Trade mark owners sued company directors as accessories for the company’s trade mark infringements. The Supreme Court held that accessory liability requires knowledge of facts making the acts infringing, even for strict liability torts. Directors are not subject to special rules but were not liable here as no such knowledge was found.
Background
The appellants, Lifestyle Equities CV and another (‘Lifestyle’), owned registered trade marks including the words ‘Beverly Hills Polo Club’ depicting a polo player on a horse. The respondents, Mr Kashif Ahmed and Ms Bushra Ahmed, were directors of Hornby Street Ltd, a family-owned company trading as ‘Juice Corporation’ in the wholesale clothing business. Hornby Street had been found liable at a first trial for infringing Lifestyle’s trade marks under sections 10(2) and 10(3) of the Trade Marks Act 1994 by offering for sale clothing bearing ‘Santa Monica Polo Club’ logos with pictures of polo players. Hornby Street subsequently went into administration and was dissolved.
At a second trial, the Ahmeds were found jointly and severally liable with Hornby Street for its infringing acts on the basis that they had procured or authorised the company’s conduct, or engaged in a common design. The trial judge made no finding that either Mr Ahmed or Ms Ahmed knew or ought to have known that there was a likelihood of confusion or infringement. The judge considered such matters legally irrelevant. Lifestyle elected the remedy of an account of profits rather than damages. The judge held the Ahmeds liable to account for profits they had personally made (apportioned salaries and, for Mr Ahmed, a company loan), but not for profits made by Hornby Street itself.
The Court of Appeal dismissed Lifestyle’s appeal seeking an account of Hornby Street’s profits and largely upheld the Ahmeds’ liability, though it reversed the finding on the loan and deducted income tax from the salary-based sums.
The Issue(s)
Liability
The central question was whether directors of a company can be held liable as accessories for procuring or participating in a common design to commit a tort of strict liability (trade mark infringement) without any finding that they knew or ought to have known the essential facts making the company’s acts infringing. Subsidiary questions included whether directors are subject to special rules shielding them from accessory liability.
Remedy
If liable, should the Ahmeds account for profits made by the company, or only their own personal profits? Were portions of salaries and a company loan properly characterised as profits from infringement? Should income tax be deducted?
The Court’s Reasoning
No special rules for directors
Lord Leggatt, delivering the sole judgment with which all other Justices agreed, comprehensively rejected the argument that directors acting in good faith in the discharge of their duties enjoy any immunity from ordinary principles of tort liability. He held that the ‘dis-attribution fallacy’ — the notion that because an act is attributed to a company it ceases to be the act of the individual — is fundamentally unsound:
An incorporated company is treated in law as a separate person. It therefore has rights and obligations which are distinct from those of the members who incorporated or hold shares in the company and from those of its directors and other officers. The fact that a company is regarded as a separate person does not, however, justify treating a director whose act is attributed to the company as free from personal liability for that act.
Lord Leggatt also rejected the argument that limited liability under company law protects directors, observing that limited liability applies only to members (shareholders), not directors in their capacity as such. He further held that the principle in Said v Butt — protecting agents from liability for procuring their principal’s breach of contract — does not extend to procuring torts such as trade mark infringement, because trade mark infringement does not arise from any voluntary arrangement between the parties:
I conclude, as I do, that the rule in Said v Butt does not apply to civil wrongs which do not depend on any contract or voluntary arrangement between the parties and where liability arises even if they are complete strangers to one another. Infringement of a trade mark is a wrong of this kind.
Knowledge required for accessory liability
Lord Leggatt rejected the proposition — endorsed by the Court of Appeal and supported by obiter dicta in Vestergaard Frandsen v Bestnet Europe Ltd — that accessory liability for a strict liability tort is itself strict. He drew on the foundational principle from Lumley v Gye and its interpretation in OBG Ltd v Allan, Allen v Flood, and Quinn v Leathem, as well as analogies with accessory liability in equity (Royal Brunei Airlines v Tan):
Considerations of principle, authority and analogy with principles of accessory liability in other areas of private law all support the conclusion that knowledge of the essential features of the tort is necessary to justify imposing joint liability on someone who has not actually committed the tort. This is so even where, as in the case of infringement of intellectual property rights, the tort does not itself require such knowledge.
He reasoned that it would be irrational for unwitting assistance given pursuant to a common design to give rise to liability when knowing assistance alone does not suffice. The same knowledge requirement must apply whether accessory liability is based on procurement or common design.
Application to the facts
The trial judge had made no finding that the Ahmeds knew or ought to have known the essential facts constituting infringement. The Santa Monica Polo Club signs were different in various ways from Lifestyle’s marks, and there was room for honest disagreement about similarity and likelihood of confusion. Lifestyle’s application to amend its case to allege knowledge had been refused. Accordingly:
It follows that the courts below were wrong to hold that the Ahmeds were jointly liable with Hornby Street for the infringements of Lifestyle’s trade marks committed by Hornby Street.
Account of profits
Lord Leggatt held that only profits personally made by a defendant can be the subject of an account of profits; ordering a person to disgorge another’s profits would amount to a penalty. He endorsed the reasoning in Hotel Cipriani v Cipriani (Grosvenor Street) and Ultraframe v Fielding, and rejected the analogy drawn from House of Spring Gardens v Point Blank.
On the characterisation of the Ahmeds’ salaries as profits, the court held this was wrong in principle. The judge had expressly accepted the salary payments were for work done, not dividends. An employee paid no more than the fair market value of their services does not make a profit. The loan to Mr Ahmed was similarly not a profit, as borrowing money does not constitute profit-making.
Practical Significance
This decision is of major importance for the law of accessory liability in tort, particularly in intellectual property cases. It authoritatively establishes that:
- Directors are not subject to any special rules shielding them from accessory liability for torts committed by their company. The approach in MCA Records v Charly Records and the Canadian decision in Mentmore — which sought to carve out director-specific tests based on policy considerations — is disapproved.
- Accessory liability (whether based on procurement or common design) for a strict liability tort nevertheless requires knowledge of the essential facts making the primary actor’s conduct tortious. Strict liability for the primary tort does not translate into strict accessory liability.
- An account of profits operates individually against each defendant; a person cannot be ordered to disgorge profits made by a co-defendant.
- Salaries paid as ordinary remuneration and loans do not constitute ‘profits’ from infringement for the purposes of an account of profits.
The decision brings clarity and coherence to the relationship between primary and accessory liability in tort, rejecting the ‘dis-attribution fallacy’ and aligning the law of accessory liability in tort more closely with analogous principles in equity and the law of inducing breach of contract.
Verdict: Lifestyle’s appeal was dismissed. The Ahmeds’ appeal was allowed, and the orders made against them for an account of profits were set aside. The Ahmeds were not jointly liable with Hornby Street for its trade mark infringements because no finding had been made that they possessed the knowledge required for accessory liability, and the sums identified (salaries and a loan) did not constitute profits from the infringements.
Source: Lifestyle Equities CV and another v Ahmed and another [2024] UKSC 17
