By Guy Robarts
BBC News Online business reporter
The Financial Times is locked in a High Court battle with stockbroker Collins Stewart Tullet in a case which could have chilling ramifications not only for the newspaper's fortunes, but for financial journalism too.
The lawsuit comes as the FT struggles to hang on to readers
Allegations of insider dealing made in the newspaper - by sacked investment analyst James Middleweek against his former bosses at Collins Stewart - have riled the stockbroker enough to muster it into launching the largest special damages claim for libel brought before a UK court.
Collins Stewart is seeking special damages of a record £230.5m ($413m) on the grounds that the article, published in August 2003, allegedly triggered a 16% drop in its share price.
The firm is also seeking general damages of £37m for business it claims it lost following the FT's report
A spokesman for the FT described these figures as "preposterous". The paper has now placed an application with the High Court to have that figure struck out of the case.
But even if the figure is struck out, the stockbroker has said it will still go ahead with libel action.
Lawyers for the FT argued in court last week that to allow Collins Stewart to recover libel damages for the decline in its stock price would have a "positively freezing effect on financial journalism".
The basis for the FT's story was a court filing by Mr Middleweek to the Financial Services Authority (FSA), alleging that his former employers had been involved in insider trading.
The newspaper argues that the filing puts the allegations against Collins Stewart in the public domain - therefore making it exempt from legal action.
However, Collins Stewart described its subsequent article as a "detailed, extensive, one-sided and damaging report" and decided to sue.
This was despite the fact that several other newspapers, including the Mail on Sunday, also reported Mr Middleweek's allegations.
Counsel for Collins Stewart, Richard Spearman, said it was focusing on the FT because it was the most influential in the business sector and because its article was the most comprehensive and one-sided.
As it turned out, the company was cleared of Mr Middleweek's claims by the City watchdog back in August.
If Collins Stewart wins the libel case it could hammer the FT financially as well as putting a stranglehold on financial reporting in the UK, though the FT itself was unable to comment on what the full impact would be.
"You'd more or less have to stop business journalism," said Theresa Wise, analyst from management consultancy group Accenture.
The FT has been focusing on shaking-off its staid image
"The precedent it would set would be so incredibly disruptive that you'd have to stop reporting."
Collins Stewart argues that the £230.5m claim is a reflection of the change in the market's assessment of the net present value of future earnings of the company.
While the value of Collins Stewart's share price is hovering near the levels at which it stood before the FT's article was published, it notes that its two direct rivals Numis and Icap have seen their shares rise over 20%.
It argues that its own share price should have risen accordingly.
"Anyone that studies markets and business knows perfectly well that one cannot hold one article responsible for a drop in share price," added Theresa Wise.
"You'd have to have a lot more factors because people don't just base their buying decisions on one article."
The Financial Times, founded in 1888, was hit in 2002 by the worst advertising slump since the 1970s and has since battled to compete for business readers against mainstream papers.
Sales slipped 5% last year and its daily readership fell back below the 500,000 mark it first achieved in 2001.
Landmarks in the FT's history
1888 - The Financial Times is founded and launched as "the friend of the Honest Financier and the Respectable Broker"
1893 - Printing begins on salmon pink paper to distinguish it from its arch rival, the Financial News
1957 - The newspaper is taken over by Pearson
1985 - Printing starts in New York
1986 - Circulation passes the 250,000 mark on back of "No FT, No Comment" campaign
1988 - FT acquires Les Echos and Expansion
2001 - Circulation hits 500,000 a day
Over the past few years, non-specialist newspapers such as the Daily Telegraph and The Times have muscled in on the FT's City readership.
Wider use of the internet for financial data has also knocked the FT's fortunes.
Last year, the paper attempted to fight back, blazing the slogan "New FT, new comment" in a bid to impose itself on the mainstream market by covering more general news and leisure stories.
It has also poured £150m into climbing on the internet bandwagon via its website FT.com, which currently has 80,000 paying subscribers and - according to the company - managed to break-even last year.
Having recently bounced back onto a more stable footing, the last thing the iconic broadsheet needs is a potentially crippling lawsuit.
In the meantime, the judgement on the newspaper's bid to throw out Collins Stewart's record £230.5m damages claim is expected by the end of the week, while the full libel case is not due to come to court until April 2005.