The law of libel is something we tend to associate with the media rather than internal email messages. However, an e-mail libel recently cost Norwich Union in Britain almost half a million pounds.

The plaintiff, Western Provident Association Limited, is a private medical insurance company. The defendants were Norwich Union Healthcare Limited, which markets and administers private medical insurance policies, and its parent company, The Norwich Union Life Insurance Company Limited.

In the middle of 1995, rumours began to circulate among insurance brokers, clients and potential clients of Western Provident. These falsely suggested Western Provident was in severe financial difficulties and was being investigated by the British Department of Trade and Industry. These reports then appeared on the internal e-mail system for Norwich Union staff. Western Provident believed these messages could be used by Norwich Union to obtain new business and to damage them in the market place. Libel proceedings were instituted by Western Provident seeking to hold Norwich Union responsible for the actions of its employees in sending defamatory messages through their e-mail system.

Immediately after issuing proceedings, Western Provident obtained a court order for the preservation and delivery of hard copies of all the allegedly defamatory e-mails. This was the first time an order in such a case had ever been granted by an English court. Later, Western Provident obtained a further order allowing it to search Norwich Union's e-mail records.

The case was settled on July 17th last. An agreed statement was read in court and £450,000 damages plus costs were paid by Norwich Union. In its apology, Norwich Union accepted that Western Provident was not under investigation and that it was not in financial difficulties. It also told the court that it had made every effort to ensure that such unacceptable practices would not re-occur.

This is not the first libel case over internal company e-mails. Almost a year ago, the British supermarket chain Asda settled a claim brought by a police officer over a libellous email.

No case involving electronic messaging has yet gone to trial and there are no judicial decisions on how this latest technological advance affects the sometimes archaic law of defamation.

However, the Norwich Union settlement gives an indication of the risks and potential costs involved. Emails should be treated as similar to any written or typed internal document. Although transmitted electronically, they are not transitory, like the spoken word. They can be retained by the recipients for some time before temporary storage in the trash basket. They can also be retained on back-up tape.

The major difficulty facing a potential plaintiff is a practical one - obtaining copies of or information about the defamatory e-mail. A company cannot issue proceedings on the basis of a suspected libel - they must know that the defamatory e-mails exist or existed.

Proceedings can be brought against the author of the e-mail, the employer of the author or both. The basis for the proceedings against Norwich Union case was that the company was vicariously liable for the acts of its employees. However, it might be possible to bring proceedings against an employer on a separate basis, namely that it is the publisher of the allegedly defamatory material because it supplied the equipment through which the message was transmitted and on which it appeared.

Such an argument would be useful in cases where a claim of vicarious liability might not succeed, for example where an employee had acted outside the scope of his employment in sending the defamatory message.

A defendant in such a claim has all the arguments open in libel proceedings. The main defences are:

Justification - that the words were true;

Fair comment - that the opinions expressed were the author's honestly held views on a matter of public interest;

Qualified privilege.

The most likely defence in cases of allegedly defamatory e-mail is qualified privilege. The law affords protection on certain occasions to a person acting in good faith and without improper motive who makes a statement which is untrue and defamatory. The author generally has to have a duty to send the message and the recipient must have a reciprocal interest in the information.

An example is where a bank official communicates a false message about a customer's creditworthiness to another branch. Provided the bank official acted in good faith, both they and their employer will be immune from suit. Such immunity is granted because the law recognises that occasions arise where the public interest in permitting free and frank communication on important issues outweighs an individual's right to their good name.

If companies are to protect themselves from claims of this nature, they should advise their employees that the e-mail system must be used for business purposes only. Importantly, e-mails should only be circulated to appropriate and necessary recipients. Companies should also consider libel insurance given the potential costs involved.

Paula Mullooly and Michael Kealey are solicitors in McCann FitzGerald.