"You Promised Not to Say That!" Non-Disparagement Clauses in Settlement Agreements

When a dispute of any kind is resolved, a "non-disparagement" clause is often included in the settlement agreement to prevent parties from adversely commenting publicly about each other in the future. 

Especially where there has been a relationship breakdown resulting in the dispute and later the settlement agreement, non-disparagement clauses can be a particularly useful tool to prevent any further damage to parties' reputations. But what happens if such a clause is breached?

CONSEQUENCES OF BREACHING NON-DISPARAGEMENT CLAUSES

It is often difficult to identify, let alone prove, when there has been a technical breach of a non-disparagement clause.

Consequently, breaches of non-disparagement clauses have not often been litigated. However, recently the New South Wales Supreme Court in Network Ten Pty Limited v van Onselen [2023] NSWSC 829 (Network Ten v van Onselen), had the opportunity to consider non-disparagement clauses and the consequences of breach. 

Network Ten v van Onselen

Dr Peter van Onselen, an academic, journalist, author and public commentator was employed by Network Ten Pty Limited (Channel Ten) from 2018, including as co-host of popular television programs The Project and The Sunday Project. 

In early 2023, his position at Channel Ten became redundant. In negotiating the terms of his departure, Dr van Onselen signed a Deed of Settlement and Release (the Deed) that included a non-disparagement clause, pursuant to which Dr van Onselen and Channel Ten agreed to not disparage each other or make any statement or publication which may bring the other into disrepute or ridicule, or which may otherwise adversely affect their respective reputations. 

On 29 May 2023, Dr van Onselen authored an article published in The Australian (the Publication) regarding Channel Ten's financial position, the viability of Channel Ten's US parent company, and Channel Ten's Australian brand and management. 

Channel Ten applied to the Supreme Court of New South Wales (Court) for a declaration that Dr van Onselen's conduct in authoring the Publication was in breach of the non-disparagement clause of the Deed, and an injunction restraining further breaches. 

Dr van Onselen argued that his conduct in authoring the Publication did not breach the non-disparagement clause, as it merely restated publically available information. Dr van Onselen also made the novel argument that the non-disparagement clause, properly characterised, is a restraint of trade contrary to public policy and therefore void. He argued the non-disparagement clause prevented him from exercising his professional occupation, and is contrary to public policy due to impinging on his right of free speech. 

The court found that Dr van Onselen was in breach of the non-disparagement clause. Justice Hammerschlag stated that the Publication, "as a whole is, undoubtedly, disparaging" as the tenor of the Publication was to cast doubt on Channel Ten's long-term viability, and conveyed Dr van Onselen's opinion in that regard.

Justice Hammerschlag also rejected the argument that the non-disparagement clause was a restraint of trade, as it only limited Dr van Onselen from making statements disparaging of Channel Ten. 

The court consequently made the declaration that Channel Ten sought. 

The court however declined to order an injunction restraining further breach, on the basis that there was no real risk that Dr van Onselen would further breach the Deed. In coming to this conclusion, the court had regard to submissions from Dr van Onselen's counsel that he would adhere to the court's ruling regarding the validity and effect of the non-disparagement clause. In the end, the court considered that the making of a declaration was, in the circumstances, sufficient assuagement for Channel Ten of its grievance. The court ordered that Dr van Onselen pay Channel Ten's costs.

WHAT OTHER REMEDIES ARE AVAILABLE?

Declarations may be useful in high profile cases, such as Network Ten v van Onselen, as a source of vindication for an individual or entity that has been the subject of publically disparaging comments. However, in situations where a breach of a non-disparagement clause has been litigated without much (or any) media coverage, a declaration may provide little utility in vindicating a plaintiff's reputation. 

Although in Network Ten v van Onselen, Channel Ten did not make a claim for damages, damages may be awarded for a breach of a non-disparagement clause. 

When drafting non-disparagement clauses in settlement or other agreements, parties often attempt to stipulate an amount of damages to be payable if the clause is breached (or may provide that the settlement sum is to be repaid in the event of a breach). Whether a specific amount of damages for breach of a non-disparagement clause is enforceable depends on, among other things, whether the clause is classified as a valid liquidated damages clause, or in fact a penalty. 

A liquidated damages clause, which is prima facie enforceable, is an express term of a contract that stipulates the amount of damages payable in the event of a breach. A penalty, however, which is unenforceable, is in the nature of punishment for a breach. 

Although it is sometimes difficult to distinguish liquidated damages clauses from penalties, broadly speaking where the amount of damages is a genuine pre-estimate of the loss, it is considered liquidated damages rather than a penalty. 

A non-disparagement clause which contained an agreed amount of damages for breach was considered in Fermiscan Pty Ltd v James [2009] NSWCA 355 (Fermiscan v James).

In Fermiscan v James, pursuant to a Deed of Release and Settlement, James agreed to pay Fermiscan Pty Ltd AU$700,000, comprising AU$500,000 of fees and royalties and AU$200,000 which was only payable upon committal of a breach of the deed, including a breach of the non-disparagement clause. 

The court held that the agreed damages for a breach of the non-disparagement clause were a penalty, as it was not a genuine pre-estimate of the loss flowing from the breach. The court consequently held that the penalty clause was void and unenforceable. 

TAKEAWAYS

The following remedies may be available in the event of a breach of a non-disparagement clause: 

• A declaration that there has been a breach; 
• An injunction restraining any future breach; and
• Damages.

However, Network Ten v van Onselen shows that court can be slow to order an injunction to prohibit further disparaging comments if there is no real risk the defendant will in fact make further disparaging comments. It is also clear that a non-disparagement clause must be carefully drafted to enable a later claim for damages in the event of a breach. 

There may of course be other causes of action available to vindicate an individual or entity whose reputation has been damaged by disparaging comments, including defamation or injurious falsehood. However, there are other considerations to take into account when pursuing such causes of action, for example the requirement in defamation cases to prove that the defamatory publication caused serious harm to the aggrieved individual's reputation, and the need to show actual economic loss in the case of an injurious falsehood claim. 

Nevertheless, non-disparagement clauses remain a valuable reputational protection tool.

The New South Wales Supreme Court's judgment can be accessed here.