A Supreme Court judgment finding that two company owners were not liable for their firm’s strict liability offence in a trade mark infringement case has been described as a ‘get out of jail free card for company directors’.
In Lifestyle Equities CV and another v Ahmed and another, the Supreme Court unanimously found company directors, siblings Kashif and Bushra Ahmed, were not jointly liable with their company for trade mark infringement, because they did not know the marks complained of had infringed on Lifestyle’s trade mark.
Hornby Street, one of the Ahmed companies, was found liable for infringing Lifestyle’s registered trade mark and for passing off. The company went into administration and was later dissolved.
At trial Kashif and Bushra Ahmed were found jointly and severally liable with their companies. However Lifestyle appealed against the decision that the Ahmeds were not liable to account for the profits made by their companies from the infringements. The Ahmeds cross-appealed against the decision they were jointly and severally liable, and had made profits from those infringements.
The Court of Appeal dismissed Lifestyle’s appeal and rejected most of the Ahmeds’ grounds of appeal. Both parties appealed to the Supreme Court.
Lord Leggatt, with whom lords Lloyd-Jones, Kitchin, Stephens and Richards, agreed, found Bushra Ahmed ‘was not herself trading’. He added: ‘It cannot make any difference in this regard that Ms Ahmed was a director of the company as well as an employee. That does not alter the conclusion that it was only the company, and not Ms Ahmed personally, which (partly because of her acts) was using the signs in the course of trade.’
The judge did 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’. He added that ‘discharging their responsibilities as directors…of Hornby Street would not have shielded them from liability’.
Dismissing Lifestyle’s appeal and allowing the Ahmeds appeal, the judge said: ‘It is unjust to hold a director personally liable for acts done in the ordinary course of performing the director’s role which cause the company to commit a tort, if the director has not acted wilfully or knowingly. It seems unjust that anyone whose act causes another person to commit a tort should be held jointly liable for the tort as an accessory if the individual was acting in good faith and without knowledge of facts which made the act of the other person tortious.’
He found the orders for an account of profits were wrongly made as the Ahmeds had not personally profited from the infringements.
Mark Buckley, commercial litigation partner at Fladgate, described the Supreme Court’s judgment as ‘appearing to be a get out of jail free card for company directors’.
He added: ‘After this judgment, as the burden of proof will be on the claimant to show what the director’s state of mind was, this will be a barrier to bringing claims against directors of counterfeiting companies and other IP infringers. The case also restricted the amount of damages by way of an account of profits that a director is liable for even if the director is responsible for the infringement.’
West End firm Ronald Fletcher Baker, for the Ahmeds, hailed a ‘landmark victory’ in a case that has been fought against since 2016. The firm added: ‘The case was one the most challenging as the injustice was clear but pathway to a solution was complex. Against the background of all of the complexity, as a result of the judgment, Kashif and Bushra Ahmed are free of litigation and liability. We are pleased that others who find themselves as innocent accessories to a strict liability tort will not have to go through such a lengthy litigation process.’
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