The House of Lords last night backed a revised Government amendment to the Defamation Bill which will stop companies suing unless they can prove "serious financial loss".
But peers rejected, by 275 votes to 197, Government majority 78, a further Labour move aimed at preventing companies from suing in cases where they are carrying out public functions.
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Labour's Baroness Hayter of Kentish Town argued the move would create a level playing field between state organisations such as local authorities and NHS trusts and companies running things such as independent treatment centres.
But justice minister Lord McNally said it was better to leave it up to judges to develop common law in the area rather than to put the issue into legislation
Lord McNally rejected arguments put forward in the Commons in favour of a blanket ban on companies suing, but said the new Government amendments were an "effective and proportionate approach".
The Government move would ensure that any financial loss would have to be "serious" before a company could sue.
For the opposition, Lady Hayter gave a "warm welcome" to the move which she said was a "most important" change to the legislation.
The Bill is aimed at reforming Britain's "chilling" libel laws which critics of the current system argue are limiting freedom of speech for newspapers, academics and ordinary members of the public.
Liberal Democrat Lord Lester of Herne Hill, a leading human rights QC who has been one of the key campaigners for libel reform, praised the Government for making "very important concession".
"It is extremely important that corporations are able to bring libel proceedings, but able to do so by proving serious serious financial loss or the likelihood of serious financial loss," he said.
Tory Lord Faulks, a QC, called for reassurances about what a company would have to establish legally to prove they had suffered "serious loss".
Lord Colville of Culross, an independent crossbench peer and BBC producer, pointed to his experience as a journalist to welcome the Government concessions.
"There were a number of occasions where I felt the mighty weight of companies bearing down on my reporting," he said.
"I am afraid to say that on some occasional even when I had a powerful and well-supported case revealing wrong doings of a company the legal letters from a company's representatives threatening libel action and the uncertainty of the outcome under the present libel laws meant that these articles weren't published.
"We live in an era when business PR regards anything but abject praise as an attack on the company. It seems to me that an amendment that demands a threshold of serious financial damage to a company before it can sue for libel will allow a much greater atmosphere of transparency and openness when questioning its activities."
The Bill will now return to the Commons for final approval in the next few days.