attracted to the view that this Court should decline to reverse the view of an experienced specialist judge that the material before him did not warrant a summary judgment. An appellate court should ordinarily respect the judge’s view that a trial is needed if justice is to be done. But I have been persuaded that the defence of qualified privilege is so obviously incapable of being sustained that this is a case in which the other factors – which, as Lord Justice Potter has pointed out, require an early disposal of this claim – ought to have led the judge to make the order sought.

I also agree.

The first claimant’s appeal is allowed and the appeal of the second and third claimants dismissed, subject to paragraph 2 hereafter.

The second and third claimants shall have leave to discontinue, with no liability for costs in respect of such discontinuance.

There will be judgment for the first claimant in respect of its claims in libel save any arising out of the anonymous letter and the letter of 19t^h June as referred to in the judgment at paragraph 8, with damages to be assessed by a judge sitting without a jury in London with a time estimate of 2 hours. The same judge shall determine any other application under sections 8 and 9 of the Defamation Act 1996 for an apology or declaration of falsity and shall assess damages for breach of contract.

The respondent’s cross- appeal is dismissed, with no order as to costs.

The liability for the first claimant’s costs of the action will be reserved to the judge who assesses the damages.

The first claimant’s costs of the appeal will be subject to detailed assessment and paid by the defendants.

Respondent’s application for permission to appeal to the House of Lords refused.