A says to B, "You are a lousy drug dealer." They are overheard by a bystander, C, with consequent damage to B, who really isn't a drug dealer.
My understanding is that "defamation" does not exist for conversations between two parties, but does occur when one or more third parties become involved. So the issue here is, at what point does C become a third party. I'll use two cases for illustration:
1) A, B, and C are together in the same room. A addressed B but not C.
2) A and B are inside a building, C walks by at the "right" moment and overhears A's remarks through an open window. He also sees A and B.
Do either or both of these cases constitute defamation of B by A to C?