by Jeremy Erwin February-25-2025 in Commercial & Business
To what extent can directors and senior executives be held accountable for a company committing civil wrongs? Is knowledge of the wrongdoing of the company required of those individuals?
This was considered in a case involving an alleged tort committed by directors by virtue of infringement of trademarks by Hornby Street Limited (“HSL”) and its directors, Mr Kashif Ahmed and his sister Ms Bushra Ahmed. HSL was part of a group of companies known as the Juice Corporation Companies of which Mr Ahmed was the manager of the intellectual property portfolio and Ms Ahmed was the head of sales.
HSL was a wholesale business which arranged the manufacture of clothing for retail purposes. The clothes contained a logo of a horse and the words “SANTA MONICA POLO CLUB”. Proceedings were issued by Lifestyle Equities CV (“Lifestyle”) which used a logo of a horse and contained the words “BEVERLY HILLS POLO CLUB” and claimed that the Ahmeds were jointly and severally liable with HSL for trademark infringement under section 10(2) and 10(3) of the Trademark Act 1994.
Trial judge’s findings
The High Court held that there was sufficient similarity between the trademarks used by HSL and Lifestyle, which was likely to give rise to confusion of members of the public. The use of the HSL logo amounted to unfair advantage of the distinctive character and/or reputation of the Lifestyle logo and caused detriment to the trademark’s distinctive character. However, there was no finding that the Ahmeds were liable for the infringement.
The trial judge held that the Ahmeds were liable on the basis of accessory liability, which was carried out through the procurement or inducement of another person to commit the infringement or pursuant to a common design between them or with the company. The trial judge held that no proof of knowledge on the part of the Ahmed’s was required for accessory liability. The trial judge also held that the Ahmeds were not liable to account for profits made by HSL on foot of the infringements but were liable to account for profits made themselves. The judge therefore ordered 10% of their salaries and a loan advanced by HSL to Mr Ahmed, which it considered to be derived from the profits made, be awarded to Lifestyle.
Court of Appeal hearing and findings
Both parties appealed the decision of the trial judge. The Court of Appeal upheld the trial judge’s decision. However, the Court of Appeal disagreed with the trial judge in respect of the loan to Mr Ahmed, which it decided was not a profit derived from the infringement and added that the income tax payable on the part of the Ahmed’s salaries which formed the profits from the infringement should be deducted from the amount awarded to Lifestyle.
Summary of the Supreme Court’s decision
Both parties also appealed the decision to the Supreme Court. The Supreme Court held in favour of the Ahmeds, upholding their appeal and dismissing the appeal of Lifestyle Equities. The Supreme Court held that the Ahmeds could not be liable for procuring infringement of the trademarks or liable on the basis of common design, without knowledge.
Where strict liability (such as liability for trademark infringement under section 10 of the Trademark Act 1994) arises, it does not follow that accessory liability is also strict. It is not required that knowledge or fault be proven for strict liability torts, nor can a Defendant rely on the fact that they were acting in good faith without improper motive as a Defence. Examples of strict liability torts include, for example, nuisance, product liability, trespass, or liability for damage caused by dangerous animals.
On that basis, a person could only be liable as an accessory for this type of wrongdoing where they have knowledge or some mental element of wrong (such as improper motive/intention to infringe) whether they procure another person to infringe a trademark or where infringement arises by common design. The Supreme Court commented that to act to achieve a common design, the “parties must have interrelated intentions which each understands the other to share”. There must be a form of communication between the parties. The Ahmeds themselves did not have the knowledge that the reputation of Lifestyle trademark would be adversely affected by the use of the HSL logo and therefore the Ahmeds were not considered jointly liable.
The Supreme Court stated that without the requirement of knowledge for accessory liability, the scope would be so broad that it could impose liability on employees that have no knowledge of infringements, such as shop assistants who unknowingly sell items of clothing with a logo that infringes a trademark.
Supreme Court’s decision as to the appropriate remedy
The Supreme Court explained that the law protects trademarks in order to protect and reward creativity and innovation. The creator of the trademark should benefit from the protection the trademark provides and where infringement occurs, an account of profits to the appropriate person should not act as a punishment or deterrent to wrongdoing. In this instance, damages were not sought, rather, an order by the Court for the liable party to account for the profits of the infringement. In this case, if the Court were to order the Ahmeds to repay the profits made by the company, in circumstances where the Ahmeds were not found liable, it would be considered a penalty on the Ahmeds. The Supreme Court held that the Ahmeds were not liable to account for the profits, as it must be profits which the wrongdoer has made and not profits which someone else has made from the wrongdoing. In any event, the Ahmed’s salaries were not considered profits of the infringement but the Court stated the salaries were “ordinary renumeration for their services”. The Supreme Court also agreed with the Court of Appeal that the loan made by HSL to Mr Ahmed, was not a derivative of the profits for the reasons that borrowing money does not amount to a profit, even where the company is dissolved and where the administrators of the company do not pursue the repayment of the loan – these do not alter the character of it being a loan.
Conclusion
While this decision was centred on infringement of UK trademark legislation, section 14 of the Trade Marks Act 1996 (as amended) deals with infringement of trademarks in an Irish context. The Supreme Court decision highlights that directors and senior executives of companies could be held liable as accessories for strict liability torts committed by a company. Strict liability torts normally require knowledge or fault to proven on the part of the wrongdoer. However, liability as an accessory to as strict liability wrongdoing would require those individuals to have intent or knowledge of the wrongdoing committed by the company.
Back to Full News
Share this article:
About the Author
Jeremy Erwin
Jeremy specialises in insolvency, commercial litigation and dispute resolution, acting for a variety of companies and financial institutions in contract law cases, enforcement and recovery actions and in high value complex Commercial Court proceedings. Jeremy also specialises in intellectual property matters, including advising on registration and protection of trade marks and related rights and on trade mark disputes.