In Australia’s corporate landscape, shareholder activism has emerged as a formidable influence, reshaping the dynamics of corporate governance. This surge in activist engagement has sparked a nuanced interplay with defamation laws. The result of this is a complex legal and ethical environment where the right to free expression must be carefully balanced against the need to safeguard individual and corporate reputations, and access to information. Striking this delicate balance presents a challenge for both activists and companies, requiring them to navigate their communications and actions with heightened awareness.
The Rise of Shareholder Activism in the Digital Age
The prevalence of social media and online platforms has provided shareholder activists with unprecedented tools to influence corporate decision making and challenge the status quo. FTI Consulting Study (2024) found that 80% of investors believe shareholder activists will increasingly leverage social media to target companies and that only 11% are confident that companies are adequately prepared to defend themselves on social media platforms.
In Australia, online platforms like Hot Copper have been utilised by shareholder activists to launch powerful political ‘fact moshing’ campaigns designed to damage the reputation of corporations, their executives and board members on a public platform. The public nature and accessibility of many of these forums facilitates the spread of defamatory publications and the ability to criticise, which therefore increases the risk of reputational damage to the corporation and even that of its officers, employees or agents.
So, what is political shareholder fact moshing? Dragan Gasic of our office colourfully describes it as:
“Well, what do you do when you have a nugget of truth about a company that you want to twist for your anti director shareholder agenda? All you have to do is toss it into an online platform, add a heap of nonsense, season generously with exaggeration, decorate with outrage to catch audience attention, and don’t forget to add a pinch of panic for flavour. Stir vigorously and let it marinate online just long enough for it to seep into those public echo chambers, and voila – you have just created for your audience a steaming pile of disinformation dressed up as a delectable chocolate custard cake. It might stink to high heaven, but boy, will it look tempting!”
Interestingly, in Canada anti-SLAPP (Strategic Litigation Against Public Participation) legislation has been adopted to prevent the use of defamatory tactics. This legislation developed to prevent certain interest groups from weaponising strategic lawsuits to silence their critics for damaging communications made in the public interest, can be used by shareholder activists to challenge the defamation claims.
The Defamation Dilemma
Australia’s strict defamation laws pose a formidable challenge for activists who must carefully navigate the line between legitimate criticism and potentially defamatory statements.
On the other hand, companies whose officers, employees or agents have been specifically ‘defamed’ are, subject to having the requisite standing, able to use defamation laws as a potential shield or remedy against aggressive activist campaigns designed to obliterate reputation.
However, legal proceedings can result in the need to produce and reveal internal company information, and this can carry risk, result in the disclosure of sensitive information and potentially increase reputational damage. Additionally, pursuing claims can be construed as an attempt to silence legitimate criticism, thus damaging the company’s public image as open and responsive to shareholder concerns. It is also important to understand that defamation proceedings are a costly and time intensive process.
Key Considerations of the Defamation Act 2005 (NSW)
Truth as a Defence
In New South Wales, pursuant to section 25 of the Defamation Act 2005 (NSW), truth is a complete defence against defamation claims. This means that if a shareholder activist circulates substantially truthful statements about a director’s or boards conduct or decisions, even if these statements are reputationally damaging and have incurred serious harm, they can overcome claims of defamation.
Qualified Privilege
Section 30 of the Defamation Act 2005 (NSW) provides a defence of qualified privilege for the provision of certain information. This is relevant as communications made in certain contexts, such as during shareholder meetings or in documents filed with federal or state regulatory authorities, may be protected by the privilege. This defence provides a limited protection for statements made reasonably and without malice, even if the substance of the communication is false.
Limitations for Companies
In New South Wales, companies with more than 10 employees cannot sue for defamation. This limits the ability of corporations to use defamation claims to silence criticism. This does not however prevent an officer or employee suing for defamation if that individual is identified in the publication and defamed and meets the requirements for a claim under the Defamation Act 2005 (NSW).
Other potential actions for corporations can include claims for misleading and deceptive conduct in trade or commerce under Australian Consumer Law, or an action for injurious falsehood.
The Way Forward
The increasing intersection of shareholder activism and defamation law necessitates a thorough understanding of the legal landscape for both corporations and activists. As this arena evolves, particularly given defamation laws are not uniform across Australian states and territories, it becomes crucial for all parties to remain well-versed in the latest legal developments.
In this dynamic environment, seeking expert legal advice before engaging in or responding to activist campaigns has become more important than ever. By adopting a well-informed and anticipatory approach, corporations and activists can play a pivotal role in fostering corporate transparency and accountability. Doing so not only advances their respective goals but importantly assists in mitigating legal risk. This diligence contributes to a more robust and responsible corporate environment, where constructive engagement can thrive within the bounds of legal propriety.
ABOUT THE AUTHOR
Isabella Tziolis assists as a paralegal in commercial, defamation, employment and general matters and is committed to supporting BlackBay Lawyers mission of delivering exceptional legal services. Her work focuses on assisting in providing comprehensive legal support, conducting extensive research, and offering strategic guidance to clients.
Isabella is currently studying a Bachelor of Laws and a Bachelor of Arts, majoring in Politics and International Relations at the University of New South Wales. Her academic and professional experience has fostered her high attention to detail and strong analytical skills which allows her to efficiently handle high-pressure situations and contribute to effective legal strategies.
