Liability Of Directors Who Assist Their Company To Commit Civil Wrongs 

 LIFESTYLE EQUITIES V AHMED  

[2024] UKSC 17

The Facts

Kashif Ahmed and his sister, Bushra Ahmed, were directors of two “Juice Corporation” group companies and in that capacity arranged for the manufacture and distribution of clothing displaying the logo of “Santa Monica Polo Club” and the image of polo players on horseback.  

Lifestyle Equities (“Lifestyle”), a company that owned registered trade marks displaying the logo of “Beverley Hills Polo Club” and a mounted polo player, successfully sued the Juice Corporation companies for infringement of Lifestyle’s trade marks. 

Under the relevant sections of the Trade Marks Act 1994, liability is “strict”.  To establish an infringement, there is no need to prove knowledge or fault – only that the defendant, without the consent of the owner of the trade mark, committed an act of the kind specified in the statute. Nor is it a defence that the defendant acted in good faith and without any improper motive. 

Neither Kashif nor Bushra Ahmed had themselves infringed the letter of the Trade Marks Act.  Nevertheless, Lifestyle sued the Ahmeds personally, as well as the Juice companies, on the basis that the individuals had (1) authorised or procured the Juice companies to do the acts complained of and (2) engaged in a common design.

The Ahmeds maintained that they had had no improper motive, had acted on advice and had delegated the design of logos to a professional design team.   The trial judge made no contrary finding of fact on these assertions but nevertheless found the Ahmeds jointly and severally liable with the Juice companies for the acts of infringement.  

Ultimately, the main issue for the Supreme Court raised by the appeals from this decision was: when are directors of a company liable as accessories for causing the company to commit a tort (i.e. a civil wrong) of strict liability – in this case, trade mark infringement?  In particular, is such liability also strict or does it depend on knowledge of wrongdoing or some other mental element?

The Supreme Court’s decision

The Supreme Court approached this question by explaining that, whilst the Trade Marks Act restricts various acts and imposes strict liability for infringement, it does not make authorising a restricted act an infringement in its own right. If the Ahmeds were liable, it could only be as accessories.  The test for whether a person authorising a wrongful act is liable as an accessory turns on principles of the common law, and the strict liability regime under the Act does not carry over to accessories who have not personally infringed the Act.

In relation to Lifestyle’s allegation that the Ahmeds had authorised or procured the Juice companies to do the acts complained of, the Court held that an accessory who knowingly procuresthe primary wrongdoer to commit an actionable wrong will be liable with the primary wrongdoer for the wrong committed.

Where the primary wrong is a breach of contract, this accessory liability takes the form of a distinct tort.

Where the primary wrong is a tort, the accessory is made jointly liable for the tort committed by the primary wrongdoer.

 What is required for liability is that the accessory acted in a way that was intended to cause the primary wrongdoer to commit an act which the accessory knew was a wrongful act.  Turning a blind eye would be sufficient for this purpose.

Turning to Lifestyle’s second allegation that the Ahmeds had engaged in a common design, under the common law the rule is that an accessory who assiststhe primary wrongdoer to commit a tort is made jointly liable for the tort committed by the primary wrongdoer if the assistance is given pursuant to a common design between the parties.  In order to be made liable, the accessory must have provided more than trivial assistance, must have had a shared intention that the act would take place and must have been aware of facts which made the intended act unlawful.

What is meant by requiring that the accessory must know that an act is unlawful? In the present case, this did not refer to a requirement that the accessories must have a sufficient knowledge of trade mark law – knowledge of the law is assumed.  What was required was to establish that the accessories knew or turned a blind eye to the essential facts which made the act wrongful.  These would have included knowing that the Juice companies needed to, but did not, own the relevant trade mark or have a licence to produce and sell the clothing to the public.

The Supreme Cout therefore held that the Ahmeds, who did not have the relevant knowledge and who had no intention that an unlawful act would be committed, were not personally liable to Lifestyle on the accessory principle.   

Position of directors – In the course of giving its judgment, the Supreme Court further explained, in terms of the personal liability of directors for wrongful acts, that there are no special rules protecting directors who commit civil wrongs.  For example, there is no “safe harbour” in the form of board resolutions ratifying the acts of a director.  Liability is decided by applying ordinary principles of the law of tort, including the principles concerning the liability of accessories explained above.

Normal understandings – However, the liability of a director can in some situations be restricted by various normal understandings of the common law.  Thus, a distinction needs to be made between the type of situation described above and the case where an agent (companies always act through agents), acting in good faith and within his authority causes his principal to breach its duty.  In a contractual situation, the normal understanding is that agents assume no liability for inducing a breach of contract and only the principal will incur liability to the other contracting party – Said v Butt (1920).  

An example of a normal understanding applying in the case of tort is the case of the director who in good faith procured that his company’s financial projections should be provided to the claimants, who he knew would rely on them.  The projections were subsequently found to have been negligently prepared.  However, the director was found not to be personally liable.  This was because the director’s company’s liability arose from the fact that it had assumed responsibility for the statements made and the claimants had taken on the commercial risk of relying on them.  It would have subverted this allocation of risk if the director could also be held liable in tort – Williams v Natural Life Health Foods (1998).

Lovetts’ comment

The Supreme Court has restated the law relating to when directors will be liable to third party claimants for civil wrongs committed by their companies.  The Court has clarified that, in order to make a director liable as an accessory to the company’s wrongdoing, it is necessary to establish that the director knew the facts which made the act of the company unlawful.  The case raises the bar to making directors personally liable in this type of case, as issues such as good faith, the entitlement to rely on professional advice and the reasonableness or otherwise of believing that no wrongful act was being committed will need to be considered.

For further information, please contact Wendy Miles, Chris Earl-Anderson or William Sturge at Lovetts.