Collins Stewart Ltd. and Anor v The Financial Times Ltd.

In a defamation claim, a company’s market capitalisation, calculated by multiplying its issued shares by a quoted share price, is not itself a market price or a reliable legal measure of loss. It cannot ordinarily be used to quantify future lost revenues or profits by comparing share-price movements with those of other companies. Such a claim is too uncertain where the causes of market fluctuations cannot be isolated and the proposed calculation is circular. Share-price movements may nevertheless provide evidence of injury to business goodwill or reputation where the claim is otherwise properly pleaded and proved. Where general and special damages depend on substantially overlapping evidence, they may be tried together by a judge to avoid double or under-compensation and inconsistent findings.

The claim arose from an article published by the defendant newspaper concerning allegations made by a former employee of the claimants, a stockbroking company and its listed holding company. The claimants sought damages for libel, including general damages and substantial special damages.

Eady J had ordered separate trials of liability and general damages, and special damages. The defendant applied to strike out the claimants’ pleaded method of assessing special damages by reference to an alleged shortfall in the holding company’s market capitalisation. It also sought trial of all damages issues by a judge alone. The central questions were whether the proposed share-price methodology disclosed an arguable legal measure of loss and whether the damages issues could conveniently be tried by a jury.

1. Strike-out. The application under CPR Part 3.4 was granted. Paragraphs 3 to 6 of the Particulars of Special Damage were struck out, while the alternative claims for identifiable business losses remained.
2. The pleaded claim treated the fall, or failure to rise, in the listed holding company’s share price as the best reflection of lost future revenues or profits. The shares were owned by shareholders, not by either claimant. Market capitalisation was merely an arithmetic product of the number of issued shares and a quoted price. It did not represent the price at which the entire issued share capital could have been bought or sold.
3. The proposed measure was legally unacceptable because market capitalisation is not comparable to a market price used to value substitute property. The court could not reliably identify the many factors affecting share prices, including movements in comparator companies. The claim was also circular: if the market price reflected the value of the claim against the defendant, the alleged shortfall would not represent loss attributable to the publication.
4. The reflective-loss principles in Johnson v Gore Wood [2002] 2 AC 1 did not make the proposed market-capitalisation claim arguable. Any claim by one company based on losses suffered by the other also raised reflective-loss concerns, but it was unnecessary to determine that issue because the proposed measure failed independently.
5. Under section 69 of the Supreme Court Act 1981, the liability issue would remain for trial by judge and jury. The damages issues were closely connected. Their separate trial would require difficult directions, create risks of double or under-compensation, and make inconsistent findings more likely. The order was therefore varied so that all damages issues would be tried by a judge alone if they arose.

This was a first-instance decision. The judgment records earlier case-management orders made by Eady J, including the split trial of liability and damages. That order was varied by the present court.