I would also have thought reporting this type of threat to the appropriate authorities would do no harm and could only be for the wider good.
I agree in general and I have seen at first hand the results of loose, out of control dog on a flock of sheep. Not pretty. However, where that line falls is always going to be a matter of interpretation.
I know of farmers who have erected signs stating all dogs to be kept on a lead. I'm not sure how enforcible this is as the law states the animal has to be under close control which does not always necessitate a lead. Physical injury does not have to be caused to livestock - the farmer only needs to have reasonable grounds to think that the risk is imminent and unpreventable by other means. At this time of year, just chasing a pregnant ewe could lead to abortion so its easy to see how this could easily escalate. Also, because of the rural nature of these incidents you could end up in a situation where it is just the farmer's word against your own and at the end of the day its your dog that's at risk. Personally if it came to it I would put a lead on first and argue the toss later.