The Supreme Court has delivered a judgment which clarifies the circumstances in which directors of a company will be held personally liable as accessories to a tort committed by that company. The Court held that accessory liability can only arise if the accessory knows the essential facts which make the act unlawful, even if (as in this case) the tort is one of strict liability. The case centred on trade mark infringement, but will be of interest to practitioners in other areas since it sets out general principles governing accessory liability of company directors.

The background to the case involved claims for trade mark infringement and passing off brought by Lifestyle Equities CV (“Lifestyle”) against 16 defendants, one of which included a family-owned company called ‘Hornby Street’, owned by a brother and sister, Mr and Ms Ahmed. Having found at first instance that Hornby Street was liable under both section 10(2) and 10(3) of the Trade Marks Act 1994, there was a second trial which addressed the liability of Mr and Ms Ahmed as directors of Hornby Street. Lifestyle alleged that they were liable as accessories on the basis that they had “authorised or procured the companies to do the acts complained of or had engaged in a common design with each other or the companies to cause them so to act”.

The judge held in Lifestyle’s favour, finding that the Ahmeds were jointly and severally liable as accessories to Hornby Street’s infringement. Importantly, in finding the two directors liable, the judge did not think it was relevant that, as the Ahmed’s had argued, they each had no improper motive or intention to infringe, nor that they knew or ought to have known that there was a likelihood of confusion or infringement.

Rather than claiming damages, Lifestyle elected to claim an account of profits from the Ahmeds, and the judge held that they were liable to account to Lifestyle for profits which they had personally made from the infringements (rather than for the profits made by the companies themselves), gauged at 10% of their salaries during the relevant period.

The Court of Appeal dismissed appeals by both parties, and each subsequently appealed to the Supreme Court.

For the Supreme Court, two question arose: (1) had the lower courts erred in holding that the Ahmeds were jointly liable with Hornby Street in the absence of any finding that they knew or ought to have known that the company’s use of the relevant signs infringed Lifestyle’s trade marks; and (2) if the Ahmeds were jointly liable, what was the proper measure of the remedy of account of profits?

Addressing the question of liability first, the Supreme Court rejected the Ahmeds’ argument that directors could not be held jointly liable for acts committed by the company where they acted in good faith and with reasonable care in the discharge of their duties to the company. It was the Ahmed’s position that the acts are treated as the company’s acts, not those of the directors. The Court disagreed. As Lord Leggatt put it:

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. Rather, the opposite is true. To suggest that directors cannot be personally liable for acts which are regarded in law as acts of the company fails to respect the separate personality of the company. It treats the company and the directors who manage it as – in the words used by counsel for the Ahmeds – “one and the same” rather than as separate persons. Recognising a company and its directors as separate persons entails that their liabilities are distinct from one another. This can be advantageous for the directors (and other agents of the company) as it means that the company may incur liabilities which are not also liabilities of the directors. But it also means that there is nothing inconsistent or incongruous in a situation where a company and a director are each legally liable to a claimant injured by a wrongful act.

In addition to rejecting arguments based on company law, Lord Leggatt referred to what is known as the “dis-attribution fallacy”: whilst certain rules mean that acts of directors may be attributed to the company (for example under the principles of agency and vicarious liability), these rules of attribution do not “operate in reverse to cause acts attributed to the company to be treated as if they were not acts of the individual who actually did those acts. It does not follow that, because an act done by a director or other individual is treated as the company’s act for which the company can be held liable, the director is immunised from liability.”

Analysing the relevant case law, Lord Leggatt concluded that “I do not accept that there is any general principle of English law – whether of company law, the law of agency or the law of tort – which exempts a director, acting in that capacity, from ordinary principles of tort liability”.

Having concluded that the directors were not shielded from liability merely because the acts were committed by the company, and that the Ahmeds themselves did not infringe Lifestyle’s marks, the court turned to the Ahmeds’ liability as accessories. As Lord Leggatt explained, Lifestyle relied on two principles by which a person may be held liable as an accessory for a tort committed by another person: (1) authorising or procuring another person to commit a tort; and (2) participating in a common design to commit a tort. The lower courts found the Ahmeds liable on both counts. However, they did so on the basis that since liability for trade mark infringement is strict (and therefore does not depend on the knowledge of the tortfeasor), so accessory liability does not depend on knowledge that the acts of the primary actor were or were likely to be infringements: strict liability as primary means strict liability as accessory.

The Court rejected this view. As Lord Leggatt explained, there is “no logical reason to support a rule that the mental element required for liability as an accessory must mirror that required for primary liability: it cannot simply be assumed that because knowledge or its absence is irrelevant to whether an act amounts to an infringement, it is also irrelevant to whether liability as an accessory will arise under the common law. There is no necessary connection between the two…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.”

The question therefore turned to the level of knowledge that was required to impose liability on the Ahmeds as accessories. The Court stated that the relevant test is “whether or not the party knows the essential facts which make the act done wrongful, even if the tort is one of strict liability. Only if all the features of the act done which make it tortious are known to a defendant whose conduct has procured the infringement, will the defendant be jointly liable with the actual infringer”.

On the facts, Lord Leggatt explained that the judge at first instance made findings about the Ahmeds’ knowledge that “fell well short of finding that they had the knowledge required for accessory liability”: for parts of the relevant period, the Ahmeds were not even aware of Lifestyle’s marks; the judge did not find that the Ahmeds knew, or should have appreciated, that there was a likelihood of confusion between Lifestyle’s marks and the offending marks; and it was never put to the Ahmeds that they deliberately intended to take advantage of the distinctive character or reputation of Lifestyle’s marks.

As a result, the Court concluded that “although on the facts [the courts] found the Ahmeds procured acts attributable to the company to be done which amounted to infringements, neither of them was found to have had the knowledge required to make them jointly liable for the infringements on either principle of accessory liability”.

Finally, the Court considered the matter of the lower courts ordering an account of profits. Notwithstanding its findings that the Ahmeds were not liable for infringement as accessories, the Court nonetheless considered what would be the position if the Ahmeds had personally infringed Lifestyle’s marks. Lord Leggatt stated that the only profits for which the Ahmeds could be liable to account were profits which they themselves (rather than the company) had made as a result of the company’s infringements of Lifestyle’s trade marks. On the facts found by the judge, it was wrong to conclude that the Ahmeds personally made any profits from those infringements (or to treat a portion of the Ahmed’s salaries as profits). As such, the Court concluded that the orders for an account of profits were wrongly made.

The case can be read in full here.