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Director’s personal liability – knowledge, profits and injunctive risk

17.06.24

In Lifestyle Equities v Ahmed the Supreme Court had to consider the personal liability of directors for torts of strict liability.  In particular:

  1. When are the directors of a company liable as accessories for causing the company to commit a tort of strict liability?
  2. Is such liability also strict or does it depend on knowledge or some other mental element?
  3. If directors are strictly liable should they be ordered to account for profits made either by (i) the company, or (ii) the directors themselves?

The dispute involved the strict liability tort of trade mark infringement.  The individual directors were sued on the basis that they had authorised or procured the companies to the acts complained of or had engaged in a common design to cause the acts.

A first trial found liability for certain defendants including a company of which the individual defendants were directors.  The Company went into administration and was dissolved.

A second trial considered the remaining issues including the personal liability of the directors.  The judge decided that both were jointly and severally liable in connection with acts of infringement committed by companies in which they were involved, including the dissolved company.

The judge concluded that there was no need to consider defences of no improper motive, acting on advice, delegation of design or no intention to infringe.  The judge concluded that these were not defences in law and therefore he made no findings on whether the directors knew or ought to have known that there was a likelihood of confusion or infringement.

Lifestyle claimed an account of profit.  The judge rejected the suggestion that the directors were liable for the profits made by the company but did find that they were liable for an account of profits for personal profits made from the infringement.  He apportioned their salary accordingly.

The Court of Appeal largely upheld the decision of the judge.

In the Supreme Court Lord Leggatt gave the decision of the court and after detailed consideration of the relevant case law concluded that  the particular infringement in question required the following matters to be proved:

  • That the claimant’s trade mark has a reputation in the UK
  • That the use of the sign complained of
    1. Gives rise to a link between the sign and the claimant’s trade mark in the mind of the average consumer,
    2. Gives rise to one of the three relevant types of injury specified in section 10(3) and
    3. Is without due cause.

On the findings already made by the courts below it was wrong to hold that the directors were jointly liable.  Although they had procured acts attributable to the company which amounted to infringements, neither of them had been found to have had the knowledge required to make them jointly liable.

Further, the only profits which the directors could in any event be liable to account were profits which they themselves (rather than the company) had made as a result of the infringement.  On the facts there was no personal profit and therefore an account of profits could not be ordered.

So, knowledge on the part of directors was required as well as a personal profit.  Factors for a claimant to bear in mind when considering how to put the claim and the evidence that they will need if they wish to secure personal liability alongside corporate liability.

It would be wrong to conclude this particular article without reference to the Court of Appeal case of Northamber PLC v Genee World Ltd & Ors (Rev1) [2024] EWCA Civ 428 (01 May 2024).  This case considered a situation when a director caused his company not merely to breach its contract but also to act in breach of an injunction.  The Court of Appeal held that the director was in breach of their s172 duty, (the duty to act in the best interests of the company).    As my colleagues and I routinely advise companies and individuals in injunctive proceedings we want you to be aware of this enhanced risk to directors when injunctions are in place.

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