Social media rant costs respondent upwards of $350k!

The case of Seafolly Pty Ltd v Madden [2012] FCA 1346 shows that those using social media for business should think carefully before making statements about competitors, regardless of what they think may have been done to their business.

The conduct giving rise to the cause of action 

The respondent, Leah Madden (Madden), principal of White Sands Australia, an Australian swimwear label, made claims on social media that her designs had been copied or imitated by Seafolly Pty Ltd (Seafolly).

It was shown that she copied images from Seafolly’s 2010 catalogue and displayed them next to images of her swimsuit designs, stating on her Facebook page: “The most sincere form of flattery?” Madden also sent emails to media outlets attaching these photographic comparisons with allegations of copying.

Ms Madden made such pronouncements because of a pre-arranged buying appointment that occurred in May 2010, where a buyer for Sunburn – a company in which Seafolly had acquired a 68% interest – had taken photographs of Ms Madden’s swimwear designs.

Justice Tracey was critical of Ms Madden’s conduct, highlighting the risks of posting unsubstantiated allegations on seemingly ‘informal’ social media platforms.

In one respect, the judgement in this matter appears to have come into the twentieth century, as it shows the images which were used by the respondent.

The matters for determination

In Seafolly, the causes of action finally pleaded included:

• trade practices
  • misleading and deceptive conduct;
  • misleading and deceptive statements in relation to goods or services;
• tort (injurious falsehood);
• copyright infringement; and
• defamation.

Despite the extent of the claims, the final remedy rested in misleading and deceptive conduct, despite the other matters being pleaded.

The case highlights the power of the misleading and deceptive conduction provisions now contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth), particularly sections 18 and 29, as an alternative remedy where the Uniform Defamation rules deny one.

The result

Seafolly was ultimately victorious, with the Court awarding declaratory relief and an award of damages of $25,000 pursuant to section 82(1) of the then Trade Practice Act 1974 (Cth).

Legal cost consequences

Justice Tracey found in favour of Seafolly, with costs awarded on a standard basis.

Lawyers for Madden appealed and subsequently the matter is now pending a decision, with the Respondent’s costs assessor claims that only $351,241.95 should be paid, whereas the Applicant’s costs assessor claims that $508,392.05 should be paid.

This is in addition to the $25,000 awarded for reputational damage to Seafolly, as well as Ms Madden’s own legal fees.

Takeaways

The clear takeaway from Seafolly v Madden is that you must be very careful when talking about competitors on social media sites, as dire cost consequences may arise if the statements you make are ultimately found to be misleading and deceptive by a Court.

The need for training

The other takeaway for those operating business social media accounts is that authorised users need training on the extent of conduct which may give rise to actionable claims.  Understanding the fine line between fair comment and comment which is actionable at law can sometimes be difficult to define.

Links and references

Cases

Seafolly Pty Ltd v Madden [2012] FCA 1346 (29 November 2012) – Substantive decision

Seafolly Pty Ltd v Madden (No 2) [2013] FCA 46 (8 February 2013) – Application to vary order for costs

Seafolly Pty Ltd v Madden (No 3) [2013] FCA 316 (9 April 2013) – application for a lump sum costs order

Further information

If you need further information about how to protect your business online or need to commence proceedings due to similar conduct, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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